AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 2002
REGISTRATION NO. 333-86532
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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PLIANT CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
UTAH 2673 87-0496065
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</Table>
PLIANT CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
<Table>
UTAH 2673 87-0473075
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</Table>
PLIANT FILM PRODUCTS OF MEXICO, INC.
(Exact name of registrant as specified in its charter)
<Table>
UTAH 2673 87-0500805
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</Table>
PLIANT SOLUTIONS CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
UTAH 2673 87-0563872
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</Table>
PLIANT PACKAGING OF CANADA, LLC
(Exact name of registrant as specified in its charter)
<Table>
UTAH 2673 85-0580929
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</Table>
UNIPLAST HOLDINGS INC.
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 2673 13-3999589
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</Table>
UNIPLAST U.S., INC.
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 2673 04-3199066
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</Table>
TUREX, INC.
(Exact name of registrant as specified in its charter)
<Table>
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)
</Table>
PIERSON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<Table>
MASSACHUSETTS 2673 04-2692382
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</Table>
UNIPLAST MIDWEST, INC.
(Exact name of registrant as specified in its charter)
<Table>
INDIANA 2673 98-0166923
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</Table>
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1515 WOODFIELD ROAD, SUITE 600
SCHAUMBURG, ILLINOIS 60173
(847) 969-3300
(Address, including zip code, and telephone number,
including area code, of registrants' principal executive offices)
(Continued on next page)
(Continued from previous page)
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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:
<Table>
RONALD G. MOFFITT, ESQ. ROSA A. TESTANI, ESQ.
REED W. TOPHAM, ESQ. O'SULLIVAN LLP
STOEL RIVES LLP 30 ROCKEFELLER PLAZA
201 SOUTH MAIN STREET., SUITE 1100 NEW YORK, NEW YORK 10112
SALT LAKE CITY, UTAH 84111 (212) 408-2400
(801) 328-3131
</Table>
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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. [ ]
- ---------------
---------------------
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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EXPLANATORY NOTE
This Registration Statement covers the registration of $100,000,000 aggregate
principal amount of 13% Senior Subordinated Notes due 2010 (the "New Notes") of
Pliant Corporation, guaranteed by the Note Guarantors (as defined herein), that
may be exchanged for an equal aggregate principal amount of Pliant Corporation's
outstanding 13% Senior Subordinated Notes due 2010 issued April 10, 2002, also
guaranteed by the Note Guarantors. This Registration Statement also covers the
registration of New Notes and 2000 Notes (as defined herein), guaranteed by the
Note Guarantors, for resale by J.P. Morgan Securities Inc. in market-making
transactions. The complete prospectus relating to the exchange offer (the
"Exchange Offer Prospectus") follows this explanatory note. Following the
Exchange Offer Prospectus are certain pages of the prospectus relating solely to
such market-making transactions (the "Market-Making Prospectus"), including
alternate front and back cover pages, a section entitled "Summary -- Summary of
the terms of the notes" to be used in lieu of the section entitled
"Summary -- Summary of the terms of the new notes," a section entitled "Risk
factors -- 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" to be used in lieu of the section entitled "Risk Factors -- You cannot be
sure that an active trading market will develop for the New Notes," and
alternate sections entitled "Use of proceeds," "Description of the notes," "Book
entry; delivery and form," "Plan of distribution," "Legal matters" and "Where
you can find more information." In addition, the Market-Making Prospectus will
not include the last paragraph on page i of the Exchange Offer Prospectus or the
following captions (or the information set forth under those captions) in the
Exchange Offer Prospectus: "Summary -- Summary of the terms of the exchange
offer," "Risk factors -- If you do not properly tender your Old Notes, you will
continue to hold unregistered Old Notes and your ability to transfer your Old
Notes will be adversely affected," "The exchange offer," "Description of credit
facilities and other indebtedness -- 2000 notes," "Exchange and registration
rights agreement" and "Certain federal income tax considerations." All other
sections of the Exchange Offer Prospectus will be included in the Market-Making
Prospectus.
PROSPECTUS
[PLIANT LOGO]
PLIANT CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING
13% SENIOR SUBORDINATED NOTES DUE 2010
ISSUED APRIL 10, 2002 FOR
13% SENIOR SUBORDINATED NOTES DUE 2010
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER
- - We will exchange all Old Notes that are validly tendered and not validly
withdrawn for an equal principal amount of New Notes that are freely
tradeable.
- - You may withdraw tenders of Old Notes at any time prior to the expiration of
the exchange offer.
- - The exchange offer expires at 5:00 p.m., New York City time, on May 28, 2002,
unless we extend the offer.
THE NEW NOTES
- - The terms of the New Notes to be issued in the exchange offer are
substantially identical to the Old Notes, except that the New Notes will be
freely tradeable by persons who are not affiliated with us.
- - No public market currently exists for the Old Notes. We do not intend to list
the New Notes on any securities exchange and, therefore, no active public
market is anticipated.
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YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 16 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this prospectus is April 25, 2002
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
Market and industry data.............. i
Summary............................... 1
Risk factors.......................... 16
Disclosure regarding forward-looking
statements.......................... 26
Use of proceeds....................... 28
Capitalization........................ 29
The exchange offer.................... 30
Selected financial data............... 41
Management's discussion and analysis
of financial condition and results
of operations....................... 43
Business.............................. 59
Management............................ 69
Security ownership of certain
beneficial owners and management.... 79
</Table>
<Table>
<Caption>
PAGE
Certain relationships and related
transactions........................ 81
Description of credit facilities and
other indebtedness.................. 85
Description of the notes.............. 92
Book-entry; delivery and form......... 141
Exchange and registration rights
agreement........................... 144
Certain federal income tax
considerations...................... 146
Plan of distribution.................. 147
Legal matters......................... 147
Experts............................... 147
Where you can find more information... 148
Index to consolidated financial
statements.......................... F-1
</Table>
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MARKET AND INDUSTRY DATA
All market share data presented in this prospectus are for the year ended
December 31, 2001 and, unless otherwise indicated, are based on sales dollars
within the United States, Mexico and Canada. 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 captions "Risk factors" and "Disclosure regarding
forward-looking statements" in this prospectus.
Until July 24, 2002 (90 days after the date of this prospectus), all dealers
effecting transactions in the New Notes, whether or not participating in this
exchange offer, may be required to deliver a prospectus.
i
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. You should read this entire prospectus and the documents
to which we refer you before making an investment decision. You should carefully
consider the information set forth under "Risk factors." In addition, certain
statements include forward-looking information that involves risks and
uncertainties. See "Disclosure regarding forward-looking statements."
THE COMPANY
We are one of North America's leading manufacturers of value-added films and
flexible packaging for food, personal care, medical, agricultural and industrial
applications. We offer one of the most diverse product lines in the film
industry and have achieved leading market positions in each of our major product
lines. We believe our market leadership is primarily attributable to our
strategy of building strong relationships with market-leading customers, by
offering a broad line of innovative products and by providing technological
leadership through our modern and low-cost manufacturing facilities. Our
products are frequently highly engineered and are important components of, or
provide critical attributes to, our customers' end-products. We operate 26
manufacturing and research and development facilities worldwide and we currently
have approximately 1.0 billion pounds of annual production capacity. For the
year ended December 31, 2001, we generated net sales of $840.4 million and
Adjusted EBITDA (as defined on page 14) of $146.0 million.
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 45.3% of our net
sales for the year ended December 31, 2001. Our Speciality Films include:
- Personal Care. These highly engineered films are used in disposable
diapers, feminine care products and adult incontinence products. We are a
leading provider of personal care films in North America, with an
estimated market share of approximately 42%.
- 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 specialized niche
manufacturer of these films.
- Converter. These films are sold to converters of flexible packaging
which laminate them to foil, paper or other films, print them, and
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 39%.
- Barrier and Custom. We manufacture a variety of barrier and custom
films, primarily for smaller, but profitable, niche 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 producer of barrier films for
multi-wall pet food bags, films for photoresist coatings for the
electronics industry and films for the protection and transportation of
sheet molding compound used in the manufacture of boats and automotive
parts.
- Agricultural. We are a leading manufacturer of polyethylene
agricultural films that are sold to fruit and vegetable growers and to
nursery operators. We are one of North
1
America's two largest producers of mulch films used to cover fruit and
vegetable beds, with an estimated market share of approximately 36%.
Our Speciality Films customers include Baxter, Becton-Dickinson, General Mills,
Johnson & Johnson, Kimberly-Clark, Kraft/Nabisco, Lawson Mardon, Pechiney,
Printpack, Ralston Foods, Sonoco and Tyco/Kendall Healthcare.
DESIGN PRODUCTS. Our Design Products segment accounted for 25.4% of our net
sales for the year ended December 31, 2001. Our Design Products include printed
bags and sheets used to package food and consumer goods. The personal care films
produced by our Mexican subsidiary, NEPSA, are also included in this segment for
financial reporting purposes.
We are the leading producer of films for the frozen foods market in North
America, with an estimated market share of approximately 31%. In addition, we
are the second largest producer of films for the bakery goods market in North
America, with an estimated market share of approximately 24%. Our Design
Products customers include IGA Fleming, Interstate Bakeries, Kimberly-Clark de
Mexico, Mission Foods, Pepperidge Farm and Pictsweet.
INDUSTRIAL FILMS. Our Industrial Films segment accounted for 29.3% of our net
sales for the year ended December 31, 2001. Our 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 continue to
replace more traditional packaging, such as corrugated boxes and metal
strapping, because of their lower cost, greater strength and ease of use.
We are the fourth largest producer of stretch films in North America,
with an estimated market share of approximately 12%.
- 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 65% and 15%,
respectively.
Our Industrial Films customers include national distributors such as Bunzl,
Unisource and xpedx, grocery chains, such as Albertson's, Kroger, Publix and
Safeway, and end-users, such as General Mills and Wal-Mart.
INDUSTRY OVERVIEW
According to the Flexible Packaging Association, the North American market for
flexible packaging was approximately $20.0 billion in 2001 and has grown at a
CAGR of approximately 4.9% from 1987 to 2001. The flexible packaging industry
consists generally 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 16.7 billion pounds of film in 2001.
Flexible packaging is the largest end market for plastic films, and food
packaging is by far the largest market for flexible packaging. Plastic films are
also used in secondary packaging such as pallet wrap, shrink wrap and grocery
and garbage bags, and as components in many non-packaging products, such as
moisture barriers for disposable diapers, feminine care products and surgical
drapes and gowns. Finally, plastic films are used in a variety of agricultural
applications, such as greenhouse films and mulch films.
2
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 now often used instead
of paperboard boxes, glass jars and metal cans. In industrial markets, stretch
and shrink films continue to replace corrugated boxes and metal strapping to
unitize, bundle and protect items during shipping and storage.
OUR COMPETITIVE STRENGTHS
STRONG MARKET POSITIONS. We have leading market positions in each of our major
product lines and hold the number one or two market positions in product lines
that account for approximately 82% of our 2001 net sales. We are North America's
leading supplier of personal care, converter and frozen food films and its
second largest supplier of PVC films, cookie, cracker and cereal box liners and
bread and bakery bags. We also maintain significant market shares in stretch
films in North America. We attribute our market leadership primarily to our
broad and innovative product lines, low-cost manufacturing capabilities,
technological capabilities and well-established customer relationships.
SUPERIOR MANUFACTURING CAPABILITY. We have modern and efficient manufacturing
facilities. Over the past three years, excluding acquisitions, we have invested
a total of $157.8 million to expand, upgrade and maintain our asset base and
information systems. With 26 plants and 212 extrusion lines, we are able to
allocate lines to specific products, resulting in fewer change-overs and more
efficient use of production capacity. Our combination of manufacturing
flexibility and efficiency enhances our ability to bring new technologies to the
marketplace and meet the ever-increasing performance needs of our customers in a
cost-effective manner.
LOW-COST PRODUCTION. We believe that our manufacturing costs are among the
lowest in the industry because of: (i) economies of scale provided by our high
volume production; (ii) high plant utilization, attained through the continual
consolidation of less efficient operations; (iii) favorable pricing for resin
and other raw materials, based on our significant purchasing requirements; (iv)
modern manufacturing equipment that minimizes resin requirements and waste; and
(v) capital investment that has improved our technical capabilities and
operating efficiencies.
INDUSTRY LEADING TECHNOLOGY AND PRODUCT DEVELOPMENT CAPABILITIES. We have
dedicated technical facilities to test and develop new films and new extrusion
technologies. Our primary research and development facility is located in
Newport News, Virginia and contains a pilot plant with a 17 million pound annual
capacity. The pilot plant allows us to run commercial "scale-ups" for new
products. We believe this commercial "scale-up" capability is a significant
competitive advantage, as it enables us to reduce the time needed to introduce
new products.
WELL-ESTABLISHED CUSTOMER RELATIONSHIPS. Our films are components of flexible
packaging for some of the largest food companies in the world, including
household names such as General Mills, Interstate Bakeries (Wonder Bread),
Kraft/Nabisco, Kroger, and Safeway. Our customers also include many of North
America's largest flexible packaging converters, such as Lawson Mardon,
Pechiney, Printpack and Sonoco, 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,
Kimberly-Clark and Tyco/Kendall Healthcare.
3
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 Executive and 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.
STRATEGY
We continue to expand and improve our business through strategic acquisitions
and to increase 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 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.
- Thinner co-extruded barrier films for frozen food applications. These
films provide a moisture barrier for frozen breakfast and other foods and
protect them from freezer damage at a lower cost to our customers.
- High barrier films for stand-up drink pouches. These films allow
customers to replace foil laminations with clear films that are as strong
as foil products and allow consumers to see the contents of the package.
- Seven-layer films used as components in thermoform trays. These films
provide improved oxygen barriers for "case ready" meat trays and help
keep meat fresher longer.
CONTINUED COST REDUCTIONS AND PRODUCTIVITY ENHANCEMENTS. We continue to seek
opportunities to reduce our operating costs and enhance our manufacturing
productivity. As a result of our "SCORE" ("Supply Chain and Operations
Requirements for Excellence") initiative, which concluded in the second quarter
of 2001, we were able to generate significant EBITDA and working capital
improvements by improving our procurement, logistics, planning and production
processes. In order to continue our successful track record of reducing costs
and improving productivity, we implemented a Six Sigma initiative in late 2001.
Six Sigma is a quality improvement initiative aimed at decreasing defects,
reducing costs and waste, and improving customer satisfaction. We believe this
initiative will allow us to generate EBITDA and working capital improvements by
reducing defects, scrap and cycle times and by improving production yields,
on-time delivery, overall engineering efficiency, productivity and customer
satisfaction.
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
4
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 recognized in the marketplace.
PURSUE STRATEGIC ACQUISITIONS. We intend to continue to selectively pursue
strategic acquisitions that will enhance our leadership and low-cost position in
targeted products and markets. We will evaluate such acquisitions based on their
potential to (i) enhance our significant market position in select markets, (ii)
further diversify our product and customer base in complementary markets, (iii)
expand our product portfolio in high growth, end-use markets, and (iv) further
broaden our geographic sales, distribution or manufacturing base.
HISTORY
We were founded in 1992. 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 $840.4 million in 2001. We have successfully acquired and
integrated 14 strategic film and flexible packaging operations since 1992,
including, most recently, the July 2001 acquisition of Uniplast Holdings Inc.
and its subsidiaries, manufacturers of multi-layer packaging films, industrial
films and cast-embossed films, with operations in the United States and Canada.
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 the 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.
Southwest Industrial Films, LLC, which owns approximately 53% of our outstanding
common stock and 53% of our preferred stock warrants, and Flexible Films, LLC,
which owns approximately 57% 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 $11 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
5
inception in 1984, J.P. Morgan Partners, LLC has made over 1,000 direct
investments in numerous industries.
RECENT DEVELOPMENTS
AMENDMENT TO CREDIT FACILITIES
Effective April 2, 2002, we entered into an amendment to our credit facilities.
The amendment:
- requires us to prepay, on December 31, 2002, term loans in the amount,
if any, by which $18 million exceeds the amount we invest in certain
permitted acquisitions prior to December 31, 2002;
- permits us to borrow additional tranche B term loans in an aggregate
principal amount of up to $85 million under an uncommitted incremental
tranche B facility, the proceeds of which will be used to finance certain
permitted acquisitions, if any, completed prior to March 31, 2003;
- permits certain qualified receivables financings; and
- adjusts certain financial and negative covenants.
POTENTIAL ACQUISITION
On December 31, 2001, we signed an agreement to purchase substantially all of
the assets of Decora Industries, Inc., a New York based manufacturer of printed,
plastic films sold under the Con-Tact(R) brand name. Decora is a debtor in
possession in a voluntary case filed under Chapter 11 of the United States
Bankruptcy Code. Decora had 2001 revenues of approximately $49.8 million.
On March 29, 2002, we signed an amendment to the asset purchase agreement,
which, among other things, extended the closing of the proposed transaction to
April 24, 2002, placed limits on the amount of debtor-in-possession credit
facilities we would pay off and the amount of trade payables we would assume, in
each case, at closing, and required certain findings by the Bankruptcy Court.
The purchase price for the assets under the amended agreement would be
approximately $17.3 million cash, plus the assumption of approximately $5.9
million of post-petition trade accounts payables.
The asset purchase agreement and the amendment are subject to certain conditions
to closing, which are beyond our control, and must be approved by the United
States Bankruptcy Court. The sale of the Decora assets as contemplated by the
asset purchase agreement and the amendment are currently being opposed by
several interested parties in the bankruptcy proceeding. We are currently
negotiating with Decora and with some of the interested parties in the
bankruptcy proceeding to extend the closing of the proposed transaction to May
23, 2002. We are also negotiating with the official committee of unsecured
creditors in the bankruptcy proceeding to increase the purchase price to $18.1
million cash to potentially provide additional funds to the unsecured creditors.
Although we currently intend to continue our efforts to acquire Decora's assets,
we cannot assure you that we will ultimately extend the closing date of the
proposed transaction, that the United States Bankruptcy Court will approve the
purchase or that we will ultimately consummate the transaction.
6
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
On April 10, 2002, we completed the private offering of $100,000,000 aggregate
principal amount of our 13% Senior Subordinated Notes due 2010. We and those of
our subsidiaries that guaranteed the Old Notes entered into an exchange and
registration rights agreement with the initial purchasers of the Old Notes.
Under that agreement, we and the Note Guarantors agreed to deliver to you this
prospectus and to complete the exchange offer prior to 180 days after the date
of original issuance of the Old Notes. You are entitled to exchange in this
exchange offer your Old Notes for New Notes which are identical in all material
respects to the Old Notes except that:
- the New Notes have been registered under the Securities Act and will be
freely tradeable by persons who are not affiliated with us;
- the New Notes are not entitled to certain rights which are applicable to
the Old Notes under the exchange and registration rights agreement; and
- certain liquidated damages provisions are no longer applicable.
THE EXCHANGE OFFER......We are offering to exchange up to $100 million aggregate
principal amount of 13% Senior Subordinated Notes which
have been registered under the Securities Act for up to
$100 million aggregate principal amount of 13% Senior
Subordinated Notes which were issued on April 10, 2002
in the private offering. Old Notes may be exchanged only
in integral multiples of $1,000.
RESALES.................Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, we believe that the New Notes issued
pursuant to the exchange offer in exchange for the Old
Notes may be offered for resale, resold and otherwise
transferred by you (unless you are our "affiliate"
within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that
you
- are acquiring the New Notes in the ordinary course of
business, and
- have not engaged in, do not intend to engage in, and
have no arrangement or understanding with any person to
participate in, a distribution of the New Notes.
Each participating broker-dealer that receives New Notes
for its own account pursuant to the exchange offer in
exchange for the Old Notes that were acquired as a
result of market-making or other trading activity must
acknowledge that it will deliver a prospectus in
connection with any resale of the New Notes. See "Plan
of distribution."
Any holder of the Old Notes who
- is our affiliate,
- does not acquire the New Notes in the ordinary course
of its business, or
7
- tenders in the exchange offer with the intention to
participate, or for the purpose of participating, in a
distribution of New Notes,
cannot rely on the position of the staff of the SEC
expressed in Exxon Capital Holdings Corporation, Morgan
Stanley & Co. Incorporated or similar no-action letters
and, in the absence of an exemption, must comply with
the registration and prospectus delivery requirements of
the Securities Act in connection with the resale of the
New Notes.
EXPIRATION DATE;
WITHDRAWAL OF
TENDERS.................The exchange offer will expire at 5:00 p.m., New York
City time, on May 28, 2002 or such later date and time
to which we extend it. We do not currently intend to
extend the expiration date. A tender of Old Notes
pursuant to the exchange offer may be withdrawn at any
time prior to the expiration date. Any Old Notes not
accepted for exchange for any reason will be returned
without expense to the tendering holder promptly after
the expiration or termination of the exchange offer.
CONDITIONS TO THE
EXCHANGE OFFER..........The exchange offer is subject to customary conditions,
some of which we may waive. See "The exchange
offer--Conditions to exchange offer."
PROCEDURES FOR TENDERING
OLD NOTES...............If you wish to accept the exchange offer, you must
complete, sign and date the accompanying letter of
transmittal, or a copy of the letter of transmittal,
according to the instructions contained in this
prospectus and the letter of transmittal. You must also
mail or otherwise deliver the letter of transmittal, or
the copy, together with the Old Notes and any other
required documents, to the exchange agent at the address
set forth on the cover of the letter of transmittal. If
you hold Old Notes through The Depository Trust Company
and wish to participate in the exchange offer, you must
comply with the Automated Tender Offer Program
procedures of DTC, by which you will agree to be bound
by the letter of transmittal.
By signing and agreeing to be bound by the letter of
transmittal, you will represent to us that, among other
things:
- any New Notes that you receive will be acquired in the
ordinary course of your business;
- you have no arrangement or understanding with any
person or entity to participate in the distribution of
the New Notes;
- if you are a broker-dealer that will receive New Notes
for your own account in exchange for Old Notes that were
acquired as a result of market-making activities, that
you will deliver a prospectus,
8
as required by law, in connection with any resale of
such New Notes; and
- you are not our "affiliate" as defined in Rule 405
under the Securities Act, or, if you are an affiliate,
you will comply with any applicable registration and
prospectus delivery requirements of the Securities Act.
GUARANTEED DELIVERY
PROCEDURES..............If you wish to tender your Old Notes and your Old Notes
are not immediately available or you cannot deliver your
Old Notes, the letter of transmittal or any other
documents required by the letter of transmittal or
comply with the applicable procedures under DTC's
Automated Tender Offer Program prior to the expiration
date, you must tender your Old Notes according to the
guaranteed delivery procedures set forth in this
prospectus under "The exchange offer--Guaranteed
delivery procedures."
EFFECT ON HOLDERS OF OLD
NOTES...................As a result of the making of, and upon acceptance for
exchange of all validly tendered Old Notes pursuant to
the terms of, the exchange offer, we will have fulfilled
a covenant contained in the exchange and registration
rights agreement and, accordingly, we will not be
obligated to pay liquidated damages as described in the
exchange and registration rights agreement. If you are a
holder of Old Notes and do not tender your Old Notes in
the exchange offer, you will continue to hold such Old
Notes and you will be entitled to all the rights and
limitations applicable to the Old Notes in the indenture
relating to the Old Notes, except for any rights under
the exchange and registration rights agreement that by
their terms terminate upon the consummation of the
exchange offer.
CONSEQUENCES OF FAILURE
TO EXCHANGE.............All untendered Old Notes will continue to be subject to
the restrictions on transfer provided for in the Old
Notes and in the indenture relating to the Old Notes. In
general, the Old Notes may not be offered or sold unless
registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws.
Other than in connection with this exchange offer, we do
not currently anticipate that we will register the Old
Notes under the Securities Act.
CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS......The exchange of Old Notes for New Notes in this exchange
offer should not be a taxable event for U.S. federal
income tax purposes. See "Certain federal income tax
considerations."
USE OF PROCEEDS.........We will not receive any cash proceeds from the issuance
of the New Notes in this exchange offer.
9
EXCHANGE AGENT..........The Bank of New York is the exchange agent for this
exchange offer. The address and telephone number of the
exchange agent are set forth in the section captioned
"The exchange offer--Exchange agent."
SUMMARY OF THE TERMS OF THE NEW NOTES
ISSUER..................Pliant Corporation.
NEW NOTES OFFERED.......$100 million aggregate principal amount of 13% Senior
Subordinated Notes due 2010.
MATURITY................June 1, 2010.
INTEREST PAYMENT
DATES...................June 1 and December 1 of each year, commencing on June
1, 2002.
Holders of Old Notes whose Old Notes are accepted for
exchange in this exchange offer will be deemed to have
waived the right to receive any payment in respect of
interest on the Old Notes accrued from April 10, 2002,
the original issue date of the Old Notes, to the date of
issuance of the New Notes. Consequently, holders who
exchange their Old Notes for New Notes will receive the
same interest payment on June 1, 2002, the first
interest payment date for the Old Notes and the New
Notes after the consummation of this exchange offer,
that they would have received if they did not accept
this exchange offer.
OPTIONAL REDEMPTION.....On or after June 1, 2005, we may redeem some or all of
the New Notes at the redemption prices listed in the
section entitled "Description of the notes--Optional
redemption." Prior to such date, we may not redeem the
New Notes, except as described in the following
paragraph.
At any time prior to June 1, 2003, we may redeem up to
35% of the original aggregate principal amount of the
New Notes with the net cash proceeds of certain equity
offerings at a redemption price equal to 113% of the
principal amount thereof, plus accrued interest, so long
as (a) at least 65% of the original aggregate amount of
the New Notes remains outstanding after each such
redemption and (b) any such redemption by us is made
within 120 days of such equity offering.
GUARANTEES..............The New Notes will be fully and unconditionally
guaranteed on an unsecured senior subordinated basis by
each of our existing and future domestic restricted
subsidiaries and, to the extent that they also guarantee
any senior debt (other than a foreign subsidiary that
guarantees senior debt of another foreign subsidiary),
by each of our existing and future foreign restricted
subsidiaries. If we fail to make payments on the New
Notes, our subsidiaries that are guarantors must make
them instead.
10
Guarantees of the New Notes will be subordinated to the
guarantees of our senior debt under our credit
facilities.
RANKING.................The New Notes will be unsecured and:
- will be subordinated to all of our existing and any
future senior debt;
- will rank equally with all of our existing and any
future senior subordinated debt;
- will rank senior to any future subordinated debt;
- will be effectively subordinated to our secured debt
to the extent of the value of the assets securing such
indebtedness; and
- will be effectively subordinated to all liabilities of
our subsidiaries that do not guarantee the New Notes.
Similarly, the guarantees of the New Notes by our
subsidiaries that also guarantee our credit facilities
will be unsecured and;
- will be subordinated to all of the applicable
guarantors' existing and any future senior debt;
- will rank equally with all of the applicable
guarantors' existing and any future senior subordinated
debt;
- will rank senior to any of the applicable guarantors'
future subordinated debt; and
- will be effectively subordinated to any secured debt
of such guarantor to the extent of the value of the
assets securing such debt.
Assuming we had completed the issuance of the Old Notes
and applied the net proceeds therefrom on December 31,
2001, on a pro forma basis:
- we would have had approximately $436.6 million of
senior debt to which the New Notes would be subordinated
(which amount does not include the remaining
availability of $94.7 million under our revolving credit
facility after giving effect to outstanding letters of
credit and possible additional borrowings under our
uncommitted incremental tranche B facility);
- we would have had $220 million principal amount of
senior subordinated debt in addition to the New Notes;
- we would not have had any subordinated debt; and
- our subsidiaries that are not guarantors of the New
Notes would have had $57.5 million of liabilities,
excluding liabilities owed to us.
The indenture relating to the New Notes permits us to
incur a significant amount of additional senior debt.
11
CERTAIN COVENANTS.......We will issue the New Notes under the indenture (the
"Indenture") dated as of April 10, 2002 with The Bank of
New York, as trustee. The Indenture limits 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 are subject to a number of important
exceptions. For more details, see "Description of the
notes--Certain covenants."
CHANGE OF CONTROL.......Upon the occurrence of a change of control, unless we
have exercised our right to redeem all of the New Notes
as described above, you will have the right to require
us to repurchase all or a portion of your New Notes at a
purchase price in cash equal to 101% of the principal
amount thereof, plus accrued interest to the date of
repurchase. See "Description of the notes--Change of
control" and "Risk factors."
RISK FACTORS
You should carefully consider all the information contained in this prospectus
and, in particular, should consider carefully the factors set forth under the
caption "Risk factors" before participating in this exchange offer.
12
SUMMARY HISTORICAL FINANCIAL DATA
The following selected financial data for the years ended December 31, 1999,
2000 and 2001 have been summarized from our consolidated financial statements
and are qualified in their entirety by reference to our consolidated financial
statements. You should read the following summary historical financial data
together with "Capitalization," "Selected financial data," "Management's
discussion and analysis of financial condition and results of operations" and
our consolidated financial statements and the notes thereto included elsewhere
in this prospectus.
<Table>
<Caption>
- --------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------
(DOLLARS IN MILLIONS) 1999 2000 2001
- --------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $813.7 $843.8 $840.4
Cost of sales............................................... 655.7 696.7 665.1
------------------------
Gross profit................................................ 158.0 147.1 175.3
Total operating expenses(1)................................. 82.0 132.7 101.1
------------------------
Operating income............................................ 76.0 14.4 74.2
Interest expense............................................ (44.0) (68.5) (76.0)
Other income (expense), net................................. 0.4 0.3 6.5
------------------------
Income (loss) before income taxes and discontinued
operations and extraordinary item........................ 32.4 (53.8) 4.7
Income tax expense (benefit)................................ 14.1 (14.3) 6.8
------------------------
Income (loss) before discontinued operations and
extraordinary item........................................ 18.3 (39.5) (2.1)
Extraordinary item(2)....................................... (11.3)
------------------------
Net income (loss)........................................... $ 18.3 $(50.8) $ (2.1)
OTHER FINANCIAL DATA:
Cash flows from operating activities........................ $ 51.5 $ 60.3 $ 30.3
Cash flows from investing activities........................ (46.0) (65.6) (87.3)
Cash flows from financing activities........................ (16.7) 0.3 55.0
EBITDA under indentures(3).................................. 114.7 76.2 130.1
Adjusted EBITDA(4).......................................... 146.0
Depreciation and amortization............................... 35.0 39.5 47.0
Plant closing costs, net(5)................................. 2.5 19.4 (4.6)
Capital expenditures........................................ 35.7 65.6 56.4
Non-cash stock-based compensation expense................... 0.8 2.6 7.0
Ratio of earnings to fixed charges(6)....................... 1.7x 1.1x
Ratio of Adjusted EBITDA to cash interest expense(7)........ 2.0x
Ratio of total net debt to Adjusted EBITDA(7)............... 4.9x
- --------------------------------------------------------------------------------------
</Table>
13
<Table>
<Caption>
- --------------------------------------------------------------------------
DECEMBER 31,
(DOLLARS IN MILLIONS) 2001
- --------------------------------------------------------------------------
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 4.8
Working capital............................................. 58.4
Total assets................................................ 851.7
Total debt.................................................. 713.3
Total liabilities........................................... 903.0
Redeemable preferred stock(8)............................... 126.1
Redeemable common stock..................................... 16.8
Stockholders' equity (deficit).............................. (194.5)
- --------------------------------------------------------------------------
</Table>
(1) Total operating expenses for 2000 include $10.8 million of costs related to
the recapitalization and related transactions, $10.8 million of fees and
expenses relating to our supply chain cost initiative, $19.6 million of plant
closing costs, $7.1 million of costs related to the relocation of our corporate
headquarters and a reduction in force, and $2.6 million of non-cash stock-based
compensation expense. Total operating expenses for 2001 include $7.0 million of
non-cash stock-based compensation expense, $3.0 million of plant closing costs,
$4.0 million of costs related to the relocation of our corporate headquarters,
$6.0 million of fees and expenses relating to our supply chain cost initiative,
and a $3.0 million increase in depreciation expenses relating primarily to the
purchase of a new computer system.
