1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 2001
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PLIANT 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)
PLIANT 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)
PLIANT 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)
PLIANT SOLUTIONS 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)
PLIANT CORPORATION 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)
PLIANT 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)
UNIPLAST HOLDINGS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2673 13-3999589
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
UNIPLAST U.S., INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2673 04-3199066
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
TUREX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
RHODE ISLAND 2673 05-0354901
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
PIERSON INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 2673 04-2692382
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
UNIPLAST MIDWEST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INDIANA 2673 98-0166923
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
(continued on next page)
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2755 EAST COTTONWOOD PARKWAY, SUITE 400
SALT LAKE CITY, UTAH 84121
(801) 993-8221
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
JACK E. KNOTT II
PRESIDENT AND CHIEF OPERATING OFFICER
1515 WOODFIELD ROAD, SUITE 600
SCHAUMBURG, ILLINOIS 60173
(847) 969-3300
(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 LLP
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
(212) 408-2400
------------------------
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 to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ----------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ----------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ----------
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. [
] ----------
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CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE REGISTRATION FEE
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13% Senior Subordinated Notes due 2010
of Pliant Corporation........................... $220,000,000(1) $220,000,000(1) (1)(2)
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Guarantees of 13% Senior Subordinated Notes due
2010............................................ (3) (3) (3)
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(1) Pursuant to Rule 429 of the General Rules and Regulations under the
Securities Act of 1933, the prospectus that is a part of this registration
statement relates to $220,000,000 of 13% Senior Subordinated Notes due 2010
of Pliant Corporation and the related guarantees issued by certain
subsidiaries of Pliant Corporation that were previously registered under the
Registration Statement on Form S-4 (File Nos. 333-42008 and 333-42008-01 to
08), as amended, that was declared effective by the Securities and Exchange
Commission on August 29, 2000.
(2) The prospectus that is part of this registration statement will only be used
by J.P. Morgan Securities Inc., which is an affiliate of Pliant Corporation,
in connection with offers and sales related to market-making transactions of
an indeterminate amount of the 13% Senior Subordinated Notes due 2010.
Pursuant to Rule 457(q) of the General Rules and Regulations, no filing fee
is required.
(3) Each of Pliant Corporation International, Pliant Film Products of Mexico,
Inc., Pliant Solutions Corporation, Pliant Corporation Georgia, Inc., Pliant
Packaging of Canada, LLC, Uniplast Holdings Inc., Uniplast U.S., Inc.,
Turex, Inc., Pierson Industries, Inc. and Uniplast Midwest, Inc. have
guaranteed, on a joint and several basis, the obligations of Pliant
Corporation under the 13% Senior Subordinated Notes due 2010. Pursuant to
Rule 457(n) of the General Rules and Regulations, no filing fee is required
in respect of the guarantees.
-----------------------------
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.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 24, 2001
PROSPECTUS
[PLIANT CORPORATION LOGO]
PLIANT CORPORATION
13% SENIOR SUBORDINATED NOTES DUE 2010
WHICH ARE GUARANTEED ON A SENIOR SUBORDINATED BASIS BY
SUBSTANTIALLY ALL OF OUR DOMESTIC SUBSIDIARIES
We issued in our exchange offer $220,000,000 aggregate principal amount of 13%
Senior Subordinated Notes due 2010, which have been registered under the
Securities Act of 1933, in exchange for our 13% Senior Subordinated Notes due
2010.
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 77.
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 J.P. Morgan Securities Inc. in connection
with offers and sales related to market-making transactions of the Notes. JPMSI
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.
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YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 10 OF THIS
PROSPECTUS IN EVALUATING AN INVESTMENT IN THE NOTES.
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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.
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The date of this prospectus is , 2001
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TABLE OF CONTENTS
PAGE
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Market and Industry Data.............. i
Summary............................... 1
Risk Factors.......................... 10
Use of Proceeds....................... 19
Capitalization........................ 19
The Transactions...................... 20
Unaudited Pro Forma Financial Data.... 22
Selected Financial Data............... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Business.............................. 41
Management............................ 52
Security Ownership of Certain
Beneficial Owners and Management.... 60
PAGE
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Certain Relationships and Related
Transactions........................ 62
Description of Credit Facilities...... 67
Description of Capital Stock.......... 71
Description of the Notes.............. 75
Description of the Note Warrants...... 119
Book-Entry; Delivery and Form......... 123
Plan of Distribution.................. 125
Legal Matters......................... 125
Experts............................... 125
Where You Can Find More Information... 126
Index to Consolidated Financial
Statements.......................... F-1
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MARKET AND INDUSTRY DATA
All market share data presented in this prospectus are based on
management's estimates as of December 31, 2000. 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. 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.
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"Pliant," "Winwrap" and "Yieldmaster" are trademarks of Pliant. All other
trademarks, service marks or trade names referred to in this prospectus are the
property of their respective owners.
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SUMMARY
The following summary highlights all material information of this
prospectus but does not contain all of the information that you should consider
before making an investment decision in the Notes. This prospectus includes the
specific terms of the Notes, as well as information regarding our business, the
recapitalization and related financing transactions and detailed financial data.
You should read this prospectus in its entirety before making an investment
decision in the Notes. Unless the context otherwise requires, "Pliant," "we,"
"us," "our" and similar terms refer to Pliant Corporation (formerly known as
Huntsman Packaging Corporation), its subsidiaries and their respective
operations. Each subsidiary of Pliant is wholly owned. All market share data
presented herein are based on management's estimates for 2000.
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. At June 30, 2001,
we operated 23 manufacturing and research and development facilities worldwide
and we had approximately 950 million pounds of annual production capacity.
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 45.7% of our
net sales for the year ended December 31, 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
one of North America's leading producers of personal care films, with an
estimated market share of approximately 35%.
- 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 the final flexible packaging product.
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 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
films for several other custom film niche markets, such as 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.
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 31%.
DESIGN PRODUCTS. Our Design Products segment accounted for 25.5% of our
net sales for the year ended December 31, 2000. Our Design Products include
printed rollstock, bags and sheets
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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,
NEPSA, are also included in this segment for financial reporting purposes.
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 producer of films for the bread and bakery goods
market in North America, with an estimated market share of approximately 20%.
INDUSTRIAL FILMS. Our Industrial Films segment accounted for 28.8% of our
net sales for the year ended December 31, 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. Stretch films are
replacing more traditional packaging, such as corrugated boxes and metal
strapping, because of their 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%.
- 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 27%. 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.
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 an affiliate of J.P. Morgan Partners, LLC (formerly Chase
Capital Partners), whereby the affiliate acquired majority control of our common
stock. The total consideration paid in this recapitalization was approximately
$1.1 billion, including transaction costs. 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;
- an affiliate of J.P. Morgan Partners, LLC purchased approximately
one-half of the shares of our common stock held collectively by The
Christena Karen H. Durham Trust and by members of our current and former
senior management;
- an affiliate of J.P. Morgan Partners, LLC and certain other
institutional investors purchased 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 an affiliate of J.P. Morgan Partners, LLC and to certain
other institutional investors a new series of senior cumulative
exchangeable redeemable preferred stock and detachable warrants for our
common 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 received the requisite consents from tendering holders of the
9 1/8% senior subordinated notes to amend the related indenture to permit us to
effect the recapitalization, the offering of $220.0 million principal amount of
13% Senior Subordinated Notes due 2010 (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.
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. See "Description of
Credit Facilities."
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The Old Notes Offering. In connection with the recapitalization, we issued
220,000 units consisting of the Old Notes and warrants to purchase 18,532 shares
of our common stock. The Old Notes were issued at a discount of approximately
$5.9 million. The units were issued in a transaction exempt from the
registration requirements under the Securities Act. On August 29, 2000, our
registration statement, of which this prospectus forms a part, relating to the
exchange of the Old Notes for Notes registered under the Securities Act was
declared effective by the SEC, and, as a result, the Old Notes and the note
warrants became separated. We consummated the exchange offer and issued $220.0
million of registered Notes for all of the Old Notes on October 12, 2000.
The sources and uses of funds for the transactions are presented in the
following table:
AMOUNT
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(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
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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
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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. 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 $22.3 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 $3.4
million.
THE SPONSOR
Southwest Industrial Films, LLC, which owns approximately 53% of our
outstanding common stock and 62% of our preferred stock warrants, and Flexible
Films, LLC, which owns approximately 58% of our preferred stock, are
subsidiaries of J.P. Morgan Partners (BHCA), L.P. J.P. Morgan Partners, LLC
serves as investment advisor to J.P. Morgan Partners (BHCA), L.P. J.P. Morgan
Partners, LLC is the private equity group of J.P. Morgan Chase & Co., which is
one of the largest financial holding companies in the U.S., and J.P. Morgan
Partners, LLC is one of the largest private equity organizations in the U.S.,
with over $20 billion under management. Through its affiliates, J.P. Morgan
Partners, LLC invests in leveraged buyouts, recapitalizations and venture
capital opportunities by providing equity and mezzanine capital. Since its
inception in 1984, J.P. Morgan Partners, LLC has made over 1,000 direct
investments in numerous industries.
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SUMMARY OF THE TERMS OF THE NOTES
Issuer........................ Pliant Corporation (formerly known as Huntsman
Packaging Corporation).
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.
Optional Redemption........... On or after June 1, 2005, we may redeem some or
all of the Notes at the redemption prices
listed in the section entitled "Description of
the Notes -- Optional Redemption." Prior to
such date, we may not redeem the 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 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 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 Notes as described above, you will
have the right to require us to repurchase all
or a portion of your 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."
If you exercise this right, we may not have
sufficient funds available at the time of any
change of control to repurchase all of the
Notes.
Guarantees.................... The Notes are 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 payments on the Notes, our subsidiaries
that are guarantors must make them instead.
Guarantees of the Notes are subordinated to the
guarantees of our senior debt under the credit
facilities.
Ranking....................... The Notes are unsecured and:
- subordinated to all of our existing and
future senior debt;
- rank equally with all of our future senior
subordinated debt;
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- rank senior to any future subordinated debt;
- effectively subordinated to our secured debt
to the extent of the value of the assets
securing such indebtedness; and
- effectively subordinated to all liabilities
of our subsidiaries that do not guarantee
the Notes.
Similarly, the guarantees of the Notes by our
subsidiaries that also guarantee the credit
facilities are unsecured and:
- subordinated to all of the applicable
guarantors' existing and future senior debt;
- rank equally with all of the applicable
guarantors' future senior subordinated debt;
- rank senior to any of the applicable
guarantors' future subordinated debt; and
- effectively subordinated to any secured debt
of such guarantor to the extent of the value
of the assets securing such debt.
At March 31, 2001, after giving effect to the
Uniplast acquisition:
- we would have had approximately $480.5
million of senior debt to which the Notes
are subordinated (which amount does not
include the remaining availability of $84.5
million under the revolving credit
facility);
- we would not have had any senior
subordinated debt other than the Notes;
- we would not have had any subordinated debt;
and
- our subsidiaries that are not guarantors of
the Notes would have had $76.2 million of
liabilities, excluding liabilities owed to
us.
The indenture permits us to incur a significant
amount of additional senior debt.
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."
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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 making an investment in the Notes.
------------------------
We are incorporated in Utah, with principal executive offices located at
2755 East Cottonwood Parkway, Suite 400, Salt Lake City, Utah 84121. Our
telephone number is (801) 993-8200.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents summary financial data for Pliant and its
subsidiaries. The summary historical financial data for the years ended December
31, 1998, 1999 and 2000 have been derived from Pliant's audited consolidated
financial statements. The summary financial data for the three months ended
March 31, 2000 and 2001 have been derived from our unaudited interim condensed
consolidated financial statements, which in our opinion include all adjustments,
consisting of only normal recurring adjustments, which we consider necessary for
the fair presentation of the financial position and results of operations of
Pliant for these periods. Operating results for the three months ended March 31,
2001 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 statement of operations
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 been consummated as of the date 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 Pliant and the notes thereto included elsewhere in this prospectus.
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PLIANT CORPORATION AND SUBSIDIARIES
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
HISTORICAL
THREE MONTHS
HISTORICAL ENDED
YEARS ENDED DECEMBER 31, MARCH 31, PRO FORMA
------------------------- --------------- YEAR ENDED
1998 1999 2000 2000 2001 DECEMBER 31, 2000
------- ------ ------ ------ ------ -----------------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 681.6 $813.7 $843.8 $220.5 $202.7 $843.8
Cost of sales.................................. 561.6 655.7 696.7 177.5 160.7 696.7
------- ------ ------ ------ ------ ------
Gross profit................................... 119.5 158.0 147.1 43.0 42.0 147.1
Total operating expenses....................... 70.1 82.0 132.7 28.2 29.5 123.3
------- ------ ------ ------ ------ ------
Operating income............................... 49.4 76.0 14.4 14.8 12.4 23.8
Interest expense............................... (37.5) (44.0) (68.5) (11.5) (20.3) (81.1)
Other income (expense), net.................... (0.8) 0.4 0.3 0.4 0.9 0.3
------- ------ ------ ------ ------ ------
Income (loss) before income taxes and
discontinued operations and extraordinary
loss......................................... 11.1 32.4 (53.8) 3.7 (7.0) (57.0)
Income tax expense (benefit)................... 8.6 14.1 (14.3) 2.3 (2.3) (15.6)
------- ------ ------ ------ ------ ------
Income (loss) before discontinued operations
and extraordinary loss....................... 2.5 18.3 (39.5) 1.4 (4.7) (41.4)
Income from discontinued operations(1)......... 0.6
Gain on sale of discontinued operations(1)..... 5.2
Extraordinary item(2).......................... (11.3)
------- ------ ------ ------ ------ ------
Net income (loss).............................. $ 8.3 $ 18.3 $(50.8) $ 1.4 $ (4.7) $(41.4)
======= ====== ====== ====== ====== ======
OTHER FINANCIAL DATA:
EBITDA under indenture(3)...................... $ 80.6 $114.7 $ 76.2 $ 26.0 $ 30.5 $ 85.6
Cash flows from operating activities........... 45.5 51.4 60.3 17.9 14.7
Cash flows from investing activities........... (314.8) (46.0) (65.6) (10.1) (7.4)
Cash flows from financing activities........... 275.9 (16.7) 0.3 (3.9) (11.4)
Capital expenditures........................... 52.1 35.7 65.6 10.1 15.3 65.6
Depreciation and amortization.................. 27.1 35.0 39.5 9.5 10.1 39.5
Plant closing costs............................ 4.9 2.5 19.4 19.4
Noncash stock-based compensation expense....... 0.8 2.6 1.2 7.0 2.6
Cash interest expense....................................................................... 78.0
Ratio of EBITDA under indenture to cash interest expense.................................... 1.1x
Ratio of total net debt to EBITDA under indenture(4)........................................ 8.0x
Ratio of earnings to fixed charges(5).......... 1.3x 1.7x 1.3x
HISTORICAL
MARCH 31,
2001
----------
BALANCE SHEET DATA:
Cash and cash equivalents....................................................................... $ 2.3
Working capital................................................................................. 55.9
Total assets.................................................................................... 778.9
Total debt...................................................................................... 676.1
Redeemable preferred stock...................................................................... 80.5
Redeemable common stock......................................................................... 16.6
Stockholders' deficit........................................................................... (209.9)
- ---------------
(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 2000, we refinanced most of our long-term debt and recorded an
extraordinary loss to write-off unamortized deferred debt issuance costs and
also recorded an extraordinary loss related to our tender offer for our
9 1/8% senior subordinated notes due 2007.
(3) EBITDA is defined in the indenture 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
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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 as defined in the indenture does
not represent and should not be considered as an 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.
(4) Total net debt is defined as total debt less cash and cash equivalents.
(5) 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.
For the year ended December 31, 2000, earnings were insufficient to cover
fixed charges by approximately $53.8 million on a historical basis and $57.0
million on a pro forma basis. For the three months ended March 31, 2001,
earnings were insufficient to cover fixed charges by approximately $7.0
million.
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RISK FACTORS
In addition to the other matters described in this prospectus, you should
carefully consider the specific factors set forth below before making an
investment in the Notes.
SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
ABILITY TO RAISE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS, LIMIT OUR ABILITY TO
REACT TO CHANGES IN THE ECONOMY OR OUR INDUSTRY AND PREVENT US FROM MEETING 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:
AS OF
MARCH 31, 2001
---------------------
(DOLLARS IN MILLIONS)
Total debt.................................................. $ 676.1
Redeemable preferred stock.................................. 80.5
Redeemable common stock..................................... 16.6
Stockholders' deficit....................................... (209.9)
For the year ended December 31, 2000, on a pro forma basis, earnings were
insufficient to cover fixed charges by approximately $57.0 million and for the
three months ended March 31, 2001 earnings were insufficient to cover fixed
charges by approximately $7.0 million.
Our high degree of leverage could have important consequences for you,
including the following:
- It may limit our ability to borrow money or sell stock for our working
capital, capital expenditures, product development, debt service
requirements, acquisitions and general corporate or other purposes;
- A substantial portion of our cash flows from operations must be
dedicated to the repayment of our indebtedness and would not be
available for other purposes, including our operations and future
business opportunities;
- The debt service requirements of our other indebtedness could make it
more difficult for us to make payments on the Notes;
- It will limit our ability to adjust to changing market conditions, thus
putting us at a competitive disadvantage compared to our competitors
that are not highly leveraged; and
- It may make us more vulnerable to a downturn in our business or the
economy and unable to carry out our capital spending, top-line growth
and productivity improvement programs.
ABILITY TO SERVICE INDEBTEDNESS -- WE MAY NOT BE ABLE TO GENERATE SUFFICIENT
CASH TO SERVICE ALL OF OUR INDEBTEDNESS, INCLUDING THE NOTES, AND BE FORCED TO
TAKE OTHER ACTIONS TO SATISFY OUR OBLIGATIONS UNDER OUR INDEBTEDNESS, WHICH MAY
NOT BE SUCCESSFUL.
We may not be able to generate 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. Our financial and operating
performance is subject to prevailing economic and competitive conditions and to
certain financial, business and other factors beyond our control, including
fluctuations in interest rates, unscheduled plant shutdowns, increased operating
costs, raw material and product prices and regulatory developments. See "--
Forward Looking Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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. These alternative measures may not be
successful and may not permit us to meet our scheduled debt service obligations.
In the absence
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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 from
the disposition. We may not be able to consummate those dispositions or to
obtain the proceeds which we could realize from them and these proceeds may not
be adequate to meet any debt service obligations then due. See "Description of
Credit Facilities" and "Description of the Notes."
INTEREST RATE FLUCTUATIONS -- OUR VARIABLE RATE INDEBTEDNESS SUBJECTS US TO
INTEREST RATE RISK, WHICH COULD CAUSE OUR ANNUAL DEBT SERVICE OBLIGATIONS TO
INCREASE SIGNIFICANTLY.
Certain of our borrowings, including borrowings under the credit
facilities, are at variable rates of interest and expose us to interest rate
risk. If interest rates increase, our debt service obligations on the variable
rate indebtedness would increase even though the amount borrowed remained the
same, and our net income would decrease. Our estimated annual debt service in
2001 is approximately $83.2 million, consisting of a $8.0 million voluntary
principal payment made in the first quarter of 2001, $2.2 million of scheduled
mandatory principal payments and $73.0 million of interest payments. An increase
of 1.0% in the interest rates payable on our variable rate indebtedness would
increase our 2001 estimated annual debt service requirements by approximately
$4.7 million. Accordingly, an increase in interest rates from current levels
could cause our annual debt service obligations to increase significantly.
DEFAULT UNDER AGREEMENTS GOVERNING INDEBTEDNESS -- IF WE DEFAULT ON OUR
OBLIGATIONS TO PAY OUR INDEBTEDNESS WE MAY NOT BE ABLE TO MAKE PAYMENTS ON THE
NOTES.
Any default under the agreements governing our indebtedness, including a
default under the credit facilities that is not waived by the required lenders,
and the remedies sought by the holders of such indebtedness could make us unable
to pay principal, premium, if any, and interest on the Notes and substantially
decrease the market value of 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,
cease making further loans and institute foreclosure proceedings against our
assets, and we could be forced into bankruptcy or liquidation. For the third
quarter ended September 30, 2000, we entered into an amendment to our credit
facilities to avoid being in default under our leverage ratio financial
covenant. Although we have not needed a waiver since then and currently do not
anticipate that we will need a waiver for the quarter ended June 30, 2001, if
our operating performance in 2001 does not improve from our historical results
in 2000, we may in the future need to obtain waivers from the required lenders
under our credit facilities to avoid being in default. If we breach our
covenants under the credit facilities and seek a waiver, we may not be able to
obtain a waiver from the required lenders. If this occurs, we would be in
default under the credit facilities and the lenders could exercise their rights,
as described above, and we could be forced into bankruptcy or liquidation. 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.
We may not be able to repurchase the Notes upon a change of control because
we may not have, or may not have access to, sufficient funds or we may be
contractually restricted under the terms of our senior indebtedness from
repurchasing all of the Notes tendered by holders upon a change of control. The
indenture provides that upon a change of control, we must offer to repurchase
all of the outstanding Notes at 101% of the principal amount thereof, plus
accrued
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interest to the date of repurchase. This change of control provision may not
necessarily protect holders of the Notes from our engaging in a highly leveraged
transaction or certain other transactions involving us or our subsidiaries. See
"Description of Credit Facilities" and "Description of the Notes -- Change of
Control."
DEPENDENCE ON OUR SUBSIDIARIES -- WE WILL RELY SIGNIFICANTLY ON THE FUNDS
RECEIVED FROM OUR SUBSIDIARIES TO MEET OUR DEBT SERVICE OBLIGATIONS ON THE
NOTES, BUT OUR SUBSIDIARIES MAY NOT BE ABLE TO DISTRIBUTE SUFFICIENT FUNDS TO
US.
Although we are an operating company, 52.7% of our pro forma EBITDA under
the indenture for the year ended December 31, 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. The payment of dividends to us by our subsidiaries is contingent
upon the earnings of those subsidiaries and subject to various business
considerations as well as certain contractual provisions which may restrict 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." In the event of bankruptcy, liquidation or reorganization of our
subsidiaries, claims of creditors of our subsidiaries will generally have
priority as to the assets of such subsidiaries over our claims as the holder of
the equity of our subsidiaries.
SUBORDINATION OF THE NOTES AND GUARANTEES -- YOUR RIGHT TO RECEIVE PAYMENTS ON
THE NOTES IS SUBORDINATED IN RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF
OUR AND OUR SUBSIDIARIES' SENIOR INDEBTEDNESS, INCLUDING THE CREDIT FACILITIES,
WHICH MEANS THAT IF WE BECOME INSOLVENT, OUR REMAINING ASSETS MAY NOT BE
SUFFICIENT TO PAY AMOUNTS DUE ON THE NOTES.
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. 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 there may not be sufficient
assets remaining to pay amounts due on all or any of the Notes. As of March 31,
2001, after giving effect to the Uniplast acquisition, the aggregate principal
amount of our senior indebtedness would have been $480.5 million (excluding
unused commitments of $84.5 million and outstanding letters of credit totaling
$4.5 million under the credit facilities). The guarantees by our subsidiaries
are unsecured senior subordinated obligations of theirs and subordinated in
right of payment to all of their existing and future senior indebtedness,
including all amounts owing under the credit facilities. As of March 31, 2001,
after giving effect to the Uniplast acquisition, there would have been no senior
indebtedness of our subsidiary guarantors (other than the guarantees under the
credit facilities).
SUBSIDIARY GUARANTEES MAY BE LIMITED -- BECAUSE EACH GUARANTOR'S LIABILITY UNDER
ITS GUARANTEE MAY BE REDUCED TO ZERO, AVOIDED OR RELEASED UNDER CERTAIN
CIRCUMSTANCES, YOU MAY NOT RECEIVE ANY PAYMENTS FROM SOME OR ALL OF THE
GUARANTORS.
The holders of the Notes have the benefit of the full and unconditional
guarantees of the guarantors. However, the guarantees by our subsidiary
guarantors are 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. Further, under the circumstances discussed more
fully in "-- Fraudulent Transfer Considerations," a court under federal and
state fraudulent conveyance and transfer statutes could void the obligations
under the guarantee or further subordinate it to all other obligations of the
guarantor. In addition, you will lose the benefit of a particular subsidiary
guarantee if it is released under certain circumstances described under
"Description of the Notes -- The Note Guarantees."
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STRUCTURAL SUBORDINATION -- THE NOTES ARE STRUCTURALLY SUBORDINATED IN RIGHT OF
PAYMENT TO THE 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, AND THE REMAINING ASSETS OF SUCH SUBSIDIARIES MAY
NOT BE SUFFICIENT TO MAKE ANY PAYMENTS ON THE NOTES.
The Notes are effectively subordinated to all liabilities of our
subsidiaries which are not guarantors. In addition, although the guarantees
provide the holders of the Notes with a direct claim as a creditor against the
assets of the subsidiary guarantors, the guarantees may not be enforceable as
described in more detail under "-- Fraudulent Transfer Considerations." If the
guarantees by the subsidiary guarantors are not enforceable, the Notes would be
effectively subordinated to all liabilities of the subsidiary guarantors,
including trade payables. As a result of being effectively subordinated to the
liabilities of a subsidiary, if there was a dissolution, bankruptcy, liquidation
or reorganization of such subsidiary, the holders of the Notes would not receive
any amounts with respect to the Notes until after the payment in full of the
claims of creditors of such subsidiary.
Our subsidiaries that are not guarantors generated 13.0% of our net sales
and 21.8% of our pro forma EBITDA under the indenture for the year ended
December 31, 2000 and as of March 31, 2001. As of March 31, 2001, after giving
effect to the Uniplast acquisition, our subsidiaries that are not guarantors
would have accounted for 14.2% of our total assets and would have had total
liabilities (excluding liabilities owed to us) of $76.2 million. As of March 31,
2001, after giving effect to the Uniplast acquisition, 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 $43.8 million.
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.
Our obligations under the Notes are unsecured, but 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. 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 assets to the exclusion
of holders of the Notes, even if an event of default exists under the indenture
at such time. Furthermore, if the lenders foreclose and sell the equity
interests in any subsidiary of ours that is a guarantor under the Notes, then
that guarantor will be released from its guarantee of the Notes automatically
and immediately upon such sale. See "Description of Credit Facilities."
EXPOSURE TO FLUCTUATIONS IN RESIN PRICES AND DEPENDENCE ON RESIN SUPPLIES -- A
SUDDEN INCREASE IN RESIN PRICES OR THE LOSS OF A KEY RESIN SUPPLIER COULD LEAD
TO INCREASED COSTS AND LOWER PROFIT MARGINS.
We use large quantities of polyethylene, PVC and other resins in
manufacturing our products. For the year ended December 31, 2000, resin costs
comprised approximately 62% of our total manufacturing costs. Significant
increases in the price of resins would increase our costs, reduce our operating
margins and impair our ability to service our debt unless we were able to pass
all of the increase on to our customers. 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. We may not be able to pass such increased costs on to
customers. 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. The loss of a key source of supply, our inability to obtain resin with
desired proprietary characteristics, or a delay in shipments could adversely
affect our
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revenues and profitability and force us to purchase resin in the open market at
higher prices. We may not be able to make such open market 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 OUR CUSTOMERS MAY
NOT CONTINUE TO PURCHASE OUR PRODUCTS, WHICH COULD LEAD TO OUR HAVING REDUCED
REVENUES AND LOSS OF MARKET SHARE.
We face significant competition in the markets in which we operate.
Competition in our industry is based upon a number of considerations, such as
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,
Pechiney, Printpack and Tredegar. 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, our current customers may not continue to purchase our products,
which could lead to reduced revenues and loss of market share.
CUSTOMER RELATIONSHIPS -- IF WE LOSE ONE OR MORE OF OUR MAJOR CUSTOMERS, OUR
RESULTS OF OPERATIONS AND OUR ABILITY TO SERVICE OUR INDEBTEDNESS COULD BE
ADVERSELY AFFECTED.
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. 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 29% of our net sales in 2000, with Kimberly-Clark accounting
for approximately 12% of our 2000 consolidated net sales. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Products, Markets and Customers."
On April 20, 2001, we were informed by a potential new customer that it
would not be going forward with its project with us. We have negotiated a
settlement with this customer for the amounts due to us as a result of its
cancellation of its contract with us. We expect that, through the settlement
with this customer and the anticipated redeployment of assets into our normal
business operations, the loss of this potential new customer will not have a
material adverse effect on our profitability.
COST SAVINGS INITIATIVES -- WE MAY NOT BE ABLE TO ACHIEVE OUR ANTICIPATED COST
SAVINGS, AND EVEN IF WE DO, WE MAY NOT IMPROVE OUR OPERATING RESULTS, IN WHICH
CASE, WE MAY NOT BE ABLE TO SATISFY OUR OBLIGATIONS UNDER OUR INDEBTEDNESS,
INCLUDING THE NOTES.
We may not be able to achieve the cost savings that we anticipate from the
cost savings initiatives discussed in this prospectus because these cost savings
are based on estimates and assumptions which may not prove correct. Further,
even if our cost saving initiative program is successful, we may not be able to
improve our operating results as a result of other factors discussed in this
prospectus, many of which are beyond our control, such as a reduction in the
demand for our products due to an economic downturn which would decrease our
revenues, and increases in other operating expenses, such as the cost of our raw
materials, which could offset our cost savings and increase our expenses. If our
operating results are adversely affected because of an inability to achieve the
anticipated cost savings or otherwise, we may not have sufficient funds to
satisfy our obligations under our indebtedness, including the Notes.
For a further discussion of important factors that could cause actual
results to differ materially from the anticipated cost savings discussed in this
prospectus, see "-- Forward-Looking Statements."
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RISKS ASSOCIATED WITH INTELLECTUAL PROPERTY RIGHTS -- WE MAY NOT BE ABLE TO
ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, WHICH COULD CAUSE OUR REVENUES TO
DECREASE.
We rely on patents, trademarks and licenses to protect our intellectual
property, which is 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. We constantly seek to
protect our patents, trademarks and other intellectual property, but our
precautions may not provide meaningful protection against competitors or protect
the value of our trademarks. 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. We routinely enter into confidentiality agreements
to protect our trade secrets and proprietary know-how. However, such agreements
may be breached, may not provide meaningful protection or may not contain
adequate remedies for us if these confidentiality agreements are breached.
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS -- FUTURE ACQUISITIONS MAY NOT BE
SUCCESSFULLY INTEGRATED WITH OUR BUSINESS AND COULD CAUSE OUR REVENUES TO
DECREASE, OPERATING COSTS TO INCREASE OR REDUCE CASH FLOWS, WHICH IN TURN COULD
ADVERSELY AFFECT OUR ABILITY TO SERVICE OUR INDEBTEDNESS.
We have completed a number of acquisitions, and as part of our strategy, we
expect to continue to make acquisitions as opportunities arise. For example, we
recently entered into a definitive purchase agreement to acquire all of the
capital stock of Uniplast Holdings Inc. as described under "Business -- Recent
Acquisition." Our efforts to integrate businesses acquired in the future,
including Uniplast, may not result in increased sales or profits. Difficulties
encountered in any transition and integration process for newly acquired
companies could cause revenues to decrease, operating costs to increase or
reduce cash flows, which in turn could adversely affect our ability to service
our indebtedness.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS -- OUR OPERATIONS OUTSIDE OF THE
UNITED STATES ARE SUBJECT TO ADDITIONAL CURRENCY EXCHANGE, POLITICAL, INVESTMENT
AND OTHER RISKS THAT COULD HINDER US FROM MAKING OUR DEBT SERVICE PAYMENTS,
INCREASE OUR OPERATING COSTS AND ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
We operate facilities and sell products in several countries outside the
U.S. Our 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 which could have an adverse
affect on our financial condition and results of operations, our operating costs
and our ability to meet payments on our debt obligations, including our ability
to make payments on the Notes and certain borrowings under the credit
facilities. 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 and profitability.
CONCENTRATION OF OWNERSHIP AND CONTROL -- WE ARE CONTROLLED BY J.P. MORGAN
PARTNERS, LLC AND ITS INTERESTS AS AN EQUITY HOLDER MAY CONFLICT WITH YOURS AS A
CREDITOR.
At July 16, 2001, an affiliate of J.P. Morgan Partners, LLC beneficially
owned approximately 58% of our total outstanding common stock. Subject to
certain limitations contained in the stockholders' agreement among us, an
affiliate of J.P. Morgan Partners, LLC, our other stockholders, and holders of
our preferred stock warrants, J.P. Morgan Partners, LLC, through its affiliate,
controls us. The interests of J.P. Morgan Partners, LLC may not in all cases be
aligned with your interests as a holder of the Notes.
15
20
RISKS ASSOCIATED WITH LABOR RELATIONS -- IF WE DO NOT MAINTAIN GOOD
RELATIONSHIPS WITH OUR EMPLOYEES, OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A
LOSS OF REVENUES, INCREASED COSTS OR REDUCED PROFITABILITY.
Although we consider our current relations with our employees to be good,
if major work disruptions were to occur, our business could be adversely
affected by, for instance, a loss of revenues, increased costs or reduced
profitability. As of June 1, 2001, we had approximately 3,150 employees, of
which approximately 1,200 employees were subject to a total of 11 collective
bargaining agreements that expire on various dates between June 30, 2001 and
February 19, 2004. 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.
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.
Our payment of consideration to finance a portion of the recapitalization
(including the issuance of the Old Notes which were subsequently exchanged for
the Notes) may be subject to review under federal and state fraudulent transfer
and conveyance statutes. While the relevant laws may vary from state to state,
under such laws the payment of consideration will be a fraudulent conveyance if
(1) we paid the consideration with the intent of hindering, delaying or
defrauding creditors or (2) we or any of our subsidiary guarantors, as
applicable, received less than reasonably equivalent value or fair consideration
in return for issuing the Old Notes or the guarantees used to pay the
consideration, and, in the case of (2) only, one of the following is also true:
- we or any of our subsidiary guarantors were or was insolvent, or rendered
insolvent, by reason of such transactions;
- paying the consideration left us or any of our subsidiary guarantors with
an unreasonably small amount of capital to carry on the business; or
- we or any of our subsidiary guarantors intended to, or believed that we
or it would, be unable to pay debts as they matured.
If a court were to find that the issuance of the Old Notes or any of the
subsidiary guarantees was a fraudulent conveyance, the court could avoid the
payment obligations under the Notes (which were issued in exchange for the Old
Notes) or such guarantee or further subordinate the Notes or such guarantee to
presently existing and future indebtedness of ours or of such guarantor, or
require the holders of the Notes to repay any amounts received with respect to
the Notes or such guarantee. In the event of a finding that a fraudulent
conveyance occurred, you may not receive any repayment on the Notes. Further,
the avoidance of the 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.
Generally, an entity would be considered insolvent if, at the time it
incurred indebtedness:
- the sum of its debts was greater than the fair value of all its assets;
- the present fair saleable value of its assets is less than the amount
required to pay the probable liability on its existing debts and
liabilities as they become due; or
- it can not pay its debts as they become due.
TRADING MARKET FOR THE NOTES -- AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THE
NOTES, WHICH MAY MAKE THE NOTES ILLIQUID AND ADVERSELY AFFECT THE MARKET PRICE
QUOTED FOR THE NOTES.
You cannot be sure that an active trading market will develop for the
Notes. We do not intend to apply for a listing of the Notes on a securities
exchange or any automated dealer quotation system. We have been advised by JPMSI
that as of the date of this prospectus JPMSI intends to make a
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21
market in the Notes. JPMSI is not obligated to do so, however, and any
market-making activities with respect to the 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 Securities Exchange Act of 1934.
Because JPMSI is our affiliate, JPMSI 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 Notes.
Accordingly, the ability of JPMSI to make a market in the Notes may, in part,
depend on our ability to maintain a current market-making prospectus. In
addition, the liquidity of the trading market in the Notes, and the market price
quoted for the 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.
ENVIRONMENTAL MATTERS -- THE COST OF COMPLYING WITH FEDERAL AND STATE
ENVIRONMENTAL LAWS COULD BE SIGNIFICANT AND INCREASE OUR OPERATING COSTS.
Complying with existing and future environmental laws and regulations that
affect our business could impose material costs and liabilities on us. Our
manufacturing operations are subject to certain federal, state, local and
foreign laws, regulations, rules and ordinances relating to pollution, the
protection of the environment and the generation, storage, handling,
transportation, treatment, disposal and remediation of hazardous substances and
waste materials. In the ordinary course of business, we are subject to periodic
environmental inspections and monitoring by governmental enforcement
authorities. We could incur substantial costs, including fines and civil or
criminal sanctions as a result of actual or alleged violations of environmental
laws. In addition, our production facilities require environmental permits that
are subject to revocation, modification and renewal. Violations of environmental
permits can also result in substantial fines and civil or criminal sanctions. We
are in substantial compliance with applicable environmental laws and
environmental permits. The ultimate costs under environmental laws and the
timing of such costs, however, are difficult to predict and potentially
significant expenditures could be required in order to comply with environmental
laws that may be adopted or imposed in the future.
FORWARD-LOOKING STATEMENTS -- OUR ACTUAL RESULTS MAY BE MATERIALLY DIFFERENT
THAN THOSE REFERRED TO IN OUR FORWARD-LOOKING STATEMENTS.
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
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,
business trends 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," "forecasts" 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, particularly an economic
downturn;
- industry trends;
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- 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.
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USE OF PROCEEDS
This prospectus is delivered in connection with sale of the Notes by JPMSI
in market-making transactions. We will not receive any of the proceeds from
these transactions. We received net cash proceeds, after deducting applicable
discounts and expenses, of approximately $204.8 million from the private
placement of the Old Notes, all of which was used to fund a portion of the
recapitalization.
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2001, and
should be read in conjunction with Pliant's consolidated financial statements
and the notes thereto included elsewhere in this prospectus.
MARCH 31, 2001
---------------------
(DOLLARS IN MILLIONS)
Cash and cash equivalents................................... $ 2.3
=======
Total debt:
Credit facilities
Revolving credit facility(1)........................... $ --
Tranche A facility..................................... 193.0
Tranche B facility..................................... 275.0
Notes..................................................... 206.7
Insurance premium financing............................... 1.1
Obligations under capital leases.......................... 0.3
-------
Total debt........................................ 676.1
Redeemable preferred stock.................................. 80.5
Redeemable common stock..................................... 16.6
Stockholders' deficit....................................... (209.9)
-------
Total capitalization.............................. $ 563.3
=======
- ---------------
(1) As of March 31, 2001, we had $95.5 million of borrowing capacity under the
revolving credit facility and letters of credit of $4.5 million outstanding
under the revolving credit facility.
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THE TRANSACTIONS
THE RECAPITALIZATION
On May 31, 2000, we consummated the recapitalization. The total
consideration paid in the recapitalization was approximately $1.1 billion,
including transaction costs. Immediately following the recapitalization,
approximately 55.5% of our total common stock outstanding was owned by an
affiliate of J.P. Morgan Partners, LLC, 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 following transactions occurred in the recapitalization:
- an affiliate of J.P. Morgan Partners, LLC 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;
- an affiliate of J.P. Morgan Partners, LLC 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.