(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 our indentures 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 our indentures in determining 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 our indentures 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) Adjusted EBITDA is EBITDA adjusted for the following non-recurring items:
<Table>
<Caption>
- -------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, 2001
- -------------------------------------------------------------------------------
EBITDA...................................................... $130.1
Adjustments:
Expenses related to the SCORE project(a)................... 5.9
Costs related to plant and office closings(b).............. 5.0
Pre-acquisition EBITDA of Uniplast for 2001(c)............. 4.8
Other...................................................... 0.2
------
Adjusted EBITDA............................................. $146.0
- -------------------------------------------------------------------------------
</Table>
(a) Non-recurring consulting fees and related SCORE project expenses.
(b) Non-recurring costs included in cost of goods sold and selling, general
and administrative costs for closing certain production facilities and the
Salt Lake City office.
(c) EBITDA generated by Uniplast from January 1, 2001 to July 16, 2001,
including the pro forma effect of cost reductions for the period.
(5) We incurred $3 million of plant closing costs in 2001 related primarily to
the relocation of production lines acquired in connection with the Uniplast
acquisition. Due to our decision not to proceed with our previously announced
closure of our Harrington plant, approximately $7.6 million of the costs accrued
for plant closures in 2000 was credited to plant closing costs in the statement
of operations for 2001.
(6) 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 we consider to be a reasonable
approximation of the interest factor of operating lease payments. In 2000
earnings were insufficient to cover fixed charges by approximately $53.8
million. Assuming we had issued the Old Notes on
14
January 1, 2001 and applied the net proceeds therefrom, our earnings for the
year ended December 31, 2001 would have been insufficient to cover fixed charges
by approximately $2.5 million. For purposes of pro forma interest, this
computation assumes that $47.8 million of the net proceeds from the issuance of
the Old Notes was used to repay the average outstanding balance under our
revolving credit facility for 2001 and $30 million was used to repay term loans.
(7) After giving effect to the issuance of the Old Notes and the application of
the net proceeds therefrom, our ratio of Adjusted EBITDA to cash interest
expense would have been 1.8x for the year ended December 31, 2001. This pro
forma amount assumes that the issuance of the Old Notes and the application of
the proceeds had occurred on January 1, 2001. For purposes of pro forma
interest, this computation assumes that $47.8 million of the net proceeds from
the issuance of the Old Notes was used to repay the average outstanding balance
under our revolving credit facility for 2001 and $30 million was used to repay
tranche A loans and loans to our Mexican subsidiary. The estimated issuance
costs of $5.0 million are amortized to interest expense as a non-cash charge on
a straight line basis through 2010. The premium on the issuance of the Old Notes
of $3.8 million is amortized as a credit to interest expense as a non-cash item.
Interest income from investment of excess cash from issuance of the Old Notes
and the application of the net proceeds therefrom is not reflected as a
reduction in pro forma interest. Assuming the issuance of the Old Notes and the
application of the net proceeds occurred on December 31, 2001 our ratio of total
net debt to Adjusted EBITDA as of December 31, 2001 would have been 4.9x. Total
net debt is defined as total debt less cash and cash equivalents.
(8) The amount presented includes proceeds of $131.0 million from the issuance
of preferred stock in 2000 and 2001, plus the accrued and unpaid dividend of
$26.2 million less the unamortized value of preferred stock warrants of $29.6
million and unamortized issuance costs of $1.5 million.
15
RISK FACTORS
You should carefully consider the risks described below as well as other
information and data included in this prospectus before participating in this
exchange offer.
RISKS RELATED TO THE NOTES
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.
We are highly leveraged, which means that we have a large amount of indebtedness
relative to our stockholders' deficit. We are highly leveraged particularly in
comparison to some of our competitors that are publicly owned.
The following chart shows certain important credit statistics as of December 31,
2001, after giving effect to the issuance of the Old Notes and the application
of the net proceeds therefrom:
<Table>
<Caption>
- -------------------------------------------------------------------------------
AS OF
(DOLLARS IN MILLIONS) DECEMBER 31, 2001
- -------------------------------------------------------------------------------
Total debt.................................................. $ 747.6
Redeemable preferred stock.................................. 126.1
Redeemable common stock..................................... 16.8
Stockholders' equity (deficit).............................. (195.0)
- -------------------------------------------------------------------------------
</Table>
Assuming we had issued the Old Notes on January 1, 2001 and applied the net
proceeds therefrom, our earnings for the year ended December 31, 2001 would have
been insufficient to cover fixed charges by approximately $2.5 million. For
purposes of pro forma interest, this computation assumes that $47.8 million of
the net proceeds from the issuance of the Old Notes was used to repay the
average outstanding balance under our revolving credit facility for 2001 and $30
million was used to repay term loans.
Our high degree of leverage could have important consequences for you, including
the following:
- it may limit our ability to obtain additional financing for 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 payment of principal and interest on our indebtedness
and is not available for other purposes, including our operations,
capital expenditures 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;
- certain of our borrowings, including borrowings under our credit
facilities, are at variable rates of interest, exposing us to the risk of
increased interest rates;
- it may limit our ability to adjust to changing market conditions and to
withstand competitive pressures, putting us at a competitive
disadvantage; and
16
- we may be vulnerable in a downturn in general economic conditions or in
our business, or we may be unable to carry out capital spending that is
important to our growth and productivity improvement programs.
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.
Our ability to make scheduled payments or to refinance our debt obligations
depends on our financial and operating performance, which is subject to
prevailing economic and competitive conditions and to certain financial,
business and other factors beyond our control. These factors include:
- fluctuations in interest rates;
- unscheduled plant shutdowns;
- increased operating costs;
- raw material; and
- product prices and regulatory developments.
We cannot assure you that we will maintain a level of cash flows from operating
activities sufficient to permit us to pay the principal, premium, if any, and
interest on our indebtedness. See "Disclosure regarding 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 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. Our credit
facilities and indentures 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 other indebtedness" and
"Description of the notes."
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 our 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. As of April 15, 2002, our estimated annual debt service
for the remainder of 2002 is approximately $62.8 million, consisting of $0.6
million of scheduled mandatory principal payments and $62.2 million of interest
payments. An increase of 1.0% in the interest rates payable on our variable rate
indebtedness would increase our estimated debt service requirements for the
remainder of 2002 by approximately $2.1 million, after accounting for our
interest rate hedge agreement.
17
Accordingly, an increase in interest rates from current levels could cause our
annual debt service obligations to increase significantly.
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 our 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
our indentures and our credit facilities), we could be in default under the
terms of the agreements governing such indebtedness, including our credit
facilities and our indentures. 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. Effective
April 2, 2002, we entered into an amendment to our credit facilities which,
among other changes, further revised our leverage ratio financial covenant. If
our operating performance declines 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 other indebtedness" and
"Description of the notes."
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 sufficient funds. Further, 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. Upon a change of control, we must offer to
repurchase all of the outstanding Notes at 101% of the principal amount thereof,
plus accrued interest to the date of repurchase. This change of control
provision may not necessarily protect holders of the Notes if we engage in a
highly leveraged transaction or certain other transactions involving us or our
subsidiaries. See "Description of credit facilities and other indebtedness" and
"Description of the notes--Change of control."
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, 23.3% of our EBITDA under our indentures
for the year ended December 31, 2001 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
18
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 other indebtedness" 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.
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 our 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 December
31, 2001, after giving effect to the issuance of Notes and the application of
the net proceeds therefrom, the aggregate principal amount of our senior
indebtedness would have been $436.6 million (excluding unused commitments of
$94.7 million and outstanding letters of credit totaling $5.3 million under our
revolving credit facility, and possible additional borrowings under our
uncommitted incremental tranche B facility). 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 December 31,
2001, after giving effect to the issuance of Notes, there would have been no
senior indebtedness of our subsidiary guarantors other than the guarantees under
the credit facilities.
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 below, 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."
19
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 below. 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 15.1% of our net sales and
15.7% of our EBITDA under our indentures for the year ended December 31, 2001.
As of December 31, 2001, after giving effect to the issuance of Notes and the
application of the net proceeds therefrom, our subsidiaries that are not
guarantors would have accounted for 12.0% of our total assets and would have had
total liabilities (excluding liabilities owed to us) of $57.5 million. As of
December 31, 2001, after giving effect to the issuance of Notes and the
application of the net proceeds therefrom, 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 $8.0 million.
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 our indentures
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 and other
indebtedness."
IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED OLD NOTES AND YOUR ABILITY TO TRANSFER YOUR OLD NOTES WILL BE
ADVERSELY AFFECTED.
We will only issue New Notes in exchange for Old Notes that are timely received
by the exchange agent together with all required documents, including a properly
completed and signed letter of transmittal. Therefore, you should allow
sufficient time to ensure timely delivery of the Old Notes and you should
carefully follow the instructions on how to tender your Old Notes. Neither we
nor the exchange agent are required to tell you of any defects or irregularities
with respect to your tender of the Old Notes. If you do not tender your Old
Notes or if we do not accept your Old Notes because you did not tender your Old
Notes properly, then, after we consummate the exchange offer, you will continue
to hold Old Notes that are
20
subject to the existing transfer restrictions and, except in certain limited
circumstances, you will no longer have any registration rights or be entitled to
any liquidated damages with respect to the Old Notes. In addition:
- if you tender your Old Notes for the purpose of participating in a
distribution of the New Notes, you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the New Notes, and
- if you are a broker-dealer that receives New Notes for your own account
in exchange for Old Notes that you acquired as a result of market-making
activities or any other trading activities, you will be required to
acknowledge that you will deliver a prospectus in connection with any
resale of those New Notes.
We have agreed that, for a period of 180 days after the exchange offer is
consummated, we will make this prospectus available to any broker-dealer for use
in connection with any such resale.
After the exchange offer is consummated, if you continue to hold any Old Notes,
you may have difficulty selling them because there will be less Old Notes
outstanding. In addition, if a large amount of Old Notes are not tendered or are
tendered improperly, the limited amount of New Notes that would be issued and
outstanding after we consummate the exchange offer could lower the market price
of such New Notes.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NEW NOTES.
The New Notes are a new issue of securities with no established trading market
and will not be listed on any securities exchange or automated dealer quotation
system. The liquidity of the trading market in the New Notes, and the market
price quoted for the New Notes, may be adversely affected by changes in the
overall market for high yield securities and by changes in our financial
performance or prospects or in the prospects for companies in our industry
generally. As a result, you cannot be sure that an active trading market will
develop for the New Notes.
RISKS RELATED TO OUR BUSINESS
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, 2001, resin costs comprised
approximately 60% 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
revenues and profitability and force us to purchase resin in the open
21
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."
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.
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.
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 34% of
our net sales in 2001. In particular, Kimberly-Clark accounted for approximately
13% of our 2001 consolidated net sales. Several of our largest customers,
including Kimberly Clark, also satisfy some of their film requirements by
manufacturing film themselves. 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 as a result of competition from other film manufacturers,
insourcing of film requirements or other factors, would have a material adverse
effect on our results of operations and on our ability to service our
indebtedness. See "Management's discussion and analysis of financial condition
and results of operations" and "Business--Products, markets and customers."
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 "Disclosure regarding forward-looking statements."
22
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, these agreements
may be breached, may not provide meaningful protection or may not contain
adequate remedies for us if they are breached.
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. Our efforts to
integrate businesses acquired in the future 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.
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 United
States. Our operations outside the United States include plants and sales
offices in Mexico, Canada, Germany, Australia and Brazil. 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 make 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.
WE ARE CONTROLLED BY J.P. MORGAN PARTNERS, LLC AND ITS INTERESTS AS AN EQUITY
HOLDER MAY CONFLICT WITH YOURS AS A CREDITOR.
At March 31, 2002, an affiliate of J.P. Morgan Partners, LLC beneficially owned
approximately 53% 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
23
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.
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 February 28, 2002, we had approximately 3,500 employees, of which
approximately 1,200 employees were subject to a total of 11 collective
bargaining agreements that expire on various dates between March 1, 2002 and
March 7, 2007. We are currently renegotiating the agreement that expired on
March 1, 2002. We have had one labor strike in our history, which occurred at
our Chippewa Falls, Wisconsin plant in March 2000 and lasted approximately two
weeks. In October 2001, we entered into a five year agreement with the union
representing the approximately 150 employees at our Chippewa Falls, Wisconsin
manufacturing plant.
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 issuance of 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 either the Notes or a Guarantee, 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 Notes or a Guarantee was a
fraudulent conveyance, the court could avoid the payment obligations under the
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.
24
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
believe 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.
WE COULD BE ADVERSELY AFFECTED IF ARTHUR ANDERSEN LLP IS UNABLE TO PERFORM
REQUIRED AUDIT-RELATED SERVICES FOR US OR IF THE SEC CEASES ACCEPTING FINANCIAL
STATEMENTS AUDITED OR REVIEWED BY ARTHUR ANDERSEN.
On March 14, 2002, Arthur Andersen LLP, our independent auditor, was indicted on
federal obstruction of justice charges in connection with its role as the
auditor for Enron Corporation. We do not know the impact of the indictment. In
addition, we do not know whether additional indictments will be brought by the
Department of Justice or the consequences of any additional indictments.
Furthermore, although Arthur Andersen has provided the SEC with assurances that
it will continue to audit financial statements in accordance with generally
accepted auditing standards and applicable professional and firm auditing
standards, including quality control standards, and the SEC has said that it
will continue to accept financial statements audited by Arthur Andersen, and
interim financial statements reviewed by it, so long as Arthur Andersen is able
to make certain representations to its clients, we cannot assure you that the
SEC will continue to accept such financial statements, or that Arthur Andersen
will continue to be able to provide such representations.
Our access to the capital markets and our ability to make timely SEC filings
could be impaired if the SEC ceases accepting financial statements audited or
reviewed by Arthur Andersen, if Arthur Andersen becomes unable to make the
required representations, if our audit committee decides to terminate Arthur
Andersen as our independent auditor, or if for any other reason Arthur Andersen
is unable to perform required audit-related services for us. In such a case, we
would promptly seek to engage new independent certified public accountants, and
we may incur significant expense in familiarizing such new auditors with our
accounting. Furthermore, relief which may be available under the federal
securities laws against auditing firms may not be available as a practical
matter against Arthur Andersen should it cease to operate or be financially
impaired.
The audit committee of our board of directors reviews the selection of our
independent certified public accountants each year, and expects to conduct such
a review in due course.
25
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements include statements concerning
our plans, objectives, goals, strategies, future events, future revenues or
performance, capital expenditures, financing needs, plans or intentions relating
to acquisitions, 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;
- increases in our leverage;
- interest rate increases;
- changes in our ownership structure;
- raw material costs and availability, particularly resin;
- competition;
- the loss of any of our significant customers;
- changes in demand for our products;
- new technologies;
- changes in distribution channels or competitive conditions in the
markets or countries where we operate;
- costs of integrating any future acquisitions;
- loss of our intellectual property rights;
- foreign currency fluctuations and devaluations and political
instability in our foreign markets;
- changes in our business strategy or development plans;
- availability, terms and deployment of capital;
26
- 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.
27
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the New Notes. In
consideration for issuing the New Notes as contemplated in this prospectus, we
will receive in exchange Old Notes in like principal amount, which will be
canceled and as such will not result in any increase in our indebtedness.
The net proceeds from the issuance and sale of the Old Notes was approximately
$98.8 million, after deducting fees and estimated expenses. We used
approximately $93.3 million of those proceeds to repay indebtedness under our
credit facilities, including a repayment of $63.3 million on our revolving
credit facility and a $30 million repayment on our term loans. The remaining
proceeds will be used for repayments on our credit facilities or certain
permitted acquisitions, including the Decora acquisition should it be completed.
We will be required to repay, on December 31, 2002, additional term loans in the
amount by which $18 million exceeds the amount we invest in certain permitted
acquisitions.
28
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2001 on an
actual basis and on an adjusted basis to reflect the application of the net
proceeds from the offering of the Old Notes, after deducting fees and estimated
expenses paid or payable by us.
<Table>
<Caption>
- ------------------------------------------------------------------------------------
DECEMBER 31, 2001
(UNAUDITED) ----------------------
(DOLLARS IN MILLIONS) ACTUAL AS ADJUSTED
- ------------------------------------------------------------------------------------
Cash and cash equivalents(1)................................ $ 4.8 $ 34.1
----------------------
Total debt:
Credit Facilities
Revolving Credit Facility(2).......................... $ 39.5 $ --
Tranche A Facility and Mexico Facility................ 188.8 159.8
Tranche B Facility.................................... 275.0 274.0
13% Senior Subordinated Notes due 2010................... 207.2 207.2
Old Notes(3)............................................. -- 103.8
Insurance premium financing.............................. 0.6 0.6
Obligations under capital leases and other............... 2.2 2.2
----------------------
Total debt...................................... 713.3 747.6
Redeemable Preferred Stock............................... 126.1 126.1
Redeemable Common Stock.................................. 16.8 16.8
Stockholders' deficit(4)................................. (194.5) (195.0)
----------------------
Total capitalization............................ $ 661.7 $ 695.5
- ------------------------------------------------------------------------------------
</Table>
(1) The as adjusted cash balance reflects the increase in cash from the issuance
of the Old Notes after the repayment of the $39.5 million outstanding balance on
our revolving credit facility at December 31, 2001 and the repayment of $30.0
million on our tranche A facility. On April 10, 2002, the date the Old Notes
were issued, the outstanding balance on our revolving credit facility was $63.3
million. Accordingly, after the repayment of this amount and the repayment of
$30.0 million on our tranche A facility and tranche B facility, our cash balance
increased by approximately $5.5 million as a result of the issuance of the Old
Notes.
(2) As of April 15, 2002, there were no outstanding borrowings under the
revolving credit facility. Amounts outstanding under the revolving credit
facility vary on a daily basis. The amounts shown do not include $5.3 million of
outstanding letters of credit that reduce available borrowings under our
revolving credit facility.
(3) Includes the premium of $3.8 million on the Old Notes.
(4) The as adjusted stockholders' deficit gives effect to the after tax write
off of $0.5 million of debt issuance costs.
29
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We and the Note Guarantors have entered into an exchange and registration rights
agreement with the initial purchasers in the private placement offering of the
Old Notes in which we and the Note Guarantors agreed, under certain
circumstances, to file a registration statement relating to an offer to exchange
the Old Notes for New Notes. The registration statement of which this prospectus
forms a part was filed in compliance with this obligation. We also agreed to use
our reasonable best efforts to cause the exchange offer to be consummated within
180 days following the original issuance of the Old Notes. The New Notes will
have terms substantially identical to the Old Notes except that the New Notes
will not contain terms with respect to transfer restrictions, registration
rights and liquidated damages for failure to observe certain obligations in the
exchange and registration rights agreement. The Old Notes were issued on April
10, 2002.
Under the circumstances set forth below, we will use our reasonable best efforts
to cause the SEC to declare effective a shelf registration statement with
respect to the resale of the Old Notes and keep the shelf registration statement
effective for up to two years after the effective date of the shelf registration
statement. These circumstances include:
- if pursuant to any changes in law, SEC rules or regulations or
applicable interpretations thereof by the staff of the SEC do not permit
us to effect the exchange offer as contemplated by the exchange and
registration rights agreement;
- if any Old Notes validly tendered in the exchange offer are not
exchanged for New Notes within 180 days after the original issue of the
Old Notes;
- if the initial purchasers of the Old Notes so request (but only with
respect to any Old Notes not eligible to be exchanged for New Notes in
the exchange offer);
- if any holder of the Old Notes is not permitted to participate in the
exchange offer; or
- if any holder of New Notes received in the exchange offer notifies us
that it must deliver a prospectus in connection with any resale of the
New Notes and this prospectus is not legally available for delivery.
Each holder of Old Notes that wishes to exchange Old Notes for transferable New
Notes in the exchange offer will be required to make the following
representations:
- any New Notes will be acquired in the ordinary course of its business;
- such holder has no arrangement or understanding with any person to
participate in the distribution of the New Notes; and
- such holder is not our "affiliate," as defined in Rule 405 of the
Securities Act, or, if it is an affiliate, that it will comply with
applicable registration and prospectus delivery requirements of the
Securities Act.
RESALE OF NEW NOTES
Based on interpretations of the SEC staff set forth in no action letters issued
to unrelated third parties, we believe that New Notes issued in the exchange
offer in exchange for Old Notes may
30
be offered for resale, resold and otherwise transferred by any New Note holder
without compliance with the registration and prospectus delivery provisions of
the Securities Act, if:
- such holder is not an "affiliate" of ours within the meaning of Rule
405 under the Securities Act;
- such New Notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in the distribution of such
New Notes.
Any holder who tenders in the exchange offer with the intention of participating
in any manner in a distribution of the New Notes:
- cannot rely on the position of the staff of the SEC set forth in "Exxon
Capital Holdings Corporation" or similar interpretive letters; and
- must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction.
This prospectus may be used for an offer to resell, for the resale or for other
retransfer of New Notes only as specifically set forth in this prospectus. With
regard to broker-dealers, only broker-dealers that acquired the Old Notes as a
result of market-making activities or other trading activities may participate
in the exchange offer. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the New Notes. Please read the section captioned "Plan of
distribution" for more details regarding the transfer of New Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus and in
the letter of transmittal, we will accept for exchange any Old Notes properly
tendered and not withdrawn prior to the expiration date. We will issue $1,000
principal amount of New Notes in exchange for each $1,000 principal amount of
Old Notes surrendered under the exchange offer. Old Notes may be tendered only
in integral multiples of $1,000.
The form and terms of the New Notes will be substantially identical to the form
and terms of the Old Notes except the New Notes will be registered under the
Securities Act, will not bear legends restricting their transfer and will not
provide for any liquidated damages upon our failure to fulfill our obligations
under the exchange and registration rights agreement to file, and cause to be
effective, a registration statement. The New Notes will evidence the same debt
as the Old Notes. The New Notes will be issued under and entitled to the
benefits of the same indenture that authorized the issuance of the Old Notes.
Consequently, both series will be treated as a single class of debt securities
under the indenture.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
As of the date of this prospectus, $100 million aggregate principal amount of
the Old Notes are outstanding. This prospectus and the letter of transmittal are
being sent to all registered holders of Old Notes. There will be no fixed record
date for determining registered holders of Old Notes entitled to participate in
the exchange offer.
31
We intend to conduct the exchange offer in accordance with the provisions of the
exchange and registration rights agreement, the applicable requirements of the
Securities Act and the Securities Exchange Act of 1934 and the rules and
regulations of the SEC. Old Notes that are not tendered for exchange in the
exchange offer will remain outstanding and continue to accrue interest and will
be entitled to the rights and benefits such holders have under the indenture
relating to the Old Notes.
We will be deemed to have accepted for exchange properly tendered Old Notes when
we have given oral or written notice of the acceptance to the exchange agent.
The exchange agent will act as agent for the tendering holders for the purposes
of receiving the New Notes from us and delivering exchange notes to such
holders. Subject to the terms of the exchange and registration rights agreement,
we expressly reserve the right to amend or terminate the exchange offer, and not
to accept for exchange any Old Notes not previously accepted for exchange, upon
the occurrence of any of the conditions specified below under the caption
"--Certain conditions to the exchange offer."
Holders who tender Old Notes in the exchange offer will not be required to pay
brokerage commissions or fees, or, subject to the instructions in the letter of
transmittal, transfer taxes with respect to the exchange of Old Notes. We will
pay all charges and expenses, other than certain applicable taxes described
below, in connection with the exchange offer. It is important that you read the
section labeled "--Fees and expenses" below for more details regarding fees and
expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on May 28, 2002,
unless we extend it in our sole discretion.
In order to extend the exchange offer, we will notify the exchange agent orally
or in writing of any extension. We will notify, in writing or by public
announcement, the registered holders of Old Notes of the extension no later than
9:00 a.m., New York City time, on the business day after the previously
scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting for exchange any Old Notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept Old Notes not previously accepted if any of the
conditions set forth below under "--Certain conditions to the exchange
offer" have not been satisfied, by giving oral or written notice of such
delay, extension or termination to the exchange agent; or
- subject to the terms of the exchange and registration rights agreement,
to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice or public
announcement thereof to the registered holders of Old Notes. If we amend the
exchange offer in a manner that we determine to constitute a material change, we
will promptly disclose such amendment in a manner reasonably calculated to
inform the holders of Old Notes of such amendment.
Without limiting the manner in which we may choose to make public announcements
of any delay in acceptance, extension, termination or amendment of the exchange
offer, we shall
32
have no obligation to publish, advertise, or otherwise communicate any such
public announcement, other than by issuing a timely press release to a financial
news service.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to accept
for exchange, or exchange any New Notes for, any Old Notes, and we may terminate
the exchange offer as provided in this prospectus before accepting any Old Notes
for exchange if in our reasonable judgment:
- the New Notes to be received will not be tradable by the holder without
restriction under the Securities Act or the Exchange Act and without
material restrictions under the blue sky or securities laws of
substantially all of the states of the U.S.;
- the exchange offer, or the making of any exchange by a holder of Old
Notes, would violate applicable law or any applicable interpretation of
the staff of the SEC; or
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer.
In addition, we will not be obligated to accept for exchange the Old Notes of
any holder that has not made:
- the representations described under "--Purpose and effect of the
exchange offer", "--Procedures for tendering" and "Plan of distribution",
and
- such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available to
us an appropriate form for registration of the New Notes under the
Securities Act.
We expressly reserve the right, at any time or at various times, to extend the
period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any Old Notes by giving oral or written notice of such
extension to the registered holders of the Old Notes. During any such
extensions, all Old Notes previously tendered will remain subject to the
exchange offer, and we may accept them for exchange unless they have been
previously withdrawn. We will return any Old Notes that we do not accept for
exchange for any reason without expense to their tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer, and to
reject for exchange any Old Notes not previously accepted for exchange, upon the
occurrence of any of the conditions of the exchange offer specified above. We
will give oral or written notice or public announcement of any extension,
amendment, non-acceptance or termination to the registered holders of the Old
Notes as promptly as practicable. In the case of any extension, such oral or
written notice or public announcement will be issued no later than 9:00 a.m.,
New York City time, on the business day after the previously scheduled
expiration date.
These conditions are for our sole benefit and we may assert them regardless of
the circumstances that may give rise to them or waive them in whole or in part
at any or at various times in our sole discretion. If we fail at any time to
exercise any of the foregoing rights, that failure will not constitute a waiver
of such right. Each such right will be deemed an ongoing right that we may
assert at any time or at various times.
33
In addition, we will not accept for exchange any Old Notes tendered, and will
not issue New Notes in exchange for any such Old Notes, if at such time any stop
order is threatened or in effect with respect to the registration statement of
which this prospectus constitutes a part or the qualification of the indenture
under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the exchange offer. To
tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of
the letter of transmittal; have the signature on the letter of
transmittal guaranteed if the letter of transmittal so requires; and mail
or deliver such letter of transmittal or facsimile to the exchange agent
prior to the expiration date; or
- comply with DTC's Automated Tender Offer Program procedures described
below.
In addition, either:
- the exchange agent must receive Old Notes along with the letter of
transmittal; or
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such Old Notes into the exchange
agent's account at DTC according to the procedures for book-entry
transfer described below or a properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures
described below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "-- Exchange agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date will
constitute an agreement between such holder and us in accordance with the terms
and subject to the conditions set forth in this prospectus and in the letter of
transmittal.
The method of delivery of Old Notes, the letter of transmittal and all other
required documents to the exchange agent is at the holder's election and risk.
Rather than mail these items, we recommend that holders use an overnight or hand
delivery service. In all cases, holders should allow sufficient time to assure
delivery to the exchange agent before the expiration date. Holders should not
send the letter of transmittal or Old Notes to the Issuer. Holders may request
their respective brokers, dealers, commercial banks, trust companies or other
nominees to effect the above transactions for them.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct it to tender on the
owners' behalf. If such beneficial owner wishes to tender on its own behalf, it
must, prior to completing and executing the letter of transmittal and delivering
its Old Notes; either:
- make appropriate arrangements to register ownership of the Old Notes in
such owner's name; or
- obtain a properly completed bond power from the registered holder of
Old Notes.
34
The transfer of registered ownership may take considerable time and may not be
completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described below
must be guaranteed by a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the U.S. or another "eligible
institution" within the meaning of Rule 17Ad-15 under the Exchange Act, unless
the Old Note tendered pursuant thereto is tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
- for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the registered
holder of any Old Notes listed on the Old Notes, such Old Notes must be endorsed
or accompanied by a properly completed bond power. The bond power must be signed
by the registered holder as the registered holder's name appears on the Old
Notes and an eligible institution must guarantee the signature on the bond
power.
If the letter of transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing. Unless waived by us, they should also
submit evidence satisfactory to us of their authority to deliver the letter of
transmittal.
The exchange agent and DTC have confirmed that any financial institution that is
a participant in DTC's system may use DTC's Automated Tender Offer program to
tender. Participants in the program may, instead of physically completing and
signing the letter of transmittal and delivering it to the exchange agent,
transmit their acceptance of the exchange offer electronically. They may do so
by causing DTC to transfer the Old Notes to the exchange agent in accordance
with its procedures for transfer. DTC will then send an agent's message to the
exchange agent. The term "agent's message" means a message transmitted by DTC,
received by the exchange agent and forming part of the book-entry confirmation,
to the effect that:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering Old Notes that are the
subject of such book-entry confirmation;
- such participant has received and agrees to be bound by the terms of
the letter of transmittal (or, in the case of an agent's message relating
to guaranteed delivery, that such participant has received and agrees to
be bound by the applicable notice of guaranteed delivery); and
- the agreement may be enforced against such participant.
We will determine in our sole discretion all questions as to the validity, form,
eligibility (including time of receipt), acceptance of tendered Old Notes and
withdrawal of tendered Old Notes. Our determination will be final and binding.
We reserve the absolute right to reject any Old Notes not properly tendered or
any Old Notes the acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular Old Notes. Our interpretation of the terms
and conditions of the exchange offer (including the instructions in the letter
of transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection
35
with tenders of Old Notes must be cured within such time as we shall determine.
Although we intend to notify holders of defects or irregularities with respect
to tenders of Old Notes, neither we, the exchange agent nor any other person
will incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed made until such defects or irregularities have been
cured or waived. Any Old Notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned to the exchange agent without cost to the
tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
In all cases, we will issue New Notes for Old Notes that we have accepted for
exchange under the exchange offer only after the exchange agent timely receives:
- Old Notes or a timely book-entry confirmation of such Old Notes into
the exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
By signing the letter of transmittal or transmitting the agent's message, each
tendering holder of Old Notes will represent to us that, among other things:
- any New Notes that the holder receives will be acquired in the ordinary
course of its business;
- the holder has no arrangement or understanding with any person or
entity to participate in the distribution of the New Notes;
- if the holder is not a broker-dealer, that it is not engaged in and
does not intend to engage in the distribution of the New Notes;
- if the holder is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities, that it will deliver a prospectus, as required
by law, in connection with any resale of such New Notes; and
- the holder is not an "affiliate", as defined in Rule 405 of the
Securities Act, of ours or, if the holder is an affiliate, it will comply
with any applicable registration and prospectus delivery requirements of
the Securities Act.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect to
the Old Notes at DTC for purposes of the exchange offer promptly after the date
of this prospectus; and any financial institution participant in DTC's system
may make book-entry delivery of Old Notes by causing DTC to transfer such Old
Notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfer. Holders of Old Notes who are unable to deliver
confirmation of the book-entry tender of their Old Notes into the exchange
agent's account at DTC or all other documents of transmittal to the exchange
agent on or prior to the expiration date must tender their Old Notes according
to the guaranteed delivery procedures described below.
36
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their Old Notes but whose Old Notes are not
immediately available or who cannot deliver their Old Notes, the letter of
transmittal or any other required documents to the exchange agent or comply with
the applicable procedures under DTC's Automated Tender Offer Program prior to
the expiration date may tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from such
eligible institution either a properly completed and duly executed notice
of guaranteed delivery (by facsimile transmission, mail or hand delivery)
or a properly transmitted agent's message and notice of guaranteed
delivery:
-- setting forth the name and address of the holder, the registered
number(s) of such Old Notes and the principal amount of Old Notes
tendered;
-- stating that the tender is being made thereby; and
-- guaranteeing that, within three (3) New York Stock Exchange trading
days after the expiration date, the letter of transmittal (or facsimile
thereof) together with the Old Notes or a book-entry confirmation, and
any other documents required by the letter of transmittal will be
deposited by the eligible institution with the exchange agent; and
- the exchange agent receives such properly completed and executed letter
of transmittal (or facsimile thereof), as well as all tendered Old Notes
in proper form for transfer or a book-entry confirmation, and all other
documents required by the letter of transmittal, within three (3) New
York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be sent
to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of Old Notes may
withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice (which may be by
telegram, telex, facsimile transmission or letter) of withdrawal at one
of the addresses set forth below under "-- Exchange agent," or
- holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any such notice of withdrawal must:
- specify the name of the person who tendered the Old Notes to be
withdrawn;
- identify the Old Notes to be withdrawn (including the principal amount
of such Old Notes); and
37
- where certificates for Old Notes have been transmitted, specify the
name in which such Old Notes were registered, if different from that of
the withdrawing holder.
If certificates for Old Notes have been delivered or otherwise identified to the
exchange agent, then, prior to the release of such certificates, the withdrawing
holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution.
If Old Notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. We will determine all
questions as to the validity, form and eligibility (including time of receipt)
of such notices, and our determination shall be final and binding on all
parties. We will deem any Old Notes so withdrawn not to have been validly
tendered for exchange for purposes of the exchange offer. Any Old Notes that
have been tendered for exchange but that are not exchanged for any reason will
be returned to their holder without cost to the holder (or, in the case of Old
Notes tendered by book-entry transfer into the exchange agent's account at DTC
according to the procedures described above, such Old Notes will be credited to
an account maintained with DTC for Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "Procedures for tendering" above at any time on or prior to the
expiration date.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent addressed
as follows:
For Overnight Delivery
or Delivery by Registered or Certified Mail:
The Bank of New York
Corporate Trust Department
Reorganization Unit
15 Broad Street, 16th Floor
New York, NY 10007
Attn: Enrique Lopez
For Delivery by Hand:
The Bank of New York
Corporate Trust Department
Reorganization Unit
15 Broad Street, Lobby Level
New York, NY 10007
Attn: Enrique Lopez
38
By Facsimile Transmission
(for eligible institutions only):
(212) 235-2261
Confirm facsimile by telephone only:
(212) 235-2360
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation is
being made by mail; however, we may make additional solicitations by telegraph,
telephone or in person by our officers and regular employees and those of our
affiliates.
We have not retained any dealer-manager in connection with the exchange offer
and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
Our expenses in connection with the exchange offer include:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of Old Notes
under the exchange offer. The tendering holder, however, will be required to pay
any transfer taxes (whether imposed on the registered holder or any other
person) if:
- certificates representing Old Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of Old Notes
tendered;
- tendered Old Notes are registered in the name of any person other than
the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of Old
Notes under the exchange offer.
If satisfactory evidence of payment of such taxes is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed to that
tendering holder.
Holders who tender their Old Notes for exchange will not be required to pay any
transfer taxes. However, holders who instruct us to register New Notes in the
name of, or request that Old Notes not tendered or not accepted in the exchange
offer be returned to, a person other than the registered tendering holder will
be required to pay any applicable transfer tax.
39
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes under the
exchange offer will remain subject to the restrictions on transfer applicable to
the Old Notes:
- as set forth in the legend printed on the Old Notes as a consequence of
the issuance of the Old Notes pursuant to the exemptions from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
- otherwise as set forth in the offering memorandum distributed in
connection with the private offering of the Old Notes.
In general, you may not offer or sell the Old Notes unless they are registered
under the Securities Act, or if the offer or sale is exempt from registration
under the Securities Act and applicable state securities laws. Except as
required by the exchange and registration rights agreement, we do not intend to
register resales of the Old Notes under the Securities Act. Based on
interpretations of the SEC staff, New Notes issued pursuant to the exchange
offer may be offered for resale, resold or otherwise transferred by their
holders (other than any such holder that is our "affiliate" within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that the
holders acquired the New Notes in the ordinary course of the holders' business
and the holders have no arrangement or understanding with respect to the
distribution of the New Notes to be acquired in the exchange offer. Any holder
who tenders in the exchange offer for the purpose of participating in a
distribution of the New Notes:
- could not rely on the applicable interpretations of the SEC; and
- must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction.
ACCOUNTING TREATMENT
We will record the New Notes in our accounting records at the same carrying
value as the Old Notes, as reflected in our accounting records on the date of
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes in connection with the exchange offer. We will record the expenses of
the exchange offer as incurred.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered Old Notes in the open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. We have no present plans to acquire any Old Notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any untendered Old Notes.
40
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."
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------------------
(DOLLARS IN MILLIONS) 1997 1998 1999 2000 2001
- ------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $468.9 $ 681.1 $813.7 $ 843.8 $ 840.4
Cost of sales.................................... 410.8 561.6 655.7 696.7 665.1
---------------------------------------------
Gross profit..................................... 58.1 119.5 158.0 147.1 175.3
Total operating expenses(1).......... 45.0 70.1 82.0 132.7 101.1
---------------------------------------------
Operating income................................. 13.1 49.4 76.0 14.4 74.2
Interest expense................................. (17.0) (37.5) (44.0) (68.5) (76.0)
Other income (expense), net...................... 0.7 (0.8) 0.4 0.3 6.5
---------------------------------------------
Income (loss) before income taxes, discontinued
operations and extraordinary item............. (3.2) 11.1 32.4 (53.8) 4.7
Income tax expense (benefit)..................... (0.5) 8.6 14.1 (14.3) 6.8
---------------------------------------------
Income (loss) before discontinued operations and
extraordinary item............................ (2.7) 2.5 18.3 (39.5) (2.1)
Income from discontinued operations(2)........... 3.1 0.6
Gain on sale of discontinued operations(2)....... 5.2
Extraordinary item(3)............................ (11.3)
---------------------------------------------
Net income (loss)................................ $ 0.4 $ 8.3 $ 18.3 $ (50.8) $ (2.1)
---------------------------------------------
OTHER FINANCIAL DATA:
EBITDA under indentures(4)....................... $ 39.5 $ 80.6 $114.7 $ 76.2 $ 130.1
Cash flows from operating activities............. 28.6 45.5 51.5 60.3 30.3
Cash flows from investing activities............. (87.2) (314.8) (46.0) (65.6) (87.3)
Cash flows from financing activities............. 63.2 275.9 (16.7) 0.3 55.0
Depreciation and amortization.................... 16.4 27.1 35.0 39.5 47.0
Plant closing costs, net(5)...................... 9.3 4.9 2.5 19.4 (4.6)
Non-cash stock-based compensation
Expense....................................... $ $ $ 0.8 $ 2.6 $ 7.0
Capital expenditures............................. 17.9 52.1 35.7 65.6 56.4
Ratio of earnings to fixed charges(6)............ 1.3x 1.7x 1.1x
- ------------------------------------------------------------------------------------------------
</Table>
41
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------------------
(DOLLARS IN MILLIONS) 1997 1998 1999 2000 2001
- ------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents........................ $ 12.4 $ 19.2 $ 9.1 $ 3.1 $ 4.8
Working capital.................................. 94.1 93.4 103.8 57.6 58.4
Total assets..................................... 400.4 734.3 769.0 785.0 851.7
Total debt....................................... 250.5 524.9 510.4 687.4 713.3
Total liabilities................................ 337.4 662.5 675.4 885.9 903.0
Redeemable preferred stock(7).................... 88.7 126.1
Redeemable common stock.......................... 1.2 2.9 16.5 16.8
Stockholders' equity (deficit)................... $ 63.0 $ 70.6 $ 90.7 $(206.0) $(194.5)
- ------------------------------------------------------------------------------------------------
</Table>
(1) Total operating expenses for 2000 include $10.8 million of costs related to
the recapitalization and related transactions, $10.8 million of fees and
expenses relating to our supply chain cost initiative, $19.6 million of plant
closing costs, $7.1 million of costs related to the relocation of our corporate
headquarters and a reduction in force, and $2.6 million of non-cash stock-based
compensation expense. Total operating expenses for 2001 include $7.0 million of
non-cash stock-based compensation expense, $3.0 million of plant closing costs,
$4.0 million of costs related to the relocation of our corporate headquarters,
$6.0 million of fees and expenses relating to our supply chain cost initiative,
and a $3.0 million increase in depreciation expenses relating primarily to the
purchase of a new computer system.
(2) 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.
(3) In 2000, we refinanced most of our long-term debt and recorded an
extraordinary loss to write-off unamortized deferred debt issuance costs. In
addition, during 2000, we recorded an extraordinary loss related to our tender
offer for our 9 1/8% senior subordinated notes due 2007.
(4) EBITDA is defined in our indentures 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 our indentures in determining 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 our indentures 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.
(5) We incurred $3.0 million of plant closing costs in 2001 related primarily to
the relocation of production lines acquired in connection with the Uniplast
acquisition. Due to our decision not to proceed with our previously announced
closure of our Harrington plant, approximately $7.6 million of the costs accrued
for plant closures in 2000 was credited to plant closing costs in the statement
of operations for 2001.
(6) 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 we consider to be a reasonable
approximation of the interest factor of operating lease payments. In 1997 and
2000 earnings were insufficient to cover fixed charges by approximately $3.2
million, and $53.8 million, respectively. Assuming we had issued the Old Notes
on January 1, 2001 and applied the net proceeds therefrom, our earnings for the
year ended December 31, 2001 would have been insufficient to cover fixed charges
by approximately $2.5 million. For purposes of pro forma interest, this
computation assumes that $47.8 million of the net proceeds from the issuance of
the Old Notes was used to repay the average outstanding balance under our
revolving credit facility for 2001 and $30 million was used to repay term loans.
(7) The amount presented for 2000 includes proceeds of $100.0 million from the
issuance of preferred stock, plus the accrued and unpaid dividend of $8.4
million, less the unamortized value of preferred stock warrants of $18.2 million
and unamortized issuance costs of $1.5 million. The amount presented for 2001
includes proceeds of $131.0 million from the issuance of preferred stock in 2000
and 2001, plus the accrued and unpaid dividend of $26.2 million less the
unamortized value of preferred stock warrants of $29.6 million and unamortized
issuance costs of $1.5 million.
42
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 laws that involve risks and uncertainties, including statements
regarding our plans, objectives, goals, strategies and financial performance.
Our actual results could differ materially from the results anticipated in these
forward-looking statements as a result of factors set forth under "Disclosure
regarding forward-looking statements" and "Risk factors" and elsewhere in this
prospectus.
GENERAL
We derive our revenues, earnings and cash flows from the sale of film and
flexible packaging products throughout the world. We manufacture these products
at 26 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:
- 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 $56.0 million.
- In October 1999, we acquired the assets of KCL Corporation, including
its plastic slider and zipper closure technology and its polyethylene bag
making and printing facilities in Shelbyville, IN and Dallas, TX for
approximately $11.5 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 2001
and 2000 we undertook the following significant divestitures and closures of
manufacturing facilities:
- In 2001, in connection with the acquisition of Uniplast, we announced a
plan to close three of Uniplast's six plants, move certain purchased
assets to other locations and to terminate the sales, administration and
technical employees of Uniplast. All three of these plants were closed in
2001 and we intend to sell all three plants. During 2001 we paid
approximately $1.9 million in severance costs, which were part of the
$3.0 million accrued for such costs in purchase accounting. In addition,
we expensed approximately $3.0 million for the relocation of equipment
and other closing costs, as part of plant closing costs, as reflected in
the statement of operations for the year ended December 31, 2001.
- In 2000, we announced our plan 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 and affiliated entities
43
for approximately $1.4 million. We closed our Birmingham facility in the
second quarter of 2001. In light of changes in customer demand and our
acquisition of Uniplast, we reconsidered our plans to close the
Harrington facility and instead downsized that facility.
As part of our efforts to consolidate administrative functions and improve the
efficiency of our operations, we began a company-wide supply chain cost
initiative in the fourth quarter of 1999 with the assistance of A.T. Kearney, a
management consulting firm. This initiative focused on improving efficiency
through improvements to our procurement, logistics, planning and production
processes. We began implementing specific improvement projects in March 2000,
and all identified projects were fully implemented by the end of the second
quarter of 2001.
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 "Business" 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 other cost saving
initiatives during the fourth quarter of 2000. These included the following:
- We announced the closure of certain facilities as discussed above and
the relocation of our corporate headquarters from Salt Lake City, Utah to
Schaumburg, Illinois.
- We announced a company-wide reduction in workforce of approximately 50
salaried and nonsalaried positions.
We incurred plant closing costs and additional administrative and other expenses
due to the foregoing of approximately $26.7 million in the fourth quarter of
2000, of which approximately $10 million consisted of a cash charge. We realized
annual savings of approximately $15 million from these cost initiatives.
During 2001, we continued the transition of our corporate headquarters from Salt
Lake City, Utah to Schaumburg, Illinois, and we made certain changes in our
management. During the first quarter of 2001, we incurred non-cash stock-based
compensation expense of approximately $7.0 million as a result of certain
modifications to our senior management employment arrangements with two
executive officers. See Note 10 to the consolidated financial statements
included elsewhere in this prospectus for a discussion of the components of this
charge.
CRITICAL ACCOUNTING POLICIES
We have adopted accounting policies that require us to make estimates about the
effect of matters that are uncertain and to make difficult, subjective and
complex judgments. We believe that the following accounting policies are the
most critical because they have the greatest impact on the presentation of our
financial condition and results of operations.
Accounts Receivable. We evaluate accounts receivable on a quarterly basis and
review any significant customers with delinquent balances to determine future
collectibility. We base our determinations on legal issues (such as bankruptcy
status), past history, current financial and credit agency reports, and the
experience of the credit representatives. We reserve accounts that we deem to be
uncollectible in the quarter in which we make the determination. We maintain
additional reserves based on our historical bad debt experience. Although there
is a
44
greater risk of uncollectibility in an economic downturn, we believe, based on
past history and proven credit policies, that the net accounts receivable as of
December 31, 2001 are of good quality.
Retirement Plans. We value retirement plan assets and liabilities based on
assumptions and valuations determined by an independent actuary. Although we
review and concur with the actuary's assumptions, these assumptions are subject
to the occurrence of future events, which are out of our control and could
differ materially from the amounts currently reported.
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,
2001, 2000 and 1999.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
(DOLLARS IN MILLIONS) 2001 2000 1999
- ---------------------------------------------------------------------------------------------
Net sales............................... $840.4 100.0% $843.8 100.0% $813.7 100.0%
Cost of sales........................... 665.1 79.2 696.7 82.6 655.7 80.6
---------------------------------------------------
Gross profit............................ 175.3 20.8 147.1 17.4 158.0 19.4
Total operating expenses................ 101.1 12.0 132.7 15.7 82.0 10.1
---------------------------------------------------
Operating income........................ $ 74.2 8.8% $ 14.4 1.7% $ 76.0 9.3%
- ---------------------------------------------------------------------------------------------
</Table>
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2000
Net Sales. Net sales decreased by $3.4 million, or 0.4%, to $840.4 million for
2001 from $843.8 million for 2000. An increase in sales volume of 5.8% was more
than offset by a decrease in selling prices of 5.9%. In the markets we serve,
the average selling prices of our products generally increase or decrease as the
price of resins, our primary raw material, increases or decreases. Average resin
prices for the year ended December 31, 2001 were 13% lower than the average
resin prices for the year ended December 31, 2000. The increase in sales volume
for 2001 was primarily due to the Uniplast acquisition and increased sales
volume of personal care film, medical film, agricultural film, printed film and
stretch film. For 2001, we had total net trade sales volume of 819.8 million
pounds, compared with 775.0 million pounds in 2000.
Gross Profit. Gross profit increased by $28.2 million, or 19.2%, to $175.3
million for 2001 from $147.1 million for 2000. This increase was primarily due
to increased margins and higher sales volumes discussed above. The margins
increased principally due to decreases in raw material prices that were greater
than the reduction in resulting selling prices to customers and changes in
product mix. In addition, average conversion costs per pound at our plants were
lower due to higher production and reductions in fixed conversion costs due to
plant closures.
Total Operating Expenses. Total operating expenses decreased by $31.6 million,
or 23.8%, to $101.1 million for 2001 from $132.7 million for 2000. The decrease
was due primarily to unusually high operating costs in 2000 and the reversal
during 2001 of certain prior accruals for plant closure costs.
45
Our operating costs were significantly higher in 2000 due primarily to five
significant items:
- $10.8 million of costs related to the recapitalization and related
transactions;
- $10.8 million of costs relating to our company-wide supply chain cost
initiative;
- $19.6 million of costs relating to plant closures;
- $7.1 million of costs relating to the relocation of our corporate
headquarters, the closure of our divisional office in Dallas, Texas and a
company-wide reduction in force of approximately 50 positions; and
- $2.6 million of non-cash compensation expense related to the vesting of
performance-based stock options in connection with the recapitalization
and related transactions.
Due to our decision not to proceed with our previously announced closure of our
Harrington plant, approximately $7.6 million of the costs accrued for plant
closures in 2000 has been credited to plant closing costs in the statement of
operations for the year ended December 31, 2001.
As a percentage of net sales, operating expenses decreased to 12.0% for 2001,
compared to 15.7% for 2000. Although operating expenses decreased significantly
in 2001, operating expenses continued to represent a higher percentage of our
net sales as compared to historical levels prior to 2000. This was due primarily
to five significant items:
- $7.0 million of non-cash stock-based compensation charges related to
two executive officers during the first quarter of 2001;
- $3.0 million of plant closing costs incurred during the fourth quarter
of 2001, related primarily to the relocation of production lines as a
result of the Uniplast acquisition;
- $4.0 million of costs we continued to incur during the first quarter of
2001 in connection with the relocation of our corporate headquarters from
Salt Lake City, Utah to Schaumburg, Illinois;
- $6.0 million of fees and expenses we continued to incur in connection
with our company-wide supply chain cost initiative, which was fully
implemented by the end of the second quarter of 2001; and
- $3.0 million increase in depreciation expenses due primarily to our
purchase of a new computer system.
The stock-based compensation charges for 2001 included a $1.0 million non-cash
charge related to a severance agreement with an executive officer, which
modified our right to repurchase shares of our common stock. In addition, we
recorded $6.0 million of non-cash stock-based compensation expense in the first
quarter of 2001 related to amendments to note agreements with another executive
officer, which were entered into in connection with the sale of restricted stock
in 1999 and 2000.
Operating Income. Operating income increased by $59.8 million, or 413%, to $74.2
million for 2001 from $14.4 million for 2000, as a result of the factors
discussed above.
Interest Expense. Interest expense increased by $7.5 million, or 11%, to $76.0
million for 2001 from $68.5 million for 2000. This increase was principally a
result of the recapitalization in May 2000. The increased interest expense
attributable to increased borrowings was partially offset by a reduction in
LIBOR which decreased the variable interest rate on our term debt.
46
Income Tax Expense (Benefit). In 2001, our income tax expense was $6.8 million,
compared to an income tax benefit of $14.3 million in 2000. These amounts
represent effective tax rates of 143.8% and 26.5% for the years ended December
31, 2001 and 2000, respectively. The fluctuation in income tax expense (benefit)
relates primarily to the fluctuation in our income (loss) before income taxes
for the years presented. The fluctuation in the effective tax rate is
principally the result of foreign tax rate differences and amortization of
goodwill, which are relatively fixed and therefore have a greater impact on the
effective rate in years in which our pre-tax income or loss is relatively low.
Pretax income in 2001 was $4.7 million as compared to a pre-tax loss of $53.8
million in 2000. As of December 31, 2001, our deferred tax assets totaled
approximately $46.0 million of which $30.6 million related to net operating loss
carryforwards. Our deferred tax liabilities totaled $69.6 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, 2000 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1999
Net Sales. Net sales increased by $30.1 million, or 3.7%, to $843.8 million for
2000 from $813.7 million for 1999. 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.
Gross Profit. Gross profit decreased by $10.9 million, or 6.9%, to $147.1
million for 2000 from $158.0 million for 1999. 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.
Total Operating Expenses. Total operating expenses increased by $50.7 million,
or 61.8%, to $132.7 million for 2000 from $82.0 million, for 1999. 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 recapitalization and related 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
47
1999. The project focused on improving the efficiency of our operations and was
fully implemented by the end of the second quarter 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
divisional office in Dallas, Texas, and a company-wide reduction in workforce of
approximately 50 positions. These costs amounted to $7.1 million in 2000.
The fifth significant item affecting total operating expenses was non-cash
stock-based compensation expense. We incurred non-cash stock-based compensation
expense of approximately $2.6 million related to outstanding options to purchase
our common stock. As a result of the recapitalization and related transactions,
the stock options fully vested and became exercisable upon the consummation of
the transactions. The $2.6 million non-cash 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 non-cash stock-based compensation expense in 1999.
Operating Income. Operating income decreased by $61.6 million, or 81.1%, to
$14.4 million for 2000 from $76.0 million for 1999, as a result of the factors
discussed above. Excluding the five significant items described above, operating
income decreased $14.1 million, or 18.6%, to $61.9 million for 2000, from $76.0
million for 1999.
Interest Expense. Interest expense increased by $24.5 million, or 55.7%, to
$68.5 million for 2000 from $44.0 million for 1999. As a result of the
recapitalization and related transactions, interest expense increased
significantly compared to the prior year. Included in interest expense in 2000
is a $1.4 million amendment fee on our outstanding credit facilities.
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. These amounts
represent effective tax rates of 26.5% 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 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.
OPERATING SEGMENT REVIEW
GENERAL
Operating segments are our components 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
48
Note 14 to the consolidated financial statements included elsewhere in this
prospectus. Except as indicated, the segment profits and unallocated corporate
expenses discussed below do not reflect plant closing costs and other unusual
items.
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2000
SPECIALTY FILMS
NET SALES
The net sales of our specialty films segment decreased $5.2 million, or 1.3%, to
$380.5 million in 2001 from $385.7 million in 2000. This decrease was
principally due to a 3.6% decrease in selling prices, which was partially offset
by a 2.4% increase in sales volumes. The increases in sales volume were
primarily in the personal care, medical and agricultural film markets. Selling
prices decreased primarily due to the effects of a decrease in resin prices.
SEGMENT PROFIT
The segment profit of our specialty films segment increased $16.2 million, or
23.0%, to $86.7 million from $70.5 million in 2000. This increase was
principally due to higher margins for our products and the increased sales
volume discussed above. The margins increased principally due to decreases in
raw material prices that were greater than the reduction in resulting selling
prices to customers and changes in product mix.
SEGMENT TOTAL ASSETS
The specialty films segment total assets increased by $48.5 million, or 12.3%,
in 2001 to $442.3 million from $393.8 million in 2000. The increase was
primarily due to capital expenditures of approximately $31.7 million and $19.9
million of assets acquired in the Uniplast acquisition. In addition, the
reversal of the plant closing accrual related to our Harrington, Delaware
facility increased segment total assets in 2001. See Note 3 to the consolidated
financial statements included elsewhere in this prospectus. These increases were
offset, in part, by 2001 depreciation. Capital expenditures related mainly to
capacity expansion and to quality improvement projects, as well as ongoing
capital improvements.
DESIGN PRODUCTS
NET SALES
The net sales of our design products segment decreased $1.7 million, or 0.8%, to
$213.7 million in 2001 from $215.4 million in 2000. This decrease was
principally due to a 6.9% decrease in selling prices, which was partially offset
by a 7.0% increase in sales volumes. Sales volume increased primarily due to
increased sales in the printed film market. Selling prices decreased primarily
due to a decrease in resin prices and a change in the product mix.
SEGMENT PROFIT
The segment profit of our design products segment increased $9.4 million, or
35.2%, to $36.1 million from $26.7 million in 2000. This increase is principally
due to a contract settlement payment from a potential customer during the second
quarter of 2001. In addition, segment profits were favorably affected by the
increase in sales volume, noted above, partially offset by lower margins due to
a change in product mix.
49
SEGMENT TOTAL ASSETS
The design products segment total assets increased by $2.6 million, or 1.4%, in
2001 to $182.3 million from $179.7 million in 2000. The increase was due to 2001
capital expenditures of approximately $12.2 million. Depreciation and
amortization expense offset these additions.
INDUSTRIAL FILMS
NET SALES
The net sales of our industrial films segment increased $3.5 million, or 1.4%,
to $246.1 million in 2001 from $242.6 million in 2000. This increase was
principally due to a 9.4% increase in sales volumes, which was partially offset
by a 7.2% decrease in selling prices. The sales volume increased due to the
acquisition of the Uniplast business and increased sales from the stretch film
segment. Selling prices decreased primarily due to the effects of a decrease in
resin prices.
SEGMENT PROFIT
The segment profit of our industrial films segment increased $8.1 million, or
22.6%, to $43.9 million in 2001 from $35.8 million in 2000. This increase was
principally due to the increase in sales volume discussed above and a slight
increase in margins.
SEGMENT TOTAL ASSETS
The industrial films segment total assets decreased by $2.0 million, or 1.5%, in
2001 to $126.9 million from $128.9 million in 2000. The decrease was primarily
due to depreciation and amortization and the closure of our Birmingham facility,
and was partially offset by capital expenditures of $7.3 million and the
addition of $12.7 million of assets acquired in the Uniplast acquisition.
UNALLOCATED CORPORATE EXPENSES
Unallocated corporate expenses decreased by $5.2 million, or 5.6%, to $86.9
million for 2001 from $92.1 million for 2000. This decrease was primarily a
result of lower costs incurred during 2001, compared to 2000, for office closing
costs and our supply chain management initiative. Unallocated corporate expenses
for 2001 reflect a $3.0 million increase in depreciation expense associated with
a new computer system of $3.0 million discussed above.
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 was 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
50
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 the
announced closing of 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 from KCL 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 14 to the consolidated financial statements included elsewhere 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 capital expenditures in 2000 of approximately $18.6 million.
Depreciation expense, amortization expense, and a reduction in cash balances
offset these additions. The reduction in the cash balances during 2000 was due
to our Mexican subsidiary loaning $3.8 million to us at December 31, 2000. This
amount was repaid on January 4, 2001. We periodically borrow cash from our
foreign subsidiaries on a short-term basis in order to increase our cash
balances without incurring the costs of repatriating cash held by our foreign
subsidiaries.
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
51
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.
UNALLOCATED CORPORATE EXPENSES
Unallocated corporate expenses increased by $24.0 million, or 35.3%, to $92.1
million for 2000 from $68.1 million in 1999. 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 8.4% 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
management consulting firm. The project focused on improving the efficiency of
our operations. In March 2000, we began implementing specific improvement
projects and all identified projects were fully implemented in 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 of
approximately 50 positions. These costs amounted to $7.1 million in 2000.
The third significant item affecting unallocated corporate expenses was non-cash
stock-based compensation expense. We incurred non-cash stock-based compensation
expense of approximately $2.6 million related to outstanding options to purchase
our common stock. As a result of the recapitalization and related transactions,
the stock options fully vested and became exercisable upon the consummation of
the transactions. The $2.6 million non-cash stock-based compensation expense
recognized the vesting of all performance-based stock options based on the
estimated per share purchase price implied in the recapitalization and related
transactions. We incurred $0.8 million of non-cash stock-based compensation
expense in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Upon closing of the recapitalization and related transactions, we issued 220,000
units consisting of $220.0 million principal amount of 13% Senior Subordinated
Notes due 2010 (the "Old 2000 Notes") and note warrants to purchase 18,532
shares of common stock. The units were issued at a discount of approximately
$5.9 million and mature on June 1, 2010. The units were issued
52
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 2000 Notes for notes registered under the Securities Act was declared
effective by the SEC, and, as a result, the Old 2000 Notes and the note warrants
became separated. We consummated an exchange offer and issued $220.0 million of
registered 2000 Notes in exchange for all of the Old 2000 Notes on October 12,
2000. Interest on the 2000 Notes is payable semi-annually on each June 1 and
December 1, commencing on December 1, 2000. The 2000 Notes are unsecured. The
2000 Notes are subordinated to all of our existing and future senior debt, rank
equally with any future senior subordinated debt, including the Notes, and rank
senior to any future subordinated debt. The 2000 Notes are guaranteed by some of
our subsidiaries. The note warrants became exercisable on August 29, 2000, and
mature on June 1, 2010.
Loans under the revolving credit facility, the tranche A facility and the Mexico
facility bear interest, at our option, at either Adjusted LIBOR or ABR, plus a
spread determined by reference to our leverage ratio. The spread will not exceed
3.25% for Adjusted LIBOR or 2.25% for ABR, and is expected to be 3.00% and
2.00%, respectively, following completion of this offering. The Alternate Base
Rate is the higher of Bankers Trust Company's Prime Rate or the Federal Funds
Effective Rate plus 1/2 of 1% plus 2.25%. 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.