Pursuant to the recapitalization agreement, we entered into agreements with
an affiliate of J.P. Morgan Partners, LLC and our other stockholders. See
"Certain Relationships and Related Transactions."
As required by the recapitalization agreement, we changed our name to
Pliant Corporation on October 9, 2000 and changed the name of our subsidiaries
to eliminate the use of "Huntsman". 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 47,232 shares of our common
stock were outstanding as of July 16, 2001. 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.
THE 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 originally consisted of a $200.0 million senior secured
tranche A facility, a $280.0 million senior secured tranche B facility and a
$100.0 million revolving credit facility. For a description of the terms of the
credit facilities, as currently in effect, see "Description of Credit
Facilities."
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THE OLD NOTES OFFERING
In connection with the recapitalization, we issued 220,000 units consisting
of $220.0 million principal amount of the old 13% Senior Subordinated Notes due
2010 and note warrants to purchase 18,532 shares of our common stock. The Old
Notes were issued at a discount of approximately $5.9 million. The units were
issued in a transaction exempt from the registration requirements under the
Securities Act. On August 29, 2000, our registration statement, of which this
prospectus forms a part, relating to the exchange of the Old Notes for Notes
registered under the Securities Act was declared effective by the SEC, and, as a
result, the Old Notes and the note warrants became separated. We consummated the
exchange offer and issued $220.0 million of registered Notes for all of the Old
Notes on October 12, 2000.
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. 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 $22.3 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 $3.4
million.
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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 Pliant included elsewhere in this
prospectus. The unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 2000, give effect to the transactions
as if they had occurred at January 1, 2000.
The unaudited pro forma condensed consolidated financial data are presented
for informational purposes only and are not necessarily indicative of the
operating results that would have occurred had the transactions been consummated
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 Pliant's consolidated financial statements and
the notes thereto included elsewhere in this prospectus.
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PLIANT CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN MILLIONS)
HISTORICAL PRO FORMA
PLIANT PRO FORMA PLIANT
CORPORATION ADJUSTMENTS CORPORATION
----------- ------------- -----------
Net sales............................................ $843.8 $843.8
Cost of sales........................................ 696.7 696.7
------
Gross profit....................................... 147.1 147.1
Total operating expenses............................. 132.7 $ (9.4)(1) 123.3
------ ------ ------
Operating income................................... 14.4 9.4 23.8
Interest expense..................................... (68.5) (12.6)(2) (81.1)
Other income, net.................................... 0.3 0.3
------ ------ ------
Loss before income taxes and extraordinary item...... (53.8) (3.2) (57.0)
Income tax benefit................................... (14.3) (1.3)(3) (15.6)
------ ------ ------
Loss before extraordinary item....................... $(39.5) $ (1.9) $(41.4)
====== ====== ======
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations.
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS)
(1) Adjustments reflect the following operating expense items:
Elimination of non-recurring affiliated company
expenses(a).......................................... $ 0.7
Elimination of long-term incentive compensation(b)..... 8.7
-----
Total adjustments............................ $ 9.4
=====
- ---------------
(a) Adjustment reflects elimination of (i) 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.
(b) Adjustment reflects elimination of long-term incentive and stay bonus
compensation triggered by the transactions of $8.7 million. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Year Ended December
31, 2000 Compared with Year Ended December 31, 1999."
(2) Adjustments reflect for the period prior to the transactions from January 1,
2000 to May 31, 2000 (i) interest expense associated with borrowings under
the credit facilities and the 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.
INITIAL RELATED INTEREST
PRINCIPAL AMOUNT EXPENSE
---------------- ----------------
New credit facilities:
Tranche A facility(a)............................ $200.0 $ 7.4
Tranche B facility(a)............................ 280.0 10.6
Revolving credit facility(a)..................... 5.9 0.2
Old Notes(a)........................................ 220.0 12.2
Amortization of debt issuance costs(b).............. 1.0
-----
31.4
Elimination of historical interest expense.......... (18.8)
-----
Net adjustment...................................... $12.6
=====
- ---------------
(a) At a rate of 8.8% (London Interbank Offered Rate of 6.3% + 2.50%) for
tranche A facility, 9.3% (LIBOR + 3.00%) for tranche B facility, 8.8%
(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. As of December 31, 2000,
the LIBOR rate was 6.40%. In connection with the amendment of our
credit facilities effective September 30, 2000, the margins used in the
calculation of our applicable interest rates increased. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." The effect
of a 1.0% increase or decrease in interest rates would increase or
decrease total annual interest expense by approximately $4.7 million.
(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).
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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."
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- ----------------
1996 1997 1998 1999 2000 2000 2001
------ ------ ------ ------ ------- ------ -------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Net sales................................. $310.8 $468.9 $681.1 $813.7 $ 843.8 $220.5 $ 202.7
Cost of sales............................. 268.6 410.8 561.6 655.7 696.7 177.5 160.7
------ ------ ------ ------ ------- ------ -------
Gross profit.............................. 42.2 58.1 119.5 158.0 147.1 43.0 42.0
Total operating expenses......... 38.1 45.0 70.1 82.0 132.7 28.2 29.5
------ ------ ------ ------ ------- ------ -------
Operating income.......................... 4.1 13.1 49.4 76.0 14.4 14.8 12.4
Interest expense.......................... (11.6) (17.0) (37.5) (44.0) (68.5) (11.5) (20.3)
Other income (expense), net............... (2.7) 0.7 (0.8) 0.4 0.3 0.4 0.9
------ ------ ------ ------ ------- ------ -------
Income (loss) before income taxes,
discontinued operations and
extraordinary item...................... (10.2) (3.2) 11.1 32.4 (53.8) 3.7 (7.0)
Income tax expense (benefit).............. (5.2) (0.5) 8.6 14.1 (14.3) 2.3 (2.3)
------ ------ ------ ------ ------- ------ -------
Income (loss) before discontinued
operations and extraordinary item....... (5.0) (2.7) 2.5 18.3 (39.5) 1.4 (4.7)
Income from discontinued operations(1).... 1.8 3.1 0.6
Gain on sale of discontinued
operations(1)........................... 5.2
Extraordinary item(2)..................... (1.3) (11.3)
------ ------ ------ ------ ------- ------ -------
Net income (loss)......................... $ (4.5) $ 0.4 $ 8.3 $ 18.3 $ (50.8) $ 1.4 $ (4.7)
====== ====== ====== ====== ======= ====== =======
OTHER FINANCIAL DATA:
EBITDA under indenture(3)................. $ 26.3 $ 39.5 $ 80.6 $114.7 $ 76.2 $ 26.0 $ 30.5
Cash flows from operating activities...... 20.1 28.6 45.5 51.4 60.3 17.9 14.7
Cash flows from investing activities...... (88.9) (87.2) (314.8) (46.0) (65.6) (10.1) (7.4)
Cash flows from financing activities...... 68.6 63.2 275.9 (16.7) 0.3 (3.9) (11.4)
Capital expenditures...................... 12.8 17.9 52.1 35.7 65.6 10.1 15.3
Depreciation and amortization............. 14.0 16.4 27.1 35.0 39.5 9.5 10.1
Plant closing costs....................... 10.9 9.3 4.9 2.5 19.4
Noncash stock-based compensation
expense................................. $ $ $ $ 0.8 $ 2.6 $ 1.2 $ 7.0
Ratio of earnings to fixed charges(4)..... 1.3x 1.7x 1.3x
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................. $ 8.4 $ 12.4 $ 19.2 $ 9.1 $ 3.1 $ 12.2 $ 2.3
Working capital........................... 74.6 94.1 93.4 103.8 57.6 102.6 55.9
Total assets.............................. 317.8 400.4 734.3 769.0 785.0 780.1 778.9
Total debt................................ 187.2 250.5 524.9 510.4 687.4 506.6 676.1
Total liabilities......................... 250.8 337.4 662.5 675.4 894.2 684.3 891.7
Redeemable preferred stock................ 80.3 80.5
Redeemable common stock................... 1.2 2.9 16.5 4.1 16.6
Stockholders' equity (deficit)............ $ 67.0 $ 63.0 $ 70.6 $ 90.7 $(206.0) $ 91.7 $(209.9)
- ---------------
(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.
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(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 related to our tender offer for
our 9 1/8% senior subordinated notes due 2007.
(3) EBITDA is defined in the indenture 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 as defined in the indenture does
not represent and should not be considered as an 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.
(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 1996, 1997, 2000 and for the three months ended March 31, 2001, earnings
were insufficient to cover fixed charges by approximately $10.2 million,
$3.2 million, $53.8 million and $7.0 million, respectively.
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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" within the meaning of federal
securities law 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 "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 23 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, return on
capital expenditures and the overall growth in the market for film and flexible
packaging products. Our most recent acquisitions include (see Note 13 to the
consolidated financial statements included elsewhere in this prospectus):
- In July 2001, we acquired 100% of the outstanding stock of Uniplast
Holdings Inc., a manufacturer of multi-layer packaging films, industrial
films and cast-embossed films, with operations in the United States and
Canada, for approximately $57 million.
- 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 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 2000, 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 2000, we announced our plans to close our Dallas, Texas; Birmingham,
Alabama; and Harrington, Delaware facilities. On March 5, 2001, we sold
our Dallas, Texas facility, which was formerly owned by KCL Corporation,
to Tech Plastics for approximately $1.4 million. We expect to close our
Birmingham and Harrington facilities by the end of the third quarter of
2001.
- In 1999 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.
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- In 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.
- 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.
On May 31, 2000, we consummated the recapitalization pursuant to an
agreement dated March 31, 2000 among us, our then existing stockholders and an
affiliate of J.P. Morgan Partners, LLC. The recapitalization was valued at
approximately $1.1 billion, including transaction costs. See "The Transactions"
and Notes 1 and 6 to the consolidated financial statements included elsewhere in
this prospectus for a discussion of the transactions that occurred in connection
with the recapitalization and the related financing thereof.
Following the recapitalization, we implemented certain cost saving
initiatives during the fourth quarter of 2000. These included the following:
- We announced the closure of our Dallas, Texas, Harrington, Delaware and
Birmingham, Alabama facilities, resulting in $19.6 million of charges.
- We announced a company-wide reduction in workforce of 52 salaried
positions, the closure of our divisional office in Dallas, Texas and the
relocation of our corporate headquarters from Salt Lake City, Utah to the
Chicago, Illinois area, resulting in $7.1 million of charges.
In total, the foregoing charges amounted to approximately $26.7 million in
the fourth quarter of 2000, of which approximately $10 million is expected to be
paid in cash. We estimate annual savings of approximately $15 million from these
cost initiatives.
During the first quarter of 2001, we incurred noncash stock-based
compensation expense of approximately $7.0 million as a result of certain
modifications to our senior management employment arrangements. See Note 10 to
the consolidated financial statements included elsewhere in this prospectus for
a discussion of the components of this anticipated charge.
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 years ended December 31,
1998, 1999 and 2000 and for the three months ended March 31, 2000 and 2001.
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------ -------------------------------
1998 1999 2000 2000 2001
-------------- -------------- -------------- -------------- --------------
(DOLLARS IN MILLIONS)
Net sales.................. $681.1 100.0% $813.7 100.0% $843.8 100.0% $220.5 100.0% $202.7 100.0%
Cost of sales.............. 561.6 82.5 655.7 80.6 696.7 82.6 177.5 80.5 160.7 79.3
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit............... 119.5 17.5 158.0 19.4 147.1 17.4 43.0 19.5 42.0 20.7
Total operating expenses... 70.1 10.2 82.0 10.1 132.7 15.7 28.2 12.8 29.5 14.6
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating income........... $ 49.4 7.3% $ 76.0 9.3% $ 14.4 1.7% $ 14.8 6.7% $ 12.5 6.1%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
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THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
2000
Net Sales. Net sales decreased by $17.8 million, or 8.1%, from $220.5
million for the first quarter of 2000, to $202.7 million for the three months
ended March 31, 2001. The decrease was primarily due to a 3.5% decrease in sales
volume and a 4.6% decrease in our average selling price. 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 lower during the first
quarter of 2001 compared to the first quarter of 2000 resulting in a significant
decrease in our average selling prices.
Gross Profit. Gross profit decreased by $1.0 million, or 2.3%, from $43.0
million for the first quarter of 2000, to $42.0 million for the three months
ended March 31, 2001. The decrease was primarily due to a decrease in sales
volumes and prices which were offset partially by decreasing resin costs and
lower manufacturing costs.
Total Operating Expenses. Total operating expenses increased by $1.3
million, or 4.6%, from $28.2 million for the first quarter of 2000, to $29.5
million for the three months ended March 31, 2001. The significant items
contributing to most of this increase relate to two unusual items: $7.0 million
of non-cash stock-based compensation expense related to administrative employees
for the three month period ended March 31, 2001, and $5.2 million of
compensation expense and transaction costs related to the transactions for the
three month period ended March 31, 2000.
Operating Income. Operating income decreased by $2.3 million, or 15.5%,
from $14.8 million for the first quarter of 2000 to $12.5 million for the three
months ended March 31, 2001, due to the factors discussed above. Excluding the
unusual items described above from both periods, operating income would have
been $19.5 million for the first quarter of 2001 and $20.0 million in the first
quarter of 2000, which represents a decrease of $0.5 million or 2.5%.
Interest Expense. Interest expense increased by $8.8 million, or 75.0%,
from $11.6 million for the first quarter of 2000, to $20.4 million for the three
months ended March 31, 2001. As a result of the financing for the transactions,
interest expense increased significantly compared to the prior year.
Other Income (Expense). Other income (expense) changed from income of $0.4
million for the three months ended March 31, 2000, to income of $0.9 million for
the three months ended March 31, 2001, an increase in income of $0.5 million.
The increase was primarily due to an insurance claim and other less significant
items.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1999
Net Sales. Net sales increased by $30.1 million, or 3.7%, from $813.7
million for 1999 to $843.8 million for 2000. The increase was the result of a
6.4% increase in our average selling prices partially offset by a 2.6% decrease
in our sales volume. The average selling price increase was primarily due to the
general pass-through to customers of increased resin costs. For 2000, we had
total net trade sales volume of 775.0 million pounds, compared with 795.3
million pounds in 1999. This decrease in sales volume was primarily due to
inventory de-stocking, product line rationalizations by our customers and
insourcing by one of our most significant customers of a specific film product.
We expect that sales volumes in 2001 will continue to be affected by product
line rationalization by our customers and insourcing of a specific film product
by one of our most significant customers.
Gross Profit. Gross profit decreased by $10.9 million, or 6.9%, from
$158.0 million for 1999 to $147.1 million for 2000. This decrease was primarily
due to reduced gross profit margins, which more than offset the increase in net
sales for the period. The decrease in gross profit margins was due to a less
favorable product mix and associated line start up and changeover
inefficiencies. As a percentage of sales, raw material costs were 1.21% higher
in 2000 than 1999. Gross margin was also impacted by cash conversion costs which
were higher for 2000 than 1999 due to increases in direct labor, packaging,
energy and indirect plant costs.
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Total Operating Expenses. Total operating expenses increased by $50.7
million, or 61.8%, from $82.0 million for 1999 to $132.7 million, for 2000. Most
of the increase resulted from five significant items, which accounted for $47.4
million of the $50.7 million increase. Excluding these five significant items,
operating expenses as a percentage of net sales were 10.1% for both 2000 and
1999.
Costs relating to the transactions constituted the first significant item
affecting total operating expenses. We incurred $10.8 million of costs related
to the transactions. These costs consisted of long-term incentive compensation
expense of $5.0 million, $3.7 million of incentive compensation under a "stay
bonus" plan, and transaction fees and expenses of $2.1 million. Under the
provisions of our long-term incentive plans, certain incentive payments were due
upon a "change of control" in our ownership. Both the "stay bonus" and long-term
compensation were paid during 2000.
The second significant item affecting total operating expenses was our
company-wide supply chain cost initiative. We incurred fees and expenses during
2000 totaling $10.8 million in connection with this initiative. We began our
supply chain initiative in the fourth quarter of 1999 with the assistance of
A.T. Kearney, a management consulting firm. The project is focused on improving
the efficiency of our operations. In March 2000, we began implementing specific
improvement projects and currently expect that identified projects should be
fully implemented by the end of 2001.
The third significant item affecting total operating expenses was plant
closing costs. We incurred $19.6 million of closing costs in 2000 related to the
closure of our Dallas, Texas facility and the announced closures of our
Birmingham, Alabama and Harrington, Delaware facilities. This was partially
offset by $0.2 million of reversals to previous accruals. We had plant closing
costs of $2.5 million in 1999.
The fourth significant item affecting total operating expenses was the
announced closures of our headquarters facility in Salt Lake City, Utah, and our
office in Dallas, Texas, and a company-wide reduction in workforce. These costs
amounted to $7.1 million in 2000.
The fifth significant item affecting total operating expenses was noncash
stock-based compensation expense. We incurred noncash stock-based compensation
expense of approximately $2.6 million related to outstanding options to purchase
our common stock. As a result of the transactions, the stock options fully
vested and became exercisable upon the consummation of the transactions. The
$2.6 million noncash stock-based compensation expense recognizes the vesting of
all performance-based stock options based on the estimated per share purchase
price implied in the transactions. We incurred $0.8 million of noncash
stock-based compensation expense in 1999.
Operating Income. Operating income decreased by $61.6 million, or 81.1%,
from $76.0 million for 1999 to $14.4 million for 2000, as a result of the
factors discussed above. Excluding the five significant items described above,
operating income decreased $14.1 million, or 18.6%, from $76.0 million for 1999,
to $61.9 million for 2000.
Interest Expense. Interest expense increased by $24.5 million, or 55.7%,
from $44.0 million for 1999 to $68.5 million for 2000. As a result of the
transactions, interest expense increased significantly compared to the prior
year. Included in interest expense in 2000 is a $1.4 million amendment fee
(representing 25 basis points) on our outstanding credit facilities as of
September 30, 2000.
Income Tax Expense (Benefit). In 2000, our income tax (benefit) was
($14.3) million compared to income tax expense of $14.1 million in 1999. This
represents effective tax rates of 26.6% and 43.5%, respectively. The fluctuation
in income tax expense (benefit) relates primarily to the fluctuation in our
income (loss) from continuing operations between the years. The fluctuation in
the effective tax rate is a result of legislated changes to the enacted tax
rates in Germany as well as fluctuations in the taxable income of certain
foreign operations and certain nondeductible costs related to our
recapitalization. As of December 31, 2000, our deferred tax assets totaled
approximately $45.5 million of which $27.4 million related to net operating loss
carryforwards. Our deferred
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tax liabilities totaled $65.5 million. Future reversals of existing deferred tax
liabilities are expected to generate sufficient taxable income to allow us to
realize our deferred tax assets. Accordingly, no valuation allowance is required
against our deferred tax assets.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998
Net Sales. Net sales increased by $132.6 million, or 19.5%, in 1999 to
$813.7 million from $681.1 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.
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 10.0% in 1999, as compared to 11.0% in
1998.
Income Tax Expense (Benefit). Income tax expense increased by $5.6
million, or 65.9%, from $8.5 million in 1998 to $14.1 million in 1999. This
represents effective tax rates of 77.1% in 1998 and 43.5% in 1999. The increase
in income tax expense was primarily due to the increase in our income (loss)
from continuing operations. The decrease in the effective tax rate was primarily
due to the impact of the split-off from Huntsman Corporation.
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
14 to the consolidated financial statements and Note 8 to the unaudited
condensed consolidated financial statements included elsewhere in this
prospectus.
THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
2000
Specialty Films
Net Sales. The net sales of our specialty films segment decreased by $19.6
million, or 18.3%, from $107.3 million for the first quarter of 2000 to $87.7
million for the three months ended
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March 31, 2001. The decrease was primarily due to a 14.9% decrease in sales
volume and a 4.0% decrease in our average selling price.
Segment Profit. The specialty films segment profit decreased by $4.7
million, or 20%, from $23.5 million for the first quarter of 2000 to $18.8
million for the three months ended March 31, 2001. The decrease was primarily
due to the decrease in sales volume.
Segment Total Assets. The specialty films segment total assets decreased
by $17.7 million, or 4.2%, from $416.5 million for the first quarter 2000 to
$398.8 million for the three months ended March 31, 2001. The decrease was
primarily due to the write-off of fixed assets due to plant closing costs at our
Harrington, Delaware facility, along with significant decreases in accounts
receivable and inventory. The decreases were partially offset by capital
expenditures of $7.4 million offset in part by depreciation, capital
expenditures related to capacity expansion and to quality improvement projects,
as well as ongoing capital improvements.
Design Products
Net Sales. The design products net sales of $53.4 million for the three
months ended March 31, 2001 were relatively unchanged from the net sales for the
first quarter of 2000. Sales volume increased by 6.4%, which was offset by a
decrease of 6.0% in our average selling price. The decrease in sales price is
due to lower resin prices during the first quarter of 2001 compared to the first
quarter of 2000.
Segment Profit. The design products segment profit increased by $2.7
million, or 41.5%, from $6.5 million for the first quarter of 2000 to $9.2
million for the three months ended March 31, 2001. The increase was due to
increased volume as a result of increased production efficiency and an improved
product mix.
Segment Total Assets. The design products segment total assets decreased
by $0.1 million, or 0.1%, from $178.4 million for the first quarter of 2000 to
$178.3 million for the three months ended March 31, 2001. Capital expenditures
of $4.2 million were offset by depreciation and amortization expense. Capital
expenditures were primarily for ongoing capital improvements.
Industrial Films
Net Sales. The net sales of our industrial films segment increased by $1.8
million, or 3.0%, from $59.8 million for the first quarter of 2000 to $61.6
million for the three months ended March 31, 2001. The increase was due to a
7.3% increase in sales volume which was partially offset by a 4.1% decrease in
sales price due to lower resin prices during the first quarter of 2001 compared
to the first quarter of 2000. The volume increase was primarily due to
additional production capacity.
Segment Profit. The industrial films segment profit increased by $1.8
million, or 19.6%, from $9.2 million for the first quarter of 2000 to $11.0
million for the three months ended March 31, 2001. The increase was due to
increased volume and improved manufacturing performance.
Segment Total Assets. The industrial films segment total assets decreased
by $4.7 million, or 3.6%, from $130.2 million for the first quarter of 2000 to
$125.5 million for the three months ended March 31, 2001. Capital expenditures
of $2.6 million for ongoing capital improvements were offset by reductions in
accounts receivable and inventories along with depreciation and amortization
expense.
Corporate/Other
Unallocated corporate expenses increased by $6.8 million, or 34.5%, from
$19.7 million for the first quarter of 2000 to $26.5 million for the three
months ended March 31, 2001. This increase was primarily due to $7.0 million of
non-cash stock-based compensation expense related to administrative employees
which was recorded during the three month period ended March 31, 2001.
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YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1999
Specialty Films
Net Sales. The net sales of our specialty films segment decreased by $13.3
million, or 3.3%, in 2000 to $385.7 million from $399.0 million in 1999. Our
specialty film volume decreased in 2000 by approximately 7.8% offset in part by
a 4.9% increase in our average selling price. The volume decrease was due
primarily to inventory de-stocking, product line rationalizations by our
customers and insourcing by one of our most significant customers of a specific
film product. The increase in sales prices is due to higher resin prices in 2000
compared to 1999.
Segment Profit. The specialty films segment profit decreased by $15.3
million, or 17.8%, in 2000 to $70.5 million from $85.8 million in 1999. The
decrease was due to lower sales volume and a less favorable product mix and
associated line start up and changeover inefficiencies. As a percentage of
sales, raw material costs were 2.1% higher in 2000 than 1999. In addition, cash
conversion costs were higher for 2000 than 1999, due to increases in direct
labor, packaging, energy and indirect plant costs.
Segment Total Assets. The specialty films segment total assets decreased
by $11.3 million, or 2.8%, in 2000 to $393.8 million from $405.1 million in
1999. The decrease was primarily due to the write-off of fixed assets due to
plant closing costs at our Harrington, Delaware facility, a significant decrease
in accounts receivable, decreases in our inventory, and amortization of goodwill
and intangible costs. These decreases were offset by capital expenditures of
approximately $22.8 million offset, in part, by 2000 depreciation. 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 $32.1
million, or 17.5%, in 2000 to $215.4 million from $183.3 million in 1999. This
increase was primarily due to a 12.1% increase in sales volumes and a 4.8%
increase in our selling prices. Approximately 6.7% of the increase in volumes
relates to a full year of activity in plants that were purchased during 1999.
The additional sales volume increase is due to additional production capacity
added over the last two years in our design products production facilities. The
increase in sales prices is due to higher resin prices in 2000 compared to 1999
and a slight change in our mix of products to higher priced products.
Segment Profit. The design products segment profit increased by $5.3
million, or 24.8%, in 2000 to $26.7 million from $21.4 million in 1999. The
increase was due to increased production efficiency as compared to 1999 and a
slightly improved mix in the products we sold. Significant increases in
production capacity have occurred over the past 3 years in the design segment.
In 2000, we were better able to efficiently use those resources. In addition,
due to the rapid increases in resin prices during 1999, we were unable to
increase our selling prices as quickly as resin prices increased in 1999. We
were better able to maintain these margins during 2000.
Segment profit excludes nonrecurring plant closing costs. The 1999 plant
closing costs of $2.5 million relates entirely to the design products operating
segment. See Note 4 to the consolidated financial statements included in this
prospectus.
Segment Total Assets. The design products segment total assets increased
by $3.8 million, or 2.2%, in 2000 to $179.7 million from $175.9 million in 1999.
The increase was due to 2000 capital expenditures of approximately $18.6
million. Depreciation expense, amortization expense, and a reduction in cash
balances offset these additions. The reduction in the cash balances was due to
our Mexican entity loaning $3.8 million to us at December 31, 2000. This amount
was repaid to them on January 4, 2001.
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Capital expenditures were for capacity expansion at our Mexican facility,
new production lines in our Shelbyville, Indiana facility and other ongoing
capital improvements.
Industrial Films
Net Sales. The net sales of our industrial films segment increased by
$11.2 million, or 4.8%, in 2000 to $242.6 million from $231.4 million in 1999.
The increase in sales was due entirely to an increase in our average selling
prices as our sales volumes decreased by 1.4% in 2000 as compared to 1999. The
increase in sales prices is due to higher resin prices in 2000 compared to 1999
and a change in our mix of products to higher priced products.
Segment Profit. The industrial films segment profit decreased by $0.2
million, or 0.6%, in 2000 to $35.8 million from $36.0 million in 1999. The
decrease was due to a decrease in volume of 7.2 million pounds at our Birmingham
facility which was offset by a change in our mix to a higher margin product and
our ability to pass price increases to our customers more efficiently in 2000
compared to 1999.
Segment Total Assets. The industrial films segment total assets increased
by $2.4 million, or 1.9%, in 2000 to $128.9 million from $126.5 million in 1999.
The increase was due to capital expenditures of approximately $11.2 million and
increases in accounts receivable and inventories reduced by the write-off of
fixed assets due to plant closing costs at our Birmingham, Alabama facility and
depreciation. The capital expenditures were for ongoing capital improvements, as
well as a new production line installed in one of our stretch film plants.
Corporate/Other
Unallocated corporate expenses increased by $24.0 million, or 35.2%, from
$68.1 million for 1999 to $92.1 million for 2000. Most of the increase resulted
from three significant items which accounted for $20.5 million of the $24.0
million increase. Excluding these significant items, unallocated corporate
expenses as a percentage of net sales were 8.5% in 2000 and 8.3% in 1999.
The first significant item affecting unallocated corporate expenses was our
company-wide supply chain cost initiative. We incurred fees and expenses during
2000 totaling $10.8 million in connection with this initiative. We began our
supply chain initiative in the fourth quarter of 1999 with the assistance of
A.T. Kearney, a management consulting firm. The project is focused on improving
the efficiency of our operations. In March 2000, we began implementing specific
improvement projects and currently expect that identified projects should be
fully implemented by the end of 2001.
The second significant item affecting unallocated corporate expenses was
the announced closures of our headquarters facility in Salt Lake City, Utah, and
our office in Dallas, Texas, and a company-wide reduction in workforce. These
costs amounted to $7.1 million in 2000.
The third significant item affecting unallocated corporate expenses was
noncash stock-based compensation expense. We incurred noncash stock-based
compensation expense of approximately $2.6 million related to outstanding
options to purchase our common stock. As a result of the transactions, the stock
options fully vested and became exercisable upon the consummation of the
transactions. The $2.6 million noncash stock-based compensation expense
recognizes the vesting of all performance-based stock options based on the
estimated per share purchase price implied in the transactions. We incurred $0.8
million of noncash stock-based compensation expense in 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998
Specialty Films
Net Sales. The net sales of our specialty films segment increased by $74.0
million, or 22.8%, in 1999 to $399.0 million from $325.0 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
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increases in the operations acquired. The addition of these operations,
including the post-acquisition sales improvements, resulted in 1999 increased
sales of approximately $64.8 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 specialty films' facilities.
Segment Profit. The specialty films segment profit increased by $28.4
million, or 49.5%, in 1999 to $85.8 million from $57.4 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 $4.4 million, or 1.1%, in 1999 to $405.1 million from $400.7 million in 1998.
The increase was primarily due to capital expenditures of approximately $15.2
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 $40.8
million, or 28.6%, in 1999 to $183.3 million from $142.5 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 increased by $2.0
million, or 10.3%, in 1999 to $21.4 million from $19.4 million in 1998. The
increase was due to a full year of results from our Mexican operation offset by
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.
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.
Industrial Films
Net Sales. The net sales of our industrial films segment increased by
$17.8 million, or 8.3%, in 1999 to $231.4 million from $213.6 million in 1998.
The increase in sales was due entirely to an
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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 $4.3
million, or 13.6%, in 1999 to $36.0 million from $31.7 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 $9.4 million, or 8.0%, in 1999 to $126.5 million from $117.1 million in 1998.
The increase was due to capital expenditures of approximately $10.2 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
Upon closing of the transactions, we issued 220,000 units consisting of
$220.0 million principal amount of Old Notes and note warrants to purchase
18,532 shares of common stock. The Old Notes were issued at a discount of
approximately $5.9 million and mature on June 1, 2010. The units were issued in
a transaction exempt from the registration requirements under the Securities
Act. On August 29, 2000, our registration statement relating to the exchange of
the Old Notes for Notes registered under the Securities Act was declared
effective by the SEC, and, as a result, the Old Notes and the note warrants
became separated. We consummated the exchange offer and issued $220.0 million of
registered Notes for all of the Old Notes on October 12, 2000. Interest on the
Notes is payable semi-annually on each June 1 and December 1, commencing on
December 1, 2000. 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 became exercisable on
August 29, 2000, and mature on June 1, 2010.
Upon closing of the offering of the units and the transactions, we
purchased all of our outstanding $125.0 million principal amount of 9 1/8%
Senior Subordinated Notes due 2007, refinanced all amounts outstanding under our
prior credit facility and replaced the prior credit facility with amended and
restated senior secured credit facilities with The Chase Manhattan Bank, Bankers
Trust Company, The Bank of Nova Scotia and a syndicate of banking institutions.
The 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, a $280.0 million senior secured tranche B facility and a $100.0
million revolving credit facility.
Effective September 30, 2000, we entered into an amendment of our credit
facilities. The amendment modified certain financial covenants contained in the
credit facilities, including the leverage and interest coverage ratios and the
permitted amount of capital expenditures. We were in compliance with the amended
covenants of our credit facilities as of September 30, 2000 and as of December
31, 2000. In connection with the amendment, we incurred an amendment fee of $1.4
million, which has been included in interest expense. We also incurred $0.6
million of legal and administrative expenses in connection with negotiating the
amendment.
On July 16, 2001, we acquired 100% of the outstanding stock of Uniplast
Holdings Inc. for approximately $57 million, consisting of the assumption of
approximately $40 million of debt and the issuance of shares of our common stock
valued at approximately $16.8 million to the selling shareholders of Uniplast.
At the closing of the acquisition, we refinanced approximately $37 million of
assumed debt with the proceeds from the July 16, 2001 sale of $29 million of our
preferred stock and preferred stock warrants and borrowings under our revolving
credit facility. In connection with the Uniplast acquisition, we entered into an
amendment of our credit facilities and incurred amendment fees of $1.4 million.
We also incurred $0.5 million of legal and administrative expenses in connection
with negotiating the amendment.
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Loans under the revolving credit facility and the tranche A facility bear
interest, at our option, at either Adjusted LIBOR plus 3.25% or 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% plus 2.25%, in each case subject to
certain adjustments. Loans under the tranche B Facility bear interest, at our
option, at either Adjusted LIBOR plus 3.75% or ABR plus 2.75%. We may elect
interest periods of one, two, three or six months for Adjusted LIBOR borrowings.
Interest is calculated 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. Adjusted LIBOR will at all times include
statutory reserves.
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................................................ 31,300,000
2007................................................ 158,760,000
2008................................................ 104,440,000
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 ended 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.
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 $11.4 million in connection with the transactions. In
addition, approximately $22.3 million, principally relating to financing fees
and expenses associated with the transactions, has been capitalized and is being
amortized over the terms of the Notes and the credit facilities.
Our obligations under the credit facilities are guaranteed by substantially
all of our domestic subsidiaries and secured by substantially all of our
domestic assets. The credit facilities are also secured by a pledge of 65% of
the capital stock of each of our foreign subsidiaries. See "Description of
Credit Facilities."
The credit facilities and the indenture relating to the Notes 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.
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $14.7 million for the three
months ended March 31, 2001, a decrease of $3.2 million, or 18%, from the same
period in 2000. The decrease resulted primarily from decreases in net income and
a decrease in the change in accounts payable. The decrease was offset partially
by a smaller increase in inventory and accounts receivable compared to the prior
year, and an increase in the change of non-cash income statement items.
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Net cash provided by operating activities was $60.3 million in 2000, an
increase of $8.9 million, or 17.3%, from $51.4 million in 1999. The increase
resulted primarily from decreases in trade accounts receivable, smaller
increases in inventories in 2000 compared to 1999, higher accounts payable, and
non-cash income statement items. In particular, overall accounts receivable
decreased by $6.9 million at December 31, 2000 compared to December 31, 1999,
while accounts payable increased by $49.0 million over the same period. Both of
these changes (which increased net cash provided by operating activities) were
due to our active working capital management program and to the negotiation of
more favorable terms with our suppliers. The increase was offset by a decrease
in net income during 2000 and an increase in income tax receivable.
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 Used in Investing Activities
Net cash used in investing activities was $7.4 million for the three months
ended March 31, 2001, compared to $10.1 million for the same period in 2000.
Capital expenditures were $15.3 million and $10.1 million for the periods ended
March 31, 2001 and 2000 respectively. Capital expenditures in both periods were
primarily for major expansion projects in all of our product lines, for
upgrading our information systems, and for several new and carryover maintenance
projects throughout our company. In 2001, we received $7.9 million as part of a
sale-leaseback transaction of newly-acquired machinery and equipment.
Net cash used in investing activities was $65.6 million in 2000, $46.0
million in 1999 and $314.8 million in 1998. In 2000 and 1999, the expenditures
were almost entirely for capital expenditures. Capital expenditures in 2000 were
primarily for major expansion projects in all of our product lines, for
upgrading our information systems, and for several new and carryover maintenance
projects throughout our company. During 1999, we spent $35.7 million for capital
expenditures and $11.5 million for the acquisition of KCL Corporation. The 1999
capital expenditures included expenditures to add new capacity, to upgrade and
relocate existing equipment, and to upgrade existing information systems. 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 and we spent
$52.1 million for capital expenditures. 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.
We expect capital expenditures to decline over the next few quarters from
the levels incurred in the first quarter of 2001 and in 2000.
Net Cash Provided by Financing Activities
Net cash used in financing activities was $11.4 million for the three
months ended March 31, 2001, compared to $3.9 million for the same period in
2000. The activity for both periods primarily represented principal payments on
our current and prior credit facilities. In 2001, we prepaid $8.0 million of
principal on our term loans under our credit facilities.
Net cash provided by (used in) financing activities was $0.3 million in
2000 and $(16.7) million in 1999 compared to $275.9 million in 1998. The
activity in 2000 was higher as a result of the financial change caused by the
transactions. In 1999, cash was used to pay scheduled principal payments and to
pay down the outstanding revolver under the prior credit facility. In 1998, net
cash provided by financing activities was used primarily to fund our capital
expenditures and the acquisition of Blessings Corporation.
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Liquidity
As of March 31, 2001, we had approximately $55.9 million of working capital
and approximately $95.5 million available under our $100.0 million revolving
credit facility. We had $4.5 million of letters of credit issued, which reduces
the amount available for borrowings under our revolving credit facility. As of
March 31, 2001, the debt under the credit facilities bore interest at a weighted
average rate of 10.04%
As of March 31, 2001, we had $2.3 million in cash and cash equivalents, of
which the majority was held by our foreign subsidiaries. The effective tax rate
of repatriating this money and future foreign earnings to the United States
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 United States
operations, including to pay principal, premium, if any, and interest on the
Notes and the credit facilities. For the three months ended March 31, 2001, our
foreign operations generated net income from continuing operations of
approximately $2.1 million. In 2000, 1999 and 1998, our foreign operations
generated net income from continuing operations of approximately $5.2 million,
$8.3 million and $0.5 million, respectively.
Interest expense and scheduled principal prepayments on our borrowings
under the credit facilities and the Notes have significantly increased our
future liquidity requirements. We expect that cash flows from operating
activities and available borrowings under the credit facilities will provide
sufficient working capital to operate our business, to make expected capital
expenditures and to meet foreseeable liquidity requirements. 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. On January 1, 2001, we adopted
SFAS No. 133 and it did 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. We enter into interest rate
collar and swap agreements to manage interest rate market risks and commodity
collar agreements to manage resin market risks. Our raw material costs are
comprised primarily of resins. Our resin costs comprised approximately 62% of
our total manufacturing costs in 2000. 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. An increase of 1% in
interest rates payable on our variable rate indebtedness would increase our
annual interest expense by approximately $4.7 million.
Market risk arises from changes in interest rates. In December 2000, we
purchased an interest rate cap agreement to reduce the impact of changes in
interest rates on our floating-rate, long-term debt. The agreement has a
notional amount of $128.0 million and expires on December 31, 2003. The
agreement entitles us to receive amounts from the counterparty (a bank) if the
three-month LIBOR interest rate, as defined in the agreement, exceeds 10%. As of
December 31, 2000, the defined three-month LIBOR interest rate was 6.55%. The
net premium paid for the interest rate cap agreement was $96,000. At December
31, 2000, the estimated fair value of this derivative was $96,000.
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During the three months ended March 31, 2001, we entered into certain
interest rate collars, caps and swaps. We adopted SFAS No. 133 to account for
these instruments as of January 1, 2001. Under the conditions of our credit
facilities, we are required to obtain interest rate protection on 50% of our
entire debt. See Note 7 to the unaudited condensed consolidated financial
statements contained elsewhere in this prospectus.
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.
Fluctuations in exchange rates may adversely affect our financial results.
The functional currencies for our foreign subsidiaries are the local currency.
As a result, certain of our assets and liabilities, including certain bank
accounts, accounts receivable and accounts payable, exist in non US
dollar-denominated currencies, which are sensitive to foreign currency exchange
rate fluctuations.