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 JPMorgan Chase Bank (formerly The Chase
Manhattan Bank), Bankers Trust Company, The Bank of Nova Scotia and a syndicate
of banking institutions. When initially provided, the credit facilities
consisted of a $160.0 million senior secured tranche A facility, a $40.0 million
senior secured Mexico facility, 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 continued to be
in compliance as of December 31, 2001. In connection with the amendment, we
incurred an amendment fee of $1.4 million, which was included in interest
expense for 2000. We also incurred $0.6 million of legal and administrative
expenses during 2000 in connection with negotiating the amendment.
On July 16, 2001, we acquired 100% of the outstanding stock of Uniplast Holdings
Inc. for approximately $56.0 million, consisting of the assumption of
approximately $40.3 million of debt and the issuance of shares of our common
stock valued at approximately $15.7 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
53
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. In addition, we also issued 1,983 shares of our
preferred stock at $1,000 per share, together with warrants to purchase 2,013
shares of common stock, to certain holders of common stock and our employees.
Effective April 2, 2002, we entered into an amendment of our credit facilities
to, among other things, permit the offering of the Old Notes. The amendment also
adjusted certain financial covenants, including the leverage and interest
coverage ratios and the permitted amount of capital expenditures. The amendment
also allows us to borrow additional tranche B loans in an aggregate principal
amount of up to $85 million under an uncommitted incremental tranche B facility,
the proceeds of which will be used to finance certain permitted acquisitions, if
any, completed prior to March 31, 2003. We incurred an amendment fee of $1.3
million in connection with the amendment. We also incurred approximately $0.5
million of legal and administrative expenses in connection with negotiating the
amendment.
We used approximately $93.3 million of the net proceeds from the issuance and
sale of the Old Notes to repay indebtedness under our credit facilities,
including a repayment of approximately $63.3 million on our revolving credit
facility and a $30 million repayment on our term loans. Our credit facilities
limit the use of the remaining net proceeds to repayments on our credit
facilities or certain permitted acquisitions, including the Decora acquisition
should it be completed. We will be required to repay, on December 31, 2002,
additional term loans in the amount by which $18 million exceeds the amount we
invest in certain permitted acquisitions. The following table sets forth the
scheduled principal payments on the tranche A, tranche B and Mexico facilities,
for the years 2002 through 2006, and thereafter through their maturity in 2008,
after giving effect to the actual payments on the tranche A and Mexico
facilities during the first quarter of 2002 and for the issuance of the Notes
and the application of the net proceeds therefrom:
<Table>
<Caption>
------------------------------------------------------------------------------
YEAR PRINCIPAL PAYMENT
------------------------------------------------------------------------------
2002........................................................ $ 0
2003........................................................ 19,599,205
2004........................................................ 51,469,041
2005........................................................ 60,744,922
2006........................................................ 34,186,832
Thereafter.................................................. 263,200,000
------------------------------------------------------------------------------
</Table>
The foregoing table assumes a prepayment of term loans is not required on
December 31, 2002, and does not give effect to up to $85 million in additional
tranche B loans that we may borrow under the uncommitted incremental tranche B
facility permitted under the amendment to the credit facilities.
In addition, we are required to make annual mandatory prepayments of the term
loans under the credit facilities within 90 days following the end of each year
in an amount equal to the amount by which 100% of excess cash flow for such year
(or 50% of excess cash flow if our leverage ratio at the end of such year is
less than or equal to 4 to 1) exceeds the aggregate amount of voluntary
prepayments made since the last excess cash flow payment, subject to certain
adjustments. In addition, the term loan 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
54
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 2000 Notes and the credit facilities.
Our obligations under the credit facilities are guaranteed by substantially all
of our domestic subsidiaries and secured by a first priority lien on
substantially all of our domestic assets (subject to certain exceptions,
including for accounts receivable sold in certain qualified receivables
financings), including our real and personal property, inventory, accounts
receivable, intellectual property, and other intangibles. The credit facilities
are also secured by a pledge of 65% of the capital stock of each of our foreign
subsidiaries.
The credit facilities, the indenture relating to the 2000 Notes 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.
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities was $30.3 million for the year ended
December 31, 2001, a decrease of $30.0 million, or 49.8% from $60.3 million in
2000. The decrease was primarily due to changes in working capital items. During
the year ended December 31, 2000, our accounts payable increased $48.9 million,
primarily due to extended terms with our suppliers. During the year ended
December 31, 2001, accounts payable decreased $15.0 million principally due to
the decrease in resin prices and early payments to obtain discounts. In
addition, net results for 2001 improved over the net loss for 2000.
NET CASH USED IN INVESTING ACTIVITIES
Net cash used in investing activities was $87.3 million for the year ended
December 31, 2001, compared to $65.6 million for the same period in 2000.
Capital expenditures were $56.4 million and $65.6 million for the years ended
December 31, 2001 and 2000, respectively. Capital expenditures in both periods
were primarily for major expansion projects in all of our product lines, costs
for upgrading our information systems, and for 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. In addition, the net cash
cost of the Uniplast acquisition in 2001 was $38.8 million.
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net cash provided by financing activities was $55.0 million in 2001, as compared
with $0.3 million in 2000. The activity in 2001 represents the net proceeds from
the issuance of shares of preferred stock and preferred stock warrants for the
Uniplast acquisition of approximately $31.0 million, net borrowings and
repayments under our revolving credit facility for working capital purposes and
to fund the Uniplast acquisition, and scheduled repayments
55
of term debt. The 2000 activity represents the effect of the recapitalization
and normal borrowings and repayments of our revolving credit facility and the
revolving line of credit.
LIQUIDITY
As of December 31, 2001, we had approximately $58.4 million of working capital
and approximately $55.0 million available under our $100.0 million revolving
credit facility. We had $5.3 million of letters of credit issued, which reduces
the amount available for borrowings under our revolving credit facility. As of
December 31, 2001, the debt under the credit facilities bore interest at a
weighted average rate of approximately 8.4%.
As of December 31, 2001, we had approximately $4.8 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 25% to 45%, 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. In 2001, 2000 and 1999, our
foreign operations generated net income from continuing operations of
approximately $7.5 million, $5.2 million and $3.8 million, respectively.
We expect that our total capital expenditures will be approximately $42.0
million in each of 2002 and 2003. Of these amounts, we currently estimate that a
minimum range of $13.0 million to $15.0 million of ongoing maintenance capital
expenditures will be required each year.
Interest expense and scheduled principal payments on our borrowings under the
credit facilities, the 2000 Notes and the Notes have significantly increased our
future liquidity requirements since the 2000 recapitalization. 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.
The following table sets forth our total contractual cash obligations as of
December 31, 2001, after giving effect to the issuance of the Notes and the
application of the net proceeds therefrom (in thousands):
<Table>
<Caption>
- ------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD
-------------------------------------------------
LESS THAN
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
- ------------------------------------------------------------------------------------------
Long-term debt (including
capital lease
obligations).............. $739,684 $ 1,545 $71,918 $ 95,427 $ 570,794
Operating leases............ 38,963 8,009 12,366 9,412 9,176
Total contractual cash
obligations............... $778,647 $ 9,554 $84,284 $104,839 $ 579,970
- ------------------------------------------------------------------------------------------
</Table>
56
OTHER MATTERS
ACCOUNTING STANDARDS ADOPTED IN 2001
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. In accordance with the statements, we recognize the fair value of
derivatives as either assets or liabilities in the balance sheet. To the extent
the derivatives qualify as a hedge, 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 have a material effect on our
consolidated financial statements.
During 2001, we entered into four additional interest rate derivative agreements
with 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 December
31, 2001 (dollars in millions):
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
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%-7.25% 02/13/2004
Interest rate swap....................... 60.0 LIBOR 5.40% 02/13/2004
Interest rate swap....................... 50.0 LIBOR 4.32% 12/20/2004
- --------------------------------------------------------------------------------------------
</Table>
* Three-month LIBOR, as defined; 1.88% as of December 31, 2001
** Strike for caps; floor and strike for collar; fixed LIBOR for swap
agreements.
The fair value of our interest rate derivative agreements is reported on our
consolidated balance sheet at December 31, 2001 as "Other Liabilities" of
approximately $3.0 million, and as "Other Assets" of approximately $0.1 million.
The effective portion of the changes in fair value of these instruments is
reported as "Other Comprehensive Income." As the hedged contract matures, the
gain or loss is recorded as interest expense in the consolidated statement of
operations. We monitor the effectiveness of these contracts each quarter. Any
changes in fair value of the ineffective portion of the instruments is reported
as interest expense in the consolidated statement of operations. The ineffective
portion for the years ended December 31, 2001 and 2000 were not material.
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 enter into interest rate collar and swap
agreements to manage interest rate market risks and commodity collar agreements
to manage resin market risks. However, significant increases in interest rates
or the price of resins could adversely affect our operating margins, results of
operations and ability to service our indebtedness.
We finance our operations with borrowings comprised primarily of variable rate
indebtedness. Market risk arises from changes in interest rates. An increase of
1% in interest rates payable on
57
our variable rate indebtedness would increase our annual interest expense by
approximately $5.0 million. 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, 2001, the defined
three-month LIBOR interest rate was 1.88%.
During the year ended December 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 floating rate debt. See Note 6 to the consolidated financial statements
included elsewhere in this prospectus. The fair value of our interest rate
derivative agreements is reported on our consolidated balance sheet at December
31, 2001 in "Other Liabilities" at approximately $3.0 million and in "Other
Assets" at approximately $0.1 million.
Our raw material costs are comprised primarily of resins. Our resin costs
comprised approximately 60% of our total manufacturing costs in 2001. Market
risk arises from changes in resin prices. Although the average selling prices of
our products generally increase or decrease as the price of resins increases or
decreases, the impact of a change in resin prices is more immediately reflected
in our raw material costs than in our selling prices. From time to time we enter
into commodity collar agreements to manage resin market risks. At December 31,
2001, we did not have any commodity collar agreements outstanding.
Fluctuations in exchange rates may also 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 U.S.
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 December 31, 2001 have been
immaterial and are reflected in the results of operations.
We are exposed to credit losses in the event of nonperformance by the
counterparty to a financial instrument to which we are a party. We anticipate,
however, that each of the counterparties to the financial instruments to which
we are a party will be able to fully satisfy its obligations under the contract.
58
BUSINESS
GENERAL
We are one of North America's leading manufacturers of value-added films and
flexible packaging for food, personal care, medical, agricultural and industrial
applications. We offer one of the most diverse product lines in the film
industry and have achieved leading market positions in each of our major product
lines. We believe our market leadership is primarily attributable to our
strategy of building strong relationships with market-leading customers, by
offering a broad line of innovative products and by providing technological
leadership through our modern and low-cost manufacturing facilities. Our
products are frequently highly engineered and are important components of, or
provide critical attributes to, our customers' end-products. We operate 26
manufacturing and research and development facilities worldwide and we currently
have approximately 1.0 billion pounds of annual production capacity. For the
year ended December 31, 2001, we generated net sales of $840.4 million and
Adjusted EBITDA of $146.0 million.
The Company was founded in 1992, and for several years, operated as a subsidiary
of Huntsman Corporation. In September 1997, the Company was "split off" from
Huntsman Corporation. The separation from Huntsman Corporation 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.
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 the 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.
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
59
notes to amend the related indenture to permit us to effect the
recapitalization, the offering of $220.0 million principal amount of Old 2000
Notes and the incurrence of borrowings under our 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.
On May 31, 2000, we refinanced all amounts outstanding under our then existing
credit facility and replaced it with amended and restated senior secured credit
facilities.
In connection with the recapitalization, we issued 220,000 units consisting of
$220 million principal amount of Old 2000 Notes and warrants to purchase 18,532
shares of our common stock. The units 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 relating to the exchange of the Old 2000 Notes for 13%
Senior Subordinated Notes registered under the Securities Act was declared
effective by the SEC, and, as a result, the Old 2000 Notes and the note warrants
became separated. We consummated the exchange offer and issued $220.0 million of
registered 2000 Notes for all of the Old 2000 Notes on October 12, 2000.
As a result of the recapitalization, we changed our name to Pliant Corporation
on October 9, 2000.
RECENT ACQUISITION
On July 16, 2001, we acquired 100% of the outstanding shares of common stock of
Uniplast Holdings Inc., a manufacturer of multi-layer packaging films,
industrial films and cast-embossed films in the United States and Canada. The
transaction was valued at approximately $56.0 million, consisting of the
assumption of approximately $40.3 million of debt and the issuance of 32,391
shares of our common stock valued at approximately $15.7 million to the selling
shareholders of Uniplast.
At the closing of the Uniplast 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. In
addition, we entered into an amendment to our credit facilities. We may incur
additional borrowings under our revolving credit facility to refinance the
remainder of the assumed debt.
Under our stockholders' agreement, we were required to make a preemptive rights
offering of additional shares of preferred stock and preferred stock warrants to
holders of our common stock as a result of the $29 million private placement of
preferred stock and preferred stock warrants described above. In addition to the
preemptive rights offering, we also offered preferred stock and preferred stock
warrants to certain of our officers. On September 13, 2001, we completed the
preemptive rights offering and the offering to our officers and sold 1,983
shares of preferred stock and preferred stock warrants to purchase approximately
2,013 shares of our common stock to certain holders of our common stock and
certain of our officers. We received cash consideration of approximately $2.0
million in the aggregate.
60
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 45.3%, 45.7% and 49.0% of our net sales in 2001,
2000 and 1999, respectively. Our Specialty Films include personal care films,
medical films, converter films, barrier and custom films, and agricultural
films. Our Specialty Film customers include Baxter, Becton-Dickinson, General
Mills, Johnson & Johnson, Kimberly-Clark, Kraft/Nabisco, Lawson Mardon,
Pechiney, Printpack, Ralston Foods, Sonoco and Tyco/Kendall Healthcare.
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 19% of our Specialty Films net sales and 13% of our 2001
consolidated net sales. We are one of North America's leading producers of
personal care films, with an estimated market share of approximately 42%, based
on sales dollars.
Medical. We are a specialized niche manufacturer of medical films. Our medical
films are used in disposable surgical drapes and gowns. We also produce
protective packaging for medical supplies, such as disposable syringes and
intravenous fluid bags. In addition, our products include packaging for
disposable medical devices. 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.
Converter. Converter films are sold to converters of flexible packaging who
laminate them to foil, paper or other films, print them, and 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 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
39%.
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 sheet
molding compound, used in the manufacture of boats and automotive parts.
61
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 36%.
DESIGN PRODUCTS
Design Products accounted for 25.4%, 25.5% and 22.5% of our net sales in 2001,
2000 and 1999, respectively. Our Design Products are primarily printed films and
flexible packaging products. This reporting segment also includes our Mexican
subsidiary, NEPSA, 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 2001, approximately 33% 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 31%. 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 24%.
Our customers in this segment include IGA Fleming, Interstate Bakeries,
Kimberly-Clark de Mexico, Mission Foods, Pepperidge Farm and Pictsweet.
INDUSTRIAL FILMS
Our Industrial Films segment manufactures stretch and PVC films. Industrial
Films accounted for 29.3%, 28.8% and 28.5% of our net sales in 2001, 2000 and
1999, respectively. In 2001, approximately 27% 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 continue to replace
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 12%.
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
62
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 65% and 15%, respectively.
SALES AND MARKETING
Because of our broad range of product offerings and customers, our sales and
marketing efforts are generally product or customer specific. We market in
various ways, depending on both the customer and the product. However, most of
our salespeople are dedicated to a specific product line and sometimes to
specific customers.
The majority of our Specialty Films are sold by our own direct sales force.
These salespeople are supported by customer service and technical specialists
assigned to each salesperson, and in some cases, to specific customers. Customer
service representatives assist with order intake, scheduling and product
information. Technical support personnel assist the salesperson and the customer
with technical expertise, quality control and product development. We believe it
is critical that our sales, marketing and technical support teams work together
in order to meet our customers' product needs and provide meaningful product
development.
We sell some of our Specialty Films, such as our agricultural films, through
regional distributors. In addition, certain of our personal care and barrier
films are sold through brokers who have long-standing relationships with
customers.
Most of our Design Products are sold through brokers. National grocery chains
and some smaller customer accounts are serviced by our own direct sales force.
Generally, each Design Products salesperson is supported individually by a
customer service specialist and by a group of technical specialists.
Industrial Films are generally sold through distributors. We have an independent
contract sales force that sells our stretch films to national and regional
distributors. Our PVC films are sold by our own sales force to regional and
national distributors, directly to national grocery chains, and directly to
converters, who repackage the film into cutterbox rolls for sale in retail
markets.
MANUFACTURING
We have a modern and efficient portfolio of manufacturing assets. Over the past
three years, excluding acquisitions, we have invested a total of $157.8 million
to expand, upgrade and maintain our asset base and information systems. With 26
plants and 212 extrusion lines, we are often 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 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
63
a chill roll, where the film is quickly cooled. 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.
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 38 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 10 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 28 operating and supervisory personnel.
These capabilities allow the technical center to run commercial "scale-ups" for
new products.
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 co-extrusion 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.
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 may take up to a year to complete and
can, in some cases, cost over $1 million.
We spent $9.8 million, $8.6 million and $5.5 million on research and development
in 2001, 2000 and 1999, 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 license from third parties the right to use
some of their intellectual property. Although we constantly seek to protect our
patents,
64
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.
On October 9, 2000, we changed our name to Pliant Corporation. We do not believe
the name change has had 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, 2001, resin costs
comprised approximately 60% of our total manufacturing costs. The price of
resins is a function of, among other things, manufacturing capacity, demand, and
the price of crude oil and natural gas feedstocks. While temporary shortages of
raw materials may occur from time to time, these items generally are considered
to be readily available from numerous suppliers. Resin shortages or significant
increases in the price of resin, however, could have a significant adverse
effect on our business.
Our major polyethylene resin suppliers are Chevron, Dow Chemical, Equistar and
Exxon/Mobil. Our major suppliers of PVC resin are OxyGeon and Shintech. All
resin is purchased at arm's length at prevailing market prices.
EMPLOYEES
As of February 28, 2002, we had approximately 3,500 employees, of which
approximately 1,200 employees were subject to a total of 11 collective
bargaining agreements that expire on various dates between March 1, 2002 and
March 7, 2007. We are currently renegotiating the agreement that expired on
March 1, 2002. We consider our current relations with our employees to be good.
However, if major work disruptions were to occur, our business could be
adversely affected.
PROPERTIES
Our principal executive offices are located at 1515 Woodfield Road, Suite 600,
Schaumburg, Illinois 60173. We also maintain a corporate office in Salt Lake
City, Utah.
We own most of the improved real property and other assets used in our
operations. We lease all or part of six 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.
Our principal manufacturing plants are listed below. Unless otherwise indicated,
we own each of these properties.
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. We
closed our Birmingham, Alabama facility in the second quarter of 2001. In the
third quarter of 2001, we closed the two facilities in Palmer, Massachusetts,
acquired in the Uniplast acquisition. In the fourth quarter of
65
2001 we closed the facility in Columbus, Indiana, also acquired in the Uniplast
acquisition. We believe that the capacities of our plants, after giving effect
to these dispositions, are adequate to meet our current needs.
We have an annual film production capacity of approximately one billion pounds.
In 2001, we produced approximately 848 million pounds of films and flexible
packaging products.
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
APPROXIMATE
LOCATION PRODUCTS PRODUCTION PROCESS SQUARE FOOTAGE
- --------------------------------------------------------------------------------------------
SPECIALTY FILMS
Bloomington, Indiana* Barrier and custom films Blown lines 58,000
Chippewa Falls, Converter and personal Blown and cast lines 134,000
Wisconsin care films
Dalton, Georgia Converter, barrier and Blown lines 211,000
custom films
Deerfield, Massachusetts Converter films Blown lines 168,000
Harrington, Delaware Personal care, medical Blown and cast lines 129,000
and agricultural films
McAlester, Oklahoma Personal care films Blown and cast lines 135,000
Newport News, Virginia Research facility and Blown and cast lines 54,000
pilot plant
Odon, Indiana* Barrier and custom films Blown lines 20,000
Washington, Georgia Personal care and Blown and cast lines 180,000
agricultural films
Burrillville, Rhode Converter films Blown lines 55,000
Island
DESIGN PRODUCTS
Kent, Washington Printed bags and Flexographic printing and 125,000
rollstock blown lines
Langley, British Printed bags and Flexographic printing and 90,000
Columbia* rollstock blown lines
Macedon, New York+ Personal care films, Flexographic printing and 238,000
printed bags and cast lines
rollstock
Mexico City, Mexico Barrier films, printed Rotogravure printing and 212,000
(NESPA)* (two plants) bags and rollstock blown lines, flexographic
printing and cast lines
Shelbyville, Indiana Closure and reclosable Zipper profile lines, 313,000
bags flexographic printing and
blown lines
Porte Allegra, Brazil Personal care Bag machines 35,000
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
</Table>
66
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
APPROXIMATE
LOCATION PRODUCTS PRODUCTION PROCESS SQUARE FOOTAGE
- --------------------------------------------------------------------------------------------
Orillia, Canada (two Converter films Blown lines 120,000
plants)
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
- --------------------------------------------------------------------------------------------
</Table>
* Indicates a leased building.
+ 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.
The federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended (CERCLA), and similar state statutes, can impose liability
for the entire cost of cleanup upon any of the current or former site owners or
operators or parties who sent waste to the site, without regard to fault or the
lawfulness of the original disposal activity. We were recently notified by the
Georgia Environmental Protection Division (GAEPD) that a predecessor of the
Company has been identified as a responsible party in a state Hazardous Site
Response Act (HSRA) action. The state has conducted an emergency response to
properly dispose of the wastes found at the site and to decommission the
facility. After the completion of a comprehensive site investigation, the state
will determine the scope and extent of remediation required. The state has
identified approximately 2,000 responsible parties at this former solvent
recovery operation. We do not expect our liability at this site to be material,
based on the limited amount of waste that was sent to the site by our
predecessor company and the large number of responsible parties.
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. The cost to remediate these
sites has not been material, and 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. Pursuant to the sales agreement, the
67
indemnity amount has been reduced by 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.
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 that compete primarily in regional markets predominate film and
flexible packaging markets, 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.
68
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, the holders
of our common stock and the holders of warrants to purchase our common stock,
our board of directors currently consists of seven members, four of whom are
designated by our institutional common stockholders and warrantholders, two of
whom are designated by The Christena Karen H. Durham Trust, or the Trust, and
one of whom is appointed by our board of directors and must be a member of our
senior management.
<Table>
<Caption>
- ----------------------------------------------------------------------------------
NAME AGE POSITION
- ----------------------------------------------------------------------------------
Richard P. Durham 38 Chairman of the Board and Chief Executive Officer
Jack E. Knott II 47 President and Chief Operating Officer and Director
Brian E. Johnson 46 Executive Vice President and Chief Financial Officer
Stanley B. Bikulege 38 Executive Vice President Operations
Douglas W. Bengtson 54 Executive Vice President Sales
Donald J. Hofmann, Jr. 44 Director
Timothy J. Walsh 38 Director
John M. B. O'Connor 48 Director
Edward A. Lapekas 59 Director
Albert (Pat) MacMillan 58 Director
- ----------------------------------------------------------------------------------
</Table>
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 has been with
various Huntsman affiliates since 1987. Prior to becoming our President, Mr.
Durham served as Co-President and Chief Financial Officer of Huntsman
Corporation, where, in addition to being responsible for finance, tax, legal,
human resources, public affairs, purchasing, research and development, and
information systems, he also was responsible for our operations. Mr. Durham is
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 board of
directors' appointee to the board from our senior management.
Brian E. Johnson became our Executive Vice President and Chief Financial Officer
on July 17, 2001. Mr. Johnson joined Pliant in April 2001 as Senior Vice
President and Chief Financial Officer. Prior to joining us, Mr. Johnson was Vice
President and Chief Financial Officer of
69
Geneer Corporation. His former positions include Executive Vice President at
Lawson Mardon Packaging and Vice President and General Manager of Sengewald USA
Inc. Mr. Johnson received a B.S. degree in Finance from the University of
Illinois, and a Master in Management from Kellogg School of Business at
Northwestern University.
Stanley B. Bikulege became our Executive Vice President Operations on July 17,
2001. Mr. Bikulege's prior positions with Pliant include Senior Vice President
and General Manager, Industrial Films Division; Vice President, Stretch Films;
General Manager--Castflex; Managing Director-Europe; Managing Director PVC
Films--Europe; Director of Manufacturing; and Plant Manager. Prior to joining us
in 1992, Mr. Bikulege held numerous positions in Goodyear Tire and Rubber
Company's Films Division. Mr. Bikulege received a B.S. degree in Chemical
Engineering from Youngstown State University and an M.B.A. degree from Georgia
State University.
Douglas W. Bengtson became our Executive Vice President Sales on July 17, 2001.
Mr. Bengtson joined Pliant in September 1997 as Senior Vice President and
General Manager, Performance Films Division. Prior to joining us, Mr. Bengtson
was Vice President of Sales and Marketing for Food Packaging at American
National Can. His former positions include Vice President, Sales and Marketing
at CT Film and Vice President, Sales and Marketing, Rexene Products Division.
Mr. Bengtson received a B.S. degree in Business/Marketing from Colorado State
University.
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 and BPC Holding Corporation, the parent company of
Berry Plastics Corporation. 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 by
our institutional common stockholders and warrantholders.
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, MetoKote Corporation, NEXPAX Corporation and Klockner Pentaplast S.A.
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 by our institutional common stockholders and
warrantholders.
John M. B. O'Connor became one of our directors on May 31, 2000. Mr. O'Connor
joined J.P. Morgan Partners, LLC (formerly Chase Capital Partners) in 1995 and
is an Executive 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
70
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 by our institutional common
stockholders and warrantholders.
Edward A. Lapekas became one of our directors on December 19, 2001. Mr. Lapekas
was Executive Chairman of Packtion Corporation, an e-commerce venture, from
October 2000 until June 2001. From May 1996 until July 2000, Mr. Lapekas was
employed by American National Can Group, Inc., last serving as Chairman and
Chief Executive officer. Prior to that, Mr. Lapekas served as Deputy Chairman
and Chief Operating Officer of Schmalbach-Lubeca AG. From 1971 until 1991, Mr.
Lapekas was employed by Continental Can Company, where he served in various
strategy, planning, operating and marketing capacities. He received a B.A. from
Albion College and an M.B.A. from Wayne State University. Pursuant to the
stockholders' agreement, Mr. Lapekas is one of the Trust's designees to the
board.
Albert (Pat) MacMillan became one of our directors on December 19, 2001. Mr.
MacMillan is the founder and CEO of Team Resources, a consulting firm with
offices in the United States, Venezuela, Peru, Chile, and Mexico. Founded in
1980, Team Resources provides client services in the areas of strategy, building
team-based organizations, and designing leadership development strategies. He
also serves on the Board of Directors for Unum/Provident and the Metokote
Corporation, as well as several foundations and non-profit organizations. He
received a B.A. in Business and an M.B.A. from the University of Washington.
Pursuant to the stockholders' agreement, Mr. MacMillan is one of the designees
to the board by our institutional common stockholders and warrantholders.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth information about
compensation earned in the fiscal years ended December 31, 2001, 2000 and 1999
by the chief executive officer and the five other executive officers of Pliant
(as of the end of the last fiscal year) (collectively, the "Named Executive
Officers").
71
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------
LONG TERM
COMPENSATION(2)
ANNUAL ----------------------
COMPENSATION(1) SECURITIES
----------------- UNDERLYING LTIP
SALARY BONUS OPTIONS/SARS PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($) COMPENSATION($)
- ------------------------------------------------------------------------------------------------
Richard P. Durham......... 2001 500,000 381,024 - - 5,100(3)
Chairman and Chief 2000 500,000 245,568 - - 136,350(4)
Executive Officer 1999 450,007 327,318 - - 29,800(5)
Jack E. Knott II.......... 2001 337,500 163,428 - - 5,100(3)
President and Chief 2000 316,667 104,274 - - 1,037,271(6)
Operating Officer 1999 285,421 140,622 - - 4,800(7)
Brian E. Johnson.......... 2001 179,333 44,470 5,000 - 5,100(3)
Executive Vice 2000 - - - - -
President and Chief 1999 - - - - -
Financial Officer(12)
Stanley B. Bikulege....... 2001 203,125 66,245 250 - 56,931(8)
Executive Vice 2000 182,250 60,304 1,030 298,521 52,600(9)
President Operations 1999 160,000 85,056 - - 4,800(7)
Douglas W. Bengtson....... 2001 204,583 66,245 250 - 5,100(3)
Executive Vice 2000 190,000 121,293 1,030 517,122 52,600(9)
President Sales 1999 182,500 163,352 - - 4,800(7)
Dale A. Brockman.......... 2001 194,167 47,945 250 - 3,741(10)
Executive Vice 2000 181,667 41,458 1,030 222,961 52,600(9)
President Technical 1999 164,293 62,121 - - 4,072(11)
and Marketing(13)
- ------------------------------------------------------------------------------------------------
</Table>
(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, 2001, the number of shares of restricted stock held by
Messrs. Durham and Knott were 14,500 and 7,750 respectively. The value of such
shares of restricted stock at December 31, 2001 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 $5,100 for employer's 401(k) contributions.
(4) 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."
(5) 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.
(6) 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 $114,136, (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.
(7) Consists of employer's 401(k) contributions of $4,800.
(8) Consists of employer's 401(k) contributions of $5,100 and relocation expense
reimbursement of $51,831.
(9) Consists of a $47,500 retention bonus and employer's 401(k) contributions of
$5,100.
(10) Consists of employer's 401(k) contributions of $3,741.
(11) Consists of employer's 401(k) contributions of $4,072.
(12) Mr. Johnson joined Pliant in April 2001.
(13) Mr. Brockman resigned as Executive Vice President Technical and Marketing
on March 10, 2002.
72
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.
Approximately one-half of these shares were "rolled-over" as common stock in
connection with the recapitalization. Options covering a total of 8,902 shares
issued under the 1998 plan were "rolled-over" by Mr. Knott in connection with
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
December 31, 2001, we had granted restricted stock covering 22,875 shares of
common stock and options to acquire 34,837 shares of common stock under the 2000
plan.
The following table provides information related to options to purchase shares
of our common stock granted to the Named Executive Officers during the last
fiscal year pursuant to the 2000 Plan. We have never granted any freestanding
stock appreciation rights.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
------------------------------------------------------------ ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS/SARS EXERCISE OR APPRECIATION FOR OPTION
UNDERLYING GRANTED TO BASE TERMS(3)(4)
OPTIONS/SARS EMPLOYEES IN PRICE(1) EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE(2) 5%($) 10%($)
- -----------------------------------------------------------------------------------------------------------------
Brian E. Johnson......... 5,000 40.5 483.13 April 16, 2011 1,519,189 3,849,924
Stanley B. Bikulege...... 250 2.0 483.13 May 29, 2011 75,959 192,496
Douglas W. Bengtson...... 250 2.0 483.13 June 18, 2011 75,959 192,496
Dale A. Brockman......... 250 2.0 483.13 May 11, 2011 75,959 192,496
- -----------------------------------------------------------------------------------------------------------------
</Table>
(1) Fair market value on date of grant. The fair market value was assumed to be
the price per share paid in the recapitalization.