We enter into certain transactions denominated in foreign currencies but,
because of the relatively small size of each individual currency exposure, we do
not employ hedging techniques designed to mitigate foreign currency exposures.
Gains and losses from these transactions as of March 31, 2001 have been
immaterial, and are reflected in the results of operations.
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BUSINESS
GENERAL
With 2000 revenues of approximately $844.0 million, 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. At June 30, 2001, we operated 23 manufacturing and
research and development facilities worldwide and we had approximately 950
millions pounds of annual production capacity.
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 47.7%, 49.0% and 45.7% of our net sales in
1998, 1999 and 2000, 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 a 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 26% of our Specialty Films net sales and 12% of our 2000
consolidated net sales. We are one of North America's leading producers of
personal care films, with an estimated market share of approximately 35%.
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 established by the converter, including gauge control, clarity,
sealability and width accuracy. We are
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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 31%.
DESIGN PRODUCTS
Design Products accounted for 20.9%, 22.5% and 25.5% of our net sales in
1998, 1999, 2000 respectively. Our Design Products are primarily printed films
and flexible packaging products. 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 2000, approximately 28% 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 31.4%, 28.4% and 28.8% of our net sales in 1998, 1999, and
2000, respectively. In 2000, approximately 22% 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%.
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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 27%. 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.
Loss of Potential Customer
On April 20, 2001, we were informed by a potential new customer that it
would not be going forward with its project with us. We have negotiated a
settlement with this customer for the amounts due to us as a result of its
cancellation of its contract with us. We expect that, through the settlement
with this customer and the anticipated redeployment of assets into our normal
business operations, the loss of this potential new customer will not have a
material adverse effect on our profitability.
RECENT ACQUISITION
On July 16, 2001, we acquired 100% of the outstanding shares of common
stock of Uniplast Holdings Inc. pursuant to the stock purchase agreement dated
as of June 15, 2001. The transaction was valued at approximately $57 million,
consisting of the assumption of approximately $40 million of debt and the
issuance of 34,677 shares of our common stock valued at approximately $16.8
million to the selling shareholders of Uniplast (of which 3,468 shares valued at
approximately $1.7 million are subject to certain holdback arrangements and had
not been delivered at closing). At the closing of the acquisition, we refinanced
approximately $37 million of the assumed debt with proceeds of $29 million from
the July 16, 2001 private placement of preferred stock and preferred stock
warrants to our existing holders of preferred stock and to an affiliate of a
selling stockholder of Uniplast and from borrowings under our revolving credit
facility. We may incur additional borrowings under our revolving credit facility
to refinance the remainder of the assumed debt. In connection with the Uniplast
acquisition, we entered into an amendment to our credit facilities. In addition,
under our stockholders' agreement, we are required to make a preemptive rights
offering of additional shares of preferred stock and preferred stock warrants to
certain holders of our common stock. We expect to close the preemptive rights
offering in the third quarter of 2001. We will use any proceeds from the
preemptive rights offering to repay borrowings under our revolving credit
facility.
Uniplast is a manufacturer of multi-layer packaging films, industrial films
and cast-embossed films in the United States and Canada. Founded in 1984,
Uniplast grew through expansions in Canada and acquisitions in the U.S.,
including the acquisition of Pierson Industries in Palmer, Massachusetts, Turex
Industries in Woonsocket, Rhode Island, and PCL Corporation in Columbus,
Indiana. Today, Uniplast has annual sales of approximately $87 million and
employs nearly 300 people in six plants (two plants in Canada and four plants in
the U.S.). In 2000, Uniplast generated EBITDA under the indenture of
approximately $3.3 million.
HISTORY PRIOR TO THE RECAPITALIZATION
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 $310.8 million in 1996 to $843.8 million in 2000. 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.
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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.
INDUSTRY OVERVIEW AND MARKET SHARE DATA
According to the Flexible Packaging Association, the North American market
for flexible packaging was approximately $19.0 billion in 2000 and has grown at
a compound annual growth rate of 4.8% from 1992 to 2000. 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 2000.
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.
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 facilitated the replacement of many traditional
forms of rigid packaging with film-based, flexible packaging that is lighter, is
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. We are North America's leading supplier of converter and
frozen food films, one of North America's leading suppliers of personal care
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 2000 and 1999, we invested a total of $101.4
million to expand, upgrade and maintain our asset base. With 23 plants and over
180 extrusion lines as of June 30, 2001, we are able to allocate lines to
specific products, resulting in fewer change-overs and more efficient use of our
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.
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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.
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 Pliant, 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
July 16, 2001, our management owned, directly or indirectly, approximately 12%
of our total common equity (including restricted stock and options 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.
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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 (as defined in the indenture) and working capital
improvements over the next few years by standardizing and improving operating
and manufacturing procedures throughout our organization. We expect to incur
additional costs of approximately $3.0 million during the third quarter of 2001
in connection with the SCORE initiative. 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.
- 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.
Following the recapitalization, we implemented certain initiatives during
the fourth quarter of 2000 to further reduce our operating costs. These included
the following:
- We announced the closure of our Harrington, Delaware and Birmingham,
Alabama facilities and the relocation of our corporate headquarters from
Salt Lake City, Utah to the Chicago, Illinois area.
- We announced a company-wide reduction in workforce of approximately 50
salaried positions.
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.
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.
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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 in retail
markets.
MANUFACTURING
We have a modern and efficient portfolio of manufacturing assets. During
1999 and 2000, we invested a total of $101.4 million to expand, upgrade and
maintain our asset base. With 23 plants and over 180 extrusion lines as of June
30, 2001, 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.
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. In addition, our Newport News specialists provide centralized
technical review of capital expenditures for machinery and equipment. We believe
this centralized technical review helps to
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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 films for food
packaging.
Recently, Pliant Corporation was awarded a patent for application of
reclosable slider zippers on vertical and horizontal form and fill machines.
This application is the largest opportunity for consumer friendly devices that
is being demanded for convenience and freshness.
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 $3.7 million, $5.5 million and $4.6 million on research and
development in 1998, 1999 and 2000, respectively, before giving effect to
revenues from pilot plant sales.
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
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.
We changed our name on October 9, 2000 pursuant to the recapitalization
agreement. We do not believe the replacement of "Huntsman Packaging" with
"Pliant" has had or 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, 2000, resin costs
comprised approximately 62% 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.
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Our major polyethylene resin suppliers are Chevron, Dow Chemical, Equistar,
Exxon/Mobil and 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. 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,
Pechiney, Printpack and Tredegar. 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 1, 2001, we had approximately 3,150 employees worldwide. Of
those, approximately 1,200 are subject to a total of 11 collective bargaining
agreements that expire from June 30, 2001 to February 19, 2004. 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."
We believe our current relationships with employees are good.
PROPERTIES
Our principal executive offices are located at 2755 East Cottonwood
Parkway, Suite 400, Salt Lake City, Utah 84121. We also maintain a corporate
office near Chicago, Illinois.
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 950 million
pounds. In 2000, we produced approximately 810 million pounds of films and
flexible packaging products. As part of our restructuring program announced in
the fourth quarter of 2000, we closed our Dallas, Texas facility in December
2000 and sold it in March 2001. Further, we intend to close our Birmingham,
Alabama facility and our Harrington, Delaware facility by the end of the third
quarter of 2001. We believe that the capacities of our plants, after giving
effect to the planned dispositions, are adequate to meet our current needs.
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Our principal manufacturing plants, as of June 1, 2001, 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:
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 212,000
(NEPSA)* and rollstock blown lines, flexographic
printing and 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 that we plan to dispose of in 2001.
+ Indicates a building that is approximately 95% owned and 5% leased.
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, for
example, 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
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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, 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.
LEGAL PROCEEDINGS
We are involved in litigation from time to time in the ordinary course of
our business. In management's opinion, none of such litigation is material to
our financial condition or results of operations.
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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 of preferred stock warrants, our board of
directors currently consists of seven members, four of whom were designated by
an affiliate of J.P. Morgan Partners, LLC, two of whom were designated by the
trust and one of whom was designated by the management investors. On February
16, 2001, Scott K. Sorensen resigned as a member of our board of directors. Mr.
Sorensen was one of the trust's designees to the board. The trust has not
designated a new member to the board, so there is one vacancy on our board of
directors for the trust's designee.
NAME AGE POSITION
- ---- ---- --------
Richard P. Durham.............. 37 Chairman of the Board and Chief Executive Officer
Jack E. Knott II............... 47 President and Chief Operating Officer and Director
Donald J. Hofmann, Jr.......... 43 Director
Timothy J. Walsh............... 38 Director
John M. B. O'Connor............ 47 Director
Richard D. Waters, Jr.......... 51 Director
Brian E. Johnson............... 45 Senior Vice President and Chief Financial Officer
RICHARD P. DURHAM became our Chief Executive Officer in March 1997 and
became the Chairman of our board of directors on May 31, 2000. From March 1997
through March 2001, Mr. Durham also served as our President. Mr. Durham had 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
also a director of Huntsman Corporation. 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 II became our President in March 2001 and has been our Chief
Operating Officer since September 1, 1997. From September 1997 through March
2001, Mr. Knott also served as our Executive Vice President. 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.
DONALD J. HOFMANN, JR. became one of our directors on May 31, 2000. Since
1992, Mr. Hofmann has been a Partner of J.P. Morgan Partners, LLC (formerly,
Chase Capital Partners), a global private equity organization with over $20.0
billion under management. J.P. Morgan Partners, LLC provides equity and
mezzanine debt financing for management buyouts and recapitalizations, growth
equity and capital. Mr. Hofmann is also a director of Advanced Accessory
Systems, LLC, Berry Plastics Corporation, BPC Holding Corporation, the parent
company of Berry Plastics Corporation, and United Auto Group, 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 the designees to the board of Southwest Industrial Films, LLC.
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TIMOTHY J. WALSH became one of our directors on May 31, 2000. Since 1999,
Mr. Walsh has been a Partner of J.P. Morgan Partners, LLC (formerly, Chase
Capital Partners), a global private equity organization with over $20.0 billion
under management. J.P. Morgan Partners, LLC provides equity and mezzanine debt
financing for management buyouts and recapitalizations, growth equity and
capital. From 1993 to 1999, Mr. Walsh held various positions with J.P. Morgan
Partners, LLC in Europe and North America. Prior to 1993, he was a Vice
President of J.P. Morgan Chase & Co. (formerly, The Chase Manhattan
Corporation). Mr. Walsh is also a director of 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 the designees to the board of Southwest Industrial Films, LLC.
JOHN M. B. O'CONNOR became one of our directors on May 31, 2000. Mr.
O'Connor joined J.P. Morgan Partners (formerly, Chase Capital Partners) in 1995
and is a Partner. J.P. Morgan Partners, LLC is a global private equity
organization with over $20.0 billion under management. J.P. Morgan Partners, LLC
provides equity and mezzanine debt financing for management buyouts and
recapitalizations, growth equity and capital. Prior to 1995, Mr. O'Connor was a
Managing Director of Chemical Securities, Inc. 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 the designees to the board of Southwest Industrial Films,
LLC.
RICHARD D. WATERS, JR. became one of our directors on May 31, 2000. Since
1999, Mr. Waters has been a Partner of J.P. Morgan Partners, LLC (formerly,
Chase Capital Partners), a global private equity organization with over $20.0
billion under management. J.P. Morgan Partners, LLC provides equity and
mezzanine debt financing for management buyouts and recapitalizations, growth
equity and capital. From 1996 to 1999, Mr. Waters held various positions with
J.P. Morgan Partners, LLC. Prior to 1996, Mr. Waters was a Managing Director in
the Merchant Banking Group of The Chase Manhattan Bank. Mr. Waters is also a
director of NuCo 2 Inc. and Environmental Systems Products Holding Inc. Mr.
Waters received a B.A. degree from Hamilton College and an M.B.A. degree from
the Columbia University Graduate School of Business. Pursuant to the
stockholders' agreement, Mr. Waters is one of the designees to the board of
Southwest Industrial Films, LLC.
BRIAN E. JOHNSON became our Senior Vice President and Chief Financial
Officer in April 2001. Prior to joining us, Mr. Johnson was the Executive Vice
President and Chief Financial Officer of Geneer Corporation since 2000. From
1994 to 2000, Mr. Johnson served in various capacities at Lawson Mardon
Packaging, most recently as Executive Vice President. Mr. Johnson received a
B.S. degree in Banking and Finance from the University of Illinois and an M.B.A.
degree from Northwestern University. Mr. Johnson also practiced as a Certified
Public Accountant.
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EXECUTIVE COMPENSATION
The following summary compensation table sets forth information about
compensation earned in the fiscal years ended December 31, 2000, 1999 and 1998
by the chief executive officer and the three other named executive officers of
Huntsman Packaging (as of the end of the last fiscal year).
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation(1) Awards(2)
-------------------------------- ------------------------------
Securities
Underlying All Other
Salary Bonus Options/SARs Compensation
Name and Principal Position Year ($) ($) (#) ($)
- --------------------------- ---- -------- -------- ------------ ------------
Richard P. Durham........................... 2000 $500,000 $245,568 -- $ 136,350(3)
Chairman and Chief 1999 450,000 327,325 -- 29,800(4)
Executive Officer 1998 400,000 73,721 15,734 29,800(4)
Jack E. Knott II............................ 2000 $316,667 $104,274 -- $1,031,469(5)
President and 1999 285,421 140,622 -- 4,800(6)
Chief Operating Officer 1998 263,333 31,331 10,489 4,800(6)
Scott K. Sorensen........................... 2000 $251,667 $ 83,947 -- $ 67,600(8)
Former Executive Vice President 1999 232,504 112,534 -- 4,800(9)
and Chief Financial Officer(7) 1998 206,068 28,574 7,867 82,035
Ronald G. Moffitt........................... 2000 $193,333 $ 46,731 -- $ 52,600(11)
Former Executive Vice President 1999 183,336 63,053 -- 4,800(12)
and General Counsel, Secretary(10) 1998 170,527 18,761 2,622 4,800(12)
- ---------------
(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) At December 31, 2000, the number of shares of restricted stock held by
Messrs. Durham, Knott, Sorensen and Moffitt were 14,500, 7,750, 6,750 and
3,750, respectively. The value of such shares of restricted stock at
December 31, 2000 has not been reported as compensation because it did not
exceed the consideration paid by the applicable named executive officer.
See "-- Stock Options and Restricted Stock."
(3) Consists of (a) a $125,000 retention bonus, which is also discussed in
"Certain Relationships and Related Transactions -- Transactions with
Management," (b) employer's 401(k) contributions of $5,100 and (c) a $6,250
director's fee, which is also discussed in "-- Compensation of Directors."
(4) Consists of (a) a $25,000 director's fee, which is also discussed in
"-- Compensation of Directors" and (b) employer's 401(k) contributions of
$4,800.
(5) Consists of (a) $836,785 gross-up payment of taxes payable for the exercise
of options in connection with the recapitalization, (b) relocation expense
reimbursement of $108,334, (c) a $81,250 retention bonus, which is also
discussed in "Certain Relationships and Related
Transactions -- Transactions with Management" and (d) employer's 401(k)
contributions of $5,100.
(6) Consists of employer's 401(k) contributions of $4,800.
(7) Mr. Sorensen was employed as our Executive Vice President and Chief
Financial Officer from February 1, 1998 to February 28, 2001. His 1998
compensation is reported for February 1, 1998 to December 31, 1998, which
is the period we employed him.
(8) Consists of (a) a $62,500 retention bonus, which is also discussed in
"Certain Relationships and Related Transactions -- Transactions with
Management" and (b) employer's 401(k) contributions of $5,100.
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(9) Consists of employer's 401(k) contributions of $4,800.
(10) Mr. Moffitt was employed as our Executive Vice President and General
Counsel, Secretary until February 28, 2001.
(11) Consists of (a) a $47,500 retention bonus, which is also discussed in
"Certain Relationships and Related Transactions -- Transactions with
Management" and (b) employer's 401(k) contributions of $5,100.
(12) Consists of employer's 401(k) contributions of $4,800.
STOCK OPTIONS AND RESTRICTED STOCK
During 1998, our board of directors adopted the 1998 Pliant 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 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 1, 2001, we had outstanding grants of restricted stock covering 22,875
shares of common stock and options to acquire 24,357 shares of common stock.
The following table provides information as to the value of options held by
each of the named executive officers at the end of 2000, measured in terms of
the fair market value of our common stock on December 31, 2000 ($483.13 per
share, which was the per share price paid in the recapitalization). None of the
named executive officers exercised any options under the 1998 plan or the 2000
plan during the last fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options/SARs Options/SARs
Shares Acquired Value at Fy-End (#) at Fy-End ($)
Name On Exercise (#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- -------- ------------------------- -------------------------
Jack E. Knott II....... -- -- 8,902/0 $ 3,410,623/$0
The options or restricted common stock granted pursuant to the 2000 plan
vest as follows: (1) one-sixth are "time-vested" options or shares, which means
they vested on January 1, 2001, so long as the recipient was still our employee
on such date, and (2) the remainder are "performance vested" options or shares,
which 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.
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
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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.
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.
PLIANT CORPORATION 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 27,200 40,800 54,400 68,000 81,600 95,200 108,800
200,000 27,200 40,800 54,400 68,000 81,600 95,200 108,800
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
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in 2000. The final average compensation for purposes of the pension plan in 2000
for each of the named executive officers is $170,000, which is the maximum that
can be considered for the 2000 plan year under federal regulations. Federal
regulations also provide that the maximum annual benefit paid from a qualified
defined benefit plan cannot exceed $135,000 as of January 1, 2000. Benefits are
calculated on a straight life 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, 2000
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).................................. 15
Jack E. Knott II(1)................................... 15
Scott K. Sorensen..................................... 3
Ronald G. Moffitt(1).................................. 6
- ---------------
(1) The years of credited service under the pension plan include 12 years of
service credited with affiliates of Pliant for Mr. Durham, 12 years of
service credited with affiliates of Pliant for Mr. Knott, and three years of
service credited with affiliates of Pliant 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.
EMPLOYMENT AGREEMENTS
On May 31, 2000, we entered into five-year employment agreements with each
of Richard P. Durham, Jack E. Knott II, 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. Similarly, we will also be required to repurchase all of the shares of
common stock owned by such executive officer at their option if the executive
officer's employment is terminated because of death, disability, retirement or
resignation for good reason, so long as we are permitted to do so at the time
under the covenants contained in our financing agreements.
On February 1, 2001, we amended the employment agreement with Mr. Durham
to, among other things, specify the duties he will perform as our Chairman and
Chief Executive Officer and eliminate our right to repurchase his shares upon
termination of employment. We also agreed to repurchase all of the shares of
common stock owned by Mr. Durham at his option if Mr. Durham's employment with
us is terminated without cause. In addition, pursuant to the employment
agreement amendment, we agreed to modify the terms of Mr. Durham's secured and
unsecured notes with us. For a description of these amended note terms, see
"Certain Relationships and Related Transactions -- Transactions with
Management."
Following management's decision to relocate its principal executive offices
from Salt Lake City to Chicago, each of Messrs. Sorensen and Moffitt chose not
to relocate and to resign their positions
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with Pliant. On December 27, 2000, we entered into a severance agreement with
Mr. Sorensen, who resigned from his position as our Executive Vice President,
Chief Financial Officer and Treasurer effective immediately after February 28,
2001. Such resignation was treated as a "termination without cause" under Mr.
Sorensen's employment agreement. We also entered into a stock redemption
agreement with Mr. Sorensen to repurchase all of the 6,750 shares of restricted
common stock issued to him. Under the terms of Mr. Sorensen's severance
agreement, he will receive the pro rata portion of his base salary for the two
months of services provided in 2001, the first quarterly 2001 payment under our
management incentive plan and payment of his base salary and continued
participation in certain of our employee benefit plans for one year after
February 28, 2001. In addition, we agreed to defer our right to repurchase Mr.
Sorensen's remaining shares of common stock until February 28, 2003; changed the
repurchase price from fair market value to the greater of fair market value and
$111.53; modified the terms of Mr. Sorensen's secured and unsecured promissory
notes with us; and agreed to reimburse Mr. Sorensen for any federal and state
income taxes payable as a result of the cancellation of interest indebtedness on
the amended secured promissory note. For a description of the amended note terms
and stock redemptions, see "Certain Relationships and Related
Transactions -- Transactions with Management."
On January 22, 2001, we entered into a severance agreement with Mr.
Moffitt, who resigned from his position as our Executive Vice President and
General Counsel, Secretary effective immediately after February 28, 2001. Such
resignation was treated as a "resignation for good reason" under Mr. Moffitt's
employment agreement. We also entered into a stock redemption agreement with Mr.
Moffitt to repurchase 3,125 performance shares of restricted common stock issued
to him. Under the terms of Mr. Moffitt's severance agreement, he will receive
the pro rata portion of his base salary for the two months of services provided
in 2001, the first quarterly 2001 payment under our management incentive plan
and payment of his base salary and continued participation in certain of our
employee benefit plans for one year after February 28, 2001. In addition, we
agreed to defer our right to repurchase Mr. Moffitt's remaining shares of common
stock until February 28, 2003; changed the repurchase price from fair market
value to the greater of the fair market value as of March 31, 2003 and $167.15;
granted Mr. Moffitt the right to purchase his leased company vehicle from us at
the end of the lease for the residual value; modified the terms of Mr. Moffitt's
secured and unsecured promissory notes with us; and agreed to reimburse Mr.
Moffitt for any federal and state income taxes payable as a result of the
cancellation of interest indebtedness on the amended secured promissory note.
Furthermore, Mr. Moffitt agreed to defer his right to cause us to repurchase his
shares of common stock until February 28, 2003. For a description of the amended
note terms and stock redemptions, see "Certain Relationships and Related
Transactions -- Transactions with Management."
The annual base salary in 2001 for each of Messrs. Durham, Knott, Sorensen
and Moffitt are $500,000, $325,000, $250,000 and $200,000, respectively.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has an executive committee, a compensation committee
and an audit committee. The executive committee is able to exercise all of the
authority of the board of directors to the maximum extent permitted by Utah law
and our charter and bylaws. The members of the executive committee are Richard
P. Durham and Timothy J. Walsh. The compensation committee evaluates our
compensation policies, determines compensation for our executive officers and
administers our stock option plans. The members of the compensation committee
are Richard P. Durham and Timothy J. Walsh. The audit committee maintains
oversight responsibilities with respect to our accounting, auditing, financial
reporting and internal control processes generally. The members of the audit
committee are Richard P. Durham and Richard D. Waters, Jr.
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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 was 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 comprised
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 Pliant or a Partner of
J.P. Morgan Partners, LLC will receive an annual fee of $25,000. Currently,
there is no director of Pliant who is not an employee of Pliant or a Partner of
J.P. Morgan Partners, LLC. However, there remains one vacancy on the board of
directors for the trust's designee.
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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 July 16, 2001 by
- each person known to own beneficially more than 5% of the common stock,
- each of our directors,
- each of our named executive officers, and
- all of our executive officers and directors as a group.
The amounts set forth in the table and footnotes below (a) do not include
shares of restricted common stock issued under the 2000 plan that remain subject
to performance vesting requirements that have not been met as of July 16, 2001
and (b) include 3,468 shares, which have been issued but not delivered and are
subject to holdback arrangements in connection with the Uniplast acquisition.
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 PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- ------------------------ ------------------ --------
J.P. Morgan Partners (BHCA), L.P.(1)........................ 362,229 57.9%
The Christena Karen H. Durham Trust(2)...................... 158,917 27.4
Perry Acquisition Partners - 2, L.P.(3) .................... 36,582 6.3
Richard P. Durham(2)(4)..................................... 30,706 5.3
Jack E. Knott II(5)......................................... 10,194 1.7
Scott K. Sorensen(6)........................................ 7,423 1.3
Ronald G. Moffitt(7)........................................ 3,457 *
Donald J. Hofmann, Jr.(8)................................... -- *
Timothy J. Walsh(8)......................................... -- *
John M. B. O'Connor(8)...................................... -- *
Richard D. Waters, Jr.(8)................................... -- *
All directors and executive officers as a group (7
persons).................................................. 40,900 6.9
- ---------------
* Less than 1%.
(1) The address of J.P. Morgan Partners (BHCA), L.P. is 1221 Avenue of the
Americas, New York, New York 10020. Includes (i) 317,306 shares of common
stock held by Southwest Industrial Films, LLC, which is controlled by J.P.
Morgan Partners (BHCA), L.P., as managing member,
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(ii) 44,816 shares of common stock which are issuable upon exercise of the
preferred stock warrants held by Southwest Industrial Films, LLC, which is
controlled by J.P. Morgan Partners (BHCA) L.P. and (iii) 106.5 shares of
common stock which are issuable upon exercise of the 1,264 note warrants
held by Southwest Industrial Films, LLC, which is controlled by J.P. Morgan
Partners (BHCA), L.P., as managing member.
(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) The address of Perry Acquisition Partners - 2, L.P. is 599 Lexington Avenue,
New York, New York 10022. Includes 4,060 shares of common stock which are
issuable upon exercise of preferred stock warrants held by an affiliate and
3,468 shares which have been issued but not delivered and are subject to
holdback arrangements in connection with the Uniplast acquisition. See
"Certain Relationships and Related Transactions -- Transactions between
Pliant and Uniplast Stockholders."
(4) Does not include 12,083 shares of restricted common stock issued under the
2000 plan that do not vest until the performance conditions discussed under
"Management -- Stock Options and Restricted Stock" are met.
(5) Includes 8,902 shares of common stock issuable upon exercise of options that
are immediately exercisable. Does not include 6,458 shares of restricted
common stock issued under the 2000 plan that do not vest until the
performance conditions discussed under "Management -- Stock Options and
Restricted Stock" are met.
(6) The address of Mr. Sorensen is c/o Hillenbrand Industries, Inc., 700 State
Route 46 East, Batesville, Indiana 47006.
(7) The address of Mr. Moffitt is 6758 S. Vista Grande Drive, Salt Lake City,
Utah 84121.
(8) Each of Messrs. Hofmann, Walsh, O'Connor and Waters may be deemed the
beneficial owner of the shares of common stock and preferred stock warrants
owned by Southwest Industrial Films, LLC and Flexible Films, LLC,
respectively, due to their status as executive officers of JPMP Capital
Corp., which is a subsidiary of J.P. Morgan Chase & Co. and the general
partner of the general partner of J.P. Morgan Partners (BHCA), L.P. J.P.
Morgan Partners (BHCA), L.P. controls both Southwest Industrial Films, LLC
and Flexible Films, LLC, as their managing member.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH HUNTSMAN CORPORATION
Prior to the transactions, we were party to 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 $2.3 million, $2.2 million and
$1.2 million in 1998, 1999 and 2000, 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 paid 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.
Following the transactions, all of the services provided under the services
agreement were discontinued.
We purchase some of our polyethylene resins from Huntsman Corporation. All
resin is purchased at arm's length at prevailing market prices.
During 1998 and 1999, we paid a management fee in the amount of $133,333
and $150,000, 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. No payments were made
pursuant to this consulting agreement during 2000.
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 secured promissory note of
$7,005,389;
(b) Jack E. Knott II -- 1,292 time-vested shares and 6,458
performance-vested shares in exchange for a promissory secured 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 secured 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 secured note of
$1,811,739.
Except as modified below, each secured promissory note bears interest at 7%
per annum and principal on such secured promissory note is payable in three
equal annual installments beginning on May 31, 2006. Interest payable on each
secured 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
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May 31, 2007 to May 31, 2008 must be paid in cash at maturity on May 31, 2008.
Each secured promissory note is secured by the shares of restricted stock owned
by such executive officer.
In connection with the amendment to Mr. Durham's employment agreement, we
amended the original terms of his secured promissory note so that (a) no
interest would accrue after December 31, 2000 and (b) our sole recourse against
Mr. Durham with respect to his obligations under the promissory note would be
the 14,500 shares of restricted common stock pledged as collateral.
On April 1, 2001, we amended the original terms of Mr. Knott's secured
promissory note so that (a) no interest would accrue after December 31, 2000 and
(b) our sole recourse against Mr. Knott with respect to his obligations under
the promissory note would be the 7,750 shares of restricted common stock pledged
as collateral.
As part of the severance arrangements with Messrs. Sorensen and Moffitt, we
amended the original terms of their secured promissory notes so that (a)
interest would cease to accrue from December 27, 2000, in the case of Mr.
Sorensen, and February 1, 2001, in the case of Mr. Moffitt, and (b) all accrued
interest on their secured promissory notes was cancelled as of February 28,
2001, which, in the case of Mr. Sorensen amounted to approximately $132,000,
and, in the case of Mr. Moffitt amounted to approximately $85,500. We also
entered into stock redemption agreements with each of Messrs. Sorensen and
Moffitt pursuant to which we repurchased all 6,750 time and performance vested
shares of restricted stock from Mr. Sorensen and the 3,125 performance vested
shares of restricted stock from Mr. Moffitt. In each case, we repurchased the
shares at a price per share equal to $483.13, which repurchase price was set-off
against the principal amount of their respective secured promissory notes. As of
June 1, 2001, the amount outstanding under Mr. Durham's secured promissory note,
including accrued interest, was $7,292,898; the amount outstanding under Mr.
Knott's secured promissory note, including accrued interest, was $3,897,928; the
amount outstanding under Mr. Moffitt's secured promissory note was $301,956; and
Mr. Sorensen's secured promissory note was no longer outstanding.
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, 2000, the outstanding balance on
this note was $154,511.
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 then 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 then Senior 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. In connection with the amendment to Mr. Durham's employment agreement,
we modified the terms of his amended promissory note so that no interest on such
note would accrue after December 31, 2000. As part of the severance arrangements
with Messrs. Sorensen and Moffitt, we modified the terms of their amended
promissory notes so that interest on such notes ceased to accrue on February 28,
2001. As of June 1, 2001, the amount outstanding under Mr. Durham's amended
promissory note was $1,637,974; the amount outstanding under Mr. Moffitt's
amended promissory note was $275,877; and the amount outstanding under Mr.
Sorensen's amended promissory note was $827,889.
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
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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, Pliant 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 Pliant 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.
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 shareholder and former Chairman of the
Board, Jon M. Huntsman. In connection with our exploring these alternatives, 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 were required to pay bonuses to those who remained our employees for six
months following the completion of the transactions. Under the retention plan we
paid Messrs. Durham, Knott, Sorensen and Moffitt $125,000, $75,000, $62,500 and
$47,500, respectively, because they met 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 Chairman of the Board and Chief Executive Officer, serve on the
Board of Trustees of the Huntsman Cancer Institute. These charitable
contributions ceased as of May 31, 2000 and none were made during 2000.
TRANSACTIONS BETWEEN PLIANT AND NEW STOCKHOLDERS
Common Stock Registration Rights Agreement
Pursuant to the registration rights agreement entered into on May 31, 2000,
we granted to Southwest Industrial Films, LLC, 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 Southwest Industrial
Films, LLC and its transferees and affiliates, we are required to use our best
efforts to register the shares. These 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 con-
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nection 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 all of the material provisions of the registration
rights agreement is less complete than the actual agreement and is qualified in
its entirety by reference to all of the provisions of the registration rights
agreement. You should read the actual registration rights agreement, a copy of
which has been incorporated by reference as an exhibit to the registration
statement of which this prospectus forms a part, for its complete provisions.
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 Southwest Industrial
Films, LLC, (ii) two directors designated by the trust and (iii) one director
designated by the management investors. At the request of Southwest Industrial
Films, LLC, 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
Southwest Industrial Films, LLC 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;
- 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 all of the material provisions of the stockholders'
agreement is less complete than the actual agreement and is qualified in its
entirety by reference to all of the provisions of the stockholders' agreement.
You should read the actual stockholders' agreement, a copy of which has been
incorporated by reference as an exhibit to the registration statement of which
this prospectus forms a part, for its complete provisions.
Credit Facilities and Offering of Old Notes
The Chase Manhattan Bank is the syndication agent, and its affiliate, J.P.
Morgan Chase & Co. (formerly The Chase Manhattan Corporation), is a lender under
our credit facilities. Both The Chase Manhattan Bank and J.P. Morgan Chase & Co.
receive customary fees under the credit facilities for acting in such
capacities. As part of the transactions, we paid fees of approximately $6.5
million to The Chase Manhattan Bank and J.P. Morgan Chase & Co. pursuant to the
credit facilities. JPMSI was one of the initial purchasers in the offering of
the Old Notes and was also the dealer manager
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for the debt tender offer and consent solicitation relating to our 9 1/8% senior
subordinated notes due 2007 and received fees of approximately $8.7 million for
acting in such capacities. In addition, when we amended our credit facilities,
we paid fees of approximately $0.6 million in September 2000 and approximately
$0.5 million in July 2001 to The Chase Manhattan Bank and J.P. Morgan Chase &
Co. Each of The Chase Manhattan Bank, J.P. Morgan Chase & Co. and JPMSI are
affiliates of Southwest Industrial Films, LLC, which owns approximately 53% of
our outstanding common stock and currently has the right under the stockholders'
agreement to appoint four of our directors, and of Flexible Films, LLC, which
owns approximately 58% of our preferred stock. Southwest Industrial Films, LLC
and Flexible Films, LLC are subsidiaries of J.P. Morgan Partners (BHCA), L.P.
Donald J. Hofmann, Jr., Timothy J. Walsh, John M.B. O'Connor and Richard D.
Waters, Jr., who serve as our directors, are executive officers of J.P. Morgan
Partners, LLC, which serves as investment advisor to J.P. Morgan Partners
(BHCA), L.P., and JPMP Capital Corp., a subsidiary of J.P. Morgan Chase & Co.,
which is the general partner of the general partner of J.P. Morgan Partners
(BHCA), L.P.
TRANSACTIONS BETWEEN PLIANT AND UNIPLAST STOCKHOLDERS
As a result of the Uniplast acquisition, Perry Acquisition Partners-2,
L.P., which had owned substantially all of the shares of Uniplast Holdings Inc.,
became a more than 5% beneficial owner of our common stock. Of the approximately
$40 million of Uniplast debt assumed by us as part of the consideration for the
acquisition, approximately $2.5 million represented accrued management fees
payable to an affiliate of Perry for services rendered to Uniplast from
April 30, 1998 to June 1, 2001. In addition, pursuant to the Uniplast stock
purchase agreement, if the final closing net debt of Uniplast on July 16, 2001
is less than $40 million, then we will be required to pay such difference to
Perry as a transaction fee. If the final closing net debt of Uniplast is
actually greater than $40 million, then we will retain the portion of the 3,468
shares (which are valued at approximately $1.7 million) subject to the holdback
arrangement that is equivalent to the difference.
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DESCRIPTION OF CREDIT FACILITIES
The following is a summary of the material terms of our credit facilities,
as amended, with JPMSI, 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 of all of the
material provisions is less complete than the actual documentation for the
credit facilities and is qualified in its entirety by reference to all of the
provisions of the definitive documentation for the credit facilities. You should
read the actual documentation for the credit facilities, copies of which have
been filed or incorporated by reference as exhibits to the registration
statement of which this prospectus forms a part, for their complete provisions.
The Facilities
Structure. The credit facilities provide for a
- 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 3.25% or ABR plus 2.25%, 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 3.75% or ABR plus
2.75%. Pliant 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)
0.625% 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
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commitment. In addition, we pay to the issuing bank, for its own account, (i) a
per annum fronting 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.
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 ended 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.
Affirmative, Negative and Financial Covenants
Affirmative Covenants. The credit facilities contain a number of
affirmative covenants including, among others, covenants relating to:
- delivery of financial statements and other information;
- notices of material events;
- information regarding collateral;
- existence;
- conduct of business;
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- payment of obligations;
- maintenance of properties;
- insurance;
- 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, prohibitions or limitations on:
- 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;
- agreements that restrict the ability of our subsidiaries to pay dividends
or make loans to us or to guarantee our debt;
- capital expenditures;
- amendment of material documents; and
- designated senior debt.
Financial Covenants. The credit facilities contain the following financial
covenants:
- We must maintain a ratio of period-end consolidated debt to Consolidated
EBITDA for the period of no more than 6.00:1.00 for the 12-month period
ending on June 30, 2001 and 5.50:1.00 for the 12-month period ending on
September 30, 2001. Thereafter, the maximum ratio we are allowed
decreases in increments of 0.25 after every quarter until September 30,
2003, when it becomes 3.50:1.00 for the 12-month period then-ended and
all subsequent periods.
- We must maintain a ratio of Consolidated EBITDA to consolidated cash
interest expense of at least 1.40:1.00 for the 12-month period ending on
June 30, 2001. Thereafter, the minimum ratio we are required to maintain
increases in increments of 0.05 to 0.15 after every quarter until the
12-month period ending on December 31, 2003, when it becomes 2.25:1.00
for such period and all subsequent periods.
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Under the credit facilities, our Consolidated EBITDA is calculated as follows,
after giving pro forma effect to any permitted acquisitions or asset sales
outside of the ordinary course of business:
- our consolidated net income before consolidated interest expense and
provision for taxes, plus
- the amount of letter of credit fees paid, plus
- the amount of all amortization and depreciation and other non-cash
charges and losses, plus
- the amount of all extraordinary charges and losses, plus
- the amount of all nonrecurring charges incurred relating to
restructurings, plant closings or similar actions in connection with our
facilities in Birmingham, AL; Dalton, GA; Harrington, DE; Shelbyville,
IN; and Toronto, Canada and other similar charges up to a maximum of
$8,000,000 in connection with similar actions occurring prior to November
30, 2001, plus
- the amount of all non recurring charges incurred pursuant to the
agreement with A.T. Kearney for the SCORE initiative, plus
- the amount of all compensation expense relating to long-term incentive
plans, bonuses and severance payments incurred as a result of the
transactions, plus
- the amount of all nonrecurring transaction and finance expenses incurred
as a result of the transactions and permitted acquisitions, minus
- the amount of all extraordinary gains.
The definition of Consolidated EBITDA contained in our credit facilities is
different from the definition of EBITDA contained in the indenture. The
indenture definition is used in presenting EBITDA for all other purposes in this
prospectus, including under "Selected Financial Data." However, the difference
in 2000 between EBITDA as calculated under the indenture and Consolidated EBITDA
as calculated under the credit facilities was not material.
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.
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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 July
16, 2001, 598,598 shares of our common stock (of which 18,541 shares are subject
to vesting requirements which have not yet been met and 3,468 shares are subject
to holdback arrangements under the Uniplast stock purchase agreement and have
not yet been delivered) and 129,000 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, 1,650 shares of common stock
issued on July 17, 2000 in a private placement to members of our senior
management who were not management investors and 34,677 shares issued as
consideration in the Uniplast acquisition, less the shares of restricted stock
redeemed in connection with employee severance arrangements. In the July 2000
private placement, we received cash consideration of $483.13 per share, or
approximately $800,000 in the aggregate.
In addition, at July 16, 2001, we had reserved for issuance the 77,753
shares of common stock underlying the preferred stock warrants, the 18,532
shares of common stock underlying the note warrants, the 24,357 shares of common
stock underlying the options granted under the 2000 plan, the 7,721 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. Pursuant to our stockholders' agreement, we are
required to make a preemptive rights offering of additional shares of our
preferred stock and preferred stock warrants to certain holders of our common
stock. We expect to close the preemptive rights offering in the third quarter of
2001.
The following are summaries of all of the material terms of the common
stock and the preferred stock. Such summaries are less than complete and are
qualified in their entirety by reference to all of the provisions of our
articles of incorporation and bylaws and the preferred stock warrant agreement.
You should read the actual articles of incorporation, bylaws and preferred stock
warrant agreement, copies of each of which have been filed or incorporated by
reference as exhibits to the registration statement of which this prospectus
forms a part, for their complete provisions. For a summary of all of the
material 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 Pliant, 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.
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PREFERRED STOCK
We are authorized to issue up to 200,000 shares of preferred stock. Of this
amount, 130,000 shares have been designated as Series A Cumulative Exchangeable
Redeemable Preferred Stock. The preferences, limitations and relative rights of
the remaining 70,000 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 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 our 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
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- 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 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.
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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, as amended. See "Certain Relationships and Related
Transactions -- Transactions between Pliant and New Stockholders."
UTAH CONTROL SHARES ACQUISITION ACT
The Utah Control Shares Acquisition 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 this 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 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, this 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 this control shares
act.
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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 Pliant 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 the 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 incorporated by
reference as an exhibit to the registration statement of which this prospectus
is a part. The Indenture, as supplemented on July 16, 2001, 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 Old Notes and the Note Warrants became
separately transferable on August 29, 2000. On October 12, 2000, the Company
consummated the registered exchange offer of Notes for Old Notes, and the
Trustee authenticated and delivered $220.0 million aggregate principal amount of
New Notes in exchange for a like principal amount of Old Notes. Accordingly, no
Old Notes remain 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 Notes are:
- 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.
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The Note Guarantors
The Notes are guaranteed by each of the following domestic Restricted
Subsidiaries of the Company:
- Pliant Corporation International;
- Pliant Film Products of Mexico, Inc.;
- Pliant Solutions Corporation;
- Pliant Corporation Georgia, Inc.;
- Pliant Packaging of Canada, LLC;
- Uniplast Holdings Inc.;
- Uniplast U.S., Inc.;
- Turex, Inc.;
- Pierson Industries, Inc.; and
- Uniplast Midwest, Inc.
The Notes are not 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;
- Pliant Corporation of Canada Ltd.;
- Pliant Film Products GmbH;
- Pliant Corporation Pty, Ltd.;
- Pliant Film Products, UK, Limited;
- Mexicana de Tintas S.A.;
- Nepsa de Mexico S.A. de C.V.;
- Uniplast Industries Co.;
- Uniplast Films, Inc.; and
- 1292789 Ontario Inc.
The Notes are not guaranteed by Pliant Investment, Inc., which is an
Unrestricted Subsidiary. Pliant Investment, Inc. is currently inactive and does
not have any material assets or liabilities.
The Restricted Subsidiaries that are not Note Guarantors had generated
13.0% of the Company's net sales for the year ended December 31, 2000, and at
March 31, 2001, after giving effect to the Uniplast acquisition, would have
accounted for 14.2% of the assets 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;
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- 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.
PRINCIPAL, MATURITY AND INTEREST
We issued the Notes in an aggregate principal amount of $220 million. The
Notes are limited to $220,000,000 in aggregate principal amount and will mature
on June 1, 2010. The Notes are 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.
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
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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 Notes are, 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 Notes are 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, 2001,
after giving effect to the Uniplast acquisition, the Subsidiaries of the
Company, other than those Subsidiaries that are Note Guarantors, would have had
total liabilities, including trade payables, of approximately $76.2 million
(excluding liabilities owed to the Company). As of March 31, 2001, after giving
effect to the Uniplast acquisition, there would have been outstanding:
(1) approximately $480.5 million of Senior Indebtedness of the
Company, all of which would have been Secured Indebtedness (exclusive of
unused commitments of $84.5 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;
(3) no Senior Indebtedness of the Note Guarantors (other than the
guarantees of Indebtedness under the Credit Agreement); and
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(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.
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,
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(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 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
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(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 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
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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 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);
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(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 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
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(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.
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.
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(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 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
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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 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
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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,
(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,
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(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 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
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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.
(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
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(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;
(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.
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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,
(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
permit-
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ted 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
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
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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.
(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
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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,
(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
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(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 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;
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(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.
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,
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(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.
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.
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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.
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,
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(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.
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
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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
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.
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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,
(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,
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(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.
"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.
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"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 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
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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
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,
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(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;
(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
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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.
"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.
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"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,
(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
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(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, J.P.
Morgan Securities Inc. (formerly known as 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.
"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
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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 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);
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(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 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
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(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,
(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
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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;
(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
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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.
"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.
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"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, 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;
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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 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
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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,
(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
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"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 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."
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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.
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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 all of the material provisions of the note warrant
agreement is less complete than the actual agreement, and is qualified in its
entirety by reference to all of the provisions of the note warrant agreement
including the definitions. You should read the actual note warrant agreement, a
copy of which has been incorporated by reference as an exhibit to the
registration statement of which this prospectus forms a part, for its complete
provisions. 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 is currently exercisable and may be exercised prior to
June 1, 2010. 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 trade separately from
the Notes.
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 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
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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,
(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
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125
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):
(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
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126
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.
"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.
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BOOK-ENTRY; DELIVERY AND FORM
The Notes are represented by one or more permanent global notes in
definitive, fully registered book-entry form, without interest coupons that have
been deposited with, or on behalf of, DTC and registered in the name of DTC or
its nominee, on behalf of the acquirers of Notes represented thereby for credit
to the respective accounts of the acquirers, or to such other accounts as they
may direct, at DTC.
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
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 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 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
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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 Notes represented by such global note
registered in their names,
- will not receive or be entitled to receive physical delivery of
certificated 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 Notes.
Payments with respect to the principal of, and premium, if any, and
interest on, any 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 Notes under the indenture. Under the
terms of the indenture, we and the trustee may treat the persons in whose names
the 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.
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129
PLAN OF DISTRIBUTION
This prospectus has been prepared for use by JPMSI in connection with
offers and sales of the Notes in market-making transactions effected from time
to time. JPMSI 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 JPMSI against certain liabilities,
including liabilities under the Securities Act, and to contribute payments which
JPMSI might be required to make in respect thereof.
As of July 16, 2001, an affiliate of each of J.P. Morgan Partners, LLC and
JPMSI, beneficially owned approximately 58% of our common stock. See "Security
Ownership of Certain Beneficial Owners and Management." JPMSI has informed us
that it does not intend to confirm sales of the 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 JPMSI that, subject to applicable laws and
regulations, JPMSI currently Intends to make a market in the Notes following
completion of the exchange offer. However, JPMSI is not obligated to do so and
any such market-making may be interrupted or discontinued at any lime 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 Notes."
LEGAL MATTERS
The validity of the Notes and the guarantees has been passed upon for us by
O'Sullivan LLP, New York, New York.
EXPERTS
The consolidated financial statements of Pliant Corporation included in
this prospectus and the financial statement schedule included elsewhere in the
registration statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
The consolidated financial statements of Uniplast Holdings Inc. included in
this prospectus as of and for the year ended December 31, 2000 have been audited
by KPMG LLP, independent public accountants, and are included herein in reliance
upon the authority of said firm as experts in giving said reports.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with
the SEC. You may read and copy any reports, documents and other information we
file at the SEC'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
SEC. 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 SEC at
http://www.sec.gov.
We filed a Registration Statement on Form S-1 to register with the SEC
offers and sales of the Notes made by JPMSI in market-making transactions
effected from time to time. This prospectus is part of that Registration
Statement. As allowed by the SEC'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. You should note that where we summarize in the
prospectus the material terms of any contract, agreement or other document filed
or incorporated by reference as an exhibit to the registration statement, the
summary information provided in the prospectus is less complete than the actual
contract, agreement or document. You should refer to the exhibits filed or
incorporated by reference to the registration statement for copies of the actual
contract, agreement or document.
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 MAY NOT RELY ON US FOR THE ACCURACY OF 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. SUBJECT TO OUR OBLIGATION TO AMEND OR SUPPLEMENT THIS
PROSPECTUS AS REQUIRED BY LAW AND THE RULES AND REGULATIONS OF THE SEC, THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
PLIANT CORPORATION AND SUBSIDIARIES FINANCIAL STATEMENTS:
AS OF DECEMBER 31, 2000 AND 1999 AND FOR EACH OF THE THREE
YEARS IN THE PERIOD ENDED DECEMBER 31, 2000:
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 2000 and
1999................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 2000, 1999 and 1998... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998....................... F-6
Notes to Consolidated Financial Statements................ F-9
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000 AND FOR THE THREE
MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED):
Condensed Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000.................................. F-43
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2001 and 2000............. F-44
Condensed Consolidated Statements of Stockholders' Equity
(Deficit) for the three months ended March 31, 2001.... F-45
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2001 and 2000............. F-46
Notes to Condensed Consolidated Financial Statements...... F-47
UNIPLAST HOLDINGS INC. AND SUBSIDIARIES FINANCIAL
STATEMENTS:
AS OF DECEMBER 31, 2000:
Independent Auditors' Report.............................. F-60
Consolidated Balance Sheet as of December 31, 2000........ F-61
Consolidated Statement of Operations for the year ended
December 31, 2000...................................... F-62
Consolidated Statement of Stockholders' Equity and
Comprehensive Income for the year ended December 31,
2000................................................... F-63
Consolidated Statement of Cash Flows for the year ended
December 31, 2000...................................... F-64
Notes to Consolidated Financial Statements................ F-65
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000 AND FOR THE THREE
MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED):
Condensed Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000.................................. F-75
Condensed Consolidated Statements of Net Loss for the
three months ended March 31, 2001 and 2000............. F-76
Condensed Consolidated Statement of Stockholders' Equity
and Comprehensive Income for the three months ended
March 31, 2001......................................... F-77
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2001 and 2000............. F-78
Notes to Condensed Consolidated Financial Statements...... F-79
F-1
132
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pliant Corporation:
We have audited the accompanying consolidated balance sheets of Pliant
Corporation and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 2000. 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 Pliant
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
February 2, 2001
F-2
133
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999
--------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,060 $ 9,097
Receivables:
Trade accounts, net of allowances of $2,166 and $2,115,
respectively........................................... 104,247 109,768
Other................................................... 10,811 12,866
Inventories............................................... 79,151 78,199
Prepaid expenses and other................................ 1,983 2,644
Income taxes receivable................................... 2,758 2,691
Deferred income taxes..................................... 12,992 5,408
--------- --------
Total current assets................................ 215,002 220,673
--------- --------
PLANT AND EQUIPMENT:
Land and improvements..................................... 7,219 7,442
Buildings and improvements................................ 59,446 59,645
Machinery and equipment................................... 324,680 310,232
Furniture, fixtures and vehicles.......................... 6,057 4,501
Leasehold improvements.................................... 1,236 813
Construction in progress.................................. 32,435 9,412
--------- --------
431,073 392,045
Less accumulated depreciation and amortization............ (97,990) (77,593)
--------- --------
Plant and equipment, net............................ 333,083 314,452
--------- --------
INTANGIBLE ASSETS, net...................................... 205,870 214,956
--------- --------
OTHER ASSETS................................................ 31,079 18,942
--------- --------
Total assets........................................ $ 785,034 $769,023
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 9,362 $ 17,120
Trade accounts payable.................................... 109,018 60,056
Accrued liabilities:
Customer rebates........................................ 8,602 8,910
Other................................................... 30,410 26,026
Due to affiliates......................................... 4,715
--------- --------
Total current liabilities........................... 157,392 116,827
LONG-TERM DEBT, net of current portion...................... 678,031 493,262
OTHER LIABILITIES........................................... 25,757 13,983
DEFERRED INCOME TAXES....................................... 33,060 51,363
--------- --------
Total liabilities................................... 894,240 675,435
--------- --------
COMMITMENTS AND CONTINGENCIES (Notes 6, 7, 10 and 12).......
REDEEMABLE STOCK:
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............................................... 80,349
Common stock -- 57,121 shares outstanding, no par value,
net of related stockholders' notes receivable of
$14,551................................................. 16,456
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........ 2,926
--------- --------
Total redeemable stock.............................. 96,805 2,926
--------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock -- Class A voting, no par value; 1,200,000
shares authorized, 1,000,001 shares outstanding......... 63,161
Common stock -- Class B voting, no par value; 10,000
shares authorized, 6,999 shares outstanding............. 515
Common stock -- no par value; 10,000,000 shares
authorized, 510,674 shares outstanding.................. 87,989
Warrants to purchase common stock......................... 26,500
Retained earnings (deficit)............................... (312,414) 32,042
Stockholders' notes receivable............................ (825) (299)
Cumulative foreign currency translation adjustments....... (7,261) (4,757)
--------- --------
Total stockholders' equity (deficit)................ (206,011) 90,662
--------- --------
Total liabilities and stockholders' equity
(deficit)........................................... $ 785,034 $769,023
========= ========
See notes to consolidated financial statements.
F-3
134
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS)
2000 1999 1998
-------- -------- --------
NET SALES............................................... $843,797 $813,730 $681,124
COST OF SALES........................................... 696,716 655,752 561,577
-------- -------- --------
Gross profit.................................. 147,081 157,978 119,547
-------- -------- --------
OPERATING EXPENSES:
Administration and other.............................. 70,422 48,905 37,383
Sales and marketing................................... 27,488 25,071 24,148
Research and development.............................. 4,623 5,514 3,677
Compensation and transaction costs related to
recapitalization................................... 10,754
Plant closing costs................................... 19,368 2,497 4,875
-------- -------- --------
Total operating expenses...................... 132,655 81,987 70,083
-------- -------- --------
OPERATING INCOME........................................ 14,426 75,991 49,464
INTEREST EXPENSE........................................ (68,534) (44,028) (37,519)
OTHER INCOME (EXPENSE), net............................. 332 435 (879)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND EXTRAORDINARY LOSS.......................... (53,776) 32,398 11,066
-------- -------- --------
INCOME TAX EXPENSE (BENEFIT):
Current............................................... 4,144 6,829 1,567
Deferred.............................................. (18,387) 7,258 6,966
-------- -------- --------
Total income tax expense (benefit)............ (14,243) 14,087 8,533
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY LOSS.................................... (39,533) 18,311 2,533
INCOME FROM DISCONTINUED OPERATIONS (net of income tax
expense of $387)...................................... 582
GAIN ON SALE OF DISCONTINUED OPERATIONS (net of income
tax expense of $6,729)................................ 5,223
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS................. (39,533) 18,311 8,338
EXTRAORDINARY LOSS (net of income tax benefit of
$7,500)............................................... (11,250)
-------- -------- --------
NET INCOME (LOSS)....................................... $(50,783) $ 18,311 $ 8,338
======== ======== ========
See notes to consolidated financial statements.
F-4
135
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
WARRANTS
CLASS A CLASS B TO
COMMON STOCK COMMON STOCK COMMON STOCK PURCHASE RETAINED
----------------- --------------- ---------------- COMMON EARNINGS
TOTAL SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK (DEFICIT)
--------- ------ -------- ------ ------ ------ ------- -------- ---------
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 loss............ 19,940
---------
Payments received on stockholder
note receivable............... 135
--------- ------ -------- -- ----- --- ------- ------- ---------
Balance, December 31, 1999....... 90,662 1,000 63,161 7 515 32,042
---------
Comprehensive loss:
Net loss........................ (50,783) (50,783)
Other comprehensive loss --
Foreign currency translation
adjustments................. (2,504)
---------
Comprehensive loss.......... (53,287)
---------
Recapitalization transaction.... (231,762) (1,000) (63,161) (7) (515) 508 86,932 18,550 (272,979)
Issuance of warrants to purchase
common stock with senior
notes......................... 7,950 7,950
Preferred stock dividends and
accretion..................... (8,771) (8,771)
Increase to redemption value of
redeemable common stock....... (11,923) (11,923)
Issuance of stock to management
in exchange for promissory
notes......................... 7 3,261
Discount on stockholder note
receivable.................... 323
Issuance of stock to
management.................... 797 2 797
Repurchase of common stock from
management and cancellation of
note.......................... (6) (3,001)
--------- ------ -------- -- ----- --- ------- ------- ---------
Balance, December 31, 2000....... $(206,011) $ $ 511 $87,989 $26,500 $(312,414)
========= ====== ======== == ===== === ======= ======= =========
CUMULATIVE
FOREIGN
STOCKHOLDERS' CURRENCY
NOTES TRANSLATION
RECEIVABLE ADJUSTMENTS
------------- -----------
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 loss............
Payments received on stockholder
note receivable............... 135
------- -------
Balance, December 31, 1999....... (299) (4,757)
Comprehensive loss:
Net loss........................
Other comprehensive loss --
Foreign currency translation
adjustments................. (2,504)
Comprehensive loss..........
Recapitalization transaction.... (589)
Issuance of warrants to purchase
common stock with senior
notes.........................
Preferred stock dividends and
accretion.....................
Increase to redemption value of
redeemable common stock.......
Issuance of stock to management
in exchange for promissory
notes......................... (3,261)
Discount on stockholder note
receivable.................... 323
Issuance of stock to
management....................
Repurchase of common stock from
management and cancellation of
note.......................... 3,001
------- -------
Balance, December 31, 2000....... $ (825) $(7,261)
======= =======
See notes to consolidated financial statements.
F-5
136
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS)
2000 1999 1998
--------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ (50,783) $ 18,311 $ 8,338
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization...................... 39,546 35,019 27,088
Deferred income taxes.............................. (18,387) 7,137 6,966
Decrease in provision for losses on accounts
receivable....................................... (156) (455) (1,714)
Noncash compensation expense related to stock
options.......................................... 2,641 770
Discount on stockholder note receivable............ 323
Gain on sale of discontinued operations............ (5,223)
Write-down of goodwill............................. 411
Write-down of impaired plant and equipment......... 14,801 1,370 629
Loss on disposal of assets......................... 514 86 305
Extraordinary loss (net of income taxes)........... 11,250
Changes in operating assets and liabilities - net
of effects of acquisitions:
Trade accounts receivable........................ 4,886 (26,278) 15,041
Other receivables................................ 2,055 (3,070) (7,526)
Inventories...................................... (952) (7,829) 14,298
Prepaid expenses and other....................... 661 1,411 46
Other assets..................................... 1,930 7,145 1,685
Trade accounts payable........................... 48,962 16,870 1,528
Accrued liabilities.............................. 4,355 (4,012) 1,998
Due to affiliates................................ (4,715) (2,285) (8,279)
Income taxes payable/receivable.................. (67) 4,674 (9,004)
Other liabilities................................ 3,402 2,589 (1,097)
--------- -------- ---------
Net cash provided by operating activities..... 60,266 51,453 45,490
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment.......... (65,644) (35,723) (52,101)
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)
--------- -------- ---------
Net cash used in investing activities......... (65,644) (46,030) (314,840)
--------- -------- ---------
See notes to consolidated financial statements.
F-6
137
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS)
2000 1999 1998
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capitalized loan fees...................... $ (22,303)
Payment of fees from tender offer..................... (10,055)
Redemption of common stock............................ (314,034)
Net proceeds from issuance of common and preferred
stock.............................................. 161,820
Payments on long-term debt............................ (507,002) $(17,850) $ (10,544)
Proceeds from issuance of Class C nonvoting common
stock.............................................. 986 1,170
Payments received from stockholder on note
receivable......................................... 165 135 266
Proceeds from issuance of long-term debt.............. 691,684 285,000
--------- -------- ---------
Net cash provided by (used in) financing
activities.................................. 275 (16,729) 275,892
--------- -------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS........................................... (934) 1,186 264
--------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (6,037) (10,120) 6,806
CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR........ 9,097 19,217 12,411
--------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF THE YEAR.............. $ 3,060 $ 9,097 $ 19,217
========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest........................................... $ 62,781 $ 43,179 $ 33,253
--------- -------- ---------
Income taxes....................................... $ (4,160) $ (361) $ 5,647
--------- -------- ---------
See notes to consolidated financial statements.
F-7
138
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
A capital lease obligation of $353 was incurred during 1999 for new
equipment.
On October 18, 1999, certain assets were acquired and certain liabilities
were assumed 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, all of the outstanding capital stock of Blessings
Corporation was purchased 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, certain assets were acquired and certain liabilities
were assumed 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
=======
See notes to consolidated financial statements.
F-8
139
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS -- Pliant Corporation (formerly Huntsman Packaging
Corporation) and its subsidiaries (collectively "Pliant") 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 -- On May 31, 2000, we consummated a recapitalization
pursuant to an agreement dated March 31, 2000 (the "Recapitalization Agreement")
among us, our then existing stockholders and an affiliate of J.P. Morgan
Partners, LLC, whereby J.P. Morgan Partners, LLC acquired majority control of
our common stock. 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. An affiliate of J.P. Morgan Partners, LLC
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 current and former senior management (the "Management Investors") for
approximately $101.8 million. An affiliate of J.P. Morgan Partners, LLC and
certain other institutional investors also purchased (the "Investor Common
Equity Contribution") shares of common stock directly from us for approximately
$63.5 million ($62.6 million net of offering costs). 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 another affiliate of J.P. Morgan Partners, LLC and to certain other
institutional investors a new series of senior cumulative exchangeable
redeemable preferred stock (the "Preferred Stock") and detachable warrants for
our common stock (the "Preferred Stock Warrants") for net consideration of
approximately $98.5 million. The foregoing transactions are collectively
referred to as the "Recapitalization." The total consideration paid in the
Recapitalization was approximately $1.1 billion, including transaction costs.
Immediately following the Recapitalization, approximately 55.5% of our
total common stock was owned by an affiliate of J.P. Morgan Partners, LLC
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. J.P. Morgan
Partners, LLC owns our common stock through its Flexible Film, LLC subsidiary
and owns our preferred stock through its Southwest Industrial Films, LLC
subsidiary.
The accounting for the Recapitalization did not result in changes to the
historical cost presentation of our assets and liabilities.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Pliant and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES - 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.
ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK -- We are dependent
upon a limited number of large customers with substantial purchasing power for a
significant portion of our sales.
F-9
140
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Approximately 29% of the consolidated trade accounts receivable before
allowances at December 31, 2000 were represented by eight customers with one
customer representing approximately 10% of consolidated receivables.
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. Resin costs
comprise the majority of our total manufacturing costs. Resin shortages or
significant increases in the price of resin could have a significant adverse
effect on our business.
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
Maintenance and repairs are charged to expense as incurred and costs of
improvements and betterments are capitalized. Upon disposal, related costs and
accumulated depreciation are removed from the accounts and resulting gains or
losses are reflected in operations.
Costs incurred in connection with the construction or major rebuild of
equipment are capitalized as construction in progress. No depreciation is
recognized on these assets until placed in service.
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 asset. Measurement of the amount
of impairment, if any, is based upon the difference between the asset's carrying
value and fair value. As of December 31, 2000, we believe that none of our long-
lived assets are impaired. However, should significant customers be lost or
industry market conditions materially deteriorate, and as a result our estimates
of cash flows decline in the near term, we may be required to record an
impairment loss which could be material to our results of operations and
financial position.
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. Major spare parts are depreciated using the straight-line
method over the useful lives of the related machinery and equipment.
CASH AND CASH EQUIVALENTS -- For the purpose of the consolidated statements
of cash flows, we consider short-term highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash generated outside
of the United States is generally subject to taxation if repatriated.
F-10
141
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
DERIVATIVE FINANCIAL INSTRUMENTS -- In the normal course of business, we
occasionally enter into interest rate derivative agreements to manage interest
rate risk on long-term debt. These agreements are generally 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.
As of December 31, 2000, we have one interest rate derivative contract (see
Note 6). For the year ended December 31, 2000 and 1999, we realized a reduction
in raw material inventory costs of $0.5 million and $1.3 million, respectively,
from commodity collar agreements. There are no such agreements in place as of
December 31, 2000.
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. As of December 31, 2000 our only outstanding
derivative is our interest rate cap (see Note 6) and therefore, 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 (deficit). Where the U.S. dollar is the
functional currency, translation adjustments are recorded in other income within
current operations.
RECLASSIFICATIONS -- Emerging Issues Tax Force (EITF) Issue 00-10 requires
amounts billed to customers for shipping and handling be classified as revenue
and the costs of shipping and handling be reflected as expense. Prior to 2000,
the Company recorded the costs as a reduction to sales. Reclassifications have
been made to prior years' sales and cost of sales to reflect this change.
F-11
142
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORIES
INVENTORY BALANCES -- Inventories consist of the following at December 31,
2000 and 1999 (in thousands):
2000 1999
------- -------
Finished goods......................................... $46,760 $41,408
Raw materials.......................................... 24,158 28,910
Work-in-process........................................ 8,233 7,881
------- -------
Total.................................................. $79,151 $78,199
======= =======
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 Huhtamaki
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
results of operations of this separate business segment are reflected as
discontinued operations in the accompanying 1998 consolidated statement of
operations. Revenues from the foam products operations for the year ended
December 31, 1998 amounted to $15.6 million.
On August 14, 1998, we sold our interest in the capital stock of UK Limited
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, OFFICE CLOSING COSTS AND WORKFORCE REDUCTION
Plant Closing Costs
2000 PLANT CLOSING COSTS -- During 2000, we approved and announced a
strategic initiative to cease operations at our Dallas, Texas; Birmingham,
Alabama; and Harrington, Delaware facilities. These facilities represent a
portion of our Design, Industrial and Specialty Films segments, respectively.
The intent of this initiative was to maximize the capacity of other company
owned facilities by moving the production from these locations to plants that
were not operating at capacity. As a result of this strategic initiative, we
recorded a pre-tax charge of $19.6 million which is included as part of Plant
Closing Costs in the accompanying consolidated statement of operations. Of the
$19.6 million, $13.8 million represented the write-off of impaired plant and
equipment, $5.0 million represented a charge for severance costs and $0.8
million represented a charge for other closure costs and inventory write-offs.
The major actions relating to the exit of these facilities include closing each
of the respective facilities, disposal of the related equipment of each facility
and termination of the employees of the respective facilities. As of December
31, 2000, we have completed the closure of our Dallas facility and we expect to
complete the closure of our Birmingham and Harrington
F-12
143
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
facilities by the end of the third quarter 2001. The following is a summary of
the key elements of this exit plan:
DALLAS BIRMINGHAM HARRINGTON TOTAL
------ ---------- ---------- -------
Number of employees to be terminated......... 68 105 104 277
Book value of property and equipment to be
disposed of................................ $1,593 $8,913 $8,172 $18,678
Estimated proceeds from disposal............. 1,200 1,749 1,928 4,877
------ ------ ------ -------
Net write-off from disposal.................. 393 7,164 6,244 13,801
Severance costs.............................. 588 2,271 2,132 4,991
Other closure costs.......................... 302 225 270 797
------ ------ ------ -------
Total closure costs.......................... $1,283 $9,660 $8,646 $19,589(1)
====== ====== ====== =======
- ---------------
(1) The accompanying Consolidated Statement of Operations reflects this charge
partially offset by certain reversals of severance accruals related to 1999
plant closings totaling approximately $0.2 million.
We do not anticipate the loss of any revenues or income from the closure of
these facilities due to the fact that their respective sales volumes will be
transferred to other Pliant facilities. As of December 31, 2000, the remaining
reserves related to severance costs and other costs are included in other
accrued liabilities in the accompanying consolidated balance sheet while the net
write-off from disposal of property and equipment has been recorded as a
reduction of the net property and equipment balance. Utilization of the
initially established restructuring reserves during the year ended December 31,
2000 is summarized below:
UTILIZED
ORIGINAL ------------------- BALANCE
ACCRUAL NON-CASH(A) CASH 12/31/00
-------- ----------- ---- --------
Property and equipment.................. $13,801 $13,801
Severance costs......................... 4,991 $620 4,371
Other costs............................. 797 $212 585
------- ---- ---- -------
Total................................... $19,589 $212 $620 $18,757
======= ==== ==== =======
- ---------------
(a) Represents the disposal of inventory net of cash received upon disposal.
As of December 31, 2000, 68, 0 and 2 of the expected employee terminations
had been completed at our Dallas, Birmingham and Harrington facilities,
respectively.
1999 PLANT CLOSING COSTS -- During 1999, we approved and announced our
plans to cease operations at one of our facilities in Mexico City and shut down
one of our product lines at our Kent, Washington facility. Our product line at
Kent was closed down in the first quarter of 2000. Our Mexico City facility is
expected to be completely closed by March 31, 2001. Plant closing costs for
these facilities totaled $2.5 million and consisted of a $1.5 million write-off
of impaired plant and equipment, and a $1.0 million charge for severance costs
to eliminate 146 full-time equivalent employees. During 2000, we reversed $0.1
million of severance cost accruals related to the Kent closure and $0.1 million
of other severance accruals which proved to be not needed. As of December 31,
2000, included in other accrued liabilities are remaining amounts for the Mexico
closure of approximately $1.4 million.
F-13
144
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 PLANT CLOSING COSTS -- During 1998, we approved and announced our plan
to cease operations at our Clearfield, Utah facility. Plant closing costs
totaled $4.9 million and consisted of a $3.4 million charge for estimated future
net lease payments on a noncancellable operating lease, a $0.6 million write-off
of impaired plant and equipment, a $0.5 million charge for reduction of
severance costs associated with the elimination of 52 full-time equivalent
employees and a $0.4 million write-off of impaired goodwill. As of December 31,
2000, included in other accrued liabilities are the remaining amounts estimated
to be paid for the noncancellable operating lease of $1.6 million. The lease
expires in January 2011.
It is possible that our estimates of net lease payments on noncancellable
operating leases, particularly related to estimated subleasing receipts, could
change in the near term and could result in additional accruals or the reversal
of amounts previously accrued. Additionally, it is possible that our estimate of
the loss on disposal of certain fixed assets could change in the near term based
upon differences between estimated and actual sale proceeds.
Office Closing Costs and Workforce Reductions
During the fourth quarter 2000, we approved and announced a cost saving
initiative resulting in a company-wide workforce reduction, relocation of the
corporate office from Salt Lake City, Utah to Chicago, Illinois area and closure
of the Dallas, Texas divisional office. As a result of this initiative we
recorded a pre-tax charge of $7.1 million which is included as part of
administration and other expenses in the accompanying consolidated statements of
operations. The major actions relating to this initiative included a reduction
in workforce due to consolidation of duties, and closing the offices in Dallas,
Texas and Salt Lake City, Utah. We expect to complete the workforce reduction of
52 employees and the closure of the office in Dallas, Texas during the first
quarter 2001, while the Salt Lake City, Utah office will close during the second
quarter 2001. The following is a summary of the key elements of this plan:
WORKFORCE RELOCATION OF CLOSURE OF
REDUCTION CORPORATE OFFICE DALLAS OFFICE TOTAL
--------- ---------------- ------------- ------
Number of employees................. 52 36 2 90
Leasehold improvements.............. $1,000 $1,000
Severance cost...................... $2,940 2,352 $ 21 5,313
Other costs related to leases....... 721 82 803
------ ------ ---- ------
Total cost.......................... $2,940 $4,073 $103 $7,116
====== ====== ==== ======
As of December 31, 2000, the remaining reserves related to severance costs
and other costs related to leases are included in other accrued liabilities in
the accompanying consolidated balance sheet while the impairment related to
leasehold improvements has been recorded as a reduction of the net property and
equipment balance. Utilization of the initially established reserves during the
year ended December 31, 2000 is summarized below:
UTILIZED
ORIGINAL ------------------ BALANCE
ACCRUAL NON-CASH CASH 12/31/00
-------- -------- ------ --------
Leasehold improvements..................... $1,000 $1,000
Severance cost............................. 5,313 $426 $1,633 3,254
Other costs related to leases.............. 803 803
------ ---- ------ ------
Total cost................................. $7,116 $426 $1,633 $5,057
====== ==== ====== ======
F-14
145
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE ASSETS
The cost of intangible assets and related accumulated amortization at
December 31, 2000 and 1999 is as follows (in thousands):
2000 1999
-------- --------
Goodwill............................................. $216,141 $216,058
Trademarks, patents and technology................... 15,776 15,776
Noncompete agreements................................ 7,283 7,283
Other................................................ 7,455 7,455
-------- --------
246,655 246,572
Less accumulated amortization........................ (40,785) (31,616)
-------- --------
Total................................................ $205,870 $214,956
======== ========
Amortization expense for intangible assets was approximately $9.2 million,
$9.0 million and $6.1 million for the years ended December 31, 2000, 1999 and
1998, respectively.
6. LONG-TERM DEBT
Long-term debt as of December 31, 2000 and 1999 consists of the following
(in thousands):
2000 1999
-------- --------
Prior Credit Facilities:
Revolver, variable interest at a weighted average
rate of 8.644% as of December 31, 1999.......... $ 33,000
Term loans, variable interest at a weighted average
rate of 8.272% as of December 31, 1999.......... 345,281
New Credit Facilities:
Revolver, matures May 31, 2006, variable interest,
11.0% as of December 31, 2000................... $ 3,000
Tranche A term loan, matures May 31, 2006, and
Tranche B term loan, matures May 31, 2008,
variable interest at a weighted average rate of
10.232% as of December 31, 2000................. 476,000
Senior subordinated notes, interest at 13.0% (net of
original issue discount and warrants being
amortized of $13,499).............................. 206,501
Senior subordinated notes, interest at 9.125%........ 125,000
Line of credit agreement............................. 4,274
Obligations under capital leases (see Note 7)........ 370 497
Insurance financing, interest at 6.64% monthly
payments of principal and interest of approximately
$140 through March 2001 and $90 through April
2002............................................... 1,522 2,330
-------- --------
Total...................................... 687,393 510,382
Less current portion................................. (9,362) (17,120)
-------- --------
Long-term portion.................................... $678,031 $493,262
======== ========
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
F-15
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Warrants (the "Note Warrants") to purchase 18,532 shares of common stock at an
exercise price of $0.01 per share. The 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
values of each instrument. The Units were issued in a transaction exempt from
the registration requirements under the Securities Act of 1933. On August 29,
2000, our registration statement relating to the exchange of the private Notes
for Notes registered under the Securities Act of 1933 was declared effective by
the Securities and Exchange Commission, and, as a result, the Notes and the Note
Warrants became separated. We consummated the exchange offer and issued $220.0
million of registered Notes for all of the private Notes on October 12, 2000.
Interest on the Notes is payable semi-annually on each June 1 and December 1,
commencing on December 1, 2000. The Notes are unsecured. Prior to June 1, 2003,
the Company may, on one or more occasions, 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. Otherwise,
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, at a redemption
price (expressed as percentages of principal amount), (plus accrued and unpaid
interest) multiplied by the following percentages: 106.5% if redeemed prior to
June 1, 2006; 104.333% if redeemed prior to June 1, 2007; 102.167% if redeemed
prior to June 1, 2008. 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 became exercisable on August 29, 2000, and
expire on June 1, 2010.
Upon closing of the offering of the Units and the Recapitalization, we
purchased all of our outstanding $125.0 million principal amount of 9 1/8%
Senior Subordinated Notes due 2007 pursuant to a tender offer, refinanced all
amounts outstanding under our prior credit facilities (the "Prior Credit
Facilities") and replaced the Prior Credit Facility with the 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"). As
of December 31, 2000, we had available borrowing capacity of $93.3 million on
the Revolving Credit Facility.
Loans under the Revolving Credit Facility and the Tranche A Facility bear
interest, at our option, at either Adjusted LIBOR plus 3.25% or ABR (as defined
below) plus 2.25%, in each case subject to certain adjustments. Loans under the
Tranche B Facility bear interest, at our option, at either Adjusted LIBOR plus
3.75% or ABR plus 2.75%. We may elect interest periods of one, two, three or six
months for Adjusted LIBOR borrowings. Interest is calculated 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.
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%. Adjusted LIBOR
will at all times include statutory reserves.
We are required to make annual mandatory prepayments of the Tranche A and B
Facilities under the New Credit Facilities in an amount equal to 50% of excess
cash flow, as defined, within 90 days following the end of each year, commencing
with the year ended 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
F-16
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. We do not expect to make any mandatory prepayments in 2001.
Our extraordinary loss for 2000 consists of a $6.0 million charge (net of
tax) for the payment made to tender our 9 1/8 % senior subordinated notes and a
$5.25 million charge (net of tax) for the write off of capitalized loan fees
associated with the early retirement of the various debt facilities.
The New Credit Facilities and the indenture relating to the Notes 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 New Credit Facilities
require us to maintain certain financial ratios. Effective September 30, 2000,
we entered into an amendment of our New Credit Facilities. The amendment
modified certain financial covenants contained in the New Credit Facilities,
including the leverage and interest coverage ratios and the permitted amount of
capital expenditures. We were in compliance with the amended covenants of our
New Credit Facilities as of December 31, 2000. In connection with the amendment,
we incurred an amendment fee of $1.4 million, which has been included in
interest expense. We also incurred $0.6 million of legal and administrative
expenses in connection with negotiating the amendment. Indebtedness under the
New 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 New Credit Facilities
are guaranteed by substantially all of our domestic subsidiaries and secured by
substantially all of our domestic assets. The New Credit Facilities are also
secured by a pledge of 65% of the capital stock of each of our foreign
subsidiaries.
We pay a quarterly commitment fee on the unused amount of the Revolver at
an annual rate of 0.50%. The interest rate margins and the commitment fee are
subject to reduction if we achieve certain financial ratios. As of December 31,
2000, we had outstanding letters of credit of approximately $3.7 million.
The scheduled maturities of long-term debt by year as of December 31, 2000
are as follows (in thousands):
YEAR ENDING DECEMBER 31,
- ------------------------
2001..................................................... $ 9,362
2002..................................................... 22,966
2003..................................................... 32,826
2004..................................................... 55,330
2005..................................................... 62,833
Thereafter............................................... 504,076
--------
Total.................................................... $687,393
========
Certain of our borrowings, including borrowings under the New Credit
Facilities, are at variable rates of interest, exposing us to the risk of
increased interest rates. Our leveraged position and the covenants contained in
our debt instruments may also limit our flexibility to adjust to changing market
conditions and our ability to withstand competitive pressures, thus putting us
at a competitive disadvantage. We may be vulnerable to 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.
F-17
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 2000, we purchased an interest rate cap agreement to reduce the
impact of changes in interest rates on our floating-rate, long-term debt. The
agreement has a notional amount of $128.0 million and expires on December 31,
2003. The agreement entitles us to receive amounts from the counterparty (a
bank) if the three-month LIBOR interest rate, as defined in the agreement,
exceeds 10%. As of December 31, 2000, the defined three-month LIBOR interest
rate was 6.55%. The net premium paid for the interest rate cap agreement of
$96,000 is included in other assets in the consolidated balance sheets.
Effective January 1, 2001, in accordance with SFAS No. 133, any non-intrinsic
changes in fair value will be recorded in earnings. At December 31, 2000, the
estimated fair value of this derivative was $96,000.
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.
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, 2000 and 1999, the gross amounts of plant and equipment
and related accumulated amortization recorded under capital leases were as
follows (in thousands):
2000 1999
----- -----
Land and building......................................... $ 309 $ 309
Machinery and equipment................................... 353 353
----- -----
Total assets held under capital leases.................... 662 662
Less accumulated amortization............................. (187) (104)
----- -----
$ 475 $ 558
===== =====
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 operations is
approximately $6.7 million, $6.6 million and $5.8 million for the years ended
December 31, 2000, 1999 and 1998, respectively.