(2) Subject to earlier termination under certain circumstances.
(3) Potential realizable value is calculated based on an assumption that the
price of our common stock appreciates at the annual rates shown (5% and 10%),
compounded annually, from the date of grant of the option until the end of the
option term. The value is net of the exercise price but is not adjusted for the
taxes that would be due upon exercise. The 5% and 10% assumed rates of
appreciation are mandated by the rules of the Securities and Exchange Commission
and do not represent our estimate or projection of future stock values. Actual
gains, if any, upon future exercise of any of these options will depend upon the
actual value of our common stock.
(4) All of the options granted to the Named Executive Officers during 2001 are
subject to vesting requirements. All of the options granted to each Named
Executive Officer vest in equal increments over a 5-year period beginning
December 31, 2001, provided that we have achieved a specified market value of
equity applicable to such increment. Our market value of equity is determined
pursuant to a formula based upon our adjusted earnings.
73
The following table provides information as to the value of options held by each
of the Named Executive Officers at the end of 2001, measured in terms of the
fair market value of our common stock on December 31, 2001 ($483.13 per share,
which was the per share price paid in the recapitalization). None of the Named
Executive Officers exercised any options under the 1998 plan or the 2000 plan
during the last fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED ON VALUE AT FY- END (#) AT FY-END ($)
NAME EXERCISED(#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------------
Jack E. Knott II.......... - - 8,902/0 3,410,623/0
Brian E. Johnson.......... - - 1,000/4,000 0/0
Stanley B. Bikulege....... - - 393/887 0/0
Douglas W. Bengtson....... - - 393/887 0/0
Dale A. Brockman.......... - - 393/887 0/0
- --------------------------------------------------------------------------------------------------------------
</Table>
The options or restricted common stock granted pursuant to the 2000 plan vest as
follows: (1) one-sixth were "time-vested" options or shares, which 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, 2001 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 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 option agreement
also provided for accelerated vesting in the event of a change of control. The
recapitalization and related 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 of our then 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 such
officers. Richard P. Durham our Chief Executive Officer purchased 15,734
74
shares, Scott K. Sorensen, our then Chief Financial Officer, purchased 7,867
shares and Ronald G. Moffitt, our then Executive Vice President and General
Counsel, purchased 2,622 shares. We loaned the funds necessary to purchase the
stock to each of such 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 such 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 such 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 restricted stock
purchase agreements provided for accelerated vesting in the event of a change of
control. The recapitalization and related 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
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------
</Table>
Our current pension plan benefit is based on the following formula: 1.6% of
final average compensation multiplied by years of credited service, minus 1.5%
of estimated Social Security benefits multiplied by years of credited service
(with a maximum of 50% of Social Security benefits). Final average compensation
is based on the highest average of three consecutive years of compensation.
Covered compensation for purposes of the pension plan includes compensation
earned with our former affiliates. The Named Executive Officers were
participants in the pension plan in 2001. The final average compensation for
purposes of the pension plan in 2001 for each of the Named Executive Officers is
$170,000, which is the maximum that can be considered for the 2001 plan year
under federal regulations. Federal regulations also provide that the maximum
annual benefit paid from a qualified defined benefit plan cannot exceed $140,000
as of January 1, 2001. Benefits are calculated on a straight life annuity basis.
The benefit amounts under the pension plan are offset for Social Security as
described above.
75
The number of completed years of credit service as of December 31, 2001 under
our pension plan for the Named Executive Officers participating in the plan were
as follows:
<Table>
<Caption>
- ------------------------------------------------------------------------------
YEARS OF
NAME CREDITED SERVICE
- ------------------------------------------------------------------------------
Richard P. Durham(1)........................................ 16
Jack E. Knott II(1)......................................... 16
Brian E. Johnson............................................ -
Stanley B. Bikulege......................................... 9
Douglas W. Bengtson(2)...................................... 4
Dale A. Brockman............................................ 8
- ------------------------------------------------------------------------------
</Table>
(1) The years of credited service under the pension plan include 12 years of
service credited with affiliates of Pliant for Mr. Durham and 12 years of
service credited with affiliates of Pliant for Mr. Knott. 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.
(2) In addition to the 4 years of credited service with Pliant, Mr. Bengtson has
a frozen benefit as a result of his service with Rexene Corporation, which was
purchased by the predecessor to Huntsman Packaging and Pliant. By agreement Mr.
Bengtson will be provided a pay update on the calculation of the Rexene formula.
This payment is a non-qualified payment which will be paid out of our general
assets as a lump sum.
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 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."
76
Following management's decision to relocate its principal executive offices from
Salt Lake City to Chicago, each of Scott K. Sorensen and Ronald G. Moffitt chose
not to relocate and to resign their positions 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 received 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 per share; 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. Furthermore, Mr.
Sorensen 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."
On January 22, 2001, we entered into a severance agreement with Mr. Moffitt, who
resigned from his position as our Executive Vice President, General Counsel and
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 received 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 per share;
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."
On March 30, 2001, we entered into a five year employment agreement with Brian
E. Johnson, our Executive Vice President and Chief Financial Officer. The
employment agreement provides for the payment of a base salary, a grant of a
stock option to purchase 5,000 shares of our common stock, at least three weeks
paid vacation per year, participation in our leased car program, payment of his
present country club membership dues and participation in our other employee
benefit programs, including our management incentive program, and includes non-
77
disclosure of confidential information provisions and a non-compete provision
for one year following termination of employment with us (unless termination is
due to the term expiring). Mr. Johnson has agreed in his 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. If Mr. Johnson's employment is terminated
without cause or he resigns for good reason, he will be entitled to receive
severance payments and continue to participate in our medical and dental plans
for one year. In addition, if Mr. Johnson's employment with us terminates for
any reason, we will have the right under the employment agreement to repurchase
the shares of our common stock owned by him 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 Mr. Johnson at his option if his 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.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has an executive committee, a compensation committee, an
audit committee and an environmental health and safety 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, Jack E. Knott 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,
Albert (Pat) MacMillan 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, John M. B. O'Connor and Edward A. Lapekas. The
members of the environmental health and safety committee are Jack E. Knott,
Donald J. Hofmann, Jr. and Edward A. Lapekas.
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, we established a compensation committee. The
current members of the compensation committee are Richard P. Durham, Albert
(Pat) MacMillan and Timothy J. Walsh.
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.
Following May 31, 2000, directors fees were discontinued for each director who
is an employee of Pliant or a Partner of J.P. Morgan Partners, LLC. Each
director who is not an employee of Pliant or a Partner of J.P. Morgan Partners,
LLC is entitled to receive an annual fee of $30,000. Currently, there are two
directors of Pliant who receive director fees.
78
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 March 31, 2002 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 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 February 28, 2002.
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.
79
<Table>
<Caption>
- -------------------------------------------------------------------------------------------
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 52.8%
The Christena Karen H. Durham Trust(2)...................... 158,917 23.2%
Perry Acquisition Partners-2, L.P.(3)....................... 34,527 5.0%
Richard P. Durham(4)........................................ 34,373 5.0%
Jack E. Knott II(5)......................................... 11,717 1.7%
Donald J. Hofmann, Jr.(6)................................... - *
Timothy J. Walsh(6)......................................... - *
John M. B. O'Connor(6)...................................... - *
Edward A. Lapekas........................................... - *
Albert (Pat) MacMillan...................................... - *
Brian E. Johnson............................................ 1,011 *
Stanley B. Bikulege......................................... 610 *
Douglas W. Bengtson......................................... 645 *
Dale A. Brockman(7)......................................... 432 *
All directors and executive officers as a group (11
persons)(7).............................................. 48,788 7.1%
- -------------------------------------------------------------------------------------------
</Table>
* 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, (ii) 44,816 shares of common stock
which are issuable upon exercise of the preferred stock warrants held by
Flexible Films, LLC, which is controlled by J.P. Morgan Partners (BHCA) L.P. and
(iii) 107 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 Wells Fargo Bank,
Private Client Services, MAC S4733-025, 3800 Howard Hughes Parkway, Second
Floor, Las Vegas, Nevada 89109. 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.
(4) Does not include 9,667 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 1998 options
that are immediately exercisable. Does not include 5,167 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) Each of Messrs. Hofmann, Walsh and O'Connor 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.
(7) Mr. Brockman resigned as Executive Vice President Technical and Marketing on
March 10, 2002.
80
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH HUNTSMAN CORPORATION
Prior to the recapitalization and related transactions, we were party to a
services agreement with Huntsman Corporation, our former affiliate, pursuant to
which Huntsman Corporation provided us with most of our insurance coverage,
administered our employee benefit plans, rented to us corporate headquarters
space and provided other services to us. Under that services agreement, we paid
Huntsman Corporation $2.2 million and $1.2 million in 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.
Following the recapitalization and related transactions, all of the services
provided under the services agreement were discontinued.
During 1999, we paid a management fee in the amount of $150,000 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 serving at that time 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 secured promissory note of $3,744,260;
(c) Scott K. Sorensen--1,125 time-vested shares and 5,625 performance-vested
shares in exchange for a secured promissory note of $3,261,129; and
(d) Ronald G. Moffitt--625 time-vested shares and 3,125 performance-vested
shares in exchange for a secured promissory 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 May
31, 2007 to May 31, 2008 must be paid in cash at maturity on May 31, 2008. Each
secured promissory note is fully recourse to the executive officer and is
secured by the shares of restricted stock owned by such executive officer.
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 stock pledged as
collateral.
In connection with the amendment to Mr. Durham's employment agreement in
February 2001, we amended the original terms of his secured promissory note so
that (a) no interest would
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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.
Messrs. Sorensen and Moffitt resigned from their positions in February 2001. 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 canceled 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 December 31, 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 $3,960,400, 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. The balance on this note was completely paid as of
December 31, 2001.
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 December 31, 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 $896,838.
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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 our institutional common stockholders and warrantholders 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 our institutional investors and their
transferees and affiliates (the "Requisite Investor Stockholders"), we are
required to use our best efforts to register the shares. The Requisite Investor
Stockholders will be entitled to request two demand registrations. Also, if we
are not a public company or sold to a third party prior to May 31, 2005, the
Trust and its transferees and affiliates will be entitled to request one demand
registration. Further, at any time 60 days after our initial public offering,
holders holding in excess of 60% of the shares of common stock underlying the
preferred stock warrants and holders holding in excess of 60% of the shares of
common stock underlying the note warrants will each be entitled to exercise one
demand registration. At any time after we have qualified for use of Form S-3,
all parties to the registration rights agreement will have the right to request
that we effect a registration under the Securities Act of their shares of common
stock, subject to customary "blackout" and "cutback" provisions. The
stockholders and holders of the preferred stock warrants and note warrants party
to the registration rights agreement also may request that we use our best
efforts to register shares of common stock held by them in other registrations
initiated by us on our own behalf or on behalf of any other stockholder. We must
pay all reasonable out-of-pocket costs and expenses, other than underwriting
discounts and commissions, of any registration under the registration rights
agreement. The registration rights agreement also contains customary provisions
with respect to registration procedures, underwritten offerings and
indemnification and contribution rights in connection with the registration of
common stock on behalf of the stockholders, holders of the preferred stock
warrants and holders of the note warrants party to the registration rights
agreement.
THE STOCKHOLDERS' AGREEMENT
The stockholders' agreement entered into on May 31, 2000, as amended as of July
16, 2001 and December 19, 2001, 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 the Requisite Investor Stockholders, (ii) two directors designated
by the Trust and (iii) one director appointed by our board of directors, who
must be a member of our senior management. At the request of the Requisite
Investor Stockholders, the size of our board of directors may be increased from
seven to nine. If so increased, one of the two additional directors will be
designated by the Requisite Investor Stockholders and the other will be our
chief executive officer.
The provisions of the stockholders' agreement also govern:
- restrictions on the transfer of shares of common stock and the
preferred stock warrants;
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- 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.
CREDIT FACILITIES AND OFFERING OF NOTES BY AFFILIATES OF STOCKHOLDERS
JPMorgan Chase Bank (formerly known as 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. JPMorgan
Chase Bank and J.P. Morgan Chase & Co. receive customary fees under the credit
facilities for acting in such capacities. As part of the recapitalization and
related transactions, we paid fees of approximately $6.5 million to The Chase
Manhattan Bank and J.P. Morgan Chase & Co. pursuant to our credit facilities.
J.P. Morgan Securities Inc. was one of the initial purchasers in our May 2000
offering 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 fees of approximately $8.7
million for acting in such capacities. J.P. Morgan Securities Inc. was also one
of the initial purchasers in our April 2002 offering of 13% Senior Subordinated
Notes due 2010 and received fees of approximately $1.9 million for acting in
such capacity. We used approximately $93.3 million of the net proceeds from the
April 2002 offering to repay indebtedness under our credit facilities. In
addition, when we amended our credit facilities, we paid fees of approximately
$0.6 million in September 2000, approximately $0.5 million in July 2001 and
approximately $0.6 million in April 2002 to JPMorgan Chase Bank and J.P. Morgan
Chase & Co.
Each of JPMorgan Chase Bank, J.P. Morgan Chase & Co. and J.P. Morgan Securities
Inc. 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 57% of our outstanding 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 and John M.B.
O'Connor, who serve as our directors, are executive officer 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.
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DESCRIPTION OF CREDIT FACILITIES AND OTHER INDEBTEDNESS
The following is a summary of the material terms of our credit facilities, as
amended, with J.P. Morgan Securities Inc., as sole and exclusive advisor, lead
arranger and lead book manager, JPMorgan Chase 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, copies of which have been filed or incorporated by reference
as exhibits to the registration statement of which this prospectus forms a part.
THE FACILITIES
STRUCTURE
The credit facilities consist of:
- tranche A term loans in an aggregate principal amount of $128.3 million
outstanding as of April 15, 2002;
- Mexico term loans in an aggregate principal amount of $27.0 million
outstanding as of April 15, 2002;
- tranche B term loans in an aggregate principal amount of $274.0 million
outstanding as of April 15, 2002; and
-- Up to an additional $85 million of tranche B term loans is
available under an uncommitted incremental tranche B facility,
which we may use on or prior to April 15, 2003, to finance certain
permitted acquisitions. Loans under the uncommitted incremental
tranche B facility will be identical to our existing tranche B
loans; 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.
We will be required to repay, on December 31, 2002, additional term loans in the
amount by which $18 million exceeds the amount we invest in certain permitted
acquisitions.
AVAILABILITY
Amounts borrowed under the term loan facilities 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.
Additional tranche B loans may be made under the incremental tranche B facility
only if the proceeds are used to fund certain permitted acquisitions. An
acquisition is a "permitted acquisition" under the credit facilities if, among
other requirements, we comply with certain pro forma financial covenants. We do
not have commitments from any lenders to make incremental tranche B loans. We
expect to seek commitments to provide incremental
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tranche B loans in the future as the loans are needed. We cannot assure you that
we will be able to obtain these commitments on terms acceptable to us.
INTEREST
The interest rates under the revolving credit facility, the tranche A facility
and the Mexico facility are, at our option, Adjusted LIBOR or ABR, plus a spread
determined by reference to our leverage ratio. The spread will not exceed 3.25%
for Adjusted LIBOR or 2.25% for ABR and is expected to be 3.00% and 2.00%,
respectively, immediately following the completion of this offering. 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%. The interest rates under the incremental tranche B facility will
be the rate applicable to the existing tranche B term loans or, if greater, the
market rate at the time commitments to provide those incremental tranche B term
loans are obtained by us, in which case the rates applicable to all the existing
tranche B term loans will be increased to that rate. We 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 revolving credit facility 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,
(b) a commitment fee on the commitments we receive from lenders to make loans
under the incremental tranche B facility in an amount to be agreed upon with
those lenders and (c) 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 (c) are distributed
to the lenders participating in the revolving credit facility pro rata in
accordance with the amount of each such lender's revolving credit facility
commitment. In addition, we pay to the issuing bank, for its own account, (i) a
per annum fronting 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.
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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 (subject to certain exceptions, including for accounts
receivable sold in certain qualified receivables financings), 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 and the Mexico facility mature on May 31, 2006, and
amortize 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 term
loans under the credit facilities, within 90 days following the end of each
year, in an amount equal to the amount by which 100% of excess cash flow for
such year (or 50% of excess cash flow if our leverage ratio at the end of such
year is less than or equal to 4 to 1) exceeds the aggregate amount of voluntary
prepayments made since the last excess cash flow payment, subject to certain
adjustments. In addition, the term loan facilities are subject to mandatory
prepayments in an amount equal to (a) 100% of the net cash proceeds of equity
and debt issuances (other than debt permitted under the Credit Agreement) 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;
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- conduct of business;
- 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.
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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, 5.50:1.00 for the 12-month
period ending on September 30, 2001, 5.25:1.00 for the 12-month period
ending on December 31, 2001, March 31, 2002 and June 30, 2002, 5.00:1.00
for the 12-month period ending on September 30, 2002 and December 31,
2002, 4.75:1.00 for the 12-month period ending on March 31, 2003 and June
30, 2003 and 4.50:1.00 for the 12-month period ending on September 30,
2003 and December 31, 2003. Thereafter, the maximum ratio we are allowed
becomes 4.00:1.00 for the 12-month period ending on March 31, 2004, 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 March 31, 2004, when it becomes 2.25:1.00 for
such period and all subsequent periods.
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, the cash portion of
which may not exceed $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.
In addition, for purposes of calculating financial covenants (but not the
leverage ratio used to determine the interest rate applicable to the tranche A
term loans, the Mexico term loans and the revolving loans), Consolidated EBITDA
also excludes the effect of a limited amount of certain other nonrecurring
charges relating to restructurings, plant closings and similar actions.
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The definition of Consolidated EBITDA contained in our credit facilities is
different from the definition of EBITDA contained in our indentures. The
definition in our indentures is used in presenting EBITDA for all other purposes
in this prospectus, including under "Selected financial data." However, the
difference in 2001 between EBITDA as calculated under our indentures 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.
2000 NOTES
In May 2000, we completed an offering consisting of $220 million aggregate
principal amount of 13% Senior Subordinated Notes due 2010 (the "Old 2000
Notes"). We consummated an exchange offer and issued $220.0 million principal
amount of notes (the "2000 Notes"), registered under the Securities Act, in
exchange for all of the Old 2000 Notes on October 12, 2000. The 2000 Notes
mature on June 1, 2010 and interest is payable on June 1 and December 1 of each
year beginning December 1, 2000. The 2000 Notes are our only unsecured senior
subordinated obligations and are subordinated in right of payment to all of our
existing and future senior debt and are effectively subordinated to all
obligations of any of our subsidiaries that are not guarantors. The 2000 Notes
rank pari passu in right of payment to all of our senior subordinated
indebtedness, including the Old Notes and New Notes, and are senior in right of
payment to all of our existing and future subordinated obligations. The
covenants and other material provisions of the indenture applicable to the 2000
Notes are substantially identical to the indenture applicable to the Old Notes
and the New Notes.
The 2000 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 2000 Notes, our subsidiaries that are
guarantors must make them instead. Guarantees of the 2000 Notes are subordinated
to the guarantees of our senior debt under the credit facilities.
Except as set forth in the following paragraph, we may not redeem the 2000 Notes
prior to June 1, 2005. On or after that date, we may redeem the 2000 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
90
the relevant interest payment date), if redeemed during the 12-month period
commencing on June 1 of the years set forth below:
<Table>
<Caption>
- --------------------------------------------------------------------------------
YEAR REDEMPTION PRICE
- --------------------------------------------------------------------------------
2005........................................................ 106.500%
2006........................................................ 104.333%
2007........................................................ 102.167%
2008 and thereafter......................................... 100.000%
- --------------------------------------------------------------------------------
</Table>
Prior to June 1, 2003, we may, on one or more occasions, also redeem up to a
maximum of 35% of the original aggregate principal amount of the 2000 Notes with
the Net Cash Proceeds (as defined in the indenture relating to the 2000 Notes)
of one or more Equity Offerings (as defined in the indenture relating to the
2000 Notes) by us 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 of the
13% Notes on the relevant record date to 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 2000
Notes remains outstanding; and
(2) any such redemption must be made within 120 days of such Equity Offering
and must be made in accordance with certain procedures set forth in the
indenture relating to the 2000 Notes.
Upon the occurrence of a change of control, unless we have exercised our right
to redeem all of the 2000 Notes as described above, holders of the 2000 Notes
will have the right to require us to repurchase all or a portion of the 2000
Notes at a purchase price in cash equal to 101% of the principal amount thereof,
plus accrued interest to the date of repurchase.
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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 will issue the New Notes under the
Indenture, dated as of April 10, 2002 (the "Indenture"), among the Company, the
Note Guarantors and The Bank of New York, as trustee (the "Trustee"), a copy of
which has been filed as an exhibit to the registration statement of which this
prospectus forms a part. The Indenture contains provisions which define your
rights under the Notes. In addition, the Indenture governs the obligations of
the Company and of each Note Guarantor under the Notes. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the TIA.
The terms of the New Notes are identical in all material respects to the Old
Notes, except the New Notes will not contain transfer restrictions and holders
of New Notes will no longer have any registration rights or be entitled to any
liquidated damages. The Trustee will authenticate and deliver New Notes for
original issue only in exchange for a like principal amount of Old Notes. Any
Old Notes that remain outstanding after the consummation of the exchange offer,
together with the New Notes, will be treated as a single class of securities
under the Indenture. Accordingly, all references in this section to specified
percentages in aggregate principal amount of the outstanding New Notes shall be
deemed to mean, at any time after the exchange offer is consummated, such
percentage in aggregate principal amount of the Old Notes and New Notes then
outstanding.
The following description is meant to be only a summary of certain provisions of
the Indenture. It does not restate the terms of the Indenture in their entirety.
We urge that you carefully read the Indenture as it, and not this description,
governs your rights as Holders.
OVERVIEW OF THE NOTES AND THE NOTE GUARANTEES
THE NOTES
The Old Notes are, and the New Notes will be:
- general unsecured obligations of the Company;
- subordinated in right of payment to all existing and any future Senior
Indebtedness of the Company;
- pari passu in right of payment with all existing and any 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
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- 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.
THE NOTE GUARANTORS
The Notes are, and the New Notes will be, 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 Packaging of Canada, LLC;
- Uniplast Holdings, Inc.;
- Uniplast U.S., Inc.;
- Turex, Inc.;
- Pierson Industries, Inc.; and
- Uniplast Midwest, Inc.
The Old Notes are not, and the New Notes will not be, guaranteed by Restricted
Subsidiaries which also do not guarantee any Senior Indebtedness, currently
consisting of the following:
- Aspen Industrial S.A. de C.V.;
- 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 Old Notes are not, and the New Notes will not be, guaranteed by Pliant
Investment Inc., which is an Unrestricted Subsidiary. Pliant Investment Inc. has
a 50% interest in Alliant Company LLC, a joint venture with a European plastics
manufacturer.
The Restricted Subsidiaries that are not, and will not, be Note Guarantors
generated 15.1% of the Company's net sales for the year ended December 31, 2001,
and accounted for 12.5% of the assets of the Company and its Subsidiaries on a
consolidated basis as of December 31, 2001.
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;
- subordinated in right of payment to all existing and future Senior
Indebtedness of such Note Guarantor;
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- pari passu in right of payment with all existing and future Senior
Subordinated Indebtedness of such Note Guarantor;
- senior in right of payment to any future Subordinated Obligations of
such Note Guarantor; and
- 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 Old Notes in an aggregate principal amount of $100 million. The
Old Notes are limited to $100,000,000 in aggregate principal amount and will
mature on June 1, 2010. The Old Notes are, and the New Notes will be, in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple of $1,000. Each Note bears interest at a rate of 13% per annum from
April 10, 2002, 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 June 1, 2002, to Holders of record at the close of business on
May 15 or November 15 immediately preceding the interest payment date. We will
pay interest on overdue principal at the rate borne by the Notes and, to the
extent lawful, overdue installments of interest at such rate.
Holders of Old Notes whose Old Notes are accepted for exchange in the exchange
offer will be deemed to have waived the right to receive any payment in respect
of interest on the Old Notes accrued from April 10, 2002 (the original issue
date of the Old Notes) to the date of issuance of the New Notes. Consequently,
Holders who exchange their Old Notes for New Notes will receive the same
interest payment on June 1, 2002 (the first interest payment date with respect
to the Old Notes and the New Notes following consummation of the exchange offer)
that they would have received had they not accepted the exchange offer.
PAYING AGENT AND REGISTRAR
We will pay the principal of, premium, if any, interest and liquidated damages,
if any, on the Notes at any office of ours or any agency designated by us which
is located in the Borough of Manhattan, The City of New York. We have initially
designated the corporate trust office of the Trustee to act as our agent in such
matters. The location of the corporate trust office is 15 Broad Street, New
York, New York 10007. 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
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the relevant interest payment date), if redeemed during the 12-month period
commencing on June 1 of the years set forth below:
<Table>
<Caption>
- ------------------------------------------------------------------------------
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------
2005........................................................ 106.500%
2006........................................................ 104.333%
2007........................................................ 102.167%
2008 and thereafter......................................... 100.000%
- ------------------------------------------------------------------------------
</Table>
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
receive interest due on the relevant interest payment date); provided, however,
that after giving effect to any such redemption:
(1) at least 65% of the original aggregate principal amount of the Notes
remains outstanding; and
(2) any such redemption by the Company must be made within 120 days of such
Equity Offering and must be made in accordance with certain procedures set forth
in the Indenture.
SELECTION
If we partially redeem Notes, the Trustee will select the Notes to be redeemed
on a pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate, although no Note of $1,000 in
original principal amount will be redeemed in part. If we redeem any Note in
part only, the notice of redemption relating to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancelation of the original Note. On and after the
redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption so long as we have deposited with the Paying Agent funds
sufficient to pay the principal of, plus accrued and unpaid interest and
liquidated damages, if any, on, the Notes to be redeemed.
RANKING
The Old Notes are, and the New Notes will be, unsecured Senior Subordinated
Indebtedness of the Company, will be subordinated in right of payment to all
existing and future Senior Indebtedness of the Company, will rank pari passu in
right of payment with all existing and future Senior Subordinated Indebtedness
of the Company and will be senior in right of payment to all future Subordinated
Obligations of the Company. The Old Notes are, and the New Notes also will be
effectively subordinated to any Secured Indebtedness of the Company and its
Subsidiaries to the extent of the value of the assets securing such
Indebtedness. However, payment from the money or the proceeds of U.S. Government
Obligations held in any defeasance trust described below under the caption
"--Defeasance" will not be subordinated to any Senior Indebtedness or subject to
the restrictions described herein.
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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 New 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 New Notes. As of December 31,
2001, the Subsidiaries of the Company, other than those Subsidiaries that are
Note Guarantors, would have had total liabilities, including trade payables, of
approximately $57.5 million (excluding liabilities owed to the Company). As of
December 31, 2001, after giving effect to the issuance of the Old Notes and the
application of the net proceeds therefrom, there would have been outstanding:
(1) approximately $436.6 million of Senior Indebtedness of the Company, all
of which would have been Secured Indebtedness (exclusive of unused commitments
of $94.7 million under the Revolving Credit Facility);
(2) in addition to the Notes, the Senior Subordinated Indebtedness of the
Company represented by the 2000 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
(4) in addition to the Note Guarantees, the Senior Subordinated Indebtedness
of the Note Guarantors represented by the 2000 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 2000 Notes 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
96
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, including the 2000 Notes. 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,
(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
97
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
(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
98
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 Subsidiary) to
execute and deliver to the Trustee a supplemental indenture pursuant to which
such Restricted Subsidiary will Guarantee payment of the Notes. See "--Certain
covenants--Future note guarantors" below.
The obligations of a Note Guarantor under its Note Guarantee are senior
subordinated obligations. As such, the rights of Holders to receive payment by a
Note Guarantor pursuant to its Note Guarantee will be subordinated in right of
payment to the rights of holders of Senior Indebtedness of such Note Guarantor.
The terms of the subordination provisions described above with respect to the
Company's obligations under the Notes apply equally to a Note Guarantor and the
obligations of such Note Guarantor under its Note Guarantee.
Each Note Guarantee is a continuing guarantee and shall (a) remain in full force
and effect until payment in full of all the Guaranteed Obligations or such Note
Guarantee is released upon the merger or the sale of all the Capital Stock or
assets of the Note Guarantor in
99
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);
100
(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 all or a portion (in integral multiples of
$1,000) 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, on the relevant interest payment date);
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(2) the circumstances and relevant facts and financial information regarding
such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
covenant, that a Holder must follow in order to have its Notes purchased.
The Company will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between the
Company and the initial purchasers of the Old Notes. 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.