F-18
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PLIANT 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, 2000 are as follows
(in thousands):
OPERATING CAPITAL
LEASES LEASES
--------- -------
Year Ending December 31,
2001................................................... $ 6,308 $ 177
2002................................................... 4,643 81
2003................................................... 3,939 45
2004................................................... 3,081 45
2005................................................... 2,423 45
Thereafter............................................. 8,032 84
------- -----
Total minimum lease payments............................. $28,426 477
=======
Amounts representing interest............................ (107)
-----
Present value of net minimum capital lease payments (see
Note 6)................................................ $ 370
=====
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,
2000, 1999 and 1998 are as follows (in thousands):
2000 1999 1998
-------- ------- -------
Current:
Federal.......................................... $ (112) $ 1,581 $(1,877)
State............................................ 266 770 128
Foreign.......................................... 3,990 4,478 3,316
-------- ------- -------
Total current............................ 4,144 6,829 1,567
-------- ------- -------
Deferred:
Federal.......................................... (18,401) 6,975 6,960
State............................................ 18 71 793
Foreign.......................................... (4) 212 (787)
-------- ------- -------
Total deferred........................... (18,387) 7,258 6,966
-------- ------- -------
Total income tax expense (benefit) (excluding
income taxes applicable to discontinued
operations and extraordinary item)............... $(14,243) $14,087 $ 8,533
======== ======= =======
F-19
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective income tax rate reconciliations for the years ended December
31, 2000, 1999 and 1998 are as follows (in thousands):
2000 1999 1998
-------- ------- -------
Income (loss) before income taxes, discontinued
operations and extraordinary item................ $(53,776) $32,398 $11,066
======== ======= =======
Expected income tax provision (benefit) at U.S.
statutory rate of 35%............................ $(18,822) $11,339 $ 3,873
Increase (decrease) resulting from:
Goodwill......................................... 1,636 1,625 1,331
State taxes...................................... 137 547 353
Adjustment of tax attributes..................... (174) (912) 1,361
Foreign rate difference and other, net........... 1,099 1,488 1,615
Costs related to recapitalization................ 1,881
-------- ------- -------
Total income tax expense (benefit) (excluding
income taxes applicable to discontinued
operations and extraordinary item................ $(14,243) $14,087 $ 8,533
======== ======= =======
Effective income tax rate.......................... 26.5% 43.5% 77.1%
======== ======= =======
Components of net deferred income tax assets and liabilities as of December
31, 2000 and 1999 are as follows (in thousands):
2000 1999
-------- --------
Deferred income tax assets:
Net operating loss carryforwards................... $ 27,412
AMT and foreign tax credit carryforwards........... 2,478 $ 2,867
Accrued pension costs not deducted for tax......... 8,125 5,833
Accrued employee benefits.......................... 2,858 1,372
Plant closing costs not deducted for tax........... 2,979 758
Allowance for doubtful trade accounts receivable... 508 340
Inventory related costs not deducted for tax....... 571 476
Other.............................................. 552 1,330
-------- --------
Total deferred income tax assets........... 45,483 12,976
-------- --------
Deferred income tax liabilities:
Tax depreciation in excess of book depreciation.... (58,525) (52,611)
Amortization of intangibles........................ (6,058) (5,365)
Other.............................................. (968) (955)
-------- --------
Total deferred income tax liabilities...... (65,551) (58,931)
-------- --------
Net deferred income tax liability.................... $(20,068) $(45,955)
======== ========
As reported on consolidated balance sheets:
Net current deferred income tax asset.............. $ 12,992 $ 5,408
Net noncurrent deferred income tax liability....... (33,060) (51,363)
-------- --------
Net deferred income tax liability.................. $(20,068) $(45,955)
======== ========
F-20
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net operating loss carryforwards for federal tax purposes of
approximately $78.3 million expire in 2020.
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 $2.6 million, $2.2 million and $1.9 million as our contribution to
this plan for the years ended December 31, 2000, 1999 and 1998, respectively.
DEFINED BENEFIT PLANS -- We sponsor three 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, 2000, 1999 and 1998
includes the following components (in thousands):
2000 1999 1998
------- ------- -------
UNITED STATES PLANS
Service cost -- benefits earned during the period... $ 4,098 $ 4,056 $ 3,726
Interest cost on projected benefit obligation....... 4,192 3,659 3,469
Expected return on assets........................... (4,348) (3,913) (3,777)
Other............................................... (185) 100 (3)
------- ------- -------
Total accrued pension expense....................... $ 3,757 $ 3,902 $ 3,415
======= ======= =======
GERMANY PLAN
Service cost -- benefits earned during the period... $ 62 $ 63 $ 64
Interest cost on projected benefit obligation....... 62 62 66
------- ------- -------
Total accrued pension expense....................... $ 124 $ 125 $ 130
======= ======= =======
F-21
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status of the United States Plans
and the Germany Plan as of December 31, 2000, 1999 and 1998 and the amounts
recognized in the consolidated balance sheets at those dates (in thousands):
2000 1999 1998
------- ------- -------
UNITED STATES PLANS
Change in benefit obligation:
Obligation at January 1........................... $50,405 $52,348 $27,025
Service cost...................................... 4,098 4,056 3,726
Interest cost..................................... 4,192 3,659 3,469
Curtailments...................................... (2,137)
Settlements....................................... 50
Plan amendments................................... 219 2,340
Transfer of liability from Huntsman Corporation
plan........................................... 138
Actuarial (gain) loss............................. 942 (7,781) 1,333
Acquisition....................................... 18,264
Benefits paid..................................... (1,958) (1,877) (1,722)
------- ------- -------
Obligation at December 31........................... $58,036 $50,405 $52,348
======= ======= =======
Change in plan assets:
Fair value of assets at January 1................. $49,290 $44,001 $24,235
Actual return on plan assets...................... (505) 6,603 3,941
Transfer of assets from Huntsman Corporation
plan........................................... 138
Acquisition....................................... 16,143
Employer contributions............................ 563 1,404
Benefit payments.................................. (1,958) (1,877) (1,722)
------- ------- -------
Fair value of plan assets at December 31............ $46,965 $49,290 $44,001
======= ======= =======
Underfunded status at December 31................... $11,071 $ 1,115 $ 8,347
Unrecognized net actuarial loss..................... 5,011 11,103 641
Unrecognized prior service cost..................... (1,584) (1,477) (1,586)
------- ------- -------
Accrued long-term pension liability included in
other liabilities................................. $14,498 $10,741 $ 7,402
======= ======= =======
For the above calculations, increases in future compensation ranging from
4.0% to 4.5% were used for the non-union plan. There was no increase in future
compensation used for the two 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.
F-22
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000 1999
------ ------
GERMANY PLAN
Change in benefit obligation:
Obligation at January 1........................ $1,090 $1,143
Service cost................................... 62 63
Interest cost.................................. 62 62
Benefits paid.................................. (4) (5)
Change due to exchange rate.................... (42) (173)
------ ------
Obligation at December 31........................ $1,168 $1,090
====== ======
Fair value of plan assets at December 31......... None None
====== ======
Underfunded status at December 31................ $1,168 $1,090
Unrecognized net actuarial loss.................. 44 75
------ ------
Accrued long-term pension liability included in
other liabilities.............................. $1,212 $1,165
====== ======
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 as of
December 31, 2000 and 1999.
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.
OTHER PLANS -- As part of the acquisition of Blessings Corporation (see
Note 13), 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, 2000 was approximately $1.3 million.
10. REDEEMABLE STOCK
CLASS C COMMON STOCK AND COMMON STOCK -- During 1999 and 1998, we sold a
total of 50,611 shares of Class C nonvoting common stock to employees for $100
per share, the estimated fair market value. As consideration, we received cash
of $2.5 million and notes receivable of $2.6 million. During 1999 and 1998, we
redeemed a total of 1,100 shares for $100 per share. Of the total 49,511 shares
outstanding at December 31, 1999, 26,223 shares were subject to repurchase
rights of the Company. In addition, the stockholders had the right, following
three years from the purchase date, to put any or all of the shares to Pliant
for repurchase. Pursuant to the Recapitalization the 49,511 shares of Class C
nonvoting common stock were exchanged for the same number of common shares and
the original repurchase rights and put options were cancelled. Also, as part of
the Recapitalization, 17,967 of these shares were redeemed (see Note 1).
In connection with employment agreements entered into with four of these
employees as part of the Recapitalization, new repurchase rights and put options
were established. The new repurchase rights allow Pliant to repurchase these
shares from the employee in the event of termination for any reason. The new put
options allow the employees to require the Company to purchase all of the shares
in the event of resignation for good reason, death, disability or retirement,
subject to the
F-23
154
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
restrictive provisions of any credit or other agreements. The price under the
repurchase rights and the put options is the fair market value of the common
stock, as determined in good faith.
The $2.6 million notes receivable are full recourse, secured promissory
notes, bear interest at 7% per annum and are payable in three annual
installments beginning in February 2002. Pursuant to the Recapitalization, the
promissory notes were amended to provide that they are payable in three annual
installments beginning on May 31, 2006.
In May 2000, we sold 32,750 shares of additional restricted common stock to
the same four employees for $483.13 per share, the estimated fair market value.
We received, as consideration, notes receivable totaling $15.8 million. The
notes receivable are full recourse, secured promissory notes, bear interest at
7% per annum and require the payment of principal and accrued interest in three
equal annual installments beginning on May 31, 2006.
Under the May 2000 stock purchase agreements, we have repurchase rights,
which allow us to repurchase certain shares from the employees, if the
individuals cease to be employees for any reason. The repurchase rights lapse as
follows: (1) one-sixth on January 1, 2001, so long as the recipient is still our
employee on such date and (2) the remainder in equal increments over a five-
year period commencing on December 31, 2000 as follows: (a) 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, if more than 90% of the
applicable target market value of equity is achieved or (c) if the target market
value of equity is not achieved, in full on December 31, 2009. The repurchase
rights terminate in the event of certain acceleration events as defined in the
agreement. The repurchase price per share is the original price paid by the
employee plus interest compounded annually at 7% commencing on the 181st day
after the date of termination of the employee through the date on which the
shares are actually repurchased.
In addition, under the same employment agreements as previously noted,
additional repurchase rights and put options were established. The repurchase
rights allow the Company to repurchase shares, not already subject to the May
2000 stock purchase agreement repurchase rights, from the employee in the event
of termination for any reason. The put options allow for the employees to
require the Company to purchase all of the shares in the event of resignation
for good reason, death, disability or retirement, subject to the restrictive
provisions of any credit or other agreements. However, the put option related to
the 32,750 shares, in no event can be exercised until January 1, 2006. The price
under the repurchase rights and the put options is the fair market value of the
common stock, as determined in good faith.
On December 27, 2000, we entered into a severance agreement with one of the
employees. Under the agreement, we cancelled approximately $133,000 of accrued
interest on a note receivable. We repurchased 6,211 shares of restricted stock
for $483.13 per share and offset the purchase price against $3.0 million of note
principal. In addition, we agreed on January 2, 2001, to repurchase an
additional 539 shares of restricted stock for $483.13 per share and offset the
purchase price against $260,000 of note principal. The Company's repurchase
rights were changed on the remaining 7,423 shares of common stock owned by this
individual, whereby the Company agreed not to repurchase the shares until
February 28, 2003 at a repurchase price of the greater of the fair market value
or the balance on the note receivable. Interest ceases to accrue on the
remaining $787,000 balance of the note related to the sale of stock in 1999.
Further, the put option was cancelled. As a result of these modifications, a
$323,000 discount on the note receivable balance was recorded as compensation
expense. The discount will be amortized to interest income over the remaining
term of the note. In the event we determine to repurchase the stock from this
individual at an amount that is: (1) greater than the fair value of the stock
(i.e. the note balance is greater than
F-24
155
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the fair value) or (2) greater than the note balance as a result of future
increases in fair value of the stock, we will record additional expense.
On January 22, 2001, we entered into a severance agreement with another one
of the employees. Under this agreement, we cancelled approximately $85,000 of
accrued interest on a note receivable. We repurchased 3,125 shares of restricted
stock for $483.13 and offset the purchase price against $1.5 million of note
principal. We further agreed to cease interest on the remaining $302,000
principal balance of the note receivable related to 625 shares and to cease
interest on the $262,000 principal balance related to the sale of stock in 1999.
As a result of these interest modifications, a $208,000 discount on the note
receivable balance will be recorded as compensation expense in the first quarter
of 2001. The discount will be amortized to interest income over the remaining
term of the note. In addition, the Company's repurchase rights and the
individual's put option were changed on the remaining 2,832 shares of common
stock owned by this individual. We agreed not to repurchase and the individual
agreed not to exercise the put option on the shares until February 28, 2003. The
repurchase price and the put option price were changed to be the greater of the
fair value of the stock or the balance on the note receivable. Because the fair
value of these shares was $483.13 per share on January 22, 2001, compensation
expense of approximately $1.0 million will be recorded in the first quarter of
2001, which represents the difference between the carrying amount and the fair
value of the 2,622 shares common stock that are subject to the note receivable.
On February 1, 2001, we amended the note agreements with a third employee
that were issued in connection with the sale of restricted stock in 1999 and
2000. Under the amended agreements, interest ceases to accrue, effective
December 31, 2000, on one note with a principal balance of $1.6 million and
another note with a principal balance of $7.0 million. Further, the notes were
modified to remove the full recourse provisions and modify the pledge agreement.
As a result of these modifications, the sale of stock for notes will now be
accounted for as stock options and will be subject to variable accounting.
Accordingly, changes in the fair value of the common stock in excess of the note
balance will be recorded as compensation expense until the note is paid in full.
In addition, interest income will not be recorded on these notes. This will
result in compensation expense of approximately $6.0 million, which will be
recorded in the first quarter of 2001.
Because of the modifications to three of the four employee notes, in the
first quarter of 2001 the fourth employee's 2000 stock purchase will be
accounted for as stock options, subject to variable accounting. In addition,
interest income will not be recorded on this note with a principal balance of
$3.7 million.
As of December 31, 2000, there were a total of 57,121 common shares subject
to put options as described above, of which 12,765 shares were acquired by the
employees for cash in 1997 through 1999. As a result of the put options, the
carrying value of all shares subject to put options will be adjusted to fair
value at each reporting period with a corresponding offset to shareholders'
equity for amounts related to the 12,765 shares and compensation expense for
amounts related to the remaining shares until the notes receivable are paid in
full.
PREFERRED STOCK -- We are authorized to issue up to 200,000 shares of
preferred stock. As of December 31, 2000, 100,000 shares have been designated as
Series A Cumulative Exchangeable Redeemable Preferred Stock (the "Preferred
Stock"). In connection with the Recapitalization, we sold 100,000 shares of
Preferred Stock and detachable warrants to purchase 43,242 shares of common
stock for net consideration of $98.5 million, net of issuance costs of $1.5
million. We allocated approximately $80.0 million to Preferred Stock and $18.5
million to the warrants based on the relative fair values of the instruments.
The common stock warrants have an exercise price of $0.01 per share and expire
on May 31, 2011.
F-25
156
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Dividends on Preferred Stock accrue 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 Preferred Stock is our most senior class of capital stock. 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. 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 equal
to the sum of the liquidation preference plus accrued and unpaid dividends
multiplied by the following percentages: 107% if redeemed prior to May 31, 2004;
103% if redeemed on or after May 31, 2004 and prior to May 31, 2005; and 100% if
redeemed at any time on or after May 31, 2005.
As a result of the mandatory redemption features, as of December 31, 2000,
the carrying value of the Preferred Stock has been increased by $399,000 to
reflect accretion towards the $100.0 million redemption value at May 31, 2011,
excluding accumulated dividends. As of December 31, 2000, we have accrued
dividends of approximately $8.4 million, which are included in other long-term
liabilities.
11. STOCK OPTION PLANS
Pursuant to the Recapitalization, we adopted a 2000 stock incentive plan,
which allows us to grant to employees nonqualified options to purchase up to
51,010 shares of common stock. The option price must be no less than fair market
value on the date of grant. Unvested options are forfeited upon the employee's
termination of employment. Vested options are forfeited, if not exercised 90
days after the employee's termination of employment. The plan is administered by
the board of directors who determines the quantity, terms and conditions of an
award, including any vesting conditions. The plan expires on either May 31, 2010
or a date which the board of directors, in its sole discretion, determines that
the plan will terminate.
Prior to the adoption of the 2000 plan, we had adopted the 1998 Huntsman
Packaging Corporation Stock Option Plan which allowed for grant of options to
purchase Class C common stock. All options that were outstanding under that plan
as of the date of the Recapitalization (consisting of 8,902 options) were
exchanged for options to purchase common stock under the 2000 stock incentive
plan. There was no modification to the exercise price or the number of shares
subject to option at the date of exchange. With the change of control that
occurred with the Recapitalization, in accordance with the 1998 stock option
plan, these options became 100% vested.
F-26
157
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity under the 1998 and 2000 plans is as
follows:
WEIGHTED
OPTION AVERAGE
SHARES EXERCISE PRICE
------- --------------
Outstanding at December 31, 1997
Granted.......................................... 41,956 $100.00
Exercised........................................
Forfeited or cancelled........................... (2,622) 100.00
-------
Outstanding at December 31, 1998................... 39,334 100.00
Granted..........................................
Exercised........................................
Forfeited or cancelled........................... (28,845) 100.00
-------
Outstanding at December 31, 1999................... 10,489 100.00
Granted.......................................... 15,435 483.13
Exercised........................................ (1,587) 100.00
Forfeited or cancelled........................... (1,635) 483.13
-------
Outstanding at December 31, 2000................... 22,702 332.90
=======
Exercisable at December 31, 2000................... 8,902 $100.00
=======
The weighted average remaining contractual life of the options is 8.5 years
at December 31, 2000. Options to purchase 13,800 shares vest as follows: (1)
2,300 will vest on January 1, 2001 and (2) 11,500 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 of equity is achieved as of the end of
the applicable calendar year. If the applicable targets are below 90% each year,
vesting will automatically occur in full on December 31, 2009.
Subsequent to year end, unvested options to purchase 466 shares were
forfeited as a result of employee terminations and vested options to purchase 94
shares will be forfeited if not exercised within 90 days from the termination
date.
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. Some
of the options issued under the 1998 plan were performance-based options and
required variable plan accounting. For the years ended December 31, 2000 and
1999, the Company recorded compensation expense of $2.6 million and $0.8
million, respectively, related to these options. As a result of the
Recapitalization, the remaining performance-based options became 100% vested.
However, under employment agreements entered into with the Recapitalization, the
shares contained a put option (see Note 10). As a result, the Company accounts
for the 8,902 options as variable until exercised. Had compensation cost been
determined in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," our income (loss) from continuing operations for the years ended
December 31, 2000, 1999 and 1998 would have been the following pro forma amounts
(in thousands):
2000 1999 1998
-------- ------- ------
As reported......................................... $(39,533) $18,311 $2,533
Pro forma........................................... (37,214) 18,978 2,147
F-27
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair market value of each option is estimated on the date of grant
using the Black-Scholes option-pricing model based on the following assumptions
for 2000 and 1998 grants, respectively: risk free rate of return of 6.02% and
6.75%; expected life of 9 years and 10 years; dividend yield of 0% and 0%; and
volatility of 0% and 0%. The weighted average fair value of the options as
determined by the Black-Scholes option-pricing model was $202 per share and $49
per share for 2000 and 1998 grants, respectively.
12. 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. During
2000, 1999 and 1998, we paid royalties of $1.1 million, $0.7 million and $0.5
million, respectively, under the Agreements.
LITIGATION -- We are subject to litigation and claims arising in the
ordinary course of business. We believe, after consultation with legal counsel,
that any liabilities arising from such litigation and claims will not have a
material adverse effect on our financial position or results of operations.
13. ACQUISITIONS
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 acquisition
F-28
159
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. In connection with the
purchase of KCL, 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
severance costs, $0.4 million for asset removal and relocation and $0.1 million
for the write-off of inventory.
Our pro forma results of operations for the years ended December 31, 1999
and 1998 (assuming the significant acquisitions had occurred as of January 1,
1998) are as follows (in thousands):
1999 1998
-------- --------
Revenues............................................. $813,730 $720,547
Income (loss) from continuing operations............. 18,311 (1,267)
14. 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.
Disclosures for each product line within operating segments are not required
because amounts of net revenues are impracticable to obtain.
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.
F-29
160
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Segment profit or loss and segment assets as of and for the years ended
December 31, 2000, 1999 and 1998 are presented in the following table (in
thousands). Certain reclassifications have been made to be consistent with the
2000 presentation.
DESIGN INDUSTRIAL SPECIALTY CORPORATE/
PRODUCTS FILMS FILMS OTHER TOTAL
-------- ---------- --------- ---------- --------
2000
Net sales to customers............ $215,439 $242,621 $385,737 $843,797
Intersegment sales................ 4,531 6,664 6,211 $(17,406)
-------- -------- -------- -------- --------
Total net sales................... 219,970 249,285 391,948 (17,406) 843,797
Depreciation and amortization..... 10,779 7,540 10,850 10,377 39,546
Interest expense.................. 3,545 351 25 64,613 68,534
Segment profit.................... 26,725 35,802 70,523 (156,704) (23,654)
Compensation and transaction costs
related to recapitalization..... 10,754 10,754
Plant closing costs............... 19,368 19,368
Segment total assets.............. 179,692 128,928 393,754 82,660 785,034
Capital expenditures.............. 18,607 11,207 22,789 13,041 65,644
1999
Net sales to customers............ $183,341 $231,418 $398,971 $813,730
Intersegment sales................ 7,189 5,456 3,969 $(16,614)
-------- -------- -------- -------- --------
Total net sales................... 190,530 236,874 402,940 (16,614) 813,730
Depreciation and amortization..... 8,095 7,030 10,822 9,072 35,019
Interest expense.................. 3,397 351 27 40,253 44,028
Segment profit.................... 21,350 36,044 85,814 (108,313) 34,895
Plant closing costs............... 2,497 2,497
Segment total assets.............. 175,924 126,531 405,076 61,492 769,023
Capital expenditures.............. 6,885 10,215 15,192 3,431 35,723
1998
Net sales to customers............ $142,457 $213,627 $325,040 $681,124
Intersegment sales................ 1,671 5,579 178 $ (7,428)
-------- -------- -------- -------- --------
Total net sales................... 144,128 219,206 325,218 (7,428) 681,124
Depreciation and amortization..... 5,096 6,918 7,016 8,058 27,088
Interest expense.................. 2,108 60 35,351 37,519
Segment profit.................... 19,403 31,739 57,449 (92,650) 15,941
Plant closing costs............... (297) 5,172 4,875
Segment total assets.............. 153,385 117,081 400,731 63,075 734,272
Capital expenditures.............. 18,424 10,971 20,937 1,769 52,101
F-30
161
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the totals reported for the operating segments to the
totals reported in the consolidated financial statements is as follows (in
thousands):
2000 1999 1998
-------- -------- --------
PROFIT OR LOSS
Total profit for reportable segments............ $133,050 $143,208 $108,591
Compensation and transaction costs related to
recapitalization.............................. (10,754)
Plant closing costs............................. (19,368) (2,497) (4,875)
Unallocated amounts:
Corporate expenses............................ (92,091) (68,060) (57,299)
Interest expense.............................. (64,613) (40,253) (35,351)
-------- -------- --------
Income (loss) from continuing operations
before taxes............................... $(53,776) $ 32,398 $ 11,066
======== ======== ========
ASSETS
Total assets for reportable segments............ $702,374 $707,531
Intangible assets not allocated to segments..... 14,856 16,166
Other unallocated assets........................ 67,804 45,326
-------- --------
Total consolidated assets....................... $785,034 $769,023
======== ========
The following table presents financial information by country based on the
location of production of the product.
2000 1999 1998
-------- -------- --------
NET SALES
United States................................... $711,887 $687,646 $589,462
Mexico.......................................... 61,275 57,496 30,596
Canada.......................................... 41,515 37,832 26,636
Other........................................... 29,120 30,756 34,430
-------- -------- --------
Total........................................... $843,797 $813,730 $681,124
======== ======== ========
LONG-LIVED ASSETS
United States................................... $497,460 $476,344 $475,891
Mexico.......................................... 57,982 55,970 59,085
Canada.......................................... 9,671 10,668 5,547
Other........................................... 4,919 5,368 5,226
-------- -------- --------
Total........................................... $570,032 $548,350 $545,749
======== ======== ========
Our sales to Kimberly-Clark Corporation and its affiliates represented
approximately 12%, 13% and 11% of consolidated net sales in 2000, 1999 and 1998,
respectively. 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 2000, 1999 and
1998. The loss of Kimberly-Clark Corporation or a material reduction in sales to
such customer would have a material adverse effect on our results of operations
and our ability to service our indebtedness.
F-31
162
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. 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 fair value of floating rate debt in 2000 was obtained from
market quotes. In 1999, the carrying amount of floating rate debt approximated
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. The estimated fair value of letters of credit is derived by
calculating the cost to replace equivalent letters of credit.
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 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.
Below is a summary of our financial instruments' carrying amounts and
estimated fair values as of December 31, 2000 and 1999 (in thousands):
2000 1999
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
Financial assets -- cash and cash
equivalents....................... $ 3,060 $ 3,060 $ 9,097 $ 9,097
======== ======== ======== ========
Financial liabilities:
Floating rate debt................ $479,370 $418,633 $383,054 $383,054
Fixed rate debt................... 208,023 129,120 127,328 126,036
-------- -------- -------- --------
Total financial liabilities......... $687,393 $547,753 $510,382 $509,090
======== ======== ======== ========
Off-balance sheet instruments:
Interest rate cap/collar.......... $ 96 $ 96 $ 69 $ 183
Commodity collar.................. None None None 325
Letters of credit................. None 9 None 3
F-32
163
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. RELATED-PARTY TRANSACTIONS
The accompanying consolidated financial statements include the following
transactions with companies affiliated with Jon M. Huntsman, our majority
stockholder prior to our Recapitalization (in thousands). All related-party
transactions have been recorded at estimated fair market values for the related
products and services.
2000 1999 1998
------- ------- -------
With Huntsman Corporation and affiliates (HC)
Inventory purchases............................... $20,363 $21,124 $27,523
Rent expense under operating lease................ 377 396 392
Administrative expenses........................... 796 2,831 5,732
Charitable contribution........................... 1,000 500
Sales of film products............................ 258
INSURANCE COVERAGE -- Prior to the Recapitalization, we obtained 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 and are not included in the above amounts.
ADMINISTRATIVE EXPENSES -- Administrative expenses were allocated to us
under a cancelable services agreement which was cancelled upon completion of the
Recapitalization.
RENT EXPENSE -- We were 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. In November 2000, we
relocated and paid no further rent payments.
INVESTMENT -- On August 7, 1998, we 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, 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., a wholly owned
subsidiary of Pliant, purchased shares of the common stock of AET from Richard
P. Durham, President and Chief Executive Officer of Pliant, for an aggregate
purchase price of $3.3 million, in an arms-length transaction based on quoted
market value and approved by the Board of Directors of HPC Investment, Inc.
AET's Board of Directors subsequently rejected our second offer. We liquidated
our entire investment in AET stock.
STOCKHOLDERS' NOTES RECEIVABLE -- Notes receivable were issued to various
employees in connection with the sale of stock (see Note 10).
J.P. MORGAN PARTNER AND AFFILIATES -- The Chase Manhattan Bank is the
syndication agent, and its affiliate, J.P. Morgan Chase & Co. (formerly The
Chase Manhattan Corporation), is a lender under our credit facilities. Both The
Chase Manhattan Bank and J.P. Morgan Chase & Co. receive customary fees under
the credit facilities for acting in such capacities. 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. was one of the initial purchasers in the offering of the $220.0
million aggregate principal amount of 13% senior subordinated notes due 2010,
and was also the dealer manager for the debt tender offer and consent
solicitation relating to our 9 1/8% senior subordinated notes due 2007 and
received customary fees for acting in such capacities. Each of The Chase
Manhattan Bank, J.P. Morgan Chase & Co. and Chase Securities Inc.
F-33
164
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are affiliates of Southwest Industrial Films, LLC, which owns approximately 55%
of our outstanding common stock and currently has the right under the
stockholders' agreement to appoint four of our directors, and of Flexible Films,
LLC, which owns approximately 52% of our Preferred Stock.
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements present, in
separate columns, financial information for (i) Pliant 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 May 31,
2000 (the "Indenture") relating to Pliant Corporation's $220 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 Pliant
Corporation and its subsidiaries on a consolidated basis, and (v) Pliant
Corporation on a consolidated basis, in each case as of December 31, 2000 and
1999 and for the years ended December 31, 2000, 1999 and 1998. 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 Pliant Corporation. There are no contractual restrictions
limiting transfers of cash from guarantor and non-guarantor subsidiaries to
Pliant 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 Pliant. In addition, during the first quarter of 2001, our
Blessings subsidiary was merged with and into Pliant. Accordingly, these former
guarantor subsidiary companies are now included as part of the "Pliant
Corporation Parent Only" column for all periods presented.
F-34
165
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2000
PLIANT CONSOLIDATED
CORPORATION COMBINED COMBINED PLIANT
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents.................. $ 459 $ 10 $ 2,591 $ 3,060
Receivables................................ 90,670 4,966 19,422 115,058
Inventories................................ 64,884 6,983 7,284 79,151
Prepaid expenses and other................. 1,527 30 426 1,983
Income taxes receivable.................... 1,885 (24) 897 2,758
Deferred income taxes...................... 14,431 37 (1,476) 12,992
--------- ------- ------- ---------
Total current assets................ 173,856 12,002 29,144 215,002
Plant and equipment, net..................... 268,739 16,538 47,806 333,083
Intangible assets, net....................... 185,727 2,482 17,661 205,870
Investment in subsidiaries................... 49,611 $(49,611)
Other assets................................. 28,593 2,486 31,079
--------- ------- ------- -------- ---------
Total assets........................ $ 706,526 $31,022 $97,097 $(49,611) $ 785,034
========= ======= ======= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Trade accounts payable..................... $ 87,970 $ 5,730 $15,318 $ 109,018
Accrued liabilities........................ 32,068 1,201 5,743 39,012
Current portion of long-term debt.......... 8,312 1,050 9,362
Due to (from) affiliates................... (10,000) 13,442 (3,442)
--------- ------- ------- ---------
Total current liabilities........... 118,350 20,373 18,669 157,392
Long-term debt, net of current portion....... 642,976 35,055 678,031
Other liabilities............................ 24,200 1,557 25,757
Deferred income taxes........................ 30,206 497 2,357 33,060
--------- ------- ------- ---------
Total liabilities................... 815,732 20,870 57,638 894,240
--------- ------- ------- ---------
Commitments and contingencies (Notes 6, 7, 10
and 12)
Redeemable stock............................. 96,805 96,805
--------- ---------
Stockholders' equity (deficit):
Common stock............................... 87,989 14,020 29,241 $(43,261) 87,989
Warrants to purchase common stock.......... 26,500 26,500
Retained earnings (deficit)................ (312,414) (3,857) 15,966 (12,109) (312,414)
Stockholders' notes receivable............. (825) (825)
Cumulative foreign currency translation
adjustments........................... (7,261) (11) (5,748) 5,759 (7,261)
--------- ------- ------- -------- ---------
Total stockholders' equity
(deficit)......................... (206,011) 10,152 39,459 (49,611) (206,011)
--------- ------- ------- -------- ---------
Total liabilities and stockholders'
equity (deficit).................. $ 706,526 $31,022 $97,097 $(49,611) $ 785,034
========= ======= ======= ======== =========
F-35
166
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
PLIANT CONSOLIDATED
CORPORATION COMBINED COMBINED PLIANT
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
------------ ---------- -------------- ------------ ------------
(IN THOUSANDS)
Net sales......................... $707,218 $40,670 $113,315 $(17,406) $843,797
Cost of sales..................... 587,281 39,628 87,213 (17,406) 696,716
-------- ------- -------- -------- --------
Gross profit...................... 119,937 1,042 26,102 147,081
Total operating expenses.......... 108,386 9,489 14,780 132,655
-------- ------- -------- --------
Operating income (loss)........... 11,551 (8,447) 11,322 14,426
Interest expense.................. (64,638) 27 (3,923) (68,534)
Equity in earnings of
subsidiaries.................... 1,209 (1,209)
Other income (expense), net....... (6,601) 5,580 1,353 332
-------- ------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item.......... (58,479) (2,840) 8,752 (1,209) (53,776)
Income tax expense (benefit)...... (18,946) 718 3,985 (14,243)
-------- ------- -------- -------- --------
Income (loss) before extraordinary
item............................ (39,533) (3,558) 4,767 (1,209) (39,533)
Extraordinary loss................ (11,250) (11,250)
-------- ------- -------- -------- --------
Net income (loss)................. $(50,783) $(3,558) $ 4,767 $ (1,209) $(50,783)
======== ======= ======== ======== ========
F-36
167
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
PLIANT CONSOLIDATED
CORPORATION COMBINED COMBINED PLIANT
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
------------ ---------- -------------- ------------ ------------
(IN THOUSANDS)
Cash flows from operating activities...... $ 38,398 $ 4,895 $ 16,973 $ 60,266
--------- ------- -------- ---------
Cash flows from investing activities:
Capital expenditures for plant and
equipment............................ (52,042) (6,506) (7,096) (65,644)
--------- ------- -------- ---------
Net cash used in investing
activities......................... (52,042) (6,506) (7,096) (65,644)
--------- ------- -------- ---------
Cash flows from financing activities:
Payment of capitalized fees............. (22,303) (22,303)
Payment of fees for tender offer........ (10,055) (10,055)
Proceeds from issuance of stock......... 161,820 161,820
(Payment) receipt of dividends.......... 750 (750)
Redemption of common stock.............. (314,034) (314,034)
Payments received from stockholder on
note receivable...................... 165 165
Proceeds from long-term debt............ 691,684 691,684
Principal payments on borrowings........ (497,296) (9,706) (507,002)
--------- -------- ---------
Net cash provided by (used in)
financing activities............... 10,731 (10,456) 275
--------- -------- ---------
Effect of exchange rate changes on cash
and cash equivalents.................... 2,141 1,104 (4,179) (934)
--------- ------- -------- ---------
Net decrease in cash and cash
equivalents............................. (772) (507) (4,758) (6,037)
Cash and cash equivalents at beginning of
the year................................ 1,231 517 7,349 9,097
--------- ------- -------- ---------
Cash and cash equivalents at end of the
year.................................... $ 459 $ 10 $ 2,591 $ 3,060
========= ======= ======== =========
F-37
168
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1999
PLIANT COMBINED CONSOLIDATED
CORPORATION COMBINED NON- PLIANT
PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- ---------- ------------ ------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................... $ 1,231 $ 517 $ 7,349 $ 9,097
Receivables................................. 96,209 6,082 20,343 122,634
Inventories................................. 63,008 7,198 7,993 78,199
Prepaid expenses and other.................. 2,200 28 416 2,644
Income taxes receivable..................... 3,698 (1,007) 2,691
Deferred income taxes....................... 6,884 257 (1,733) 5,408
-------- ------- -------- --------
Total current assets................ 173,230 14,082 33,361 220,673
Plant and equipment, net...................... 258,257 9,929 46,266 314,452
Intangible assets, net........................ 193,936 2,576 18,444 214,956
Investment in subsidiaries.................... 51,392 $(51,392)
Other assets.................................. 16,737 2,205 18,942
-------- ------- -------- -------- --------
Total assets........................ $693,552 $26,587 $100,276 $(51,392) $769,023
======== ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable...................... $ 48,676 $ 1,397 $ 9,983 $ 60,056
Accrued liabilities......................... 26,651 2,055 6,230 34,936
Current portion of long-term debt........... 13,464 3,656 17,120
Due to (from) affiliates.................... (1,642) 9,686 (3,329) 4,715
-------- ------- -------- --------
Total current liabilities........... 87,149 13,138 16,540 116,827
Long-term debt, net of current portion........ 451,107 42,155 493,262
Other liabilities............................. 12,474 1,509 13,983
Deferred income taxes......................... 49,234 22 2,107 51,363
-------- ------- -------- --------
Total liabilities................... 599,964 13,160 62,311 675,435
-------- ------- -------- --------
Commitments and contingencies (Notes 6, 7, 10
and 12)
Redeemable common stock....................... 2,926 2,926
-------- --------
Stockholders' equity:
Common stock................................ 63,676 14,020 29,241 $(43,261) 63,676
Retained earnings........................... 32,042 (600) 11,949 (11,349) 32,042
Stockholders' notes receivable.............. (299) (299)
Cumulative foreign currency translation
adjustments.............................. (4,757) 7 (3,225) 3,218 (4,757)
-------- ------- -------- -------- --------
Total stockholders' equity.......... 90,662 13,427 37,965 (51,392) 90,662
-------- ------- -------- -------- --------
Total liabilities and stockholders'
equity............................ $693,552 $26,587 $100,276 $(51,392) $769,023
======== ======= ======== ======== ========
F-38
169
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
PLIANT COMBINED CONSOLIDATED
CORPORATION COMBINED NON- PLIANT
PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- ---------- ------------ ------------
(IN THOUSANDS)
Net sales............................. $696,431 $24,637 $109,276 $(16,614) $813,730
Cost of sales......................... 566,564 23,177 82,625 (16,614) 655,752
-------- ------- -------- -------- --------
Gross profit.......................... 129,867 1,460 26,651 157,978
Total operating expenses.............. 59,228 7,572 15,187 81,987
-------- ------- -------- --------
Operating income...................... 70,639 (6,112) 11,464 75,991
Interest expense...................... (40,307) (3,721) (44,028)
Equity in earnings of subsidiaries.... 3,892 (3,892)
Other income (expense), net........... (6,069) 6,081 423 435
-------- ------- -------- -------- --------
Income before income taxes............ 28,155 (31) 8,166 (3,892) 32,398
Income tax expense.................... 9,844 (235) 4,478 14,087
-------- ------- -------- -------- --------
Net income............................ $ 18,311 $ 204 $ 3,688 $ (3,892) $ 18,311
======== ======= ======== ======== ========
F-39
170
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
PLIANT CONSOLIDATED
CORPORATION COMBINED COMBINED PLIANT
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
Cash flows from operating activities....... $ 50,310 $ (332) $ 1,475 $ 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............................. (31,280) (585) (3,858) (35,723)
-------- ------ ------- --------
Net cash used in investing
activities.......................... (42,994) 822 (3,858) (46,030)
-------- ------ ------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock... 986 986
Payments received from stockholders'
notes receivable...................... 135 135
Payments on long-term debt............... (15,319) (2,531) (17,850)
-------- ------ ------- --------
Net cash used in financing
activities.......................... (14,198) -- (2,531) (16,729)
-------- ------ ------- --------
Effect of exchange rate changes on cash and
cash equivalents......................... 216 18 952 1,186
-------- ------ ------- --------
Net increase (decrease) in cash and cash
equivalents.............................. (6,666) 508 (3,962) (10,120)
Cash and cash equivalents at beginning of
the year................................. 7,897 9 11,311 19,217
-------- ------ ------- --------
Cash and cash equivalents at end of the
year..................................... $ 1,231 $ 517 $ 7,349 $ 9,097
======== ====== ======= ========
F-40
171
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
PLIANT CONSOLIDATED
CORPORATION COMBINED COMBINED PLIANT
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
Net sales.................................. $592,507 $9,827 $86,218 $(7,428) $681,124
Cost of sales.............................. 492,064 8,801 68,140 (7,428) 561,577
-------- ------ ------- ------- --------
Gross profit............................... 100,443 1,026 18,078 119,547
Total operating expenses................... 58,159 1,782 10,142 70,083
-------- ------ ------- --------
Operating income........................... 42,284 (756) 7,936 49,464
Interest expense........................... (35,406) 7 (2,120) (37,519)
Equity in earnings of subsidiaries......... 980 (980)
Other income (expense), net................ 1,261 30 (2,170) (879)
-------- ------ ------- ------- --------
Income (loss) before income taxes and
discontinued operations.................. 9,119 (719) 3,646 (980) 11,066
Income tax expense......................... 6,004 2,529 8,533
-------- ------ ------- ------- --------
Income (loss) before discontinued
operations............................... 3,115 (719) 1,117 (980) 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 (loss).......................... $ 8,338 $ (719) $ 1,699 $ (980) $ 8,338
======== ====== ======= ======= ========
F-41
172
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
PLIANT CONSOLIDATED
CORPORATION COMBINED COMBINED PLIANT
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
Cash flows from operating activities...... $ 38,132 $ 1,803 $ 5,555 $ 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............................ (43,537) (1,899) (6,665) (52,101)
--------- ------- ------- ---------
Net cash used in investing
activities......................... (307,961) (1,802) (5,077) (314,840)
--------- ------- ------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock.. 1,170 1,170
Payments received from stockholders'
notes receivable..................... 266 266
Proceeds (payments) on borrowings....... (9,981) (563) (10,544)
Proceeds from issuance of long-term
debt................................. 285,000 285,000
--------- ------- ------- ---------
Net cash provided by (used in)
financing activities............... 276,455 -- (563) 275,892
--------- ------- ------- ---------
Effect of exchange rate changes on cash
and cash equivalents.................... 65 (11) 210 264
--------- ------- ------- ---------
Net increase in cash and cash
equivalents............................. 6,691 (10) 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.................................... $ 7,897 $ 9 $11,311 $ 19,217
========= ======= ======= =========
F-42
173
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
(DOLLARS IN THOUSANDS) (UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,329 $ 3,060
Receivables, net of allowances of $1,901 and $2,166,
respectively........................................... 112,402 115,058
Inventories............................................... 82,590 79,151
Prepaid expenses and other................................ 3,141 1,983
Income taxes receivable................................... 3,039 2,758
Deferred income taxes..................................... 13,141 12,992
--------- ---------
Total current assets.............................. 216,642 215,002
PLANT AND EQUIPMENT, net.................................... 328,923 333,083
INTANGIBLE ASSETS, net...................................... 203,412 205,870
OTHER ASSETS................................................ 29,957 31,079
--------- ---------
TOTAL ASSETS...................................... $ 778,934 $ 785,034
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 6,985 $ 9,362
Trade accounts payable.................................... 106,173 109,018
Accrued liabilities....................................... 47,624 39,012
--------- ---------
Total current liabilities......................... 160,782 157,392
LONG-TERM DEBT, net of current portion...................... 669,157 678,031
OTHER LIABILITIES........................................... 30,582 25,757
DEFERRED INCOME TAXES....................................... 31,160 33,060
--------- ---------
Total liabilities................................. 891,681 894,240
--------- ---------
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.......................................... 80,519 80,349
--------- ---------
REDEEMABLE COMMON STOCK - no par value; 60,000 shares
authorized; 53,996 shares outstanding as of March 31, 2001
and 57,121 outstanding as of December 31, 2000, net of
related stockholders' notes receivable of $12,857 at March
31, 2001 and $14,551 at December 31, 2000................. 16,641 16,456
--------- ---------
STOCKHOLDERS' DEFICIT:
Common stock - no par value; 10,000,000 shares authorized,
509,925 shares outstanding at March 31, 2001 and
510,674 at December 31, 2000........................... 87,639 87,989
Warrants.................................................. 26,500 26,500
Accumulated deficit....................................... (314,069) (312,414)
Stockholders' notes receivable............................ (584) (825)
Accumulated other comprehensive income.................... (9,393) (7,261)
--------- ---------
Total stockholders' deficit....................... (209,907) (206,011)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT................. $ 778,934 $ 785,034
========= =========
See notes to condensed consolidated financial statements.
F-43
174
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(DOLLARS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------
2001 2000
-------- --------
SALES Net................................................... $202,659 $220,506
COST OF SALES............................................... 160,696 177,493
-------- --------
Gross profit.............................................. 41,963 43,013
-------- --------
OPERATING EXPENSES:
Administration and other.................................. 12,965 14,041
Stock-based compensation related to administrative
employees.............................................. 7,033 1,223
Sales and marketing....................................... 8,780 6,639
Research and development.................................. 753 1,082
Compensation and transaction costs related to
recapitalization....................................... -- 5,200
-------- --------
Total operating expenses.......................... 29,531 28,185
-------- --------
OPERATING INCOME............................................ 12,432 14,828
INTEREST EXPENSE............................................ (20,360) (11,558)
OTHER INCOME -- Net......................................... 895 430
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES........................... (7,033) 3,700
INCOME TAX PROVISION (BENEFIT).............................. (2,309) 2,299
-------- --------
NET INCOME (LOSS)........................................... $ (4,724) $ 1,401
======== ========
See notes to condensed consolidated financial statements.
F-44
175
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(DOLLARS IN THOUSANDS) (UNAUDITED)
ACCUMULATED
COMMON STOCK WARRANTS STOCKHOLDERS' OTHER
---------------- TO PURCHASE ACCUMULATED NOTES COMPREHENSIVE
SHARES AMOUNT COMMON STOCK DEFICIT RECEIVABLE INCOME TOTAL
------ ------- ------------ ----------- ------------- ------------- ---------
BALANCE, DECEMBER 31, 2000............ 511 $87,989 $26,500 $(312,414) $(825) $(7,261) $(206,011)
Net loss.............................. -- -- -- (4,724) -- -- (4,724)
Stock-based compensation related to
administrative employees............ -- -- -- 7,033 -- -- 7,033
Fair value change in interest rate
derivatives classified as cash flow
hedges.............................. -- -- -- -- -- (780) (780)
Preferred stock dividend and
accretion........................... -- -- -- (3,964) -- -- (3,964)
Repurchase of common stock and
cancellation of notes from
management.......................... (1) (350) -- -- 251 -- (99)
Amortization of discount on
stockholder's note receivable....... -- -- -- -- (10) -- (10)
Foreign currency transaction
adjustment.......................... -- -- -- -- -- (1,352) (1,352)
--- ------- ------- --------- ----- ------- ---------
BALANCE, MARCH 31, 2001............... 510 $87,639 $26,500 $(314,069) $(584) $(9,393) $(209,907)
=== ======= ======= ========= ===== ======= =========
See notes to condensed consolidated financial statements.
F-45
176
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(DOLLARS IN THOUSANDS) (UNAUDITED)
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (4,724) $ 1,401
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 10,089 9,515
Deferred income taxes................................... (2,015) 662
Reduction in provision for losses on accounts
receivable............................................. -- (217)
Stock-based compensation related to administrative
employees.............................................. 7,033 1,223
Loss on disposal of assets.............................. 116 --
Changes in assets and liabilities:
Receivables........................................... 2,252 4,286
Inventories........................................... (3,662) (14,149)
Prepaid expenses and other............................ (1,151) 102
Income taxes receivable............................... (311) 2,272
Other assets.......................................... 1,104 754
Trade accounts payable................................ (2,943) 9,141
Accrued liabilities................................... 7,777 1,823
Due to affiliates..................................... -- (91)
Other liabilities..................................... 1,098 1,186
-------- --------
Net cash provided by operating activities.......... 14,663 17,908
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets.............................. 7,914 --
Capital expenditures for plant and equipment.............. (15,310) (10,093)
-------- --------
Net cash used in investing activities.............. (7,396) (10,093)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock and net change in
related stockholders' notes receivables................. (99) (46)
Principal payments on long-term debt...................... (11,251) (3,469)
Payment on revolving debt................................. -- (343)
-------- --------
Net cash used in financing activities.............. (11,350) (3,858)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... 3,352 (826)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (731) 3,131
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD.......... 3,060 9,097
-------- --------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD................ $ 2,329 $ 12,228
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest................................................ $ 6,820 $ 8,411
Income taxes............................................ $ (1,663) $ (1,814)
Other non-cash disclosure:
Dividends accrued but not paid.......................... $ 3,793 $ --
See notes to condensed consolidated financial statements.
F-46
177
PLIANT 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 Pliant Corporation
and its subsidiaries ("Pliant" or the "Company") as of the dates and for the
periods presented. Results of operations for the period ended March 31, 2001 are
not necessarily indicative of results of operations to be expected for the 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. These statements should
be read in conjunction with the Company's Annual Report on Form 10-K for the
year ended December 31, 2000.
2. INVENTORIES
Inventories are valued at the lower of cost (using the first-in, first-out
method) or market value. Inventories as of March 31, 2001 and December 31, 2000
consisted of the following (in thousands):
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
Finished goods...................................... $46,667 $46,760
Raw materials....................................... 26,858 24,158
Work-in-process..................................... 9,065 8,233
------- -------
Total..................................... $82,590 $79,151
======= =======
3. PLANT CLOSING COSTS, OTHER CLOSING COSTS AND WORKFORCE REDUCTION
PLANT CLOSING COSTS -- During 2000, we approved and announced a strategic
initiative to cease operations at our Dallas, Texas; Birmingham, Alabama; and
Harrington, Delaware facilities. These facilities represent a portion of our
Design, Industrial and Specialty Films segments, respectively. The intent of
this initiative was to maximize the capacity of other company owned facilities
by moving the production from these locations to plants that were not operating
at capacity. As a result of this strategic initiative, we recorded a pre-tax
charge of $19.6 million which is included as part of plant closing costs in the
accompanying consolidated statement of operations. Of the $19.6 million, $13.8
million represented the write-off of impaired plant and equipment, $5.0 million
represented a charge for severance costs and $0.8 million represented a charge
for other closure costs and inventory write-offs. The major actions relating to
the exit of these facilities include closing each of the respective facilities,
disposal of the related equipment of each facility and termination of the
employees of the respective facilities. As of December 31, 2000, we had
completed our closure of our Dallas facility. We expect to complete the closure
of our Birmingham facility during the second
F-47
178
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
quarter of 2001 and expect to complete the closure of our Harrington facility by
the end of third quarter 2001. The following is a summary of the key elements of
this exit plan:
DALLAS BIRMINGHAM HARRINGTON TOTAL
------ ---------- ---------- -------
Number of employees to be terminated......... 68 105 104 277
Book value of property and equipment to be
disposed of................................ $1,593 $8,913 $8,172 $18,678
Estimated proceeds from disposal............. 1,200 1,749 1,928 4,877
Net write-off from disposal.................. 393 7,164 6,244 13,801
Severance costs.............................. 588 2,271 2,132 4,991
Other closure costs.......................... 302 225 270 797
------ ------ ------ -------
Total closure costs.......................... $1,283 $9,660 $8,646 $19,589
====== ====== ====== =======
We do not anticipate the loss of any revenues or income from the closure of
these facilities due to the fact that their respective sales volumes will be
transferred to other facilities. As of March 31, 2001, the remaining reserves
related to severance costs and other costs are included in other accrued
liabilities in the accompanying consolidated balance sheet while the impairment
of property and equipment has been recorded as a direct reduction of the net
property and equipment balances. Utilization of the reserves remaining as of
March 31, 2001 is summarized below:
UTILIZED
BALANCE ------------------ BALANCE
12/31/00 NON-CASH CASH 3/31/01
-------- -------- ------ -------
Property and equipment reserves.......... $13,801 $1,501 $ -- $12,300
Severance costs.......................... 4,371 -- 1,040 3,331
Other costs.............................. 585 -- 35 550
------- ------ ------ -------
Total.................................... $18,757 $1,501 $1,075 $16,181
======= ====== ====== =======
As of March 31, 2001, 68, 6 and 37 of the expected employee terminations
had been completed at our Dallas, Birmingham and Harrington facilities,
respectively.
OFFICE CLOSING COSTS AND WORKFORCE REDUCTION -- During the fourth quarter
2000, we approved and announced a cost saving initiative resulting in a
company-wide workforce reduction, relocation of the corporate office from Salt
Lake City, Utah to Chicago, Illinois area and closure of the Dallas, Texas
divisional office. As a result of this initiative we recorded a pre-tax charge
of $7.1 million which is included as part of administration and other expenses
in the accompanying consolidated statements of operations. The major actions
relating to this initiative included a reduction in workforce due to
consolidation of duties, and closing the offices in Dallas, Texas and Salt Lake
City, Utah. We completed the workforce reduction of 52 employees and the closure
of the office in Dallas, Texas during the first quarter 2001 and expect to
complete the Salt Lake City office closure during the second quarter 2001. The
following is a summary of the key elements of this plan:
WORKFORCE RELOCATION OF CLOSURE OF
REDUCTION CORPORATE OFFICE DALLAS OFFICE TOTAL
--------- ---------------- ------------- ------
Number of employees................. 52 36 2 90
Leasehold improvements.............. $1,000 $1,000
Severance cost...................... $2,940 2,352 $ 21 5,313
Other costs related to leases....... 721 82 803
------ ------ ---- ------
Total cost.......................... $2,940 $4,073 $103 $7,116
====== ====== ==== ======
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
As of March 31, 2001, the remaining reserves related to severance costs and
other costs related to leases are included in other accrued liabilities in the
accompanying condensed consolidated balance sheet while the impairment related
to leasehold improvements has been recorded as a reduction of the net property
and equipment balance. Utilization of these reserves during the quarter ended
March 31, 2001 is summarized below:
UTILIZED
BALANCE ------------------ BALANCE
12/31/00 NON-CASH CASH 3/31/01
-------- -------- ------ -------
Leasehold improvements..................... $1,000 $1,000
Severance cost............................. 3,254 $2,142 1,112
Other costs related to leases.............. 803 100 703
------ -- ------ ------
Total cost................................. $5,057 $2,242 $2,815
====== == ====== ======
As of March 31, 2001, 52, 18 and 2 of the expected employee terminations
had been completed of the workforce reduction and closure of the Salt Lake City
and Dallas offices respectively.
4. REDEEMABLE COMMON STOCK
Under the May 2000 stock purchase agreements, we have repurchase rights,
which allow us to repurchase certain shares from the employees, if the
individuals cease to be employees for any reason. The repurchase rights lapse as
follows: (1) one-sixth on January 1, 2001, so long as the recipient is still our
employee on such date and (2) the remainder in equal increments over a five-year
period commencing on December 31, 2000 as follows: (a) 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, if more than 90% of the applicable
target market value of equity is achieved or (c) if the target market value of
equity is not achieved, in full on December 31, 2009. The repurchase rights
terminate in the event of certain acceleration events as defined in the
agreement. The repurchase price per share is the original price paid by the
employee plus interest compounded annually at 7% commencing on the 181st day
after the date of termination of the employee through the date on which the
shares are actually repurchased.
In addition, under employment agreements, additional repurchase rights and
put options were established. The repurchase rights allow the Company to
repurchase shares, not already subject to the May 2000 stock purchase agreement
repurchase rights, from the employee in the event of termination for any reason.
The put options allow for the employees to require the Company to purchase all
of the shares in the event of resignation for good reason, death, disability or
retirement, subject to the restrictive provisions of any credit or other
agreements. However, the put option related to 32,750 shares, in no event can be
exercised until January 1, 2006. The price under the repurchase rights and the
put options is the fair market value of the common stock, as determined in good
faith.
On December 27, 2000, we entered into a severance agreement with an
employee. Under the agreement, we cancelled approximately $133,000 of accrued
interest on a note receivable. We repurchased 6,211 shares of restricted stock
for $483.13 per share and offset the purchase price against $3.0 million of note
principal. In addition, on January 2, 2001, we repurchased an additional 539
shares of restricted stock for $483.13 per share and offset the purchase price
against $260,000 of note principal. The Company's repurchase rights were changed
on the remaining 7,423 shares of common stock owned by this individual, whereby
the Company agreed not to repurchase the shares until February 28, 2003 at a
repurchase price of the greater of the fair market value and $111.53 per share.
Interest ceased to accrue on the remaining $787,000 balance of the note related
to the sale of stock in 1999. Further, the put option was cancelled. As a result
of these modifications, a $323,000
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
discount on the note receivable balance was recorded as compensation expense in
2000. The discount will be amortized to interest income over the remaining term
of the note. In the event we determine to repurchase the stock from this
individual at an amount that is: (1) greater than the fair value of the stock
(i.e. the note balance is greater than the fair value) or (2) greater than the
note balance as a result of future increases in fair value of the stock, we will
record additional expense.
On January 22, 2001, we entered into a severance agreement with another
employee. Under this agreement, we cancelled approximately $85,000 of accrued
interest on a note receivable. We repurchased 3,125 shares of restricted stock
for $483.13 and offset the purchase price against $1.5 million of note
principal. We further agreed to cease interest on the remaining $302,000
principal balance of the note receivable related to 625 shares and to cease
interest on the $262,000 principal balance related to the sale of stock in 1999.
As a result of these interest modifications, a $208,000 discount on the note
receivable balance was recorded as compensation expense in the first quarter of
2001. The discount will be amortized to interest income over the remaining term
of the note. In addition, the Company's repurchase rights and the individual's
put option were changed on the remaining 2,832 shares of common stock owned by
this individual. We agreed not to repurchase and the individual agreed not to
exercise the put option on the shares until February 28, 2003. The repurchase
price and the put option price were changed to be the greater of the fair value
of the stock or the balance on the note receivable. Because the fair value of
these shares was $483.13 per share on January 22, 2001, compensation expense of
approximately $1.0 million was recorded in the first quarter of 2001, which
represents the difference between the carrying amount and the fair value of the
2,622 shares common stock that are subject to the note receivable.
On February 1, 2001, we amended the note agreements with another employee
that were issued in connection with the sale of restricted stock in 1999 and
2000. Under the amended agreements, interest ceases to accrue, effective
December 31, 2000, on one note with a principal balance of $1.6 million and
another note with a principal balance of $7.0 million. Further, the notes were
modified to remove the full recourse provisions and modify the pledge agreement.
As a result of these modifications, the sale of stock for notes will now be
accounted for as stock options and will be subject to variable accounting.
Accordingly, changes in the fair value of the common stock in excess of the note
balance will be recorded as compensation expense until the note is paid in full.
In addition, interest income will not be recorded on these notes. In connection
with this modification we recorded compensation expense of $6.0 million, in the
first quarter of 2001.
Because of the modifications of these employee notes, in the first quarter
of 2001 another employee's 2000 stock purchase will be accounted for as stock
options, subject to variable accounting. In addition, interest income will not
be recorded on this note with a principal balance of $3.7 million.
5. STOCK OPTION PLANS
During the three months ended March 31, 2001, options to purchase 1,780
shares at $483.13 per share were granted to employees. These options vest over
five (5) years. During the same period options to purchase 4,114 shares were
forfeited due to employee terminations.
6. OPERATING LEASES
In March 2001 we completed a sale and leaseback of certain equipment and
received proceeds of $7.9 million. There was no gain or loss in connection with
the sale and the lease is accounted for as an operating lease. As part of the
transaction we issued a $3.4 million letter of credit for which the
F-50
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
lessor is the beneficiary should we default on any payments. The monthly lease
payments are $139,967 for 72 months.
7. DERIVATIVE INSTRUMENTS
Effective January 1, 2001, we adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS No. 137 and
SFAS No. 138. We recognize the fair value of derivatives as either assets or
liabilities in the balance sheet. To the extent that the derivatives qualify as
hedges, gains or losses associated with the effective portion are recorded as a
component of other comprehensive income while the ineffective portion is
recognized in income.
At the adoption of this pronouncement, we had one interest rate cap
agreement, which had been entered into during the fourth quarter of 2000. As a
result, the initial adoption of this pronouncement did not result in a material
effect to our financial statements.
During the first quarter of 2001, we entered into three additional interest
rate derivative agreements with separate financial institutions. We use our
interest rate derivatives to manage interest rate risk associated with future
interest payments on variable rate borrowings under our Credit Facilities. Our
interest rate derivative agreements are considered cash flow hedges and
consisted of the following as of March 31, 2001 (dollars in millions):
NOTIONAL VARIABLE FIXED MATURITY
TYPE AMOUNT RATE* RATE** DATES
- ---- -------- -------- ------------ ----------
Interest rate cap......................... $128.0 LIBOR 10.00% 12/31/2003
Interest rate cap......................... 30.0 LIBOR 7.25% 02/09/2004
Interest rate collar...................... 40.0 LIBOR 4.15% - 02/13/2004
7.25%
Interest rate swap........................ 60.0 LIBOR 5.40% 02/13/2004
- ---------------
* Three-month LIBOR, as defined; 4.88% as of March 31, 2001
** Strike for caps; floor and strike for collar
The fair value of our interest rate derivative agreements is reported on
our consolidated balance sheet at March 31, 2001 in other liabilities of
approximately $802,000, and in other assets of approximately $70,000. For the
three months ended March 31, 2001, the ineffective portion of our interest rate
derivatives was a loss of approximately $111,000 which is included in interest
expense.
The underlying exposure matures beyond that of the interest rate derivates.
As a result, we do not expect to reclassify any amounts from other comprehensive
income into earnings within the next twelve months due to the change in the
underlying hedge.
8. OPERATING SEGMENTS
Operating segments are components of the 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
F-51
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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. Disclosures for each product line
within operating segments are not required because amounts of net revenues are
impracticable to obtain.
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. During the first quarter of 2001, two plant operations were
reclassified from our Specialty segment to our Industrial segment in accordance
with a change in business focus. Accordingly, the 2000 amounts have been
reclassified to reflect this change. In addition, certain operating expenses
were reclassified from our segments to the corporate category as a result of
expenses which are no longer attributable and allocated to the segment.
Segment profit or loss and segment assets as of and for the three months
ended March 31, 2001 and 2000 are presented in the following table (in
thousands):
DESIGN INDUSTRIAL SPECIALTY CORPORATE/
PRODUCTS FILMS FILMS OTHER TOTAL
-------- ---------- --------- ---------- --------
MARCH 31, 2001
Net sales to customers............. $53,369 $61,597 $87,693 $ -- $202,659
Intersegment sales................. 2,004 1,539 2,269 (5,812) --
------- ------- ------- -------- --------
Total net sales.................... 55,373 63,136 89,962 (5,812) 202,659
Depreciation and amortization...... 2,509 1,976 2,793 2,811 10,089
Interest expense................... 887 (29) 6 19,496 20,360
Segment profit (loss).............. 9,220 11,019 18,766 (46,038) (7,033)
Segment total assets............... 178,254 125,531 398,816 76,333 778,934
Capital expenditures............... 4,225 2,638 7,402 1,045 15,310
MARCH 31, 2000
Net sales to customers............. 53,402 59,816 107,288 -- 220,506
Intersegment sales................. 1,468 1,611 1,682 (4,761) --
------- ------- ------- -------- --------
Total net sales.................... 54,870 61,427 108,970 (4,761) 220,506
Depreciation and amortization...... 2,214 1,903 2,751 2,647 9,515
Interest expense................... 888 87 6 10,577 11,558
Segment profit (loss).............. 6,497 9,191 23,464 (30,252) 8,900
Compensation and transaction costs
related to recapitalization...... -- -- -- 5,200 5,200
Segment total assets............... 178,353 130,166 416,540 55,039 780,098
Capital expenditures............... 1,361 3,697 3,852 1,183 10,093
F-52
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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):
THREE MONTHS ENDED
MARCH 31,
--------------------
2001 2000
-------- --------
PROFIT OR LOSS
Total profit for reportable segments........................ $ 39,005 $ 39,152
Compensation and transaction costs related to
recapitalization.......................................... -- (5,200)
Unallocated amounts:
Corporate expenses........................................ (26,542) (19,675)
Interest expense.......................................... (19,496) (10,577)
-------- --------
Income (loss) before taxes................................ $ (7,033) $ 3,700
======== ========
MARCH 31, MARCH 31,
2001 2000
--------- ---------
ASSETS
Total assets for reportable segments........................ $702,601 $725,059
Intangible assets not allocated to segments................. 14,528 15,839
Other unallocated assets.................................... 61,805 39,200
-------- --------
Total consolidated assets................................... $778,934 $780,098
======== ========
9. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements present, in
separate columns, financial information for (i) Pliant (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 Pliant'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 Pliant and its
subsidiaries on a consolidated basis, and (v) Pliant on a consolidated basis, in
each case as of March 31, 2001 and December 31, 2000 and for the three months
ended March 31, 2001 and 2000. 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 Pliant. There
are no contractual restrictions limiting transfers of cash from guarantor and
non-guarantor subsidiaries to Pliant. 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. During the first quarter of 2001, our Blessings subsidiary was merged
with and into Pliant. Accordingly, the former Blessings subsidiary is reflected
as part of "Pliant Corporation Only" column for all periods presented.
F-53
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PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 2001 (DOLLARS IN THOUSANDS) (UNAUDITED)
PLIANT COMBINED COMBINED CONSOLIDATED
CORPORATION GUARANTOR NON-GUARANTOR PLIANT
(PARENT ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
------------- ------------ ------------- ------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................. $ -- $ 39 $ 2,290 $ -- $ 2,329
Receivables -- net........................ 89,712 4,880 17,810 -- 112,402
Inventories............................... 67,212 7,858 7,520 -- 82,590
Prepaid expenses and other................ 2,158 135 848 -- 3,141
Income taxes receivable................... 2,059 (25) 1,005 -- 3,039
Deferred income taxes..................... 14,430 38 (1,327) -- 13,141
--------- ------- ------- -------- ---------
Total current assets............... 175,571 12,925 28,146 -- 216,642
PLANT AND EQUIPMENT -- Net.................. 274,092 11,814 43,017 -- 328,923
INTANGIBLE ASSETS -- Net.................... 183,675 2,392 17,345 -- 203,412
INVESTMENT IN SUBSIDIARIES.................. 51,884 -- -- (51,884) --
OTHER ASSETS................................ 27,329 -- 2,628 -- 29,957
--------- ------- ------- -------- ---------
TOTAL ASSETS....................... $ 712,551 $27,131 $91,136 $(51,884) $ 778,934
========= ======= ======= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt......... $ 6,985 $ -- $ -- $ -- $ 6,985
Trade accounts payable.................... 86,486 5,387 14,300 -- 106,173
Accrued liabilities....................... 42,535 1,096 3,993 -- 47,624
Due to (from) affiliates.................. (2,418) 8,253 (5,835) -- --
--------- ------- ------- -------- ---------
Total current liabilities.......... 133,588 14,736 12,458 -- 160,782
LONG-TERM DEBT -- Net of current portion.... 634,157 -- 35,000 -- 669,157
OTHER LIABILITIES........................... 29,148 -- 1,434 -- 30,582
DEFERRED INCOME TAXES....................... 28,405 497 2,258 -- 31,160
--------- ------- ------- -------- ---------
Total liabilities.................. 825,298 15,233 51,150 -- 891,681
--------- ------- ------- -------- ---------
REDEEMABLE STOCK............................ 97,160 -- -- -- 97,160
--------- ------- ------- -------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock.............................. 87,639 14,020 29,241 (43,261) 87,639
Warrants.................................. 26,500 -- -- -- 26,500
Retained earnings accumulated (deficit)... (314,069) (2,111) 18,093 (15,982) (314,069)
Stockholders' note receivable............. (584) -- -- -- (584)
Accumulated other comprehensive loss...... (9,393) (11) (7,348) 7,359 (9,393)
--------- ------- ------- -------- ---------
Total stockholders' equity
(deficit)........................ (209,907) 11,898 39,986 (51,884) (209,907)
--------- ------- ------- -------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)................................. $ 712,551 $27,131 $91,136 $(51,884) $ 778,934
========= ======= ======= ======== =========
F-54
185
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2000 (DOLLARS IN THOUSANDS) (UNAUDITED)
PLIANT COMBINED COMBINED CONSOLIDATED
CORPORATION GUARANTOR NON-GUARANTOR PLIANT
(PARENT ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
------------- ------------ ------------- ------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................. $ 459 $ 10 $ 2,591 $ -- $ 3,060
Receivables, net.......................... 90,670 4,966 19,422 -- 115,058
Inventories............................... 64,884 6,983 7,284 -- 79,151
Prepaid expenses and other................ 1,527 30 426 -- 1,983
Income taxes receivable................... 1,885 (24) 897 -- 2,758
Deferred income taxes..................... 14,431 37 (1,476) -- 12,992
--------- ------- ------- -------- ---------
Total current assets............... 173,856 12,002 29,144 -- 215,002
PLANT AND EQUIPMENT, net.................... 268,739 16,538 47,806 -- 333,083
INTANGIBLE ASSETS, net...................... 185,727 2,482 17,661 -- 205,870
INVESTMENT IN SUBSIDIARIES.................. 49,611 -- -- (49,611) --
OTHER ASSETS................................ 28,593 -- 2,486 -- 31,079
--------- ------- ------- -------- ---------
TOTAL ASSETS................................ $ 706,526 $31,022 $97,097 $(49,611) $ 785,034
========= ======= ======= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt......... $ 8,312 $ -- $ 1,050 $ -- $ 9,362
Trade accounts payable.................... 87,970 5,730 15,318 -- 109,018
Accrued liabilities....................... 32,068 1,201 5,743 -- 39,012
Due to (from) affiliates.................. (10,000) 13,442 (3,442) -- --
--------- ------- ------- -------- ---------
Total current liabilities.......... 118,350 20,373 18,669 -- 157,392
LONG-TERM DEBT, net of current portion...... 642,976 -- 35,055 -- 678,031
OTHER LIABILITIES........................... 24,200 -- 1,557 -- 25,757
DEFERRED INCOME TAXES....................... 30,206 497 2,357 -- 33,060
--------- ------- ------- -------- ---------
Total liabilities.................. 815,732 20,870 57,638 -- 894,240
--------- ------- ------- -------- ---------
REDEEMABLE COMMON STOCK..................... 96,805 -- -- -- 96,805
--------- ------- ------- -------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock.............................. 87,989 14,020 29,241 (43,261) 87,989
Warrants to purchase common stock......... 26,500 -- -- -- 26,500
Retained earnings (accumulated deficit)... (312,414) (3,857) 15,966 (12,109) (312,414)
Shareholder note receivable............... (825) -- -- -- (825)
Accumulated other comprehensive income
(loss).................................. (7,261) (11) (5,748) 5,759 (7,261)
--------- ------- ------- -------- ---------
Total stockholders' equity
(deficit)........................ (206,011) 10,152 39,459 (49,611) (206,011)
--------- ------- ------- -------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)................................. $ 706,526 $31,022 $97,097 $(49,611) $ 785,034
========= ======= ======= ======== =========
F-55
186
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2001 (DOLLARS IN THOUSANDS) (UNAUDITED)
PLIANT COMBINED COMBINED CONSOLIDATED
CORPORATION GUARANTOR NON-GUARANTOR PLIANT
(PARENT ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
------------- ------------ ------------- ------------ ------------
SALES, NET........................... $170,938 $9,559 $27,974 $(5,812) $202,659
COST OF SALES........................ 137,226 7,888 21,394 (5,812) 160,696
-------- ------ ------- ------- --------
GROSS PROFIT......................... 33,712 1,671 6,580 -- 41,963
OPERATING EXPENSES................... 26,859 90 2,582 -- 29,531
-------- ------ ------- ------- --------
OPERATING INCOME..................... 6,853 1,581 3,998 -- 12,432
INTEREST EXPENSE..................... (19,470) -- (890) -- (20,360)
EQUITY IN EARNINGS OF SUBSIDIARIES... 3,873 -- -- (3,873) --
OTHER INCOME (EXPENSE), NET.......... 418 165 312 -- 895
-------- ------ ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES.... (8,326) 1,746 3,420 (3,873) (7,033)
INCOME TAX PROVISION (BENEFIT)....... (3,602) -- 1,293 -- (2,309)
-------- ------ ------- ------- --------
NET INCOME (LOSS).................... $ (4,724) $1,746 $ 2,127 $(3,873) $ (4,724)
======== ====== ======= ======= ========
F-56
187
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (DOLLARS IN THOUSANDS) (UNAUDITED)
PLIANT COMBINED COMBINED CONSOLIDATED
CORPORATION GUARANTOR NON-GUARANTOR PLIANT
(PARENT ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
------------- ------------ ------------- ------------ ------------
SALES, NET........................ $186,259 $11,793 $27,215 $(4,761) $220,506
COST OF SALES..................... 150,213 10,999 21,042 (4,761) 177,493
-------- ------- ------- ------- --------
GROSS PROFIT...................... 36,046 794 6,173 -- 43,013
OPERATING EXPENSES................ 25,208 91 2,886 -- 28,185
-------- ------- ------- ------- --------
OPERATING INCOME.................. 10,838 703 3,287 -- 14,828
INTEREST EXPENSE.................. (10,582) 2 (978) -- (11,558)
EQUITY IN EARNINGS OF
SUBSIDIARIES.................... 1,914 -- -- (1,914) --
OTHER INCOME (EXPENSE), NET....... 55 (12) 387 -- 430
-------- ------- ------- ------- --------
INCOME BEFORE INCOME TAXES........ 2,225 693 2,696 (1,914) 3,700
INCOME TAX EXPENSE................ 824 380 1,095 -- 2,299
-------- ------- ------- ------- --------
NET INCOME........................ $ 1,401 $ 313 $ 1,601 $(1,914) $ 1,401
======== ======= ======= ======= ========
F-57
188
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 (DOLLARS IN THOUSANDS)(UNAUDITED)
PLIANT COMBINED COMBINED CONSOLIDATED
CORPORATION GUARANTOR NON-GUARANTOR PLIANT
(PARENT ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
------------- ------------ ------------- ------------ ------------
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES............... $ 21,192 $(4,574) $(1,955) -- $ 14,663
-------- ------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets....... 2,966 4,948 -- -- 7,914
Capital expenditures for plant and
equipment....................... (12,378) (1,802) (1,130) -- (15,310)
-------- ------- ------- ------- --------
Net cash provided by investing
activities.................... (9,412) 3,146 (1,130) -- (7,396)
-------- ------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
common stock and net change in
related stockholders' notes
receivables..................... (99) (99)
Principal payments on long-term
debt............................ (10,146) -- (1,105) -- (11,251)
-------- ------- ------- ------- --------
Net cash used in financing
activities.................... (10,245) -- (1,105) -- (11,350)
-------- ------- ------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS.......... (1,994) 1,457 3,889 -- 3,352
-------- ------- ------- ------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (459) 29 (301) -- (731)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD............ 459 10 2,591 -- 3,060
-------- ------- ------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF
THE PERIOD......................... $ -- $ 39 $ 2,290 $ -- $ 2,329
======== ======= ======= ======= ========
F-58
189
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (DOLLARS IN THOUSANDS) (UNAUDITED)
PLIANT COMBINED COMBINED CONSOLIDATED
CORPORATION GUARANTOR NON-GUARANTOR PLIANT
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
----------- ------------ ------------- ------------ ------------
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES....................... $13,489 $ 592 $3,827 $ -- $ 17,908
------- ------ ------ ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures for plant
and equipment................. (9,262) (199) (632) -- (10,093)
------- ------ ------ ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net change in stockholder notes
receivable.................... (46) -- -- -- (46)
Principal payments on long-term
debt.......................... (2,969) -- (843) -- (3,812)
------- ------ ------ ------- --------
Net cash used in financing
activities.................. (3,015) -- (843) -- (3,858)
------- ------ ------ ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS........ (713) 661 (774) -- (826)
------- ------ ------ ------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS...................... 499 1,054 1,578 -- 3,131
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD.......... 1,231 517 7,349 -- 9,097
------- ------ ------ ------- --------
CASH AND CASH EQUIVALENTS AT END OF
THE PERIOD....................... $ 1,730 $1,571 $8,927 $ -- $ 12,228
======= ====== ====== ======= ========
F-59
190
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Uniplast Holdings Inc.:
We have audited the accompanying consolidated balance sheet of Uniplast Holdings
Inc. and subsidiaries as of December 31, 2000, and the related consolidated
statements of operations, stockholders' equity and comprehensive income, and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Uniplast Holdings
Inc. and subsidiaries as of December 31, 2000, and the results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 5 to the
financial statements, the Company is in violation of certain covenants related
to its lending agreement, which has placed the Company in default of its lending
agreement, which raises substantial doubt about its ability to continue as a
going concern.
KPMG LLP
Boston, Massachusetts
June 4, 2001
F-60
191
UNIPLAST HOLDINGS INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
2000
-----------
ASSETS
Current assets:
Cash...................................................... $ 469,534
Trade accounts receivable, less allowance for doubtful
accounts of $779,821................................... 12,026,217
Inventories (note 3)...................................... 8,163,256
Deferred income taxes (note 10)........................... 1,206,302
Prepaid expenses and other current assets................. 616,969
-----------
Total current assets................................... 22,482,278
-----------
Property, plant and equipment (note 4)...................... 28,212,609
Less accumulated depreciation............................... (5,762,742)
-----------
Net property, plant and equipment...................... 22,449,867
-----------
Goodwill, net............................................... 28,118,356
Other assets, net........................................... 902,675
-----------
$73,953,176
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 5)................ $37,329,641
Trade accounts payable.................................... 8,583,853
Accrued expense (note 8).................................. 3,780,505
Due to affiliated company (note 12)....................... 2,000,000
Income taxes payable...................................... 159,537
-----------
Total current liabilities.............................. 51,853,536
Commitments and contingencies (notes 6 and 7)...............
Long-term debt (note 5)..................................... 134,479
Deferred income taxes (note 10)............................. 1,776,871
Minority interest (note 6).................................. 1,639,257
-----------
Total liabilities...................................... 55,404,143
-----------
Stockholders' equity (note 11):
Common shares, $.01 par; 2,000,000 shares authorized;
1,420,711 shares issued and outstanding at December 31,
2000................................................... 14,207
Additional paid-in capital................................ 24,880,396
Treasury stock, at cost, 2,500 shares..................... (50,000)
Accumulated deficit....................................... (5,607,221)
Accumulated other comprehensive loss...................... (688,349)
-----------
Total stockholders' equity............................. 18,549,033
-----------
$73,953,176
===========
See accompanying notes to consolidated financial statements.
F-61
192
UNIPLAST HOLDINGS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
2000
-----------
Sales....................................................... $86,967,075
Cost of sales............................................... 78,242,314
-----------
Gross profit........................................... 8,724,761
Operating expenses:
Selling, general and administrative expense............... 7,372,831
Goodwill amortization..................................... 1,626,460
-----------
Loss from operations................................... (274,530)
Other expense:
Interest expense.......................................... 3,821,330
Management fee (note 12).................................. 750,000
Other expense............................................. 42,107
-----------
Loss before income tax expense......................... (4,887,967)
Income tax expense (note 10)................................ 554,873
-----------
Net loss............................................... $(5,442,840)
===========
See accompanying notes to consolidated financial statements.