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CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company will not, and will not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company or any Restricted Subsidiary that is a Note
Guarantor may Incur Indebtedness if on the date of such Incurrence and after
giving effect thereto the Consolidated Coverage Ratio would be greater than
2.00:1.00 if such Indebtedness is Incurred on or prior to December 31, 2002 and
2.25:1.00 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted
Subsidiaries may Incur the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement in an aggregate
principal amount not to exceed $580.0 million at any one time outstanding less
the aggregate amount of all repayments of principal of such Indebtedness
pursuant to the covenant described under "--Limitation on Sales of Assets and
Subsidiary Stock;"
(2) Indebtedness of the Company owed to and held by any Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by the
Company or any Restricted Subsidiary; provided, however, that (A) any subsequent
issuance or transfer of any Capital Stock or any other event that results in any
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of any such Indebtedness (except to the Company or a
Restricted Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof, (B) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated to the
prior payment in full in cash of all obligations with respect to the Notes, (C)
if a Restricted Subsidiary is the obligor on such Indebtedness, such
Indebtedness is made pursuant to an intercompany note and (D) if a Note
Guarantor is the obligor on such Indebtedness and the Company is not the
obligee, such Indebtedness is subordinated in right of payment to the Note
Guarantee of such Note Guarantor;
(3) Indebtedness (A) represented by the 2000 Notes, the 2000 Note
Guarantees, the Old Notes, the Note Guarantees, the New Notes and the New Note
Guarantees, (B) outstanding on the 2000 Notes Closing Date (other than the
Indebtedness described in clauses (1) and (2) above) or Incurred pursuant to
Section 4.03(a) of the 2000 Notes Indenture prior to the Closing Date, (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 Incurred pursuant to Section 4.03(b)(iv) of the 2000
Notes Indenture, (B) 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 (C) 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
103
Company and its 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) (A) Indebtedness Incurred pursuant to Section 4.03(b)(vi) of the 2000
Notes Indenture and (B) 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);
provided that the aggregate principal amount of all Indebtedness Incurred
pursuant to subclauses (A) and (B) of this clause (6) and all Refinancing
Indebtedness Incurred to refund, refinance or replace any Indebtedness Incurred
pursuant to subclauses (A) and (B) of this clause (6), at any time outstanding,
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) (A) Indebtedness incurred pursuant to Section 4.03(b)(x) of the 2000
Notes Indenture and (B) Indebtedness of Foreign Subsidiaries; provided that the
aggregate outstanding amount of Indebtedness incurred by such Foreign
Subsidiaries under subclauses (A) and (B) of 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
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(12) (A) Indebtedness incurred pursuant to Section 4.03(b)(xii) of the 2000
Notes Indenture and (B) 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)); provided
that the aggregate principal amount on the date of Incurrence, when added to all
other Indebtedness Incurred pursuant to subclauses (A) and (B) of 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 pursuant to paragraphs (a) or (b) above 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 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 2000 Notes Closing Date shall be treated as Incurred pursuant to clause (1)
of paragraph (b) above,
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(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,
(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 (including references to
Indebtedness incurred pursuant to certain sections of the 2000 Notes Indenture),
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),
106
(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 2000 Notes 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 2000 Notes Closing
Date occurred to the end of the most recent fiscal quarter ending prior to the
date of such Restricted Payment for which consolidated financial statements of
the Company are publicly available (or, in case such Consolidated Net Income
will be a deficit, minus 100% of such deficit);
(ii) 100% of the aggregate Net Cash Proceeds (other than in respect of
an Excluded Contribution) received by the Company (x) as capital contributions
to the Company after the 2000 Notes Closing Date or (y) from the issue or sale
of its Capital Stock (other than Disqualified Stock) subsequent to the 2000
Notes 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 2000 Notes 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 2000
Notes Closing Date of any Indebtedness of the Company or its Restricted
Subsidiaries issued after the 2000 Notes Closing which is convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the Company
107
(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 2000 Notes 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 since the 2000 Notes Closing Date, 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 2000 Notes Closing Date (other than Disqualified Stock and other than
Capital Stock issued or sold to, or capital contributions from, a Subsidiary of
the Company or an employee equity ownership or participation plan or other trust
established by the Company or any of its Subsidiaries); provided, however, that:
(A) such Restricted Payment will be excluded in the calculation of the
amount of Restricted Payments, and
(B) the Net Cash Proceeds from such sale or capital contribution applied
in the manner set forth in this clause (1) will be excluded from the calculation
of amounts under clause (4)(C)(ii) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Obligations of the Company or a Restricted
Subsidiary made by exchange for, or out of the proceeds of the substantially
concurrent sale of, (x) Capital Stock of the Company or a Restricted Subsidiary
or (y) Subordinated Obligations of the Company or a Restricted Subsidiary that
are permitted to be Incurred pursuant to the covenant described under
"--Limitation on Indebtedness"; provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
will be excluded in the calculation of the amount of Restricted Payments;
108
(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 since the 2000 Notes Closing Date 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 2000 Notes 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 commencing with fiscal year 2000 (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 since the 2000
Notes Closing Date to enable the Company to make payments to holders of its
Capital Stock in lieu of the issuance of fractional shares of its Capital Stock;
provided, however, that such payments will be excluded in the calculation of the
amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries. The
Company will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock or
pay any Indebtedness or other obligations owed to the Company or any of its
Restricted Subsidiaries (it
109
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 2000 Notes 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 permitted to be Incurred by the Company and provided
by the same financing source providing the Indebtedness Incurred pursuant to
such clause (b)(6));
110
(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
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clause (A), to make an Offer (as defined below) to purchase Notes pursuant to
and subject to the conditions set forth in section (b) of this covenant;
provided, however, that if the Company elects (or is required by the terms of
any Senior Subordinated Indebtedness, including the 2000 Notes Indenture), such
Offer may be made ratably to purchase the Notes, the 2000 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 since the 2000 Notes Closing Date
that is not applied in accordance with this covenant or Section 4.06 of the 2000
Notes Indenture exceeds $10.0 million since the 2000 Notes Closing Date.
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 (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date) 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 since the 2000 Notes Closing Date (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
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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 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,
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(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 with respect to all loans or advances made since the
2000 Notes Closing Date,
(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 J.P. Morgan Partners, LLC and Persons directly or
indirectly controlled by J.P. Morgan Partners, LLC) 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 2000 Notes Closing Date,
(8) sales of Capital Stock to Permitted Holders approved by a majority of
the members of the Board of Directors who do not have a material direct or
indirect financial interest in or with respect to the transaction being
considered, or
(9) the existence or performance by the Company or any Restricted Subsidiary
under any agreement as in effect as of the 2000 Notes 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 2000 Notes 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
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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;
(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'
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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,
(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
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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.
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
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(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,
(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,
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(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 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.
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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
"2000 Note Guarantee" means each Guarantee of the obligations with respect to
the 2000 Notes issued by a Person pursuant to the 2000 Notes Indenture.
"2000 Notes" means the $220,000,000 aggregate principal amount of the Company's
13% Senior Subordinated Notes due 2010 issued under the 2000 Notes Indenture.
"2000 Notes Closing Date" means May 31, 2000.
"2000 Notes Indenture" means the indenture dated as of May 31, 2000, among the
Company, the subsidiary guarantors party thereto and The Bank of New York, as
trustee, under which the 2000 Notes were issued, as amended, modified or
supplemented from time to time.
"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 or any
improvement to any property or assets that are 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
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(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,
(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
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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.
"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
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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 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
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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.
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,
(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.
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"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 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.
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"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 2000 Notes 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 JPMorgan Chase 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.
"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
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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
(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.
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"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 April 10, 2002 among the Company, J.P. Morgan 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 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.
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"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,
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that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to:
(A) the Company's "Investment" in such Subsidiary at the time of such
redesignation less
(B) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time of such redesignation;
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case as
determined in good faith by (i) the senior management of the Company if the
amount thereof is less than $2.0 million and (ii) the Board of Directors if in
excess thereof; and
(3) the amount of any Investment shall be the original cost as of the date
of determination of such Investment plus the cost of all additional Investments
by the Company or any of its Restricted Subsidiaries, without any adjustments
for increases or decreases in value or write-ups, write-downs or write-offs with
respect to such Investments.
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions in New York State are authorized or required by law to close.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Material Subsidiary" means, at any date of determination, any Subsidiary of the
Company that, together with its Subsidiaries, (i) for the most recent fiscal
year of the Company accounted for more than 10.0% of the consolidated revenues
of the Company or (ii) as of the end of such fiscal year, was the owner of 10.0%
of the consolidated assets of the Company, all as set forth on the most recently
available consolidated financial statement of the Company and its consolidated
Subsidiaries for such fiscal year prepared in conformity with GAAP.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other non-cash form) therefrom, in each case net
of:
(1) all legal, accounting, investment banking, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition,
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
or other security agreement of any kind with respect to such assets, or which
must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be repaid out of the proceeds from such Asset
Disposition,
132
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition,
(4) the decrease in proceeds from Qualified Securitization Transactions
which results from such Asset Disposition, and
(5) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property or
other assets disposed of in such Asset Disposition and retained by the Company
or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"New Note Guarantees" means the guarantees to be 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) JP Morgan Partners, LLC and its
Affiliates, (ii) Southwest Industrial Films, LLC 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 "--Certain covenants--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
133
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 "--Certain covenants--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 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 2000 Notes 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;
134
(15) Investments in Unrestricted Subsidiaries or joint ventures not to
exceed $30.0 million since the 2000 Notes Closing Date, plus (A) the aggregate
net after-tax amount returned since the 2000 Notes Closing Date to the Company
or any Restricted Subsidiary in cash on or with respect to any Investments made
since the 2000 Notes Closing Date 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 since the 2000 Notes Closing Date 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 since the 2000 Notes Closing Date of an Unrestricted
Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary;
and
(16) additional Investments since the 2000 Notes Closing Date 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.
"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 2000
Notes Closing Date.
135
"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 2000
Notes Closing Date or Incurred in compliance with the 2000 Notes Indenture (if
incurred prior to the Closing Date) or, if incurred on or after the Closing
Date, 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 2000 Notes 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 2000 Notes 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;
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.
136
"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 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, the 2000
Notes, the New 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.
137
"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
2000 Notes 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 "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,
138
(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.
"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) Pliant 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 "--Certain
covenants--Limitation on Restricted Payments."
139
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.
140
BOOK-ENTRY; DELIVERY AND FORM
The New Notes will initially be represented by one or more permanent global
notes in definitive, fully registered book-entry form, without interest coupons
that will be deposited with, or on behalf of, DTC and registered in the name of
DTC or its nominee, on behalf of the acquirers of New Notes represented thereby
for credit to the respective accounts of the acquirers, or to such other
accounts as they may direct, at DTC. See "The exchange offer--Book entry
transfer."
Except as set forth below, the global notes may be transferred, in whole and not
in part, solely to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for notes
in physical, certificated form except in the limited circumstances described
below.
All interests in the global notes may be subject to the procedures and
requirements of DTC.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC set forth below are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to change by DTC from time to
time. We will take no responsibility for these operations or procedures, and
investors are urged to contact DTC or its participants directly to discuss these
matters.
DTC has advised us that it is
(1) a limited purpose trust company organized under the laws of the State
of New York,
(2) a "banking organization" within the meaning of the New York Banking
Law,
(3) a member of the Federal Reserve System,
(4) a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended, and
(5) a "clearing agency" registered pursuant to Section 17A of the
Exchange Act.
DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
participants include securities brokers and dealers, banks and trust companies,
clearing corporations and certain other organizations. Indirect access to DTC's
system is also available to other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Investors who are not participants
may beneficially own securities held by or on behalf of DTC only through
participants or indirect participants.
We expect that pursuant to procedures established by DTC ownership of the New
Notes will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC (with respect to the interests of
participants) and the records of participants and the indirect participants
(with respect to the interests of persons other than participants).
The laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Accordingly, the
ability to transfer interests in the
141
New Notes represented by a global note to such persons may be limited. In
addition, because DTC can act only on behalf of its participants, who in turn
act on behalf of persons who hold interests through participants, the ability of
a person having an interest in New Notes represented by a global note to pledge
or transfer such interest to persons or entities that do not participate in
DTC's system, or to otherwise take actions in respect of such interest, may be
affected by the lack of a physical definitive security in respect of such
interest.
So long as DTC or its nominee is the registered owner of a global note, DTC or
such nominee, as the case may be, will be considered the sole owner or holder of
the notes represented by the global note for all purposes under the indenture.
Except as provided below, owners of beneficial interests in a global note
- will not be entitled to have New Notes represented by such global note
registered in their names,
- will not receive or be entitled to receive physical delivery of
certificated New Notes, and
- will not be considered the owners or holders thereof under the
indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the trustee thereunder.
Accordingly, each holder owning a beneficial interest in a global note must rely
on the procedures of DTC and, if such holder is not a participant or an indirect
participant, on the procedures of the participant through which such holder owns
its interest, to exercise any rights of a holder of Notes under the indenture or
such global note. We understand that under existing industry practice, in the
event that we request any action of holders of Notes, or a holder that is an
owner of a beneficial interest in a global note desires to take any action that
DTC, as the holder of such global note, is entitled to take, DTC would authorize
the participants to take such action and the participants would authorize
holders owning through such participants to take such action or would otherwise
act upon the instruction of such holders. Neither we nor the trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of Notes by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to such New Notes.
Payments with respect to the principal of, and premium, if any, and interest on,
any New Notes represented by a global note registered in the name of DTC or its
nominee on the applicable record date will be payable by the trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the global note representing the New Notes under the indenture. Under the terms
of the indenture, we and the trustee may treat the persons in whose names the
New Notes, including the global notes, are registered as the owners thereof for
the purpose of receiving payment thereon and for any and all other purposes
whatsoever. Accordingly, neither we nor the trustee has or will have any
responsibility or liability for the payment of such amounts to owners of
beneficial interests in a global note (including principal, premium, if any,
liquidated damages, if any, and interest). Payments by the participants and the
indirect participants to the owners of beneficial interests in a global note
will be governed by standing instructions and customary industry practice and
will be the responsibility of the participants or the indirect participants and
DTC.
Transfers between participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same-day funds.
142
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.
143
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
We, the initial purchasers and the Note Guarantors (as defined in the indenture)
entered into the Exchange and Registration Rights Agreement on April 10, 2002.
Pursuant to the Exchange and Registration Rights Agreement, we and the Note
Guarantors agreed to (i) file with the SEC on or prior to 75 days after the date
of issuance of the Old Notes (the "Issue Date") a registration statement on Form
S-4 or any other appropriate form (the "Exchange Offer Registration Statement")
relating to a registered exchange offer (the "Exchange Offer") for the Notes
under the Securities Act and (ii) use commercially reasonable efforts to cause
the Exchange Offer Registration Statement to be declared effective under the
Securities Act within 150 days after the Issue Date. As soon as practicable
after the effectiveness of the Exchange Offer Registration Statement, we will
offer to the holders of Transfer Restricted Securities (as defined below) who
are not prohibited by any law or policy of the SEC from participating in the
Exchange Offer the opportunity to exchange their Transfer Restricted Securities
for an issue of a second series of notes that are identical in all material
respects to the Old Notes (except that the New Notes will not contain terms with
respect to transfer restrictions) and that would be registered under the
Securities Act. We and the Note Guarantors will keep the Exchange Offer open for
not less than 30 days (or longer, if required by applicable law) after the date
on which notice of the Exchange Offer is mailed to the holders of the Old Notes.
If (i) because of any change in law or applicable interpretations thereof by the
staff of the SEC, we determine in good faith after consultation with counsel
that it is not permitted to effect the Exchange Offer as contemplated hereby,
(ii) any Old Notes validly tendered pursuant to the Exchange Offer are not
exchanged for New Notes within 180 days after the Issue Date, (iii) the initial
purchasers so request with respect to Old Notes not eligible to be exchanged for
New Notes in the Exchange Offer, (iv) any applicable law or interpretations do
not permit any holder of Old Notes to participate in the Exchange Offer, (v) any
holder of New Notes that participated in the Exchange Offer notifies us in
writing within 30 days following the consummation of the Exchange Offer that
such holder may not resell the New Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus, and the prospectus contained in the
Exchange Offer Registration Statement is not legally available for such resales
by such holder, or (vi) we so elect, then we and the Note Guarantors will file
with the SEC a shelf registration statement (the "Shelf Registration Statement")
to cover resales of Transfer Restricted Securities by such holders who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. For purposes of the foregoing, "Transfer
Restricted Securities" means each Old Note until (i) the date on which such Note
has been exchanged for a freely transferable New Note in the Exchange Offer;
(ii) the date on which such Old Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement; or (iii) the date on which such Old Note is distributed to the public
pursuant to Rule 144 under the Securities Act or is salable pursuant to Rule
144(k) under the Securities Act.
We and the Note Guarantors will use commercially reasonable efforts to have the
Exchange Offer Registration Statement of which this prospectus forms a part or,
if applicable, the Shelf Registration Statement (each, a "Registration
Statement") declared effective by the SEC as promptly as practicable after the
filing thereof. Unless the Exchange Offer would not be permitted by a policy of
the SEC, we will commence the Exchange Offer and will use commercially
reasonable efforts to consummate the Exchange Offer as promptly as practicable,
but in any event prior to 180 days after the Issue Date. If applicable, we and
the Note
144
Guarantors will use our reasonable best efforts to keep the Shelf Registration
Statement effective for a period of two years after the Issue Date.
If (i) the applicable Registration Statement is not filed with the SEC on or
prior to the date specified in the Exchange and Registration Rights Agreement;
(ii) the Exchange Offer Registration Statement or the Shelf Registration
Statement, as the case may be, is not declared effective on or prior to the date
specified in the Exchange and Registration Rights Agreement; (iii) the Exchange
Offer is not consummated on or prior to 180 days after the Issue Date (other
than in the event we file a Shelf Registration Statement); or (iv) the Shelf
Registration Statement is filed and declared effective on or prior to the date
specified in the Exchange and Registration Rights Agreement but shall thereafter
cease to be effective (at any time that we and the Note Guarantors are obligated
to maintain the effectiveness thereof) without being succeeded within 60 days by
an additional Registration Statement filed and declared effective (each such
event referred to in clauses (i) through (iv), a "Registration Default"), we and
the Note Guarantors will be obligated to pay liquidated damages to each holder
of Transfer Restricted Securities (but not in respect of any Transfer Restricted
Securities for any period after such securities cease to be Transfer Restricted
Securities pursuant to clause (iii) of the definition thereof set forth above)
during the period of one or more such Registration Defaults, in an amount equal
to $0.192 per week per $1,000 principal amount of the Old Notes constituting
Transfer Restricted Securities held by such holder until the applicable
Registration Statement is filed, the Exchange offer Registration Statement is
declared effective and the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective or again becomes effective, as the
case may be. All accrued liquidated damages shall be paid to holders in the same
manner as interest payments on the Old Notes on semi-annual payment dates which
correspond to interest payment dates for the Old Notes. Following the cure of
all Registration Defaults, the accrual of liquidated damages will cease.
The Exchange and Registration Rights Agreement also provides that we and the
Note Guarantors (i) will make available for a period of 180 days after the
consummation of the Exchange Offer a prospectus meeting the requirements of the
Securities Act to any broker-dealer for use in connection with any resale of any
such Exchange Notes and (ii) will pay all expenses incident to the Exchange
Offer (including the expense of one counsel to the holders of the Notes) and
will jointly and severally indemnify certain holders of the Notes (including any
broker-dealer) against certain liabilities, including liabilities under the
Securities Act. A broker-dealer which delivers such a prospectus to purchasers
in connection with such resales will be subject to the civil liability
provisions under the Securities Act and will be bound by the provisions of the
Exchange and Registration Rights Agreement (including certain indemnification
rights and obligations).
The foregoing description of the Exchange and Registration Rights Agreement is a
summary only, does not purport to be complete and is qualified in its entirety
by reference to all provisions of the Exchange and Registration Rights
Agreement, a copy of which is filed as an exhibit to the registration statement
of which this prospectus forms a part. We filed this registration statement, and
we are making this exchange offer, to comply with our obligations under the
Exchange and Registration Rights Agreement.
145
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of material U.S. Federal income tax consequences of
the exchange of Old Notes for New Notes pursuant to the exchange offer, but does
not address any other aspects of U.S. Federal income tax consequences to holders
of Old Notes or New Notes. This summary is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), existing and proposed regulations thereunder
(the "Regulations"), and published rulings and court decisions, all as in effect
and existing on the date hereof and all of which are subject to change at any
time, which change may be retroactive. This summary is not binding on the
Internal Revenue Service or on the courts, and no ruling will be requested from
the Internal Revenue Service on any issues described below. There can be no
assurance that the Internal Revenue Service will not take a different position
concerning the matters discussed below and that such positions of the Internal
Revenue Service would not be sustained.
Except as expressly stated otherwise, this summary applies only to U.S. Holders
(as defined below) that exchange Old Notes for New Notes in the exchange offer
and who hold the Old Notes as capital assets. It does not address the tax
consequences to taxpayers who are subject to special rules (such as financial
institutions, tax-exempt organizations and insurance companies). A "U.S. Holder"
means a beneficial owner of a Unit who purchased the Units pursuant to the
Offering and is, for U.S. Federal income tax purposes (i) a citizen or resident
of the United States; (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof; (iii) an estate the income of which is subject to U.S. Federal income
taxation regardless of its source; or (iv) a trust if (A) a court within the
United States is able to exercise primary supervision over the administration of
the trust and (B) one or more U.S. fiduciaries have the authority to control all
substantial decisions of the trust.
PERSONS CONSIDERING THE EXCHANGE OF OLD NOTES FOR NEW NOTES SHOULD CONSULT THEIR
OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF
THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS
OF ANY OTHER TAXING JURISDICTION.
EXCHANGE OF AN OLD NOTE FOR A NEW NOTE PURSUANT TO THE EXCHANGE OFFER
The exchange by any holder of an Old Note for a New Note, in and of itself,
should not constitute a taxable exchange for U.S. Federal income tax purposes.
Consequently, no gain or loss should be recognized by holders that exchange Old
Notes for New Notes pursuant to the exchange offer. For purposes of determining
gain or loss upon the subsequent sale or exchange of New Notes, a holder's tax
basis in a New Note should be the same as such holder's tax basis in the Old
Note exchanged therefor immediately prior to such exchange. Holders should be
considered to have held the New Notes from the time of their acquisition of the
Old Notes.
146
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes only where such Old
Notes were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period of 180 days from the date on which
the exchange offer is consummated, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
We will not receive any proceeds from any sale of New Notes by broker-dealers.
New Notes received by broker-dealers for their own account pursuant to the
exchange offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days from the date on which the exchange offer is
consummated, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
such documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offer, including the expenses of one counsel for
holders of the Notes, other than commissions or concessions of any
broker-dealers and will indemnify the holders of the Notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the New Notes and the Note Guarantees will be passed upon for us
by O'Sullivan LLP, New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedule of Pliant
Corporation included in this prospectus, to the extent and for the periods
indicated in their report, 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 report.
The consolidated financial statements of Uniplast Holdings Inc. and subsidiaries
included in this prospectus as of and for the year ended December 31, 2000 have
been audited by KPMG LLP, independent public accountants, as set forth in their
report with respect thereto appearing
147
herein, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The audit report of KPMG LLP covering the December 31, 2000 consolidated
financial statements of Uniplast Holdings Inc. and subsidiaries contains an
explanatory paragraph that states that the company's violation of certain
covenants related to its lending agreement raises certain doubts about its
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of that
uncertainty.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with the
Securities and Exchange Commission (the "SEC" or the "Commission"). You can
inspect and copy these materials at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and over the Internet at the SEC's Web Site
at http://www.sec.gov. Copies of these materials can also be obtained by mail at
prescribed rates from the SEC's Public Reference Room at the above address. You
can obtain information about the Public Reference Room by calling the SEC at
1-800-SEC-0330.
We have filed a Registration Statement on Form S-4 to register with the
Commission the New Notes to be issued in exchange for the Old Notes. This
prospectus is part of that Registration Statement. As allowed by the
Commission's rules, this prospectus does not contain all of the information you
can find in the Registration Statement or the exhibits to the Registration
Statement.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT US OR THE TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. IF YOU ARE GIVEN ANY INFORMATION OR
REPRESENTATIONS ABOUT THESE MATTERS THAT IS NOT DISCUSSED IN THIS PROSPECTUS,
YOU MUST NOT RELY ON THAT INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR
TO WHOM WE ARE NOT PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW.
SUBJECT TO OUR OBLIGATION TO AMEND OR SUPPLEMENT THIS PROSPECTUS AS REQUIRED BY
LAW AND THE RULES AND REGULATIONS OF THE COMMISSION, 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.
148
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
PLIANT CORPORATION AND SUBSIDIARIES FINANCIAL STATEMENTS:
AS OF DECEMBER 31, 2001 AND 2000 AND FOR EACH OF THE THREE
YEARS IN THE PERIOD ENDED DECEMBER 31, 2001:
Report of Independent Public Accountants................. F-2
Consolidated Balance Sheets as of December 31, 2001 and
2000................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 2001, 2000 and 1999... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999....................... F-6
Notes to Consolidated Financial Statements............... F-8
UNIPLAST HOLDINGS INC. AND SUBSIDIARIES FINANCIAL
STATEMENTS:
AS OF DECEMBER 31, 2000:
Independent Auditors' Report............................. F-45
Consolidated Balance Sheet as of December 31, 2000....... F-46
Consolidated Statement of Operations for the year ended
December 31, 2000...................................... F-47
Consolidated Statement of Stockholders' Equity and
Comprehensive Income for the year ended December 31,
2000................................................... F-48
Consolidated Statement of Cash Flows for the year ended
December 31, 2000...................................... F-49
Notes to Consolidated Financial Statements............... F-50
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000 AND FOR THE SIX
MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED):
Condensed Consolidated Balance Sheets as of June 30, 2001
and December 31, 2000.................................. F-65
Condensed Consolidated Statements of Net Loss for the six
months ended June 30, 2001............................. F-66
Condensed Consolidated Statement of Stockholders' Equity
and Comprehensive Income for the six months ended June
30, 2001............................................... F-67
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2001......................... F-68
Notes to Condensed Consolidated Financial Statements..... F-69
</Table>
F-1
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, 2001 and 2000, 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, 2001. These
financial statements and schedule referred to below are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule 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
Chicago, Illinois
January 28, 2002
F-2
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2001 AND 2000 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2001 2000
- -----------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 4,818 $ 3,060
Receivables:
Trade accounts, net of allowances of $2,438 and $2,166, respectively... 111,768 104,247
Other.......................................................... 13,668 10,811
Inventories....................................................... 83,948 79,151
Prepaid expenses and other........................................ 3,026 1,983
Income taxes receivable........................................... 985 2,758
Deferred income taxes............................................. 2,563 12,992
---------------------
Total current assets........................................ 220,776 215,002
---------------------
Plant and equipment, net:............................................ 369,324 333,083
---------------------
Goodwill and intangible assets, net.................................. 231,199 205,870
---------------------
Other assets......................................................... 30,384 31,079
---------------------
Total assets................................................ $ 851,683 $ 785,034
---------------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Trade accounts payable............................................ $ 101,508 $ 109,018
Accrued liabilities:
Interest Payable............................................... 10,392 4,453
Customer rebates............................................... 7,571 8,602
Other.......................................................... 25,134 25,957
Current portion of long-term debt................................. 17,767 9,362
---------------------
Total current liabilities................................... 162,372 157,392
Long-term debt, net of current portion............................... 695,556 678,031
Other liabilities.................................................... 18,944 17,385
Deferred income taxes................................................ 26,156 33,060
---------------------
Total liabilities........................................... 903,028 885,868
---------------------
Minority interest.................................................... 271 -
Commitments and contingencies (notes 6, 7, 10 and 12)................
Redeemable stock:
Preferred stock--200,000 shares authorized, 130,983 shares outstanding as
of December 31, 2001 100,000 share outstanding as of December 31, 2000
and designated as Series A, no par value with a redemption and
liquidation value of $1,000 per share........................... 126,149 88,721
Common stock--60,000 shares authorized, no par value; 53,996 shares
outstanding as of December 31, 2001 and 57,121 outstanding as of December
31, 2000 net of related stockholders' notes receivable of $12,720 at
December 31, 2001 and $14,551 at December 31, 2000.............. 16,778 16,456
---------------------
Total redeemable stock...................................... 142,927 105,177
---------------------
Stockholders' (deficit):
Common stock--no par value; 10,000,000 shares authorized, 542,571 and
510,674 shares outstanding as of December 31, 2001 and December 31, 2000,
respectively.................................................... 103,362 87,989
Warrants to purchase common stock................................. 38,715 26,500
Retained (deficit)................................................ (326,356) (312,414)
Stockholders' notes receivable.................................... (616) (825)
Accumulated other comprehensive (loss)............................ (9,648) (7,261)
---------------------
Total stockholders' (deficit)............................... (194,543) (206,011)
---------------------
Total liabilities and stockholders' (deficit)............... $ 851,683 $ 785,034
- -----------------------------------------------------------------------------------------------------
</Table>
See notes to consolidated financial statements.
F-3
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS) 2001 2000 1999
- --------------------------------------------------------------------------------------------
Net sales................................................... $840,360 $843,797 $813,730
Cost of sales............................................... 665,092 696,716 655,752
------------------------------
Gross profit....................................... 175,268 147,081 157,978
------------------------------
OPERATING EXPENSES:
Selling, general and administrative...................... 88,821 93,937 73,976
Research and development................................. 9,821 8,596 5,514
Stock-based compensation related to administrative
employees............................................. 7,033 - -
Compensation and transaction costs related to
recapitalization...................................... - 10,754 -
Plant closing costs, net................................. (4,588) 19,368 2,497
------------------------------
Total operating expenses........................... 101,087 132,655 81,987
------------------------------
Operating income............................................ 74,181 14,426 75,991
Interest expense............................................ (75,988) (68,534) (44,028)
Other income, net........................................... 6,525 332 435
------------------------------
Income (loss) before income taxes and extraordinary loss.... 4,718 (53,776) 32,398
------------------------------
Income tax expense (benefit):
Current.................................................. 4,204 4,144 6,829
Deferred................................................. 2,582 (18,387) 7,258
------------------------------
Total income tax expense (benefit)................. 6,786 (14,243) 14,087
------------------------------
Income (loss) before extraordinary loss..................... (2,068) (39,533) 18,311
Extraordinary loss (net of income tax benefit of $7,500).... - (11,250) -
------------------------------
Net income (loss)........................................... $ (2,068) $(50,783) $ 18,311
- --------------------------------------------------------------------------------------------
</Table>
See notes to consolidated financial statements.
F-4
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
WARRANTS
CLASS A CLASS B TO
COMMON STOCK COMMON STOCK COMMON STOCK PURCHASE RETAINED
FOR THE YEARS ENDED DECEMBER 31, 2001, ---------------- --------------- ----------------- COMMON EARNINGS
2000 AND 1999 (IN THOUSANDS) TOTAL SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK (DEFICIT)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998.......... 70,587 1,000 63,161 7 515 13,731
Net income.......................... 18,311 18,311
Foreign currency translation
adjustments...................... 1,629
Payments received on stockholder note
receivable....................... 135
-----------------------------------------------------------------------------------------
Balance, December 31, 1999.......... 90,662 1,000 63,161 7 515 32,042
Net loss............................ (50,783) (50,783)
Foreign currency translation
adjustments...................... (2,504)
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)
Net loss............................ (2,068) (2,068)
Stock-based compensation related to
administrative employees......... 7,033 7,033
Fair value change in interest rate
derivatives classified as cash flow
hedges........................... (2,944)
Preferred stock dividend and
accretion........................ (18,907) (18,907)
Issuance of stock as a result of
Uniplast acquisition............. 15,735 33 15,735
Issuance of warrants with preferred
stock............................ 12,215 12,215
Repurchase of common stock and
cancellation of notes from
management....................... (111) (1) (362)
Amortization of discount on
stockholder's note receivable.... (42)
Foreign currency translation
adjustment....................... 557
-----------------------------------------------------------------------------------------
Balance, December 31, 2001.......... $(194,543) 543 $103,362 $38,715 $(326,356)
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
- -------------------------------------- -----------------------------
ACCUMULATED
STOCKHOLDERS' OTHER
FOR THE YEARS ENDED DECEMBER 31, 2001, NOTES COMPREHENSIVE
2000 AND 1999 (IN THOUSANDS) RECEIVABLE INCOME
- -------------------------------------- -----------------------------
Balance, December 31, 1998.......... (434) (6,386)
Net income..........................
Foreign currency translation
adjustments...................... 1,629
Payments received on stockholder note
receivable....................... 135
-----------------------------
Balance, December 31, 1999.......... (299) (4,757)
Net loss............................
Foreign currency translation
adjustments...................... (2,504)
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)
Net loss............................
Stock-based compensation related to
administrative employees.........
Fair value change in interest rate
derivatives classified as cash flow
hedges........................... (2,944)
Preferred stock dividend and
accretion........................