F-62
193
UNIPLAST HOLDINGS INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, 2000
NUMBER
OF SHARES
--------- ACCUMULATED
COMMON ADDITIONAL TREASURY OTHER
STOCK COMMON PAID-IN STOCK ACCUMULATED COMPREHENSIVE
ISSUED STOCK CAPITAL AT COST DEFICIT INCOME (LOSS) TOTAL
--------- ------- ---------- -------- ----------- ------------- ----------
Balances at December
31, 1999............. 889,750 $ 8,898 17,786,102 (50,000) (164,381) (129,862) 17,450,757
Issuance of common
stock................ 530,961 5,309 7,094,294 -- -- -- 7,099,603
Comprehensive income:
Net loss............. -- -- -- -- (5,442,840) -- (5,442,840)
Pension liability
adjustment......... -- -- -- -- -- (238,610) (238,610)
Foreign currency
translation
adjustment......... -- -- -- -- -- (319,877) (319,877)
----------
Comprehensive
income........... (6,001,327)
--------- ------- ---------- ------- ---------- -------- ----------
Balances at December
31, 2000............. 1,420,711 $14,207 24,880,396 (50,000) (5,607,221) (688,349) 18,549,033
========= ======= ========== ======= ========== ======== ==========
See accompanying notes to consolidated financial statements.
F-63
194
UNIPLAST HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net loss.................................................. $(5,442,840)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 4,319,200
Deferred income taxes.................................. 40,535
Increase (decrease) in:
Trade accounts receivable............................ 1,146,211
Inventories.......................................... (748,855)
Prepaid expenses and other current assets............ (69,860)
Trade accounts payable and accrued expenses.......... 3,131,475
Income taxes payable................................. (49,732)
Amount due to affiliate.............................. 750,000
Other assets and liabilities, net.................... (96,251)
-----------
Net cash provided by operating activities......... 2,979,883
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment.............. (6,824,360)
-----------
Net cash used in investing activities............. (6,824,360)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................. 3,940,036
Principal payments on long-term debt...................... (6,263,312)
Issuance of common stock.................................. 7,099,603
Minority interest......................................... (554,900)
-----------
Net cash provided by financing activities......... 4,221,427
-----------
Effect of exchange rates on cash............................ (250,389)
Net increase in cash........................................ 126,561
Cash, beginning of year..................................... 342,973
-----------
Cash, end of year........................................... $ 469,534
===========
See accompanying notes to consolidated financial statements.
F-64
195
UNIPLAST HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(1) BUSINESS FORMATION AND ORGANIZATION
Uniplast Holdings Inc., a Delaware corporation ("Uniplast") and,
collectively with its subsidiaries, the ("Company") operates plants engaged in
the manufacture of a range of polyethylene, surlyn, polyester, multi-layer
packaging, industrial films and cast-embossed films for a variety of uses. The
Company manufactures its products at two plants located in Ontario, Canada and
five plants located in Florida, Indiana, Massachusetts and Rhode Island. The
Company sells its products principally in the eastern half of North America,
with some of the cast-embossed films being exported to the Caribbean and South
America. The Company's sales are spread over a diverse base of approximately 800
customers.
Uniplast was created April 3, 1998 through the issuance of 886,500 common
shares, $.01 par value, to Perry Acquisition Partners -- 2, L.P. ("Perry").
Concurrently, with its creation in April 1998, Uniplast acquired Uniplast
Industries, Inc. ("Industries Inc."), a Nova Scotia Company, in a series of
transactions, through a newly formed Nova Scotia Company, Uniplast Industries
Company ("Industries Company") as follows:
- Industries Company acquired 100% of the outstanding shares of Industries,
Inc. for cash paid of $36,841,109, repurchase of options of $330,798,
repayment of loans of $349,620 and the issuance of 113,500 shares of
Industries Company common stock having an ascribed value at the date of
the acquisition of $2,444,157. The transaction was financed through the
issuance of 886,500 Industries Company common shares to Uniplast and
borrowings under the Company's credit agreement (see note 5). Immediately
following these transactions, Uniplast was the majority owner of
Industries Company, owning approximately 89% of Industries Company
outstanding common shares (see note 6).
- Subsequent to Industries Company's acquisition of Industries Inc.,
Industries Inc. was merged into Industries Company.
- Industries Company exchanged its interest in its wholly-owned U.S.
subsidiary, Uniplast U.S., Inc. ("Uniplast U.S.,"), for preferred shares
of Uniplast U.S. Also at this time, Uniplast subscribed for common shares
of Uniplast U.S.
The acquisition was accounted for by the Company using the purchase method
of accounting. The consolidated balance sheet as of December 31, 1998 includes
the allocation of the purchase price to the assets acquired and liabilities
assumed based on fair value. The allocation resulted in $33,007,138 of goodwill
at April 30, 1998, the date of the acquisition, which represents the excess of
purchase price over the estimated fair value of the net assets acquired.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company since its inception, April 3, 1998, and its subsidiaries since
their acquisition, April 30, 1998. The acquisition of the subsidiaries was
accounted for using the purchase method of accounting.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. The Company's operating subsidiaries are
majority-owned Industries Company (see note 6) and wholly-owned Uniplast
U.S. Uniplast U.S. consists of wholly-owned subsidiar-
F-65
196
UNIPLAST HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ies Pierson Industries, Inc. ("Pierson"), Turex, Inc., ("Turex") and
Uniplast Midwest, Inc. ("Midwest"). All significant intercompany
transactions and balances have been eliminated in consolidation.
(c) REVENUE RECOGNITION
Revenue is recognized at the time the product is shipped. Provision is
made for estimated returns and allowances based on historical experience.
(d) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(e) INVENTORIES
Finished goods are stated at the lower of cost or net realizable
value. Raw materials and supplies are stated at the lower of cost or
market. Cost is determined on a first-in, first-out ("FIFO") basis.
(f) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided on a straight-line method based on
estimated useful lives of the assets.
Annual rates of depreciation are as follows:
PERCENTAGE
OF COST
-------------
Buildings................................................... 3-5%
Machinery and equipment..................................... 7-33%
Office equipment............................................ 10-33%
Leasehold improvements are amortized over their estimated useful lives
or lease period, whichever is shorter.
(g) GOODWILL
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line basis over
the expected periods to be benefited, estimated to be 20 years.
The Company assesses the recoverability of goodwill by determining
whether the amortization of the goodwill balance over its remaining life
can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured
based on projected discounted future operating cash flows using a discount
rate reflecting the Company's average cost of funds.
F-66
197
UNIPLAST HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) STOCK OPTION PLAN
The Company accounts for its stock option plans in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to
apply the provisions of Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option
grants made as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded
the exercise price.
(i) FINANCING FEE
Included in other assets is a net financing fee of $839,569 at
December 31, 2000, paid pursuant to the Company's 1999 credit agreement.
The financing fee is being amortized on a straight-line basis over seven
years, the term of the credit agreement. Amortization expense was $162,630
for 2000.
(j) TRANSLATION OF FOREIGN CURRENCIES
The Company's foreign subsidiary is considered self-sustaining and its
financial statements are translated into U.S. dollars using the current
rate method. Under this method, assets and liabilities are translated to
U.S. dollars at the year-end exchange rate and items included in the
statement of operations are translated at a weighted average rate for the
period. The resulting translation gains or losses are deferred as a
separate component of accumulated other comprehensive income.
(k) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(l) CASH FLOW INFORMATION
Cash paid for interest and income taxes in fiscal year 2000 was
$3,403,615 and $551,211, respectively.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable
and due to affiliate approximate fair values due to the short maturity of
these instruments. The fair value of long-term debt approximates the
carrying value because the interest rates associated with the long-term
debt are floating rates.
F-67
198
UNIPLAST HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(n) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The effective date of SFAS 133 was deferred one year by SFAS
137 which was issued in 1999. As a result, the Company adopted the Standard
effective January 1, 2001. The initial adoption of the Standard did not
have a material impact on the Company's financial position or results of
operations.
(o) SEGMENT REPORTING
The Company follows SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which establishes reporting standards
for an enterprise's business segments and related disclosures about its
products, services, geographic areas, and major customers. Uniplast
operates in one segment in the United States and Canada. The following
table presents financial information by country based on location of
production.
LONG-LIVED
NET SALES ASSETS
----------- -----------
United States............................................ $58,570,928 $28,766,448
Canada................................................... 28,396,147 22,704,450
----------- -----------
Total............................................... $86,967,075 $51,470,898
=========== ===========
(3) INVENTORIES
Inventories consist of the following:
Raw materials............................................... $ 4,989,005
Finished goods.............................................. 3,038,668
Supplies.................................................... 135,583
-----------
$ 8,163,256
===========
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
Land........................................................ $ 1,343,374
Buildings................................................... 3,470,884
Machinery and equipment..................................... 22,400,546
Office equipment............................................ 997,805
===========
$28,212,609
===========
Depreciation expense was $2,530,110 for 2000.
F-68
199
UNIPLAST HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) DEBT
Long-term debt consists of the following:
U.S. term loan payable to bank.............................. $15,428,841
U.S. revolving credit loan payable to bank.................. 5,900,000
Canadian term loan payable to bank.......................... 14,000,700
Canadian revolving credit loan payable to bank.............. 2,000,100
Other long-term debt and capital leases..................... 134,479
-----------
37,464,120
Less current maturities..................................... 37,329,641
-----------
$ 134,479
===========
The Company's bank financing consists of a credit agreement (the "Credit
Agreement") with two financial institutions. The Credit Agreement includes a
Canadian Revolving Credit Loan ("Canadian Credit Facility"), a U.S. Revolving
Credit Loan ("U.S. Credit Facility"), a Canadian Term Loan and a U.S. Term Loan.
Under the terms of the Credit Agreement, the sum of all outstanding loans
and letters of credit on the Canadian and U.S. Credit Facilities may not exceed
the sum of 85% of eligible accounts receivable (as defined) and 65% of eligible
inventory (as defined) provided that the amount attributable to eligible
inventory may not exceed a maximum of $2.8 million for the Canadian Credit
Facility and $8.0 million for the U.S. Credit Facility. Under the Canadian and
U.S. Credit Facilities the Company may borrow, repay, and reborrow principal at
various rates as defined in the Credit Agreement prior to the termination of the
Credit Agreement in March 2005. Commitment fees on these revolving credit
agreements are three-eighths of one percent or one-half of one percent per
annum, depending on the Company's leverage ratio on a trailing four-quarter
basis, on the unadvanced portion of the respective Credit Facility. The U.S.
Credit Facility borrowings bear interest at rates between 9.74% and 11.50%, at
December 31, 2000. In addition to the loans outstanding under the Credit
Agreement, at December 31, 2000 there were letters of credit of $90,854 and $0
outstanding under the Canadian and U.S. Revolving Credit Facilities,
respectively.
The Canadian Term Loan was issued by way of a single borrowing of
$17,144,857 and is required to be repaid by way of quarterly installments of
$114,206 beginning in 1998, escalating annually to quarterly installments of
$1,033,905 in 2005, plus interest at the bankers acceptance rate plus a margin
(as defined). The U.S. Term Loan was issued by way of a single borrowing of
$18,000,000 and is required to be repaid by way of quarterly installments of
$128,571 beginning in 1998, escalating, annually to quarterly installments of
$1,157,142 in 2005, plus interest at LIBOR plus 3%. Borrowings outstanding under
the Canadian Term Loan bear interest at rates between 9.79% and 10.00% at
December 31, 2000. Borrowings outstanding under the U.S. Term Loan bear interest
at 9.78% at December 31, 2000. Amounts borrowed under the Credit Agreement are
secured by substantially all of the assets of the Company.
The Credit Agreement contains certain financial and operating covenants. At
December 31, 2000, the Company failed to meet certain financial covenants under
its primary lending facility. The covenants were amended to bring the Company
into compliance with the Credit Agreement. This amendment included a forbearance
agreement up to and including May 31, 2001. The Company has not met the
requirements of the forbearance agreement and could be considered in default
under its lending agreement. Therefore, all of the outstanding balances under
the Credit Agreement have been classified as current.
F-69
200
UNIPLAST HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the Credit Agreement the Company has entered interest rate swap
agreements to reduce the potential impact of increases in interest rates on its
variable rate long-term debt. At December 31, 1999, the Company was a party to
interest rate swap agreements with a term of two years and expiring on June 30,
2000. The agreements entitle the Company to receive from the counter-party (a
major bank), on a quarterly basis, the amount, if any, by which the Company's
interest payments on $18 million of the borrowings under the Credit Agreement
due in 2005, exceed 5.79%. Approximately $25,000 was received by the Company
during the year ended December 31, 2000. Other parties to the agreements expose
the Company to credit losses for the periodic settlements of amounts due under
the interest rate swaps in the event of non-performance.
(6) MINORITY INTEREST
Minority interest consists of approximately 7% of the outstanding common
shares of Industries Company. The minority interest is owned by various members
of management. Each minority owner has the right to exchange its common shares
of Industries Company for an equal number of common shares of the Company at any
time. Furthermore, the minority owners are obligated to exchange their
Industries Company shares for Company shares upon the occurrence of certain
events. The Company may elect to purchase from a minority owner all of its
common shares of the Company or Industries Company, upon the occurrence of
certain events. Due to the restrictive nature of the minority shares, and the
stock conversion obligations, the minority portion of income or loss of
Industries Company is not recorded currently in the financial statements.
During 2000, 27,745 Industries Company shares were converted one for one
for Company shares.
(7) LEASES
The Company is obligated under various leases for its premises, vehicles
and equipment that expire at various dates through 2005. Future minimum lease
payments as of December 31, 2000 are as follows:
2001.................................................... $ 333,779
2002.................................................... 245,171
2003.................................................... 186,404
2004.................................................... 130,627
2005.................................................... 105,251
----------
Total future minimum payments...................... $1,001,232
==========
Rent expense for fiscal 2000 was $341,648.
F-70
201
UNIPLAST HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) PENSION PLANS
Two of the Company's subsidiaries, Pierson and Turex, maintain defined
benefit pension plans for certain hourly and salaried employees. The following
provides a reconciliation of benefit obligations, plan assets and funded status
of the plans for 2000.
Change in benefit obligation:
Benefit obligation at beginning of year................... $2,868,237
Service cost.............................................. 78,044
Interest cost............................................. 217,238
Plan amendments........................................... --
Benefits paid............................................. (287,849)
Actuarial (gain) loss..................................... 194,793
----------
Benefit obligation at end of year...................... $3,070,463
==========
Change in plan assets:
Fair value of plan assets at beginning of year............ $2,728,330
Actual return on plan assets.............................. (21,167)
Employer contributions.................................... 115,875
Benefits paid............................................. (287,849)
Fees...................................................... --
----------
Fair value of plan assets at end of year............... $2,535,189
==========
Reconciliation of funded status:
Funded status............................................. $ (535,274)
Unrecognized actuarial gain............................... 240,266
Unrecognized prior service cost........................... 51,069
----------
Net amount recognized at year end...................... $ (243,939)
==========
The following table provides the amounts recognized in the consolidated
balance sheet at December 31, 2000:
Prepaid benefit cost........................................ $ 82,211
Accrued benefit liability................................... (615,829)
Intangible asset............................................ 51,069
Accumulated other comprehensive income...................... 238,610
---------
Net amount recognized at year end...................... $(243,939)
=========
The assumptions used in the measurements of the Company's benefit
obligation as of December 31, 2000 are shown in the following table:
PIERSON TUREX
------- -----
Weighted-average assumptions:
Discount rate............................................... 7.50% 6.00%
Expected return on plan assets.............................. 8.50% 7.00%
Rate of compensation increase............................... N/A N/A
F-71
202
UNIPLAST HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table provides the components of net periodic benefit cost
for the plans for fiscal year 2000:
Components of net periodic benefit cost:
Service cost.............................................. $ 78,044
Interest cost............................................. 217,238
Expected return of plan assets............................ (221,582)
Amortization of prior service cost........................ 5,107
---------
Net periodic benefit cost.............................. $ 78,807
=========
(9) CONCENTRATIONS OF CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of trade receivables. The Company's trade receivables are
derived from sales to manufacturers, resellers and distributors in the plastics
industry. The Company performs ongoing credit evaluations of its customers'
financial condition and limits the amount of credit extended when deemed
necessary. The Company provides for potential credit losses.
(10) INCOME TAXES
Income tax expense (benefit) attributable to income from operations for the
year ended December 31, 2000 consists of the following:
CURRENT DEFERRED TOTAL
--------- -------- --------
Federal..................................................... $(136,030) -- (136,030)
State....................................................... 92,000 (30,282) 61,718
Foreign..................................................... 558,368 70,817 629,185
--------- ------- --------
$ 514,338 40,535 554,873
========= ======= ========
The following is a reconciliation between the statutory federal income tax
rate and the Company's effective rate for the year ended December 31, 2000:
Statutory federal income tax rate........................... (34.0)%
State income taxes, net of federal income tax benefit....... 0.7
Valuation reserve movement.................................. 34.7
Goodwill amortization....................................... 10.2
Other permanent............................................. (0.3)
Other, net.................................................. (12.8)
Foreign taxes............................................... 12.9
-----
11.4%
=====
F-72
203
UNIPLAST HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2000 are as follows:
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts...................................... $ 306,608
Accrued liability relating to compensation related
expense................................................ 80,942
Other accrued liabilities................................. 1,028,384
Operating loss and credit carryforwards................... 1,669,565
-----------
Total gross deferred tax assets........................ 3,085,499
Less valuation allowance............................... (1,696,850)
-----------
Net deferred tax assets................................ 1,388,649
-----------
Deferred tax liabilities:
Inventory, principally due to additional costs capitalized
for tax purposes and accrued reserves.................. (25,476)
Intangible assets, principally due to differences in
capitalization and amortization methods................ (14,286)
Fixed assets, principally due to accelerated tax
depreciation........................................... (1,919,456)
-----------
Total gross deferred tax liabilities................... (1,959,218)
-----------
Net deferred tax liability............................. $ (570,569)
===========
A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. The net deferred tax assets
reflect management's estimate of the amount which will be realized from future
taxable income which can be predicted with reasonable certainty. At December 31,
2000, the Company has net operating loss carryforwards for federal income tax
purposes of approximately $500,000 which are available to offset future federal
taxable income, if any. The net operating loss carryforwards and unused tax
credits may be limited in the event of certain changes in ownership interest of
the majority shareholder. Of this net operating loss $234,000 is limited to
annual use of approximately $33,000 due to a prior year change in ownership.
(11) STOCK OPTION PLAN
During 1999, the shareholders of the Company adopted the 1998 Stock Award
and Incentive Plan (the "Plan"). The plan provides for stock options to be
granted to certain groups of employees, officers, directors, consultants and
advisors of the Company under specified circumstances. The options vest in equal
installments over a ten-year period beginning with the anniversary date of the
grant, with the exception of those held by persons deemed to own more than 10%
of the combined voting power of all classes of stock of the Company or any
Parent Corporation, in which case the vesting period is reduced to five years.
In the event that a change in control, as defined in the Plan, occurs, all of
the options that have not yet vested will vest. Under this plan, 200,000 shares
have been reserved, of which 41,350 shares of common stock have been authorized
to be issued. The option price is equal to the fair market price on the grant
date.
The Company applies the provisions of APB Opinion No. 25 in accounting for
its stock options and, accordingly, no compensation cost has been recognized for
its stock options in the consolidated financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net income (loss) would have
been increased (decreased) to the pro forma amounts indicated below:
Net income (loss) as reported............................... $(5,442,840)
===========
Pro forma net income (loss)................................. $(5,477,808)
===========
F-73
204
UNIPLAST HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the minimum value method and the risk-free interest rate for investment
instruments with maturities similar to the lives of the options granted. For
options granted during the year ended December 31, 1999, a ten-year life and an
interest rate of 5.65% were used to value the options. There were no options
granted during the year ended December 31, 2000. The per share weighted-average
fair value of stock options granted during the year ended December 31, 1999 was
$8.46.
A summary of stock option activity for the year ended December 31, 2000 is
as follows:
WEIGHTED-
AVERAGE
EXERCISE
PRICE
SHARES PER SHARE
------ ---------
Options outstanding, December 31, 1999...................... 41,350 $20.00
Options granted............................................. -- --
======
Options outstanding, December 31, 2000...................... 41,350 $20.00
======
At December 31, 2000, there were 12,405 options exercisable, and 158,650
shares available for future grants.
The following is a summary of information relating to options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------- --------------------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICE 2000 LIFE PRICE 2000 PRICE
- -------- -------------- ----------- --------- -------------- ---------
$20.00 41,350 8 years $20.00 12,405 $20.00
====== ======
(12) RELATED PARTY TRANSACTIONS
The Company was charged management fees of $750,000 by Perry in 2000.
(13) SUBSEQUENT EVENTS
In March 2001, the Company sold its facility in Jacksonville, Florida for
$750,000. The Company recorded a loss of approximately $168,000 on the
transaction.
As discussed in note 5, the Company has failed to meet certain covenants
under its primary lending facility. As a result, the Company could be deemed to
be in default under its lending agreement.
F-74
205
UNIPLAST HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
ASSETS
Cash........................................................ $ 2,360 $ 470
Trade accounts receivable, less allowance for doubtful
accounts.................................................. 13,144 12,026
Inventories................................................. 9,236 8,163
Deferred income taxes....................................... 1,206 1,206
Prepaid expenses and other current assets................... 572 617
------- -------
Total current assets.............................. 26,518 22,482
Property, plant and equipment............................... 23,947 28,213
Less: accumulated depreciation.............................. (3,171) (5,763)
------- -------
Net property, plant and equipment...................... 20,776 22,450
Goodwill, net............................................... 26,914 28,118
Other assets, net........................................... 1,024 904
------- -------
Total Assets...................................... $75,232 $73,954
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Portion of long-term debt........................... 36,363 37,330
Trade accounts payable...................................... 10,991 8,584
Accrued expense............................................. 4,365 3,781
Due to affiliated company................................... 2,250 2,000
Income taxes payable........................................ 346 160
------- -------
Total current liabilities......................... 54,315 51,856
Long-term debt.............................................. 134 134
Deferred income taxes....................................... 1,755 1,777
Other liabilities........................................... 162 0
Minority interest........................................... 1,639 1,639
------- -------
Total liabilities................................. 3,690 3,556
Shareholders' equity
Common shares............................................... 14 14
Additional paid in capital.................................. 24,880 24,880
Accumulated deficit......................................... (6,708) (5,607)
Treasury stock.............................................. (50) (50)
Accumulated other comprehensive loss........................ (909) (688)
------- -------
Total stockholders' equity........................ 17,227 18,549
------- -------
Total Liabilities and Stockholders Equity......... $75,232 $73,954
======= =======
See notes to condensed consolidated financial statements.
F-75
206
UNIPLAST HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NET LOSS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------- -------
Sales....................................................... $23,142 $22,957
Cost of Sales............................................... 20,171 19,863
------- -------
Gross Profit.............................................. 2,971 3,094
Operating Expenses
Selling, general and administrative expense............... 1,873 1,898
Goodwill amortization..................................... 402 410
------- -------
Income from operations................................. 696 786
Other expense
Interest expense.......................................... 1,067 794
Management Fee............................................ 250 188
Other expense............................................. 176 7
------- -------
Loss before income tax expense......................... (797) (203)
Income tax expense.......................................... 304 137
------- -------
Net loss............................................... $(1,101) $ (340)
======= =======
See notes to condensed consolidated financial statements.
F-76
207
UNIPLAST HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NUMBER OF
SHARES ACCUMULATED
COMMON ADDITIONAL TREASURY OTHER
STOCK COMMON PAID-IN STOCK ACCUMULATED COMPREHENSIVE
ISSUED STOCK CAPITAL AT COST DEFICIT INCOME (LOSS) TOTAL
--------- ------ ---------- -------- ----------- -------------- -------
Balances at December 31,
2000......................... 1,421 $14 $24,880 $(50) $(5,607) $ (688) $18,549
Issuance of common stock....... -- -- -- -- -- -- --
Treasury stock................. -- -- -- -- -- -- --
Comprehensive income:
Net income (loss)............ -- -- -- -- (1,101) -- (1,101)
Foreign currency translation
adjustment................. -- -- -- -- -- (221) (221)
-------
Comprehensive income......... -- -- -- -- -- -- (1,322)
----- --- ------- ---- ------- ------- -------
Balances at March 31, 2001..... 1,421 $14 $24,880 $(50) $(6,708) $ (909) $17,227
===== === ======= ==== ======= ======= =======
See notes to condensed consolidated financial statements.
F-77
208
UNIPLAST HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------- -------
Cash flows from operating activities:
Net income................................................ $(1,101) $ (340)
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization.......................... 1,140 1,105
Loss on Sale of Jacksonville Plant..................... 168 0
Deferred income taxes.................................. (22) 38
Changes in assets and liabilities:
(Increase) decrease in current assets:
Trade accounts receivable............................ (1,117) (566)
Inventories.......................................... (1,072) (1,880)
Prepaid expenses and other current assets............ 45 (147)
(Decrease) increase in current liabilities:
Accounts payable & Accrued Expenses.................. 3,164 1,238
Minority Interest.................................... 0 0
Due to affiliate..................................... 250 188
Other................................................ (43) (19)
Income tax payable................................... 186 (144)
------- -------
Net cash provided by (used in) operating activities.... 1,642 (527)
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired....... 0 0
Proceeds from Sale of Jacksonville Plant............... 750 0
Capital expenditures for property and equipment........ (138) (1,929)
------- -------
Net cash used in investing activities................ 612 (1,929)
Cash flows from financing activities:
Issuance of common stock............................... 0 3,000
Repurchase common stock................................ 0 0
Debt issuance costs.................................... (91) 0
Proceeds from issuance of long term debt............... 0 440
Repayment of long term debt............................ (292) (800)
------- -------
Net cash provided by (used in) financing
activities.......................................... (383) 2,640
Effect of exchange rate changes on cash................... 19 (111)
------- -------
Net Increase (decrease) in cash........................... 1,890 73
Cash, beginning of year................................... 470 343
------- -------
Cash, end of year......................................... $ 2,360 $ 416
======= =======
See notes to condensed consolidated financial statements.
F-78
209
UNIPLAST HOLDINGS INC.
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 Uniplast Holdings
Inc. and its subsidiaries (or the "Company") as of the dates and for the periods
presented. Results of operations for the period ended March 31, 2001 are not
necessarily indicative of results of operations to be expected for the 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. INVENTORIES
Inventories are valued at the lower of cost (using the first-in, first-out
method) or market value. Inventories as of March 31, 2001 and December 31, 2000
consisted of the following (in thousands):
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
Raw materials............................................... $6,022 $5,089
Finished goods.............................................. 3,165 3,139
Supplies.................................................... 249 135
------ ------
Subtotal.................................................. 9,436 8,363
Less: Inventory reserves.................................... 200 200
------ ------
Inventories, net.......................................... $9,236 $8,163
3. INCOME TAXES
Income tax expense consists of the following (in thousands):
THREE MONTHS
ENDED
MARCH 31,
------------
2001 2000
---- ----
Current:
Federal................................................... $(75) $(34)
State..................................................... 50 23
Foreign................................................... 305 138
Deferred.................................................... 22 10
---- ----
$304 $137
4. LONG TERM DEBT
The Company's long term debt consists of a credit agreement (the "Credit
Agreement") with two financial institutions. The Credit Agreement includes a
Canadian Revolving Credit Loan ("Canadian Credit Facility"), a U.S. Revolving
Credit Loan ("U.S. Credit Facility"), a Canadian Term Loan and a U.S. Term Loan.
The Credit Agreement contains certain financial and operating covenants. At
December 31, 2000, the Company failed to meet certain financial covenants under
its primary lending facility. On
F-79
210
UNIPLAST HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
March 8, 2001, the covenants were amended to bring the Company into compliance
with the Credit Agreement. In addition, the financial institutions agreed to
delay certain required principal payments due on December 31, 2000 and March 31,
2001. This amendment included a forbearance agreement up to and including May
31, 2001. The Company has not met the requirements of the forbearance agreement
and could be considered in default under its lending agreement. Therefore, all
of the outstanding balances under the Credit Agreement have been classified as
current.
5. COMMON STOCK
On March 7, 2000, in connection with the first stage of the Company's
capital plan, the Company issued 325,000 shares of common stock, 150,000 of
which were issued in March of 2000 for $3,000,000 in equity and 350,000 shares
were issued in July 2000 for $3,500,000 in equity.
6. SALE OF ASSETS
On March 8, 2001 the Company entered into an agreement with PCL Packaging,
Inc. to sell the Jacksonville, Florida facility for $750,000. The Company
recorded a loss of approximately $168,000 on the transaction.
F-80
211
[PLIANT CORPORATION LOGO]
PLIANT CORPORATION
$220,000,000 Principal Amount of
13% Senior Subordinated Notes due 2010
Which Are Guaranteed on a Senior Subordinated
Basis by Substantially All of Our Domestic
Subsidiaries
212
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses payable by the
registrants in connection with the sale of the securities being registered. All
of the amounts shown are estimated except the registration fee.
Securities and Exchange Commission registration fee......... $ --
Printing expenses........................................... 200,000
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 100,000
Miscellaneous fees and expenses............................. 10,000
--------
Total............................................. $460,000
========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IV of Pliant Corporation's Third Amended and Restated Articles of
Incorporation, as amended, provides that Pliant 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, as
amended, the personal liability of the directors and officers of Pliant
Corporation to Pliant 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, Pliant
Corporation may not indemnify its directors or officers in connection with a
proceeding by, or in the right of, Pliant 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 Section 16-10a-841(1) of the Utah Revised Business
Corporation Act, the Amended and Restated Bylaws of Pliant Corporation provide
that Pliant Corporation's directors shall not be personally liable to Pliant
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 Pliant 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 Pliant 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 15. RECENT SALES OF UNREGISTERED SECURITIES.
On May 31, 2000, Pliant Corporation issued and sold 220,000 units to J.P.
Morgan Securities Inc. and Deutsche Banc Alex. Brown, as initial purchasers, at
an aggregate offering price of approximately $214.1 million. The units consisted
of $220,000,000 principal amount of Pliant
II-1
213
Corporation's 13% Senior Subordinated Notes due 2010, which were guaranteed
jointly and severally by its guarantor subsidiaries, and note warrants to
purchase 18,532 shares of its common stock. The note warrants are exercisable at
any time prior to June 1, 2010 at an exercise price of $0.01 per share. Each
note warrant entitles the holder to purchase 0.08424 shares of Pliant
Corporation's common stock. Pliant Corporation received net proceeds from the
sale of such units of approximately $204.8 million after deduction of the $6.0
million discount of the initial purchasers and payment of other fees and
expenses. Pliant Corporation believes that the sale of such units to the initial
purchasers, who subsequently offered them to "qualified institutional buyers" in
accordance with Rule 144A, did not involve a public offering or sale of
securities and was exempt from the registration requirements of the Securities
Act of 1933 (the "Securities Act") pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act.
On May 31, 2000, in connection with the closing of the recapitalization,
Pliant Corporation also issued the following securities:
- 131,507 shares of its common stock to Southwest Films, LLC (formerly
Chase Domestic Investments, L.L.C.) and certain other institutional
investors,
- 100,000 shares of its preferred stock and preferred stock warrants to
purchase an additional 43,242 shares of its common stock to Southwest
Films, LLC (formerly Chase Domestic Investments, L.L.C.) and certain
other institutional investors, and
- 32,750 shares of our restricted common stock to our named executive
officers.
In the recapitalization, Pliant Corporation received cash consideration of
$483.13 per share, or approximately $63.5 million in the aggregate for the
shares of common stock and approximately $98.5 million for the shares of
preferred stock and preferred stock warrants. Pliant Corporation sold the shares
of restricted common stock to its named executive officers in exchange for
secured promissory notes of approximately $15.8 million in the aggregate. The
preferred stock warrants are exercisable at any time prior to May 31, 2011 at an
exercise price of $0.01 per share. The preferred stock warrants entitle the
holders to purchase 43,242 shares of common stock. Pliant Corporation believes
that the foregoing issuances of its equity securities in the recapitalization
did not involve a public offering or sale of securities and were exempt from the
registration requirements of the Securities Act pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act. No underwriters,
brokers or finders were involved in these transactions.
On July 17, 2000, Pliant Corporation issued 1,650 shares of common stock in
a private placement offering to members of its senior management who were not
named executive officers. In the private placement offering, Pliant Corporation
received cash consideration of $483.13 per share, or approximately $800,000 in
the aggregate. Pliant Corporation believes that the issuance of common stock in
the private placement was exempt from the registration requirements of the
Securities Act pursuant to Regulation D or Rule 701 thereunder. Alternatively,
Pliant Corporation believes that the foregoing issuance of common stock, which
did not involve a public offering or sale of securities, was exempt from the
registration requirements of the Securities Act pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act. No underwriters,
brokers or finders were involved in these transactions.
On July 16, 2001, Pliant Corporation purchased of all of the outstanding
stock of Uniplast Holdings Inc., for a purchase price of approximately $57
million, consisting of the assumption of approximately $40 million of debt and
the issuance of approximately $16.8 million of common stock. In such
acquisition, Pliant Corporation issued 34,677 shares of its common stock to the
selling stockholders of Uniplast Holdings Inc. as partial consideration (of
which delivery of 3,468 shares valued at approximately $1.7 million are subject
to certain holdback arrangements and have not yet been delivered). On July 16,
2001, Pliant Corporation also issued and sold 29,000 shares of its preferred
stock and preferred stock warrants to purchase 29,436 shares of common stock to
Southwest Films, LLC (formerly Chase Domestic Investments, L.L.C.), to the other
existing holders
II-2
214
of preferred stock and to an affiliate of a selling stockholder of Uniplast
Holdings Inc. for aggregate consideration of $29 million in order to refinance a
portion of the assumed debt. The preferred stock warrants are exercisable at any
time prior to May 31, 2011 at an exercise price of $0.01 per share. Pliant
Corporation believes that the foregoing issuances of its equity securities in
the acquisition did not involve a public offering or sale of securities and were
exempt from the registration requirements of the Securities Act pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act. No
underwriters, brokers or finders were involved in these transactions.
With respect to each of the transactions listed above, no general
solicitation was made by any of the Registrants or any person acting on their
behalf, the securities sold are subject to transfer restrictions, and the
certificates for the securities contained an appropriate legend stating such
securities have not been registered under the Securities Act and may not be
offered or sold absent registration or pursuant to an exemption therefrom.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
2.1 Recapitalization Agreement, dated as of March 31, 2000 (the
"Recapitalization Agreement"), among Pliant Corporation,
Chase Domestic Investments, L.L.C., Richard P. Durham as
Representative, and the shareholders of Pliant Corporation
signatory thereto (incorporated by reference to Exhibit 2.1
to the Current Report on Form 8-K filed by Pliant
Corporation on April 12, 2000).
2.2 Amendment No. 1, dated as of April 3, 2000, to the
Recapitalization Agreement (incorporated by reference to
Exhibit 2.2 to Pliant Corporation's Registration Statement
on Form S-4 (File No. 333-42008)).
2.3 Amendment No. 2, dated as of May 31, 2000, to the
Recapitalization Agreement (incorporated by reference to
Exhibit 2.3 to Pliant Corporation's Registration Statement
on Form S-4 (File No. 333-42008)).
3.1 Third Amended and Restated Articles of Incorporation of
Pliant Corporation (incorporated by reference to Exhibit 3.1
to Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
3.2 Articles of Amendment of Third Amendment and Restated
Articles of Incorporation of Pliant Corporation
(incorporated by reference to Exhibit 3.2 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2000 filed on April 2, 2001).
3.3 Articles of Amendment of Third Amendment and Restated
Articles of Incorporation of Pliant Corporation filed on
July 11, 2001.
3.4 Articles of Incorporation of Pliant Corporation
International (formerly known as Huntsman Container
Corporation International) (incorporated by reference to
Exhibit 3.14 to Pliant Corporation's Registration Statement
on Form S-4 (File No. 333-40067)).
3.5 Articles of Amendment to the Articles of Incorporation of
Pliant Corporation International (formerly known as Huntsman
Container Corporation International) (incorporated by
reference to Exhibit 3.19 to Post-Effective Amendment No. 1
to Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
3.6 Articles of Incorporation of Pliant Film Products of Mexico,
Inc. (formerly known as Huntsman Film Products of Mexico,
Inc.) (incorporated by reference to Exhibit 3.16 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-40067)).
II-3
215
3.7 Articles of Amendment to the Articles of Incorporation of
Pliant Film Products of Mexico, Inc. (formerly known as
Huntsman Film Products of Mexico, Inc.) (incorporated by
reference to Exhibit 3.20 to Post-Effective Amendment No. 1
to Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
3.8 Articles of Incorporation of Pliant Solutions Corporation
(formerly known as Huntsman KCL Corporation) (incorporated
by reference to Exhibit 3.7 to Amendment No. 1 to Pliant
Corporation's Registration Statement on Form S-4 (File
No. 333-42008)).
3.9 Articles of Amendment to the Articles of Incorporation of
Pliant Solutions Corporation (formerly known as Huntsman KCL
Corporation) (incorporated by reference to Exhibit 3.21 to
Post-Effective Amendment No. 1 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
3.10 Articles of Incorporation of Pliant Corporation Georgia,
Inc. (formerly known as Huntsman Packaging Georgia, Inc.)
(incorporated by reference to Exhibit 3.15 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-40067)).
3.11 Articles of Amendment to the Articles of Incorporation of
Pliant Corporation Georgia, Inc. (formerly known as Huntsman
Packaging Georgia, Inc.) (incorporated by reference to
Exhibit 3.22 to Post-Effective Amendment No. 1 to Pliant
Corporation's Registration Statement on Form S-4 (File
No. 333-42008)).
3.12 Articles of Organization of Pliant Packaging of Canada, LLC
(formerly known as Huntsman Packaging of Canada, LLC)
(incorporated by reference to Exhibit 3.9 to Amendment No. 1
to Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
3.13 Certificate of Amendment to the Articles of Organization of
Pliant Packaging of Canada, LLC (formerly known as Huntsman
Packaging of Canada, LLC) (incorporated by reference to
Exhibit 3.18 to Post-Effective Amendment No. 1 to Pliant
Corporation's Registration Statement on Form S-4 (File
No. 333-42008)).
3.14 Certificate of Incorporation of Uniplast Holdings Inc., as
amended.
3.15 Certificate of Incorporation of Uniplast U.S., Inc., as
amended.
3.16 Certificate of Incorporation of Turex, Inc.
3.17 Articles of Organization of Pierson Industries, Inc., as
amended.
3.18 Certificate of Incorporation of Uniplast Midwest, Inc.
3.19 Amended and Restated Bylaws of Pliant Corporation
(incorporated by reference to Exhibit 3.10 to Pliant
Corporation's Registration Statement on Form S-4 (File
No. 333-42008)).