Issuance of stock as a result of
Uniplast acquisition.............
Issuance of warrants with preferred
stock............................
Repurchase of common stock and
cancellation of notes from
management....................... 251
Amortization of discount on
stockholder's note receivable.... (42)
Foreign currency translation
adjustment....................... 557
-----------------------------
Balance, December 31, 2001.......... $ (616) $ (9,648)
- --------------------------------------
</Table>
See notes to consolidated financial statements.
F-5
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS) 2001 2000 1999
- ---------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss)........................................ $ (2,068) $ (50,783) $ 18,311
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 47,017 39,546 35,019
Deferred income taxes................................. 2,980 (18,387) 7,137
Change in provision for losses on accounts
receivable.......................................... 272 (156) (455)
Non-cash compensation expense related to stock
options............................................. 7,033 2,641 770
Discount on stockholder note receivable............... 323 --
Non-cash plant closing costs.......................... (7,615) -- --
Write-down of impaired plant and equipment............ 14,801 1,370
Loss on disposal of assets............................ (433) 514 86
Extraordinary loss (net of income taxes).............. 11,250 --
Minority Interest..................................... 271 -- --
Changes in operating assets and liabilities - net of
effects of acquisitions:
Trade accounts receivable.......................... (182) 4,886 (26,278)
Other receivables.................................. (2,857) 2,055 (3,070)
Inventories........................................ 2,249 (952) (7,829)
Prepaid expenses and other......................... (651) 661 1,411
Intangible assets and other assets................. 1,090 1,930 7,145
Trade accounts payable............................. (15,023) 48,962 16,870
Accrued liabilities................................ (2,988) 4,355 (4,012)
Due to affiliates.................................. -- (4,715) (2,285)
Income taxes payable/receivable.................... 1,733 (67) 4,674
Other liabilities.................................. (484) 3,402 2,589
-------------------------------
Net cash provided by operating activities....... 30,344 60,266 51,453
-------------------------------
Cash flows from investing activities:
Capital expenditures for plant and equipment............. (56,418) (65,644) (35,723)
Payment for purchase of certain net assets of KCL
Corporation, net of cash acquired..................... -- -- (11,498)
Uniplast acquisition, net of cash acquired............... (38,778) -- --
Proceeds from sale of assets............................. 7,914 -- 1,191
-------------------------------
Net cash used in investing activities....................... (87,282) (65,644) (46,030)
-------------------------------
</Table>
F-6
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS) 2001 2000 1999
- ---------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payment of capitalized loan fees......................... (1,932) (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.................................................. 30,991 161,820 --
(Payments)/Borrowings on long-term debt.................. 25,930 (507,002) (17,850)
Proceeds from issuance of Class C nonvoting common
stock.................................................. -- -- 986
Payments received from stockholder on note receivable.... -- 165 135
Proceeds from issuance of long-term debt................. -- 691,684 --
-------------------------------
Net cash provided by (used in) financing
activities.................................... $ 54,989 $ 275 $(16,729)
-------------------------------
Effect of exchange rate changes on cash and cash
equivalents............................................... $ 3,707 $ (934) $ 1,186
-------------------------------
Net increase (decrease) in cash and cash equivalents........ 1,758 (6,037) (10,120)
Cash and cash equivalents, beginning of the year............ 3,060 9,097 19,217
-------------------------------
Cash and cash equivalents, end of the year.................. $ 4,818 $ 3,060 $ 9,097
-------------------------------
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest................................................. $ 69,503 $ 62,781 $ 43,179
-------------------------------
Income taxes............................................. $ (1,594) $ (4,160) $ (361)
-------------------------------
Supplemental schedule of non-cash investing and financing
activities:
A capital lease obligation of $353 was incurred during
1999 for new equipment.
</Table>
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:
<Table>
Fair value of assets acquired (including goodwill of
$2,651)................................................ $15,500
Cash paid................................................ (11,498)
-------
Liabilities assumed...................................... $ 4,002
-------
</Table>
On July 16, 2001, certain assets were acquired and certain liabilities were
assumed of Uniplast Films Corporation for a total purchase price of
approximately $56,000. The purchase price was paid through a cash payment of
approximately $40,300 to discharge pre-acquisition debt and the issuance of
Pliant common stock of approximately $15,700 to the shareholders of Uniplast.
See notes to consolidated financial statements.
F-7
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 Corporation and its 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
F-8
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. Approximately 39% and 29% of the consolidated
trade accounts receivable before allowances at December 31, 2001 and 2000,
respectively, were represented by twenty customers. One customer represented
approximately 9% and 10% of consolidated receivables at December 31, 2001 and
2000, respectively.
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:
<Table>
<Caption>
- -------------------------------------------------------------------------
Land improvements........................................... 20 years
Buildings and improvements.................................. 20 years
Computer Equipment and Software............................. 3-7 years
Machinery and equipment..................................... 7-15 years
Furniture, fixtures and vehicles............................ 3-7 years
Leasehold improvements...................................... 10-20 years
- -------------------------------------------------------------------------
</Table>
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:
<Table>
<Caption>
- -------------------------------------------------------------------------
Cost in excess of fair value of net assets acquired......... 10-40 years
Other intangible assets..................................... 2-15 years
- -------------------------------------------------------------------------
</Table>
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, 2001, 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
F-9
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 from the purchase date 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.
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--As of December 31, 2001, we had five interest
rate derivative contracts (see Note 6). For the year ended December 31, 2000 we
realized a reduction in raw material inventory costs of $0.5 million from
commodity collar agreements. There are no such agreements in place as of
December 31, 2001.
Recent Accounting Pronouncements--In July 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141 "Business Combinations" and SFAS No.
142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. Recorded goodwill and intangibles will
be evaluated against this new criteria and may result in certain intangibles
being subsumed into goodwill, or alternatively, amounts initially recorded as
goodwill may be separately identified and recognized apart from goodwill. SFAS
142 requires the use of a non-amortization approach to account for all purchased
goodwill and certain intangible assets. Under a non-amortization approach,
goodwill and certain intangible assets will not be amortized into results of
operations, but instead would be reviewed for impairment and written down and
charged to results of operations only in periods in which the recorded value of
goodwill and certain intangible assets is more than its fair value. The
provisions of SFAS 141 and SFAS 142 which apply to goodwill and intangible
assets acquired prior to June 30, 2001 was adopted by the Company on January 1,
2002. We expect that the adoption of these accounting standards will have the
impact of reducing amortization of goodwill.
In August 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 provides the accounting requirements for retirement
obligations associated with tangible long lived assets. In October 2001, the
FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets and discontinued operations.
We are currently evaluating the impact of these pronouncements to determine the
effect, if any, they may have on the consolidated financial position and the
results of operations.
In 2000, Emerging Issues Task Force issued certain bulletins that were
applicable to the Company for the year ended December 31, 2001. These bulletins
included EITF 00-14 "Accounting for Sales Incentives," EITF 00-22 "Accounting
for Points and Certain Other Time Based and Volume Based Sales Incentive Offers
and Offers for Free Products or Services to be Delivered in the Future" and EITF
00-25 "Vendor Income Statement Characterization of
F-10
Consideration paid to a Reseller of the Vendors Products." The Company evaluated
these bulletins and concluded that the Company was in compliance. Therefore, no
reclassifications have been made to conform to the provisions of these
bulletins.
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 an average exchange rate for each month 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--Certain reclassifications have been made to the consolidated
financial statements for comparative purposes.
2. INVENTORIES
Inventory Balances--Inventories consisted of the following at December 31, 2001
and 2000 (in thousands):
<Table>
<Caption>
- -------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------
Finished goods.............................................. $50,738 $46,760
Raw materials and other..................................... 27,499 24,158
Work-in-process............................................. 5,711 8,233
-----------------
Total....................................................... $83,948 $79,151
- -------------------------------------------------------------------------------
</Table>
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
consolidated statement of operations for the year ended December 31, 2000. Of
the $19.6 million, $13.8 million represented a reserve for 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. In addition, we
completed the closure of our Birmingham facility during the second quarter of
2001.
During the third quarter of 2001, we analyzed the economics of closing our
Harrington facility in light of changes in customer demand and our recent
acquisition of Uniplast. These changes together with the movement of a
production line from our Birmingham plant have significantly improved the
profitability of the Harrington plant. As a result, we revised our plans to
close that facility. During the first six months of 2001, $1.1 million was
incurred to
F-11
downsize the Harrington facility. The remaining balance of the plant closure
costs of $7.6 million accrued in 2000 has been credited to plant closing costs
in the consolidated statement of operations for the year ended December 31,
2001.
The following is a summary of the key elements of the 2000 exit plan, excluding
Harrington as management revised their closure plans for that facility in 2001:
<Table>
<Caption>
- ------------------------------------------------------------------------------------
DALLAS BIRMINGHAM TOTAL
- ------------------------------------------------------------------------------------
Number of employees to be terminated................ 68 105 173
Book value of property and equipment to be Disposed
of............................................... $1,593 $ 8,913 $10,506
Estimated proceeds from disposal.................... 1,200 1,749 2,949
------------------------------
Net write-off from disposal......................... 393 7,164 7,557
Severance costs..................................... 588 2,271 2,859
Other closure costs................................. 302 225 527
------------------------------
Total closure costs................................. $1,283 $ 9,660 $10,943
- ------------------------------------------------------------------------------------
</Table>
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 December 31, 2001, the remaining reserves
related to severance costs and other costs are included in other accrued
liabilities in the accompanying consolidated balance sheets while the reserve
for 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 December 31, 2001 is summarized below:
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------
UTILIZED
BALANCE -------------------- BALANCE
12/31/00 NON-CASH CASH REVERSAL 12/31/01
- ----------------------------------------------------------------------------------------------------
Property and equipment reserves..... $ 13,801 $ 5,001 $ -- $ 6,244 $ 2,556
Severance costs..................... 4,371 -- 3,170 1,201 --
Other costs......................... 585 -- 182 170 233
--------------------------------------------------------------
Total............................... $ 18,757 $ 5,001 $3,352 $ 7,615 $ 2,789
- ----------------------------------------------------------------------------------------------------
</Table>
As of December 31, 2001, 68 and 105 of the expected employee terminations had
been completed at our Dallas and Birmingham facilities, respectively. As of
December 31, 2001, all planned employee terminations had been completed at the
Harrington facility. There were no reserves remaining for the Harrington
facility closure as of December 31, 2001.
As a part of the Uniplast acquisition the Company approved a plan to close three
Uniplast production facilities and reduce the sales and administrative
personnel. As of December 31, 2001 the closure of the production plants and
reduction of sales and administrative personnel were complete. Severance costs
of this plan of $3.0 million were accrued as a part of the cost of the
acquisition. The cost of relocating production lines to existing company
locations was expensed to plant closing costs in the consolidated statement of
operations for 2001. The Company incurred approximately $3.0 million for these
relocation costs in 2001.
Office Closing Costs and Workforce Reduction--During the fourth quarter of 2000,
we approved and announced a cost saving initiative resulting in a company-wide
workforce
F-12
reduction, relocation of the corporate office from Salt Lake City, Utah to the
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 selling, general and administrative expenses in the
accompanying consolidated statements of operations for the year ended December
31, 2000. 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 of 2001, as well as the Salt Lake City office closure during the second
quarter of 2001. The following is a summary of the key elements of this plan:
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------
</Table>
As of December 31, 2001, the remaining reserves related to severance costs and
other costs related to leases. These reserves are included in other accrued
liabilities in the accompanying consolidated balance sheets, while the reserve
for impairment related to leasehold improvements has been recorded as a
reduction of the net property and equipment balance. In the fourth quarter of
2001 an additional $0.9 million was accrued to revise the estimate of future
non-cancelable lease costs in excess of income from subleasing. Utilization of
these reserves during the period ended December 31, 2001 is summarized below:
<Table>
<Caption>
- -------------------------------------------------------------------------------------
UTILIZED
BALANCE ----------------- ADDITIONAL BALANCE
12/31/00 NON-CASH CASH ACCRUAL 12/31/01
- -------------------------------------------------------------------------------------
Leasehold improvements......... $1,000 1,000 -- $ --
Severance cost................. 3,254 210 $2,916 128
Other costs related to
leases...................... 803 -- 545 $878 1,136
----------------------------------------------------
Total cost..................... $5,057 $1,210 $3,461 $878 $1,264
- -------------------------------------------------------------------------------------
</Table>
As of December 31, 2001, 52, 35 and 2 of the expected employee terminations had
been completed of the workforce reduction, closure of the Salt Lake City and the
closure of the Dallas offices respectively.
F-13
4. PLANT AND EQUIPMENT
The cost and the related accumulated depreciation at December 31, 2001 and 2000
is as follows (in thousands):
<Table>
<Caption>
- -----------------------------------------------------------------------------------
2001 2000
- -----------------------------------------------------------------------------------
Land and improvements....................................... $ 8,136 $ 7,219
Buildings and improvements.................................. 66,960 59,446
Machinery and equipment..................................... 378,513 308,326
Computer equipment and software............................. 30,018 16,354
Furniture, fixtures and vehicles............................ 6,204 6,057
Leasehold improvements...................................... 2,201 1,236
Construction in progress.................................... 12,955 32,435
---------------------
504,987 431,073
Less accumulated depreciation and amortization.............. (135,663) (97,990)
---------------------
Plant and equipment, net.................................... $ 369,324 $333,083
- -----------------------------------------------------------------------------------
</Table>
5. GOODWILL AND INTANGIBLE ASSETS
The cost of Goodwill and intangible assets and related accumulated amortization
at December 31, 2001 and 2000 is as follows (in thousands):
<Table>
<Caption>
- ----------------------------------------------------------------------------------
2001 2000
- ----------------------------------------------------------------------------------
Goodwill.................................................... $234,795 $216,141
Intangible assets........................................... 47,832 30,514
--------------------
282,627 246,655
Less accumulated amortization............................... (51,428) (40,785)
--------------------
Goodwill and Intangible assets, net......................... $231,199 $205,870
- ----------------------------------------------------------------------------------
</Table>
Amortization expense for goodwill and intangible assets was approximately $10.6
million, $9.2 million and $9.0 million for the years ended December 31, 2001,
2000 and 1999, respectively.
F-14
6. LONG-TERM DEBT
Long-term debt as of December 31, 2001 and 2000 consists of the following (in
thousands):
<Table>
<Caption>
- ---------------------------------------------------------------------------------
2001 2000
- ---------------------------------------------------------------------------------
Credit Facilities:
Revolver, variable interest, 6.7% as of December 31,
2001.................................................. $ 39,511 $ 3,000
Tranche A and B term loans, variable interest at a
weighted average rate of 6.4% as of December 31,
2001.................................................. 463,800 476,000
Senior subordinated notes, interest at 13.0% (net of
original issue discount and warrants being amortized of
$12,747)................................................. 207,253 206,501
Obligations under capital leases (see Note 7)............... 2,090 370
Insurance financing, interest at 6.1% as of December 31,
2001..................................................... 588 1,522
Other financing............................................. 81 --
-------------------
Total........................................... 713,323 687,393
Less current portion........................................ (17,767) (9,362)
-------------------
Long-term portion........................................... $695,556 $678,031
- ---------------------------------------------------------------------------------
</Table>
Upon closing of the Recapitalization, we issued 220,000 Units (the "Units")
consisting of $220.0 million principal amount of 13% Senior Subordinated Notes
due 2010 (the "Notes") and Warrants (the "Note Warrants") to purchase 18,532
shares of common stock 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
F-15
(the "Prior Credit Facilities") and replaced the Prior Credit Facility with the
amended and restated senior secured credit facilities (the "New Credit
Facilities") with JPMorgan Chase Bank (formerly known as 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,
2001, we had available borrowing capacity of $55.2 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 a margin or ABR (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%.) plus a margin in each
case. These margins are subject to adjustment based on the leverage ratio for
the most recent four quarters. These margins are currently 2.5% on Adjusted
LIBOR borrowings and 2.0% ABR borrowings.
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. Adjusted LIBOR will
at all times include statutory reserves. 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.
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, which
commenced with the year ended December 31, 2000. As a part of the amendment
dated September 30, 2000 discussed below the mandatory repayment was increased
to 100% of excess cash flow, as defined, until a certain leverage ratio, as
defined, was achieved. 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 are not
required to make any mandatory prepayments for the year ended December 31, 2001.
Our extraordinary loss for 2000 consisted 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 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, 2001. 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
F-16
expenses in connection with negotiating the amendment. In addition, on July 16,
2001 we entered into a further amendment to our New Credit Facilities to permit
the Uniplast acquisition. 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,
2001, we had outstanding letters of credit of approximately $5.3 million.
The scheduled maturities of long-term debt by year as of December 31, 2001 are
as follows (in thousands):
<Table>
<Caption>
- ----------------------------------------------------------------------
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------
2002........................................................ $ 17,767
2003........................................................ 31,253
2004........................................................ 55,516
2005........................................................ 62,989
2006........................................................ 35,514
Thereafter.................................................. 510,284
--------
Total....................................................... $713,323
- ----------------------------------------------------------------------
</Table>
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.
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. In accordance with the statements, we recognize the fair value of
derivatives as either assets or liabilities in the balance sheet. To the extent
that the derivatives qualify a hedge, 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 2001, we entered into four additional interest rate derivative agreements
with 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
F-17
rate derivative agreements are considered cash flow hedges and consisted of the
following as of December 31, 2001 (dollars in millions):
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------
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% - 7.25% 02/13/2004
Interest rate swap............................ 60.0 LIBOR 5.40% 02/13/2004
Interest rate swap............................ 50.0 LIBOR 4.32% 12/20/2004
- -----------------------------------------------------------------------------------------------
</Table>
* Three-month LIBOR, as defined; 1.88% as of December 31, 2001
** Strike for caps; floor and strike for collar; fixed LIBOR for swap
agreements.
The fair value of our interest rate derivative agreements is reported on our
consolidated balance sheet at December 31, 2001 in other liabilities of
approximately $3.0 million and in other assets of approximately $0.1 million.
The effective portion of the changes in fair value of these instruments is
reported in other comprehensive income. As the hedged contract matures, the gain
or loss is recorded as interest expense in the consolidated statement of
operations. We monitor the effectiveness of these contracts each quarter. Any
changes in fair value of the ineffective portion of the instruments is reported
as interest expense in the consolidated statement of operations. The ineffective
portion for the years ended December 31, 2001 and 2000 were not material.
We are exposed to credit losses in the event of nonperformance by the
counter-party to the financial instrument. We anticipate, however, that the
counter-party 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, 2001 and 2000, the gross amounts of plant and equipment and related
accumulated amortization recorded under capital leases were as follows (in
thousands):
<Table>
<Caption>
- ----------------------------------------------------------------------------
2001 2000
- ----------------------------------------------------------------------------
Land and building........................................... $ 442 $309
Machinery and equipment..................................... 2,375 353
--------------
Total assets held under capital leases...................... 2,817 662
Less accumulated amortization............................... (381) (187)
--------------
$2,436 $475
- ----------------------------------------------------------------------------
</Table>
Operating Leases--We have non-cancelable operating leases, primarily for
vehicles, equipment, warehouse, and office space that expire after 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 $7.8 million, $6.7 million and $6.6 million for the years ended
December 31, 2001, 2000 and 1999, respectively.
F-18
Future minimum lease payments under operating leases and the present value of
future minimum capital lease payments (with interest rates between 7.5% and
10.25%) as of December 31, 2001 are as follows (in thousands):
<Table>
<Caption>
- ---------------------------------------------------------------------------------
OPERATING CAPITAL
LEASES LEASES
- ---------------------------------------------------------------------------------
Year Ending December 31,
2002..................................................... $ 8,009 $ 953
2003..................................................... 6,858 552
2004..................................................... 5,508 287
2005..................................................... 4,982 238
2006..................................................... 4,430 242
Thereafter............................................... 9,176 291
-------------------
Total minimum lease payments................................ $ 38,963 2,563
-------------------
Amounts representing interest............................... (473)
-------------------
Present value of net minimum capital lease payments (see
Note 6).................................................. $2,090
- ---------------------------------------------------------------------------------
</Table>
During the year ended December 31, 2001 the Company entered into a transaction
where production lines were sold for approximately $7.9 million and leased back
to the Company under an operating lease agreement. The production lines were
sold for their carrying values, thus no gain or loss was recorded on the
transactions.
F-19
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,
2001, 2000 and 1999 are as follows (in thousands):
<Table>
<Caption>
- ------------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------
Current:
Federal............................................. $ 23 $ (112) $ 1,581
State............................................... 111 266 770
Foreign............................................. 4,070 3,990 4,478
---------------------------
Total current.............................. 4,204 4,144 6,829
---------------------------
Deferred:
Federal............................................. 2,021 (18,401) 6,975
State............................................... 179 18 71
Foreign............................................. 382 (4) 212
---------------------------
Total deferred............................. 2,582 (18,387) 7,258
---------------------------
Total income tax expense (benefit) (excluding income
taxes applicable to the extraordinary item)......... $6,786 $(14,243) $14,087
- ------------------------------------------------------------------------------------
</Table>
The effective income tax rate reconciliations for the years ended December 31,
2001, 2000 and 1999 are as follows (in thousands):
<Table>
<Caption>
- ------------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary
item................................................ $4,718 $(53,776) $32,398
---------------------------
Expected income tax provision (benefit) at U.S.
statutory rate of 35%............................... $1,652 $(18,822) $11,339
Increase (decrease) resulting from:
Goodwill............................................ 1,726 1,636 1,625
State taxes......................................... 188 137 547
Adjustment of tax attributes........................ 1,078 (174) (912)
Foreign rate difference and other, net.............. 2,142 1,099 1,488
Costs related to recapitalization................... - 1,881
---------------------------
Total income tax expense (benefit) (excluding income
taxes applicable to the extraordinary item.......... $6,786 $(14,243) $14,087
---------------------------
Effective income tax rate.............................. 143.8% 26.5% 43.5%
- ------------------------------------------------------------------------------------
</Table>
F-20
Components of net deferred income tax assets and liabilities as of December 31,
2001 and 2000 are as follows (in thousands):
<Table>
<Caption>
- ---------------------------------------------------------------------------------
2001 2000
- ---------------------------------------------------------------------------------
Deferred income tax assets:
Net operating loss carryforwards......................... $ 30,627 $ 27,412
AMT and foreign tax credit carryforwards................. 2,478 2,478
Accrued pension costs not deducted for tax............... 4,893 8,125
Accrued employee benefits................................ 6,114 2,858
Plant closing costs not deducted for tax................. 834 2,979
Allowance for doubtful trade accounts receivable......... 103 508
Inventory related costs not deducted for tax............. 642 571
Other.................................................... 350 552
-------------------
Total deferred income tax assets................ 46,041 45,483
-------------------
Deferred income tax liabilities:
Tax depreciation in excess of book depreciation.......... (62,595) (58,525)
Amortization of intangibles.............................. (5,123) (6,058)
Other.................................................... (1,916) (968)
-------------------
Total deferred income tax liabilities........... (69,634) (65,551)
-------------------
Net deferred income tax liability........................... $(23,593) $(20,068)
-------------------
As reported on consolidated balance sheets:
Net current deferred income tax asset.................... $ 2,563 $ 12,992
Net non-current deferred income tax liability............ (26,156) (33,060)
-------------------
Net deferred income tax liability........................ $(23,593) $(20,068)
- ---------------------------------------------------------------------------------
</Table>
The net operating loss carryforwards for federal tax purposes are approximately
$77.8 million expiring in 2020 and $9.8 million expiring in 2021.
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, $2.6 million and $2.2 million as our contribution to
this plan for the years ended December 31, 2001, 2000 and 1999, 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
F-21
consolidated accrued net pension expense for the years ended December 31, 2001,
2000 and 1999 includes the following components (in thousands):
<Table>
<Caption>
- -------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------
UNITED STATES PLANS
Service cost--benefits earned during the period......... $ 3,707 $ 4,098 $ 4,056
Interest cost on projected benefit obligation........... 4,101 4,192 3,659
Expected return on assets............................... (4,183) (4,348) (3,913)
Other................................................... (273) (185) 100
---------------------------
Total accrued pension expense........................... $ 3,352 $ 3,757 $ 3,902
---------------------------
GERMANY PLAN
Service cost--benefits earned during the period......... $ 66 $ 62 $ 63
Interest cost on projected benefit obligation........... 61 62 62
---------------------------
Total accrued pension expense........................... $ 127 $ 124 $ 125
- -------------------------------------------------------------------------------------
</Table>
F-22
The following table sets forth the funded status of the United States Plans and
the Germany Plan as of December 31, 2001, 2000 and 1999 and the amounts
recognized in the consolidated balance sheets at those dates (in thousands):
<Table>
<Caption>
- -----------------------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------
UNITED STATES PLANS
Change in benefit obligation:
Obligation at January 1............................ $58,036 $50,405 $52,348
Service cost....................................... 3,707 4,098 4,056
Interest cost...................................... 4,101 4,192 3,659
Plan amendments.................................... 544 219
Transfer of liability from Huntsman Corporation
plan............................................ 138
Actuarial (gain) loss.............................. (3,602) 942 (7,781)
Benefits paid...................................... (2,080) (1,958) (1,877)
---------------------------
Obligation at December 31............................. $60,706 $58,036 $50,405
---------------------------
Change in plan assets:
Fair value of assets at January 1.................. $46,964 $49,290 $44,001
Actual return on plan assets....................... (4,378) (505) 6,603
Transfer of assets from Huntsman Corporation
plan............................................ 138
Employer contributions............................. 1,367 563
Benefit payments................................... (2,081) (1,958) (1,877)
---------------------------
Fair value of plan assets at December 31.............. $41,872 $46,965 $49,290
---------------------------
Underfunded status at December 31..................... $18,833 $11,071 $ 1,115
Unrecognized net actuarial (gain) loss................ (333) 5,011 11,103
Unrecognized prior service cost....................... (2,017) (1,584) (1,477)
---------------------------
Accrued long-term pension liability included in other
liabilities........................................ $16,483 $14,498 $10,741
- -----------------------------------------------------------------------------------
</Table>
For the above calculations, increases in future compensation ranging from 4.0%
to 4.5% were used for the non-union plan. The benefit payments under the two
union plans are not based on future compensation. For the 2001 calculations,
discount rates range from 7.25% to 7.5% and expected rates of return on plan
assets of 9.0% were used for all plans. For the 2000 calculations, discount
rates range from 7.5% to 7.75% and expected rates of return on plan assets of
9.0% were used for all plans. For the 1999 calculations, the discount rate was
6.75% and expected rates of return on plan assets of 9.0% were used for all
plans.
F-23
<Table>
<Caption>
- -----------------------------------------------------------------------------
2001 2000
- -----------------------------------------------------------------------------
GERMANY PLAN
Change in benefit obligation:
Obligation at January 1.................................. $1,168 $1,090
Service cost............................................. 66 62
Interest cost............................................ 61 62
Benefits paid............................................ (11) (4)
Change due to exchange rate.............................. (142) (42)
---------------
Obligation at December 31................................... $1,142 $1,168
---------------
Fair value of plan assets at December 31.................... None None
---------------
Underfunded status at December 31........................... $1,142 $1,168
Unrecognized net actuarial loss............................. 85 44
---------------
Accrued long-term pension liability included in other
liabilities.............................................. $1,227 $1,212
- -----------------------------------------------------------------------------
</Table>
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 in the consolidated balance sheets is approximately
$0.5 million as of December 31, 2001 and 2000.
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, 2001 was approximately $0.9 million. This liability
was frozen at the time of the acquisition.
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
F-24
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 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 have secured promissory notes, bear interest
at 7% per annum and were originally 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 restricted stock purchase agreements related to the
restricted common stock, 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, if the recipient was still our employee on such date and (2) the remainder
in equal increments over a five-year period commencing on December 31, 2001 as
follows: (x) Based on a defined earnings target for the year ended December 31,
2001. These shares were declared vested in January 2002 based on the financial
results for the year ended December 31, 2001. (y) For the periods thereafter the
vesting is reviewed at the end of each calendar quarter 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 quarter 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 quarter. If the applicable targets are
below 90% each year, vesting will automatically occur 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, as previously noted under the same 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
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,
F-25
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 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 charging interest on the remaining
$302,000 principal balance of the note receivable related to 625 shares and to
cease charging 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 $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 receivable with a third employee that
were issued in connection with the sale of restricted stock in 1999 and 2000.
Under the amended notes receivable, interest ceased 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. As a result of
these modifications, a compensation expense of $6.0 million was 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.
F-26
As of December 31, 2001, there were a total of 53,996 common shares subject to
put options as described above, of which 12,765 shares were acquired by the
employees for cash from 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, 2001, 130,983 shares have been issued and are
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. In connection with the Uniplast acquisition we issued 30,983 shares
of Preferred Stock (including 1,983 shares to employees) and detachable warrants
to purchase shares of common stock for a consideration of $31.0 million, net of
issue costs. We allocated $18.6 million to Preferred Stock, and $12.4 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.
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, 2001, the
carrying value of the Preferred Stock has been increased by $1.3 million to
reflect accretion towards the $131.0 million redemption value at May 31, 2011.
In addition, the preferred stock balance as of December 31, 2001 includes $26.3
million for accrued dividends.
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.
F-27
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.
A summary of stock option activity under the 1998 and 2000 plans is as follows:
<Table>
<Caption>
- -----------------------------------------------------------------------------------
WEIGHTED AVERAGE
OPTION SHARES EXERCISE PRICE
- -----------------------------------------------------------------------------------
Outstanding at December 31, 1998................ 39,334 $ 100.00
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
Granted...................................... 12,865 483.13
Exercised....................................
Forfeited or cancelled....................... (730) 483.13
-------------
Outstanding at December 31, 2001................ 34,837 385.22
-------------
Exercisable at December 31, 2001................ 11,414 $ 184.32
- -----------------------------------------------------------------------------------
</Table>
The weighted average remaining contractual life of the options is 7.7 years at
December 31, 2001. Options to purchase 25,935 shares vest as follows: (1) 2,512
vested on January 1, 2001 and (2) 23,423 vest in equal increments over a
five-year period commencing on December 31, 2001 as follows: (x) Based on a
defined earnings target for the year ended December 31, 2001. These options were
declared vested in January 2002 based on the financial results for the year
ended December 31, 2001. (y) For the periods thereafter the vesting is reviewed
at the end of each calendar quarter 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 quarter 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 quarter. 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 966 shares were forfeited
as a result of employee terminations and vested options to purchase 454 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
F-28
December 31, 2001, 2000 and 1999, the Company recorded compensation expense of
$7.0 million, $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, 2001, 2000 and 1999 would have been
the following pro forma amounts (in thousands):
<Table>
<Caption>
- ----------------------------------------------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------
As reported....................................... $(2,068) $(39,533) $18,311
Pro forma......................................... 5,407 (37,214) 18,978
- ----------------------------------------------------------------------------------
</Table>
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 2001,
2000 and 1998 grants, respectively: risk free rate of return of 6.02% to 6.75%;
expected life of 9 years to 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 for 2001
and 2000 grants and $49 per share for the 1998 grants.