3.20 Bylaws of Pliant Corporation International (formerly known
as Huntsman Container Corporation International)
(incorporated by reference to Exhibit 3.24 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-40067)).
3.21 Bylaws of Pliant Film Products of Mexico, Inc. (formerly
known as Huntsman Film Products of Mexico, Inc.)
(incorporated by reference to Exhibit 3.26 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-40067)).
3.22 Bylaws of Pliant Solutions Corporation (formerly known as
Huntsman KCL Corporation) (incorporated by reference to
Exhibit 3.16 to Amendment No. 1 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
3.23 Bylaws of Pliant Corporation Georgia, Inc. (formerly known
as Huntsman Packaging Georgia, Inc.) (incorporated by
reference to Exhibit 3.25 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-40067)).
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3.24 Operating Agreement of Pliant Packaging of Canada, LLC
(formerly known as Huntsman Packaging of Canada, LLC)
(incorporated by reference to Exhibit 3.18 to Amendment
No. 1 to Pliant Corporation's Registration Statement on
Form S-4 (File No. 333-42008)).
3.25 Bylaws of Uniplast Holdings Inc., as amended.
3.26 Bylaws of Uniplast U.S., Inc., as amended.
3.27 Bylaws of Turex, Inc.
3.28 Bylaws of Pierson Industries, Inc., as amended.
3.29 Code of Bylaws of Uniplast Midwest, Inc.
4.1 Indenture, dated as of May 31, 2000, among Pliant
Corporation, the Note Guarantors party thereto and The Bank
of New York, as trustee (incorporated by reference to
Exhibit 4.1 to Pliant Corporation's Registration Statement
on Form S-4 (File No. 333-42008)).
4.2 Form of Note (included as Exhibit B to Exhibit 4.1).
4.3 First Supplemental Indenture, dated as of July 16, 2001,
among Pliant Corporation, the New Note Guarantors party
thereto, the existing Note Guarantors party thereto and The
Bank of New York, as trustee.
4.4 Exchange and Registration Rights Agreement, dated as of May
31, 2000, among Pliant Corporation, the Note Guarantors
party thereto, and Chase Securities Inc. and Deutsche Bank
Securities Inc., as Initial Purchasers (incorporated by
reference to Exhibit 4.3 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
5.1 Opinion of O'Sullivan LLP.
10.1 Note Warrant Agreement, dated as of May 31, 2000, among
Pliant Corporation and The Bank of New York, as Warrant
Agent, relating to the 220,000 Note Warrants (incorporated
by reference to Exhibit 10.1 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.2 Stockholders' Agreement, dated as of May 31, 2000, among
Pliant Corporation, Chase Domestic Investments, L.L.C. and
each of the stockholders and warrantholders listed on the
signature pages thereto(incorporated by reference to Exhibit
10.2 to Pliant Corporation's Registration Statement on Form
S-4 (File No. 333-42008)).
10.3 Amendment No. 1 and Waiver dated as of July 16, 2001 to the
Stockholder's Agreement, dated as of May 31, 2000, among
Pliant Corporation, Chase Domestic Investments, L.L.C. and
each of the stockholders and warrantholders listed on the
signature pages thereto.
10.4 Registration Rights Agreement, dated as of May 31, 2000 (the
"Registration Rights Agreement"), among Pliant Corporation,
Chase Domestic Investments, L.L.C. and each of the
stockholders and warrantholders listed on the signature
pages thereto(incorporated by reference to Exhibit 10.3 to
Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
10.5 Amendment No. 1, dated as of June 13, 2000, to the
Registration Rights Agreement(incorporated by reference to
Exhibit 10.4 to Pliant Corporation's Registration Statement
on Form S-4 (File No. 333-42008)).
10.6 Securities Purchase Agreement, dated as of May 31, 2000,
between Pliant Corporation and each of the purchasers of
Pliant Corporation's preferred stock listed on the signature
pages thereto (incorporated by reference to Exhibit 10.5 to
Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
10.7 Amendment No. 1 and Waiver dated as of July 16, 2001 to the
Securities Purchase Agreement dated as of May 31, 2000 among
Pliant Corporation, and each of the purchasers of Pliant
Corporation's preferred stock listed on the signature pages
thereto.
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10.8 Warrant Agreement, dated as of May 31, 2000, between Pliant
Corporation and the initial warrantholders listed in
Schedule I thereto (incorporated by reference to Exhibit
10.6 to Pliant Corporation's Registration Statement on Form
S-4 (File No. 333-42008)).
10.9 Amendment No. 1 dated as of July 16, 2001 to the Warrant
Agreement dated as of May 31, 2000 among Pliant Corporation
and the initial warrantholders listed in Schedule I thereto.
10.10 Securities Purchase Agreement dated as of July 16, 2001
among Pliant Corporation and the purchasers of Pliant
Corporation's preferred stock listed on the schedules
thereto.
10.11 Credit Agreement, dated as of September 30, 1997, as amended
and restated as of May 31, 2000, among Pliant Corporation,
the subsidiary guarantors party thereto, the various lenders
from time to time party thereto, 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 (incorporated by
reference to Exhibit 10.7 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.12 Amendment No. 1, dated as of September 30, 2000, to Credit
Agreement dated as of September 30, 1997, as amended and
restated as of May 31, 2000 (incorporated by reference to
Exhibit 10.1 to Pliant Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000).
10.13 Amendment No. 2, dated as of July 10, 2001, to the Credit
Agreement dated as of September 30, 1997, as amended and
restated as of May 31, 2000.
10.14 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 Administrative Agent (incorporated by reference
to Exhibit 10.8 to Pliant Corporation's Registration
Statement on Form S-4 (File No. 333-42008)).
10.15 Supplement No. 1, dated as of July 19, 2001, to the
Guarantee Agreement, dated as of September 30, 1997, as
amended and restated as of May 31, 2000, among Pliant
Corporation, each of the subsidiaries listed on Schedule I
thereto and Bankers Trust Company, as Administrative Agent.
10.16 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 (incorporated by reference to
Exhibit 10.9 to Pliant Corporation's Registration Statement
on Form S-4 (File No. 333-42008)).
10.17 Supplement No. 1, dated as of July 19, 2001, to the Security
Agreement, dated as of September 30, 1997, as amended and
restated as of May 31, 2000, among Pliant Corporation, each
of the subsidiaries listed on Schedule I thereto and Bankers
Trust Company, as Collateral Agent.
10.18 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 (incorporated by reference to Exhibit 10.10
to Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
10.19 Supplement No. 1, dated as of July 19, 2001, to the Pledge
Agreement, dated as of September 30, 1997, as amended and
restated as of May 31, 2000, among Pliant Corporation, each
of the subsidiaries listed on Schedule I thereto and Bankers
Trust Company, as Collateral Agent.
10.20 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 (incorporated by
reference to Exhibit 10.11 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
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10.21 Supplement No. 1, dated as of July 19, 2001, to the
Indemnity, Subrogation and Contribution Agreement, dated as
of September 30, 1997, as amended and restated as of May 31,
2000, among Pliant Corporation, each of the subsidiaries
listed on Schedule I thereto and Bankers Trust Company, as
Collateral Agent.
10.22 Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Richard P. Durham (incorporated by
reference to Exhibit 10.12 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.23 Amendment No. 1, dated as of February 1, 2001, to the
Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Richard P. Durham (incorporated by
reference to Exhibit 10.14 to Pliant Corporation's Annual
Report on Form 10-K for the year ended December 31, 2000
filed on April 2, 2001).
10.24 Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Jack E. Knott (incorporated by
reference to Exhibit 10.13 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.25 Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Scott K. Sorensen (incorporated by
reference to Exhibit 10.14 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.26 Letter Agreement, dated as of December 27, 2000, terminating
the Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Scott K. Sorensen (incorporated by
reference to Exhibit 10.17 to Pliant Corporation's Annual
Report on Form 10-K for the year ended December 31, 2000
filed on April 2, 2001).
10.27 Stock Redemption Agreement, dated as of December 27, 2000,
between Pliant Corporation and Scott K. Sorensen
(incorporated by reference to Exhibit 10.23 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2000 filed on April 2, 2001).
10.28 Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Ronald G. Moffitt (incorporated by
reference to Exhibit 10.15 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.29 Letter Agreement, dated as of January 22, 2001, terminating
the Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Ronald G. Moffitt (incorporated by
reference to Exhibit 10.19 to Pliant Corporation's Annual
Report on Form 10-K for the year ended December 31, 2000
filed on April 2, 2001).
10.30 Stock Redemption Agreement, dated as of February 1, 2001,
between Pliant Corporation and Ronald G. Moffitt
(incorporated by reference to Exhibit 10.25 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2000 filed on April 2, 2001).
10.31 Restricted Stock Agreement, dated as of May 31, 2000,
between Pliant Corporation and Richard P. Durham
(incorporated by reference to Exhibit 10.16 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.32 Restricted Stock Agreement, dated as of May 31, 2000,
between Pliant Corporation and Jack E. Knott (incorporated
by reference to Exhibit 10.17 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.33 Restricted Stock Agreement, dated as of May 31, 2000,
between Pliant Corporation and Scott K. Sorensen
(incorporated by reference to Exhibit 10.18 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.34 Restricted Stock Agreement, dated as of May 31, 2000,
between Pliant Corporation and Ronald G. Moffitt
(incorporated by reference to Exhibit 10.19 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
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10.35 Pledge Agreement, dated as of May 31, 2000, in favor of
Pliant Corporation made by Richard P. Durham (incorporated
by reference to Exhibit 10.20 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.36 Amendment No. 1, dated as of March 1, 2001, to the Pledge
Agreement dated as of May 31, 2000, among Pliant Corporation
and Richard P. Durham (incorporated by reference to Exhibit
10.35 to Post-Effective Amendment No. 2 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.37 Pledge Agreement, dated as of May 31, 2000, in favor of
Pliant Corporation made by Jack E. Knott (incorporated by
reference to Exhibit 10.21 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.38 Amendment No. 1, dated as of April 1, 2001, to the Pledge
Agreement dated as of May 31, 2000, among Pliant Corporation
and Jack E. Knott (incorporated by reference to Exhibit
10.36 to Post-Effective Amendment No. 2 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.39 Pledge Agreement, dated as of May 31, 2000, in favor of
Pliant Corporation made by Scott K. Sorensen (incorporated
by reference to Exhibit 10.22 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.40 Pledge Agreement, dated as of May 31, 2000, in favor of
Pliant Corporation made by Ronald G. Moffitt (incorporated
by reference to Exhibit 10.23 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.41 1998 Pliant Corporation Stock Option Plan (incorporated by
reference to Exhibit 10.10 to Pliant Corporation's Annual
Report on Form 10-K for the year ended December 31, 1998).
10.42 Pliant Corporation Management Incentive Plan for Senior
Divisional Management (1999) (incorporated by reference to
Exhibit 10.1 to Pliant Corporation's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000).
10.43 Pliant Corporation 2000 Stock Incentive Plan (incorporated
by reference to Exhibit 10.26 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.44 Second Amended and Restated Stock Option Agreement, dated as
of May 31, 2000 between Pliant Corporation and Jack E. Knott
(incorporated by reference to Exhibit 10.27 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.45 Pliant Corporation Management Incentive Plan (2000)
(incorporated by reference to Exhibit 10.2 to Pliant
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(incorporated by reference to Exhibit 12.1 to
Post-Effective Amendment No. 2 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
21.1 Subsidiaries of Pliant Corporation.
23.1 Consent of O'Sullivan LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of KPMG LLP.
24.1 Powers of Attorney (included on the signature pages hereto).
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 (incorporated by reference to Exhibit 25.1 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
II-8
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(b) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts for the years ended
December 31, 2000, 1999 and 1998.
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.
ITEM 17. 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.
II-9
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this 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 23rd day of July, 2001.
PLIANT CORPORATION
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints each of Jack E. Knott II
and Timothy J. Walsh and each of them individually, with full power of
substitution and resubstitution, his or her true and lawful attorney-in fact and
agent, with full powers to each of them to sign, in the names and in the
capacities indicated below, this Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of debt securities of the Registrant, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney. This Power of Attorney may be executed in
counterparts and all capacities to sign any and all amendments.
Pursuant to the requirements of the Securities Act of 1933, this
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 and July 23, 2001
- ------------------------------------------ Chief Executive Officer (Principal
Richard P. Durham Executive Officer)
/s/ JACK E. KNOTT II President, Chief Operating Officer and July 23, 2001
- ------------------------------------------ Director
Jack E. Knott II
/s/ DONALD J. HOFMANN, JR. Director July 23, 2001
- ------------------------------------------
Donald J. Hofmann, Jr.
/s/ TIMOTHY J. WALSH Director July 23, 2001
- ------------------------------------------
Timothy J. Walsh
/s/ JOHN M.B. O'CONNOR Director July 23, 2001
- ------------------------------------------
John M.B. O'Connor
II-10
222
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD D. WATERS, JR. Director July 23, 2001
- ------------------------------------------
Richard D. Waters, Jr.
/s/ BRIAN E. JOHNSON Senior Vice President and Chief Financial July 23, 2001
- ------------------------------------------ Officer (Principal Financial and
Brian E. Johnson Accounting Officer)
II-11
223
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this 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 23rd day of July, 2001
PLIANT CORPORATION INTERNATIONAL
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints each of Jack E. Knott II
and Timothy J. Walsh and each of them individually, with full power of
substitution and resubstitution, his or her true and lawful attorney-in fact and
agent, with full powers to each of them to sign, in the names and in the
capacities indicated below, this Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of debt securities of the Registrant, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney. This Power of Attorney may be executed in
counterparts and all capacities to sign any and all amendments.
Pursuant to the requirements of the Securities Act of 1933, this
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 July 23, 2001
- ------------------------------------------ (Principal Executive Officer), Director
Richard P. Durham
/s/ BRIAN E. JOHNSON Vice President and Chief Financial Officer July 23, 2001
- ------------------------------------------ (Principal Financial and Accounting
Brian E. Johnson Officer)
II-12
224
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this 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 23rd day of July, 2001.
PLIANT FILM PRODUCTS OF MEXICO, INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints each of Jack E. Knott II
and Timothy J. Walsh and each of them individually, with full power of
substitution and resubstitution, his or her true and lawful attorney-in fact and
agent, with full powers to each of them to sign, in the names and in the
capacities indicated below, this Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of debt securities of the Registrant, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney. This Power of Attorney may be executed in
counterparts and all capacities to sign any and all amendments.
Pursuant to the requirements of the Securities Act of 1933, this
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 July 23, 2001
- ------------------------------------------ (Principal Executive Officer), Director
Richard P. Durham
/s/ BRIAN E. JOHNSON Vice President and Chief Financial Officer July 23, 2001
- ------------------------------------------ (Principal Financial and Accounting
Brian E. Johnson Officer)
II-13
225
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this 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 23rd day of July, 2001.
PLIANT SOLUTIONS CORPORATION
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints each of Jack E. Knott II
and Timothy J. Walsh and each of them individually, with full power of
substitution and resubstitution, his or her true and lawful attorney-in fact and
agent, with full powers to each of them to sign, in the names and in the
capacities indicated below, this Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of debt securities of the Registrant, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney. This Power of Attorney may be executed in
counterparts and all capacities to sign any and all amendments.
Pursuant to the requirements of the Securities Act of 1933, this
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 Officer), July 23, 2001
- ------------------------------------------ Director
Richard P. Durham
/s/ BRIAN E. JOHNSON Vice President and Chief Financial Officer July 23, 2001
- ------------------------------------------ (Principal Financial and Accounting
Brian E. Johnson Officer)
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226
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this 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 23rd day of July, 2001.
PLIANT CORPORATION GEORGIA, INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints each of Jack E. Knott II
and Timothy J. Walsh and each of them individually, with full power of
substitution and resubstitution, his or her true and lawful attorney-in fact and
agent, with full powers to each of them to sign, in the names and in the
capacities indicated below, this Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of debt securities of the Registrant, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney. This Power of Attorney may be executed in
counterparts and all capacities to sign any and all amendments.
Pursuant to the requirements of the Securities Act of 1933, this
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 Officer), July 23, 2001
- ------------------------------------------ Director
Richard P. Durham
/s/ BRIAN E. JOHNSON Vice President and Chief Financial Officer July 23, 2001
- ------------------------------------------ (Principal Financial and Accounting
Brian E. Johnson Officer)
II-15
227
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this 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 23rd day of July, 2001.
PLIANT CORPORATION CANADA, LLC
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints each of Jack E. Knott II
and Timothy J. Walsh and each of them individually, with full power of
substitution and resubstitution, his or her true and lawful attorney-in fact and
agent, with full powers to each of them to sign, in the names and in the
capacities indicated below, this Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of debt securities of the Registrant, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney. This Power of Attorney may be executed in
counterparts and all capacities to sign any and all amendments.
Pursuant to the requirements of the Securities Act of 1933, this
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 Officer), July 23, 2001
- ------------------------------------------ Manager
Richard P. Durham
/s/ JACK E. KNOTT II Manager July 23, 2001
- ------------------------------------------
Jack E. Knott II
/s/ BRIAN E. JOHNSON Vice President and Chief Financial Officer July 23, 2001
- ------------------------------------------ (Principal Financial and Accounting
Brian E. Johnson Officer)
II-16
228
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this 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 23rd day of July, 2001.
UNIPLAST HOLDINGS INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints each of Jack E. Knott II
and Timothy J. Walsh and each of them individually, with full power of
substitution and resubstitution, his or her true and lawful attorney-in fact and
agent, with full powers to each of them to sign, in the names and in the
capacities indicated below, this Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of debt securities of the Registrant, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney. This Power of Attorney may be executed in
counterparts and all capacities to sign any and all amendments.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and Director July 23, 2001
- ------------------------------------------ (Principal Executive Officer)
Richard P. Durham
/s/ JACK E. KNOTT II Executive Vice President and Director July 23, 2001
- ------------------------------------------
Jack E. Knott II
/s/ BRIAN E. JOHNSON Executive Vice President and Treasurer and July 23, 2001
- ------------------------------------------ Director (Principal Financial and
Brian E. Johnson Accounting Officer)
II-17
229
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this 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 23rd day of July, 2001.
UNIPLAST U.S., INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints each of Jack E. Knott II
and Timothy J. Walsh and each of them individually, with full power of
substitution and resubstitution, his or her true and lawful attorney-in fact and
agent, with full powers to each of them to sign, in the names and in the
capacities indicated below, this Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of debt securities of the Registrant, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney. This Power of Attorney may be executed in
counterparts and all capacities to sign any and all amendments.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and Director July 23, 2001
- ------------------------------------------ (Principal Executive Officer)
Richard P. Durham
/s/ JACK E. KNOTT II Executive Vice President and Director July 23, 2001
- ------------------------------------------
Jack E. Knott II
/s/ BRIAN E. JOHNSON Executive Vice President and Treasurer and July 23, 2001
- ------------------------------------------ Director (Principal Financial and
Brian E. Johnson Accounting Officer)
II-18
230
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this 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 23rd day of July, 2001.
TUREX, INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints each of Jack E. Knott II
and Timothy J. Walsh and each of them individually, with full power of
substitution and resubstitution, his or her true and lawful attorney-in fact and
agent, with full powers to each of them to sign, in the names and in the
capacities indicated below, this Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of debt securities of the Registrant, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney. This Power of Attorney may be executed in
counterparts and all capacities to sign any and all amendments.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and Director July 23, 2001
- ------------------------------------------ (Principal Executive Officer)
Richard P. Durham
/s/ JACK E. KNOTT II Executive Vice President and Director July 23, 2001
- ------------------------------------------
Jack E. Knott II
/s/ BRIAN E. JOHNSON Executive Vice President and Treasurer and July 23, 2001
- ------------------------------------------ Director (Principal Financial and
Brian E. Johnson Accounting Officer)
II-19
231
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this 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 23rd day of July, 2001.
PIERSON INDUSTRIES, INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints each of Jack E. Knott II
and Timothy J. Walsh and each of them individually, with full power of
substitution and resubstitution, his or her true and lawful attorney-in fact and
agent, with full powers to each of them to sign, in the names and in the
capacities indicated below, this Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of debt securities of the Registrant, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney. This Power of Attorney may be executed in
counterparts and all capacities to sign any and all amendments.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and Director July 23, 2001
- ------------------------------------------ (Principal Executive Officer)
Richard P. Durham
/s/ JACK E. KNOTT II Executive Vice President and Director July 23, 2001
- ------------------------------------------
Jack E. Knott II
/s/ BRIAN E. JOHNSON Executive Vice President and Treasurer and July 23, 2001
- ------------------------------------------ Director (Principal Financial and
Brian E. Johnson Accounting Officer)
II-20
232
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this 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 23rd day of July, 2001.
UNIPLAST MIDWEST, INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints each of Jack E. Knott II
and Timothy J. Walsh and each of them individually, with full power of
substitution and resubstitution, his or her true and lawful attorney-in fact and
agent, with full powers to each of them to sign, in the names and in the
capacities indicated below, this Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of debt securities of the Registrant, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney. This Power of Attorney may be executed in
counterparts and all capacities to sign any and all amendments.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and Director July 23, 2001
- ------------------------------------------ (Principal Executive Officer)
Richard P. Durham
/s/ JACK E. KNOTT II Executive Vice President and Director July 23, 2001
- ------------------------------------------
Jack E. Knott II
/s/ BRIAN E. JOHNSON Executive Vice President and Treasurer and July 23, 2001
- ------------------------------------------ Director (Principal Financial and
Brian E. Johnson Accounting Officer)
II-21
233
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pliant Corporation:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Pliant Corporation
and subsidiaries as of December 31, 2000 and 1999 and for each of the three
years in the period ended December 31, 2000 and have issued our report thereon
dated February 2, 2001. 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 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
February 2, 2001
S-1
234
PLIANT CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
ADDITIONS
BALANCE AT CHARGED TO CASH BALANCE
BEGINNING COSTS AND PAYMENTS AT END
DESCRIPTION OF YEAR EXPENSES MADE OTHER OF YEAR
----------- ---------- ---------- -------- -------- -------
(IN THOUSANDS)
ACCUMULATED AMORTIZATION OF INTANGIBLE
ASSETS:
2000................................. $31,616 $9,169 $ $40,785
1999................................. 22,630 9,046 (60)(1) 31,616
1998................................. 16,819 6,125 (314)(1) 22,630
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
2000................................. $ 2,115 $ $ 51(2) $ 2,166
1999................................. 2,570 518 (973)(2) 2,115
1998................................. 3,257 (687)(2) 2,570
PLANT CLOSING ACCRUAL:
2000................................. $ 4,800 $5,800 $(2,400) $ (200)(3) $ 8,000
1999................................. 2,600 2,500 (1,500) 1,200(4) 4,800
1998................................. 1,800 3,900 (3,100) 2,600
CORPORATE OFFICES CLOSING AND OTHER
SEVERANCE ACCRUAL:
2000................................. None $5,700 $(1,600) $ 4,100
- ---------------
(1) Relates to write-down of goodwill.
(2) Represents the net of accounts written off against the allowance and
recoveries of previous write-offs.
(3) Represents accruals reversed.
(4) Represents accruals charged to goodwill.
S-2
235
INDEX TO EXHIBITS
EXHIBIT
NUMBER
- ------- EXHIBIT
2.1 Recapitalization Agreement, dated as of March 31, 2000 (the
"Recapitalization Agreement"), among Pliant Corporation,
Chase Domestic Investments, L.L.C., Richard P. Durham as
Representative, and the shareholders of Pliant Corporation
signatory thereto (incorporated by reference to Exhibit 2.1
to the Current Report on Form 8-K filed by Pliant
Corporation on April 12, 2000).
2.2 Amendment No. 1, dated as of April 3, 2000, to the
Recapitalization Agreement (incorporated by reference to
Exhibit 2.2 to Pliant Corporation's Registration Statement
on Form S-4 (File No. 333-42008)).
2.3 Amendment No. 2, dated as of May 31, 2000, to the
Recapitalization Agreement (incorporated by reference to
Exhibit 2.3 to Pliant Corporation's Registration Statement
on Form S-4 (File No. 333-42008)).
3.1 Third Amended and Restated Articles of Incorporation of
Pliant Corporation (incorporated by reference to Exhibit 3.1
to Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
3.2 Articles of Amendment of Third Amendment and Restated
Articles of Incorporation of Pliant Corporation
(incorporated by reference to Exhibit 3.2 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2000 filed on April 2, 2001).
3.3 Articles of Amendment of Third Amendment and Restated
Articles of Incorporation of Pliant Corporation filed on
July 11, 2001.
3.4 Articles of Incorporation of Pliant Corporation
International (formerly known as Huntsman Container
Corporation International) (incorporated by reference to
Exhibit 3.14 to Pliant Corporation's Registration Statement
on Form S-4 (File No. 333-40067)).
3.5 Articles of Amendment to the Articles of Incorporation of
Pliant Corporation International (formerly known as Huntsman
Container Corporation International) (incorporated by
reference to Exhibit 3.19 to Post-Effective Amendment No. 1
to Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
3.6 Articles of Incorporation of Pliant Film Products of Mexico,
Inc. (formerly known as Huntsman Film Products of Mexico,
Inc.) (incorporated by reference to Exhibit 3.16 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-40067)).
3.7 Articles of Amendment to the Articles of Incorporation of
Pliant Film Products of Mexico, Inc. (formerly known as
Huntsman Film Products of Mexico, Inc.) (incorporated by
reference to Exhibit 3.20 to Post-Effective Amendment No. 1
to Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
3.8 Articles of Incorporation of Pliant Solutions Corporation
(formerly known as Huntsman KCL Corporation) (incorporated
by reference to Exhibit 3.7 to Amendment No. 1 to Pliant
Corporation's Registration Statement on Form S-4 (File
No. 333-42008)).
3.9 Articles of Amendment to the Articles of Incorporation of
Pliant Solutions Corporation (formerly known as Huntsman KCL
Corporation) (incorporated by reference to Exhibit 3.21 to
Post-Effective Amendment No. 1 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
3.10 Articles of Incorporation of Pliant Corporation Georgia,
Inc. (formerly known as Huntsman Packaging Georgia, Inc.)
(incorporated by reference to Exhibit 3.15 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-40067)).
236
EXHIBIT
NUMBER
- ------- EXHIBIT
3.11 Articles of Amendment to the Articles of Incorporation of
Pliant Corporation Georgia, Inc. (formerly known as Huntsman
Packaging Georgia, Inc.) (incorporated by reference to
Exhibit 3.22 to Post-Effective Amendment No. 1 to Pliant
Corporation's Registration Statement on Form S-4 (File
No. 333-42008)).
3.12 Articles of Organization of Pliant Packaging of Canada, LLC
(formerly known as Huntsman Packaging of Canada, LLC)
(incorporated by reference to Exhibit 3.9 to Amendment No. 1
to Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
3.13 Certificate of Amendment to the Articles of Organization of
Pliant Packaging of Canada, LLC (formerly known as Huntsman
Packaging of Canada, LLC) (incorporated by reference to
Exhibit 3.18 to Post-Effective Amendment No. 1 to Pliant
Corporation's Registration Statement on Form S-4 (File
No. 333-42008)).
3.14 Certificate of Incorporation of Uniplast Holdings Inc., as
amended.
3.15 Certificate of Incorporation of Uniplast U.S., Inc., as
amended.
3.16 Certificate of Incorporation of Turex, Inc.
3.17 Articles of Organization of Pierson Industries, Inc., as
amended.
3.18 Certificate of Incorporation of Uniplast Midwest, Inc.
3.19 Amended and Restated Bylaws of Pliant Corporation
(incorporated by reference to Exhibit 3.10 to Pliant
Corporation's Registration Statement on Form S-4 (File
No. 333-42008)).
3.20 Bylaws of Pliant Corporation International (formerly known
as Huntsman Container Corporation International)
(incorporated by reference to Exhibit 3.24 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-40067)).
3.21 Bylaws of Pliant Film Products of Mexico, Inc. (formerly
known as Huntsman Film Products of Mexico, Inc.)
(incorporated by reference to Exhibit 3.26 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-40067)).
3.22 Bylaws of Pliant Solutions Corporation (formerly known as
Huntsman KCL Corporation) (incorporated by reference to
Exhibit 3.16 to Amendment No. 1 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
3.23 Bylaws of Pliant Corporation Georgia, Inc. (formerly known
as Huntsman Packaging Georgia, Inc.) (incorporated by
reference to Exhibit 3.25 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-40067)).
3.24 Operating Agreement of Pliant Packaging of Canada, LLC
(formerly known as Huntsman Packaging of Canada, LLC)
(incorporated by reference to Exhibit 3.18 to Amendment
No. 1 to Pliant Corporation's Registration Statement on
Form S-4 (File No. 333-42008)).
3.25 Bylaws of Uniplast Holdings Inc., as amended.
3.26 Bylaws of Uniplast U.S., Inc., as amended.
3.27 Bylaws of Turex, Inc.
3.28 Bylaws of Pierson Industries, Inc., as amended.
3.29 Code of Bylaws of Uniplast Midwest, Inc.
4.1 Indenture, dated as of May 31, 2000, among Pliant
Corporation, the Note Guarantors party thereto and The Bank
of New York, as trustee (incorporated by reference to
Exhibit 4.1 to Pliant Corporation's Registration Statement
on Form S-4 (File No. 333-42008)).
4.2 Form of Note (included as Exhibit B to Exhibit 4.1).
237
EXHIBIT
NUMBER
- ------- EXHIBIT
4.3 First Supplemental Indenture, dated as of July 16, 2001,
among Pliant Corporation, the New Note Guarantors party
thereto, the existing Note Guarantors party thereto and The
Bank of New York, as trustee.
4.4 Exchange and Registration Rights Agreement, dated as of May
31, 2000, among Pliant Corporation, the Note Guarantors
party thereto, and Chase Securities Inc. and Deutsche Bank
Securities Inc., as Initial Purchasers (incorporated by
reference to Exhibit 4.3 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
5.1 Opinion of O'Sullivan LLP.
10.1 Note Warrant Agreement, dated as of May 31, 2000, among
Pliant Corporation and The Bank of New York, as Warrant
Agent, relating to the 220,000 Note Warrants (incorporated
by reference to Exhibit 10.1 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.2 Stockholders' Agreement, dated as of May 31, 2000, among
Pliant Corporation, Chase Domestic Investments, L.L.C. and
each of the stockholders and warrantholders listed on the
signature pages thereto(incorporated by reference to Exhibit
10.2 to Pliant Corporation's Registration Statement on Form
S-4 (File No. 333-42008)).
10.3 Amendment No. 1 and Waiver dated as of July 16, 2001 to the
Stockholder's Agreement, dated as of May 31, 2000, among
Pliant Corporation, Chase Domestic Investments, L.L.C. and
each of the stockholders and warrantholders listed on the
signature pages thereto.
10.4 Registration Rights Agreement, dated as of May 31, 2000 (the
"Registration Rights Agreement"), among Pliant Corporation,
Chase Domestic Investments, L.L.C. and each of the
stockholders and warrantholders listed on the signature
pages thereto(incorporated by reference to Exhibit 10.3 to
Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
10.5 Amendment No. 1, dated as of June 13, 2000, to the
Registration Rights Agreement(incorporated by reference to
Exhibit 10.4 to Pliant Corporation's Registration Statement
on Form S-4 (File No. 333-42008)).
10.6 Securities Purchase Agreement, dated as of May 31, 2000,
between Pliant Corporation and each of the purchasers of
Pliant Corporation's preferred stock listed on the signature
pages thereto (incorporated by reference to Exhibit 10.5 to
Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
10.7 Amendment No. 1 and Waiver dated as of July 16, 2001 to the
Securities Purchase Agreement dated as of May 31, 2000 among
Pliant Corporation, and each of the purchasers of Pliant
Corporation's preferred stock listed on the signature pages
thereto.
10.8 Warrant Agreement, dated as of May 31, 2000, between Pliant
Corporation and the initial warrantholders listed in
Schedule I thereto (incorporated by reference to Exhibit
10.6 to Pliant Corporation's Registration Statement on Form
S-4 (File No. 333-42008)).
10.9 Amendment No. 1 dated as of July 16, 2001 to the Warrant
Agreement dated as of May 31, 2000 among Pliant Corporation
and the initial warrantholders listed in Schedule I thereto.
10.10 Securities Purchase Agreement dated as of July 16, 2001
among Pliant Corporation and the purchasers of Pliant
Corporation's preferred stock listed on the schedules
thereto.
238
EXHIBIT
NUMBER
- ------- EXHIBIT
10.11 Credit Agreement, dated as of September 30, 1997, as amended
and restated as of May 31, 2000, among Pliant Corporation,
the subsidiary guarantors party thereto, the various lenders
from time to time party thereto, 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 (incorporated by
reference to Exhibit 10.7 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.12 Amendment No. 1, dated as of September 30, 2000, to Credit
Agreement dated as of September 30, 1997, as amended and
restated as of May 31, 2000 (incorporated by reference to
Exhibit 10.1 to Pliant Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000).
10.13 Amendment No. 2, dated as of July 10, 2001, to the Credit
Agreement dated as of September 30, 1997, as amended and
restated as of May 31, 2000.
10.14 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 Administrative Agent (incorporated by reference
to Exhibit 10.8 to Pliant Corporation's Registration
Statement on Form S-4 (File No. 333-42008)).
10.15 Supplement No. 1, dated as of July 19, 2001, to the
Guarantee Agreement, dated as of September 30, 1997, as
amended and restated as of May 31, 2000, among Pliant
Corporation, each of the subsidiaries listed on Schedule I
thereto and Bankers Trust Company, as Administrative Agent.
10.16 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 (incorporated by reference to
Exhibit 10.9 to Pliant Corporation's Registration Statement
on Form S-4 (File No. 333-42008)).
10.17 Supplement No. 1, dated as of July 19, 2001, to the Security
Agreement, dated as of September 30, 1997, as amended and
restated as of May 31, 2000, among Pliant Corporation, each
of the subsidiaries listed on Schedule I thereto and Bankers
Trust Company, as Collateral Agent.
10.18 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 (incorporated by reference to Exhibit 10.10
to Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
10.19 Supplement No. 1, dated as of July 19, 2001, to the Pledge
Agreement, dated as of September 30, 1997, as amended and
restated as of May 31, 2000, among Pliant Corporation, each
of the subsidiaries listed on Schedule I thereto and Bankers
Trust Company, as Collateral Agent.
10.20 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 (incorporated by
reference to Exhibit 10.11 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.21 Supplement No. 1, dated as of July 19, 2001, to the
Indemnity, Subrogation and Contribution Agreement, dated as
of September 30, 1997, as amended and restated as of May 31,
2000, among Pliant Corporation, each of the subsidiaries
listed on Schedule I thereto and Bankers Trust Company, as
Collateral Agent.
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10.22 Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Richard P. Durham (incorporated by
reference to Exhibit 10.12 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.23 Amendment No. 1, dated as of February 1, 2001, to the
Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Richard P. Durham (incorporated by
reference to Exhibit 10.14 to Pliant Corporation's Annual
Report on Form 10-K for the year ended December 31, 2000
filed on April 2, 2001).
10.24 Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Jack E. Knott (incorporated by
reference to Exhibit 10.13 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.25 Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Scott K. Sorensen (incorporated by
reference to Exhibit 10.14 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.26 Letter Agreement, dated as of December 27, 2000, terminating
the Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Scott K. Sorensen (incorporated by
reference to Exhibit 10.17 to Pliant Corporation's Annual
Report on Form 10-K for the year ended December 31, 2000
filed on April 2, 2001).
10.27 Stock Redemption Agreement, dated as of December 27, 2000,
between Pliant Corporation and Scott K. Sorensen
(incorporated by reference to Exhibit 10.23 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2000 filed on April 2, 2001).
10.28 Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Ronald G. Moffitt (incorporated by
reference to Exhibit 10.15 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.29 Letter Agreement, dated as of January 22, 2001, terminating
the Employment Agreement, dated as of May 31, 2000, between
Pliant Corporation and Ronald G. Moffitt (incorporated by
reference to Exhibit 10.19 to Pliant Corporation's Annual
Report on Form 10-K for the year ended December 31, 2000
filed on April 2, 2001).
10.30 Stock Redemption Agreement, dated as of February 1, 2001,
between Pliant Corporation and Ronald G. Moffitt
(incorporated by reference to Exhibit 10.25 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2000 filed on April 2, 2001).
10.31 Restricted Stock Agreement, dated as of May 31, 2000,
between Pliant Corporation and Richard P. Durham
(incorporated by reference to Exhibit 10.16 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.32 Restricted Stock Agreement, dated as of May 31, 2000,
between Pliant Corporation and Jack E. Knott (incorporated
by reference to Exhibit 10.17 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.33 Restricted Stock Agreement, dated as of May 31, 2000,
between Pliant Corporation and Scott K. Sorensen
(incorporated by reference to Exhibit 10.18 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.34 Restricted Stock Agreement, dated as of May 31, 2000,
between Pliant Corporation and Ronald G. Moffitt
(incorporated by reference to Exhibit 10.19 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.35 Pledge Agreement, dated as of May 31, 2000, in favor of
Pliant Corporation made by Richard P. Durham (incorporated
by reference to Exhibit 10.20 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
240
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10.36 Amendment No. 1, dated as of March 1, 2001, to the Pledge
Agreement dated as of May 31, 2000, among Pliant Corporation
and Richard P. Durham (incorporated by reference to Exhibit
10.35 to Post-Effective Amendment No. 2 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.37 Pledge Agreement, dated as of May 31, 2000, in favor of
Pliant Corporation made by Jack E. Knott (incorporated by
reference to Exhibit 10.21 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.38 Amendment No. 1, dated as of April 1, 2001, to the Pledge
Agreement dated as of May 31, 2000, among Pliant Corporation
and Jack E. Knott (incorporated by reference to Exhibit
10.36 to Post-Effective Amendment No. 2 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.39 Pledge Agreement, dated as of May 31, 2000, in favor of
Pliant Corporation made by Scott K. Sorensen (incorporated
by reference to Exhibit 10.22 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.40 Pledge Agreement, dated as of May 31, 2000, in favor of
Pliant Corporation made by Ronald G. Moffitt (incorporated
by reference to Exhibit 10.23 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.41 1998 Pliant Corporation Stock Option Plan (incorporated by
reference to Exhibit 10.10 to Pliant Corporation's Annual
Report on Form 10-K for the year ended December 31, 1998).
10.42 Pliant Corporation Management Incentive Plan for Senior
Divisional Management (1999) (incorporated by reference to
Exhibit 10.1 to Pliant Corporation's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000).
10.43 Pliant Corporation 2000 Stock Incentive Plan (incorporated
by reference to Exhibit 10.26 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
10.44 Second Amended and Restated Stock Option Agreement, dated as
of May 31, 2000 between Pliant Corporation and Jack E. Knott
(incorporated by reference to Exhibit 10.27 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.45 Pliant Corporation Management Incentive Plan (2000)
(incorporated by reference to Exhibit 10.2 to Pliant
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(incorporated by reference to Exhibit 12.1 to
Post-Effective Amendment No. 2 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
21.1 Subsidiaries of Pliant Corporation.
23.1 Consent of O'Sullivan LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of KPMG LLP.
24.1 Powers of Attorney (included on the signature pages hereto).
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 (incorporated by reference to Exhibit 25.1 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).