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, as such no amount has been recorded in the
financial statements related to this matter.
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 the years
ended December 31, 2001, 2000 and 1999, we paid royalties of $1.6 million, $1.1
million and $0.7 million, respectively, under the Agreements.
F-29
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
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):
<Table>
<Caption>
- ---------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------
Revenues................................................... $813,730 $720,547
Income (loss) from continuing operations................... 18,311 (1,267)
- ---------------------------------------------------------------------------------
</Table>
Uniplast Holdings--On July 16, 2001, we acquired 100% of the outstanding stock
of Uniplast Holdings, Inc. ( "Uniplast") for approximately $56.0 million,
consisting of the assumption of approximately $40.3 million of debt and the
issuance of shares of our common stock valued at approximately $15.7 million to
the selling shareholders of Uniplast. We believe that this acquisition resulted
in significant synergies to the combined operations and increased the market
share in a number of our market segments. At the closing of the acquisition, we
refinanced approximately $37.0 million of assumed debt with the proceeds from a
private placement of 29,000 of preferred stock at $1,000 per share 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. In addition, we also issued 1,983 shares of our
preferred stock at $1,000 per share, together with warrants to purchase 2,013
shares of common stock, to certain employees of the Company. We also incurred
$0.9 million of legal and administrative expenses. We recorded $14.4 million as
intangible assets and $18.6 million as goodwill as a result of this acquisition.
The intangible assets are being amortized over 15 years while the goodwill is
not being amortized. The operating results for Uniplast from July 16, 2001 are
included in the statement of operations for the year ended December 31, 2001.
F-30
The purchase price of $56.0 million has been allocated on a preliminary basis to
assets and liabilities as follows:
<Table>
<Caption>
- --------------------------------------------------------------------
(IN MILLIONS)
- --------------------------------------------------------------------
Current Assets.............................................. $ 19.3
Property Plant and Equipment................................ 20.6
Intangible Assets........................................... 14.4
Goodwill.................................................... 18.6
Current Liabilities......................................... (13.1)
Long-term Liabilities....................................... (3.8)
------
Total Purchase Price........................................ $ 56.0
- --------------------------------------------------------------------
</Table>
Our pro forma results of operations for the year ended December 31, 2001
(assuming the Uniplast acquisition had occurred as of January 1, 2001) are as
follows (in thousands):
<Table>
<Caption>
- ----------------------------------------------------------------------
2001
- ----------------------------------------------------------------------
Revenues.................................................... $882,860
Net income (loss)........................................... (424)
- ----------------------------------------------------------------------
</Table>
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-31
Segment profit or loss and segment assets as of and for the years ended December
31, 2001, 2000 and 1999 are presented in the following table (in thousands).
Certain reclassifications have been made to the prior year amounts to be
consistent with the 2001 presentation.
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------
DESIGN INDUSTRIAL SPECIALTY CORPORATE/
PRODUCTS FILMS FILMS OTHER TOTAL
- ----------------------------------------------------------------------------------------------
2001
Net sales to customers......... $213,688 $246,127 $380,545 $ - $840,360
Intersegment sales............. 4,810 7,123 7,398 (19,331) -
-------------------------------------------------------------
Total net sales................ 218,498 253,250 387,943 (19,331) 840,360
Depreciation and
amortization................ 11,258 8,057 12,726 14,976 47,017
Interest expense............... 3,012 242 107 72,627 75,988
Segment profit................. 36,077 43,889 86,682 (161,930) 4,718
Segment total assets........... 182,255 126,890 442,263 100,275 851,683
Capital expenditures........... 12,243 7,278 31,712 5,185 56,418
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 (186,826) (53,776)
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 (110,810) 32,398
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
- ----------------------------------------------------------------------------------------------
</Table>
F-32
A reconciliation of the totals reported for the operating segments to the totals
reported in the consolidated financial statements is as follows (in thousands):
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------
PROFIT OR LOSS
Total profit for reportable segments................... $ 166,648 $ 133,050 $ 143,208
-----------------------------------
Stock based compensation related to administrative
employees........................................... (7,033)
Compensation and transaction costs related to
recapitalization.................................... (10,754)
Plant closing costs.................................... 4,588 (19,368) (2,497)
Unallocated amounts:
Corporate expenses.................................. (86,858) (92,091) (68,060)
Interest expense.................................... (72,627) (64,613) (40,253)
Other income/expense................................ - - -
-----------------------------------
Total Corporate/Other.................................. (161,930) (186,826) (110,810)
Income (loss) from continuing operations before
taxes............................................ $ 4,718 $ (53,776) $ 32,398
-----------------------------------
ASSETS
Total assets for reportable segments................... $ 751,408 $ 702,374 $ 707,531
Intangible assets not allocated to segments............ 46,973 14,856 16,166
Other unallocated assets............................... 53,302 67,804 45,326
-----------------------------------
Total consolidated assets.............................. $ 851,683 $ 785,034 $ 769,023
- --------------------------------------------------------------------------------------------
</Table>
Our sales to Kimberly-Clark Corporation and its affiliates represented
approximately 13%, 12% and 13% of consolidated net sales in 2001, 2000 and 1999,
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 2001, 2000 and
1999. 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.
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 2001 and 2000 was obtained from
market quotes. 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.
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
F-33
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, 2001 and 2000 (in thousands):
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------
2001 2000
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ----------------------------------------------------------------------------------------------
Financial assets--cash and cash
equivalents............................... $ 4,818 $ 4,818 $ 3,060 $ 3,060
------------------------------------------------
Financial liabilities:
Floating rate debt....................... 503,311 503,311 $479,370 $418,633
Fixed rate debt.......................... 210,012 228,800 208,023 129,120
------------------------------------------------
Total financial liabilities................. $713,323 $732,111 $687,393 $547,753
- ----------------------------------------------------------------------------------------------
</Table>
16. RELATED-PARTY TRANSACTIONS
The accompanying consolidated financial statements for the years ended December
31, 2000 and 1999 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.
<Table>
<Caption>
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
With Huntsman Corporation and affiliates (HC)
Inventory purchases...................................... $20,363 $21,124
Rent expense under operating lease....................... 377 396
Administrative expenses.................................. 796 2,831
Charitable contribution.................................. - 1,000
Sales of film products................................... - 258
- --------------------------------------------------------------------------------
</Table>
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.
Stockholders' Notes Receivable--Notes receivable were issued to various
employees in connection with the sale of stock (see Note 10).
F-34
J.P. Morgan Partner and Affiliates--JPMorgan Chase Bank (formerly known as 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 JPMorgan Chase Bank and J.P. Morgan Chase & Co. receive
customary fees under the credit facilities for acting in such capacities
including approximately $0.6 million in 2001. JPMorgan Chase 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 JPMorgan Chase Bank, J.P. Morgan Chase & Co.
and Chase Securities Inc. 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 57% 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, 2001 and
2000 and for the years ended December 31, 2001, 2000 and 1999. The Notes are
fully and unconditionally guaranteed on a joint and several basis by each
guarantor subsidiary and each guarantor subsidiary is wholly owned, directly or
indirectly, by 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-35
CONDENSED CONSOLIDATING BALANCE SHEET
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------
PLIANT
CORPORATION COMBINED CONSOLIDATED
AS OF DECEMBER 31, 2001 PARENT COMBINED NON- PLIANT
(IN THOUSANDS) ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
- --------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents....... $ - $ 967 $ 3,851 $ - $ 4,818
Receivables..................... 94,163 7,321 23,952 - 125,436
Inventories..................... 65,135 9,087 9,726 - 83,948
Prepaid expenses and other...... 1,856 398 772 - 3,026
Income taxes receivable......... 361 7 617 - 985
Deferred income taxes........... 4,670 (314) (1,793) - 2,563
-------------------------------------------------------------------
Total current assets......... 166,185 17,466 37,125 - 220,776
Plant and equipment, net........... 293,628 26,386 49,310 - 369,324
Goodwill and intangible assets,
net.............................. 210,946 3,628 16,625 - 231,199
Investment in subsidiaries......... 62,837 - - (62,837) -
Other assets....................... 27,188 182 3,014 - 30,384
-------------------------------------------------------------------
Total assets....................... $ 760,784 $ 47,662 $ 106,074 $ (62,837) $ 851,683
-------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
Current liabilities:
Trade accounts payable.......... $ 81,099 $ 4,678 $ 15,731 $ - $ 101,508
Accrued liabilities................ 36,541 1,703 4,853 - 43,097
Current portion of long-term
debt......................... 17,767 - - - 17,767
Due to (from) affiliates........ (24,978) 22,147 2,831 - -
-------------------------------------------------------------------
Total current liabilities.... 110,429 28,528 23,415 - 162,372
Long-term debt, net of current
portion.......................... 662,556 - 33,000 - 695,556
Other liabilities.................. 17,411 - 1,533 - 18,944
Deferred income taxes.............. 22,108 1,625 2,423 - 26,156
-------------------------------------------------------------------
Total liabilities............ 812,504 30,153 60,371 - 903,028
-------------------------------------------------------------------
Minority interest.................. (104) - 375 - 271
Redeemable stock:
Preferred stock................. 126,149 - - - 126,149
Common stock.................... 16,778 - - - 16,778
-------------------------------------------------------------------
Redeemable stock................... 142,927 - - - 142,927
-------------------------------------------------------------------
Stockholders' (deficit):
Common stock.................... 103,362 14,020 29,616 (43,636) 103,362
Warrants to purchase common
stock........................ 38,715 - - - 38,715
Retained earnings (deficit)..... (326,356) 3,500 21,215 (24,715) (326,356)
Stockholders' notes
receivable................... (616) - - - (616)
Accumulated other comprehensive
loss......................... (9,648) (11) (5,503) 5,514 (9,648)
-------------------------------------------------------------------
Total stockholders'
(deficit).................. (194,543) 17,509 45,328 (62,837) (194,543)
-------------------------------------------------------------------
Total liabilities and stockholders'
(deficit)....................... $ 760,784 $ 47,662 $ 106,074 $ (62,837) $ 851,683
- --------------------------------------------------------------------------------------------------------
</Table>
F-36
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------
PLIANT
CORPORATION COMBINED CONSOLIDATED
FOR THE YEAR ENDED DECEMBER 31, PARENT COMBINED NON- PLIANT
2001 (IN THOUSANDS) ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
- --------------------------------------------------------------------------------------------------------
Net sales.......................... $ 687,349 $ 45,088 $ 127,254 $ (19,331) $ 840,360
Cost of sales...................... 546,541 38,423 99,459 (19,331) 665,092
-------------------------------------------------------------------
Gross profit....................... 140,808 6,665 27,795 - 175,268
Total operating expenses........... 89,117 690 11,280 - 101,087
-------------------------------------------------------------------
Operating income................... 51,691 5,975 16,515 - 74,181
Interest expense................... (72,563) (82) (3,343) - (75,988)
Equity in earnings of
subsidiaries..................... 12,756 - - (12,756) -
Other income (expense), net........ 8,382 1,464 (3,321) - 6,525
-------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary loss........... 266 7,357 9,851 (12,756) 4,718
Income tax expense................. 2,334 - 4,452 - 6,786
-------------------------------------------------------------------
Net income (loss).................. $ (2,068) $ 7,357 $ 5,399 $ (12,756) $ (2,068)
- --------------------------------------------------------------------------------------------------------
</Table>
F-37
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------
PLIANT COMBINED CONSOLIDATED
FOR THE YEAR ENDED CORPORATION COMBINED NON- PLIANT
DECEMBER 31, 2001 (IN THOUSANDS) PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
- -----------------------------------------------------------------------------------------------------
Cash flows from operating
activities:.................. $ 3,574 $ 13,290 $ 13,480 - $ 30,344
-------------------------------------------------------------------
Cash flows from investing
activities:
Proceeds from sale of
assets.................... 2,966 4,948 - - 7,914
Uniplast acquisition, net of
cash acquired............. (14,945) (14,020) (9,813) - (38,778)
Capital expenditures for
plant and equipment....... (49,640) (3,490) (3,288) - (56,418)
-------------------------------------------------------------------
Net cash used in investing
activities............. (61,619) (12,562) (13,101) - (87,282)
-------------------------------------------------------------------
Cash flows from financing
activities:
Payment of capitalized fees.. (1,932) - - - (1,932)
(Payment) receipt of
dividends................. 150 - (150) - -
Net proceeds from issuance of
common and preferred
stock..................... 30,991 - - - 30,991
Borrowings/(payments) on
long-term debt............ 29,035 - (3,105) - 25,930
-------------------------------------------------------------------
Net cash provided by (used
in) financing
activities............. 58,244 - (3,255) - 54,989
-------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash
equivalents.................. (658) 229 4,136 - 3,707
-------------------------------------------------------------------
Net (decrease)/increase in cash
and cash equivalents......... (459) 957 1,260 - 1,758
Cash and cash equivalents at
beginning of the year........ 459 10 2,591 - 3,060
-------------------------------------------------------------------
Cash and cash equivalents at end
of the year.................. $ - $ 967 $ 3,851 - $ 4,818
- -----------------------------------------------------------------------------------------------------
</Table>
F-38
CONDENSED CONSOLIDATING BALANCE SHEET
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------
PLIANT COMBINED CONSOLIDATED
CORPORATION COMBINED NON- PLIANT
AS OF DECEMBER 31, 2000 (IN THOUSANDS) PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
- -------------------------------------------------------------------------------------------------------------
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....................... 15,828 1,557 17,385
Deferred income taxes................... 30,206 497 2,357 33,060
-------------------------------------------------------------------
Total liabilities................. 807,360 20,870 57,638 885,868
-------------------------------------------------------------------
Redeemable stock........................ 105,177 105,177
-------------------------------------------------------------------
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)
Accumulated other comprehensive
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
- -------------------------------------------------------------------------------------------------------------
</Table>
F-39
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------
PLIANT COMBINED CONSOLIDATED
FOR THE YEAR ENDED DECEMBER 31, 2000 CORPORATION COMBINED NON- PLIANT
(IN THOUSANDS) PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
- -----------------------------------------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------------------------------------
</Table>
F-40
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------
PLIANT COMBINED CONSOLIDATED
FOR THE YEAR ENDED DECEMBER 31, 2000 CORPORATION COMBINED NON- PLIANT
(IN THOUSANDS) PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
- -------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------
</Table>
F-41
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------
PLIANT COMBINED CONSOLIDATED
FOR THE YEAR ENDED DECEMBER 31, CORPORATION COMBINED NON- PLIANT
1999 (IN THOUSANDS) PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
- ------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------
</Table>
F-42
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------
PLIANT COMBINED CONSOLIDATED
FOR THE YEAR ENDED DECEMBER 31, CORPORATION COMBINED NON- PLIANT
1999 (IN THOUSANDS) PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
- -----------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------
</Table>
18. OTHER INCOME
Other income for the year ended December 31, 2001 includes the proceeds and
assets received from a settlement with a potential new customer and other less
significant items.
F-43
PLIANT CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------
ADDITIONS
CHARGED
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 BALANCE AT TO COSTS BALANCE
AND 1999 (IN THOUSANDS) BEGINNING AND AT END
DESCRIPTION OF YEAR EXPENSES OTHER OF YEAR
- -----------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts:
2001............................................... $ 2,166 $ 155 $ 117(1 $2,438
2)
2000............................................... 2,115 51(1) 2,166
1999............................................... 2,570 518 (973)(1) 2,115
- -----------------------------------------------------------------------------------------------
</Table>
(1) Represents the net of accounts written off against the allowance and
recoveries of previous write-offs.
(2) Represents allowance acquired in the Uniplast acquisition.
F-44
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-45
UNIPLAST HOLDINGS INC.
CONSOLIDATED BALANCE SHEET
<Table>
<Caption>
- -------------------------------------------------------------------------
DECEMBER 31, 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
- -------------------------------------------------------------------------
</Table>
See accompanying notes to consolidated financial statements.
F-46
UNIPLAST HOLDINGS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<Table>
<Caption>
- -------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------
</Table>
See accompanying notes to consolidated financial statements.
F-47
UNIPLAST HOLDINGS INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------- ACCUMULATED
COMMON ADDITIONAL TREASURY OTHER
YEAR ENDED STOCK COMMON PAID-IN STOCK ACCUMULATED COMPREHENSIVE
DECEMBER 31, 2000 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
- ------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to consolidated financial statements.
F-48
UNIPLAST HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<Table>
<Caption>
- -------------------------------------------------------------------------
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
- -------------------------------------------------------------------------
</Table>
See accompanying notes to consolidated financial statements.
F-49
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.
F-50
(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 subsidiaries 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:
<Table>
<Caption>
- ----------------------------------------------------------------------------
PERCENTAGE
OF COST
- ----------------------------------------------------------------------------
Buildings................................................... 3-5%
Machinery and equipment..................................... 7-33%
Office equipment............................................ 10-33%
- ----------------------------------------------------------------------------
</Table>
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
F-51
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds.
(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.
F-52
(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.
(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.
<Table>
<Caption>
- -----------------------------------------------------------------------------------
NET LONG-LIVED
SALES ASSETS
- -----------------------------------------------------------------------------------
United States........................................... $58,570,928 $28,766,448
Canada.................................................. 28,396,147 22,704,450
-------------------------
Total............................................. $86,967,075 $51,470,898
- -----------------------------------------------------------------------------------
</Table>
(3) INVENTORIES
Inventories consist of the following:
<Table>
- ------------------------------------------------------------------------
Raw materials............................................... $4,989,005
Finished goods.............................................. 3,038,668
Supplies.................................................... 135,583
----------
$8,163,256
- ------------------------------------------------------------------------
</Table>
F-53
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<Table>
- ---------------------------------------------------------------------------
Land........................................................ $ 1,343,374
Buildings................................................... 3,470,884
Machinery and equipment..................................... 22,400,546
Office equipment............................................ 997,805
-----------
$28,212,609
- ---------------------------------------------------------------------------
</Table>
Depreciation expense was $2,530,110 for 2000.
(5) DEBT
Long-term debt consists of the following:
<Table>
- -------------------------------------------------------------------------
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
- -------------------------------------------------------------------------
</Table>
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,
F-54
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.
Management plans to meet with its lenders to reach an appropriate settlement to
amend the Credit Agreement. In addition, management is pursuing the sale of the
Company and has entered into merger discussions with Pliant Corporation
("Pliant"). Under a draft merger agreement, Pliant would acquire 100% of the
outstanding shares of the Company for Pliant common stock and the assumption of
the Company's debt. At the close of the acquisition, Pliant would refinance the
outstanding balances under the Company's Credit Agreement.
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 held by minority owners were
converted one for one for Company shares at a price of $20 per share.
F-55
(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:
<Table>
- ------------------------------------------------------------------------
2001........................................................ $ 333,779
2002........................................................ 245,171
2003........................................................ 186,404
2004........................................................ 130,627
2005........................................................ 105,251
----------
Total future minimum payments......................... $1,001,232
- ------------------------------------------------------------------------
</Table>
Rent expense for fiscal 2000 was $341,648.
(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.
<Table>
- ------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------
</Table>
F-56
The following table provides the amounts recognized in the consolidated balance
sheet at December 31, 2000:
<Table>
- -----------------------------------------------------------------------
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)
- -----------------------------------------------------------------------
</Table>
The assumptions used in the measurements of the Company's benefit obligation as
of December 31, 2000 are shown in the following table:
<Table>
<Caption>
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
</Table>
The following table provides the components of net periodic benefit cost for the
plans for fiscal year 2000:
<Table>
- -----------------------------------------------------------------------
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
- -----------------------------------------------------------------------
</Table>
(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.
F-57
(10) INCOME TAXES
Income tax expense (benefit) attributable to income from operations for the year
ended December 31, 2000 consists of the following:
<Table>
<Caption>
- -----------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------
</Table>
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:
<Table>
- ---------------------------------------------------------------------
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%
- ---------------------------------------------------------------------
</Table>
F-58
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:
<Table>
- -------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------
</Table>
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.
F-59
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:
<Table>
- -------------------------------------------------------------------------
Net income (loss) as reported............................... $(5,442,840)
-----------
Pro forma net income (loss)................................. $(5,477,808)
- -------------------------------------------------------------------------
</Table>
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:
<Table>
<Caption>
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
</Table>
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:
<Table>
<Caption>
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
</Table>
(12) RELATED PARTY TRANSACTIONS
The Company was charged management fees of $750,000 by Perry in 2000.
F-60
(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.
(14) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The condensed consolidating financial statements present, in separate columns,
financial information for (1) Uniplast Holdings Inc., Uniplast U.S., Inc.,
Pierson Industries, Inc., Turex, Inc. and Uniplast Midwest, Inc. (the "guarantor
companies"), (2) Uniplast Industries Company and its consolidated subsidiaries
(the "non-guarantor" company), (3) eliminations necessary to arrive at the
consolidated Uniplast Holdings Inc. financial statements, and (4) Uniplast
Holdings Inc. consolidated financial statements, in each case as of and for the
year ended December 31, 2000. Uniplast U.S., Inc. and Uniplast Industries
Company are wholly owned subsidiaries of Uniplast Holdings Inc., Pierson
Industries, Inc., Turex, Inc., and Uniplast Midwest, Inc. are wholly owned
subsidiaries of Uniplast U.S., Inc.
The information is provided to assist potential acquirers (as discussed in note
5) with public debt offerings which would be guaranteed by the guarantor
companies.
F-61
(A) CONDENSED CONSOLIDATING BALANCE SHEET
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------
CONSOLIDATED
YEAR ENDED DECEMBER 31, 2000 GUARANTOR NON-GUARANTOR UNIPLAST
(IN THOUSANDS) COMPANIES COMPANY ELIMINATIONS HOLDINGS INC.
- -----------------------------------------------------------------------------------------------------
ASSETS
Cash..................................... $ 185 $ 285 $ - $ 470
Trade accounts receivable, less allowance
for doubtful accounts................. 8,628 3,388 10 12,026
Inventories.............................. 5,821 2,336 6 8,163
Deferred income taxes.................... 1,206 - - 1,206
Prepaid expenses and other current
assets................................ 347 270 - 617
----------------------------------------------------------
Total current assets......... 16,187 6,279 16 22,482
Property, plant and equipment............ 20,920 7,261 32 28,213
Less: accumulated depreciation........... (3,807) (1,956) - (5,763)
----------------------------------------------------------
Net property, plant and
equipment....................... 17,113 5,305 32 22,450
Goodwill, net............................ 10,796 17,322 - 28,118
Investments.............................. 17,730 - (17,730) -
Other assets, net........................ 825 78 - 903
----------------------------------------------------------
Total assets................. $ 62,651 $ 28,984 $ (17,682) $ 73,953
----------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt........ 21,329 16,001 - 37,330
Trade accounts payable................... 6,130 2,352 102 8,584
Accrued expense.......................... 3,865 (32) (52) 3,781
Due to affiliated company................ 2,000 - - 2,000
Income taxes payable..................... 231 (72) - 159
----------------------------------------------------------
Total current liabilities.... 33,555 18,249 50 51,854
Long-term debt........................... 134 - - 134
Deferred income taxes.................... 1,224 552 - 1,776
Minority interest........................ - 1,639 - 1,639
----------------------------------------------------------
Total liabilities............ 34,913 20,440 50 55,403
Intercompany............................. 7,691 (8,496) 805 -
Shareholders' equity:
Common shares............................ 14 - - 14
Additional paid in capital............... 24,881 17,730 (17,730) 24,881
Treasury stock........................... (50) - - (50)
Retained earnings (accumulated
deficit).............................. (5,690) 140 (57) (5,607)
Accumulated other comprehensive loss..... 892 (830) (750) (688)
----------------------------------------------------------
Total stockholders' equity... 20,047 17,040 (18,537) 18,550
----------------------------------------------------------
Total liabilities and
stockholders equity........ $ 62,651 $ 28,984 $ (17,682) $ 73,953
- -----------------------------------------------------------------------------------------------------
</Table>
F-62
(B) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------
CONSOLIDATED
YEAR ENDED DECEMBER 31, 2000 GUARANTOR NON-GUARANTOR UNIPLAST
(IN THOUSANDS) COMPANIES COMPANY ELIMINATIONS HOLDINGS INC.
- -----------------------------------------------------------------------------------------------------
Sales.................................... $ 58,600 $ 28,397 $ (30) $ 86,967
Cost of sales............................ 54,293 23,979 (30) 78,242
----------------------------------------------------------
Gross profit.......................... 4,307 4,418 - 8,725
Operating expenses:
Selling, general and administrative
expense............................ 5,608 1,765 - 7,373
Goodwill amortization................. 605 1,022 - 1,627
----------------------------------------------------------
Income (loss) from operations...... (1,906) 1,631 - (275)
Other expense:
Interest expense...................... 2,567 1,255 - 3,822
Management fee........................ 750 - - 750
Other expense (income)................ 47 (5) - 42
----------------------------------------------------------
Income (loss) before income tax
expense (benefit)............... (5,270) 381 - (4,889)
Income tax expense (benefit)............. (75) 629 - 554
----------------------------------------------------------
Net loss........................... $ (5,195) $ (248) $ - $ (5,443)
- -----------------------------------------------------------------------------------------------------
</Table>
F-63
(C) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------
CONSOLIDATED
YEAR ENDED DECEMBER 31, 2000 GUARANTOR NON-GUARANTOR UNIPLAST
(IN THOUSANDS) COMPANIES COMPANY ELIMINATIONS HOLDINGS INC.
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities:
Net loss.............................. $ (5,195) $ (248) $ - $ (5,443)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization...... 2,435 1,884 - 4,319
Deferred income taxes.............. 41 - - 41
Changes in assets and liabilities:
(Increase) decrease in current
assets:
Trade accounts receivable....... 101 1,056 (10) 1,147
Inventories..................... (848) 48 51 (749)
Prepaid expenses and other
current assets............... (243) 173 - (70)
(Decrease) increase in current
liabilities:
Trade accounts payable and accrued
expenses........................... 2,451 583 97 3,131
Income tax payable.................... 182 (232) - (50)
Due to affiliate...................... 750 - - 750
Other assets and liabilities, net..... 120 (78) (138) (96)
----------------------------------------------------------
Net cash provided by (used in)
operating activities............ (206) 3,186 - 2,980
Cash flows from investing activities:
Capital expenditures for plant and
equipment.......................... (5,757) (1,067) - (6,824)
----------------------------------------------------------
Net cash used in investing
activities...................... (5,757) (1,067) - (6,824)
Cash flows from financing activities:
Proceeds from issuance of long-term
debt............................... 3,250 690 - 3,940
Principal payments on long-term
debt............................... (5,264) (1,000) - (6,264)
Issuance of common stock.............. 7,100 - - 7,100
Minority interest..................... - (555) - (555)
----------------------------------------------------------
Net cash provided by (used in)
financing activities............ 5,086 (865) - 4,221
Effect of exchange rate changes on
cash.................................. 432 (682) - (250)
----------------------------------------------------------
Net increase (decrease) in cash.......... (445) 572 - 127
Cash, beginning of year.................. 630 (287) - 343
----------------------------------------------------------
Cash, end of year........................ $ 185 $ 285 $ - $ 470
- -----------------------------------------------------------------------------------------------------
</Table>
F-64
UNIPLAST HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
- -------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
(IN THOUSANDS)(UNAUDITED) 2001 2000
- -------------------------------------------------------------------------------------
ASSETS
Cash........................................................ $ 1,051 $ 470
Trade accounts receivable, less allowance for doubtful
accounts................................................. 11,461 12,026
Inventories................................................. 8,529 8,163
Deferred income taxes....................................... 1,206 1,206
Prepaid expenses and other current assets................... 514 617
-----------------------
Total current assets............................ 22,761 22,482
Property, plant and equipment............................... 25,335 28,213
Less: accumulated depreciation.............................. (5,004) (5,763)
-----------------------
Net property, plant and equipment..................... 20,331 22,450
Goodwill, net............................................... 27,093 28,118
Other assets, net........................................... 958 903
-----------------------
Total Assets.................................... $71,143 $ 73,953
-----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Portion of long-term debt........................... 36,955 37,330
Trade accounts payable...................................... 7,910 8,584
Accrued expense............................................. 2,496 3,781
Due to affiliated company................................... 2,500 2,000
Income taxes payable........................................ 199 159
-----------------------
Total current liabilities....................... 50,060 51,854
Long-term debt.............................................. - 134
Deferred income taxes....................................... 1,758 1,776
Other liabilities........................................... 2,044 0
Minority interest........................................... 1,639 1,639
-----------------------
Total long term liabilities..................... 5,441 3,549
Total liabilities............................... 55,501 55,403
Shareholders' equity........................................
Common shares............................................... 14 14
Additional paid in capital.................................. 24,881 24,881
Accumulated deficit......................................... (8,419) (5,607)
Treasury stock.............................................. (50) (50)
Accumulated other comprehensive loss........................ (784) (688)
-----------------------
Total stockholders' equity...................... 15,642 18,550
-----------------------
Total Liabilities and Stockholders Equity....... $71,143 $ 73,953
- -------------------------------------------------------------------------------------
</Table>
See notes to condensed consolidated financial statements.
F-65
UNIPLAST HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF NET LOSS
<Table>
<Caption>
- ---------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30,
(IN THOUSANDS)(UNAUDITED) 2001
- ---------------------------------------------------------------------------
Sales....................................................... $42,532
Cost of Sales............................................... 38,029
-------------
Gross Profit............................................. 4,503
Operating Expenses
Selling, general and administrative expense.............. 3,479
Goodwill amortization.................................... 804
-------------
Income from operations................................ 220
Other expense
Interest expense......................................... 1,929
Management Fee........................................... 500
Other expense............................................ 215
-------------
Loss before income tax expense........................ (2,424)
Income tax expense.......................................... 388
-------------
Net loss.............................................. $(2,812)
- ---------------------------------------------------------------------------
</Table>
See notes to condensed consolidated financial statements.
F-66
UNIPLAST HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY AND COMPREHENSIVE INCOME
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES ACCUMULATED
COMMON ADDITIONAL TREASURY OTHER
STOCK COMMON PAID-IN STOCK ACCUMULATED COMPREHENSIVE
(DOLLARS IN THOUSANDS) (UNAUDITED) ISSUED STOCK CAPITAL AT COST DEFICIT INCOME (LOSS) TOTAL
- ----------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2000... 1,421 $ 14 $ 24,881 $ (50) $ (5,607) $ (688) $18,550
Issuance of common stock....... - - - - - - -
Treasury stock................. - - - - - - -
Comprehensive income:
Net income (loss)........... - - - - (2,812) - (2,812)
Foreign currency translation
adjustment................ - - - - - (96) (96)
----------------------------------------------------------------------------------
Comprehensive income......... - - - - - - (2,908)
----------------------------------------------------------------------------------
Balances at June 30, 2001...... 1,421 $ 14 $ 24,881 $ (50) $ (8,419) $ (784) $15,642
- ----------------------------------------------------------------------------------------------------------------------
</Table>
See notes to condensed consolidated financial statements.
F-67
UNIPLAST HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
- ---------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30,
(IN THOUSANDS) (UNAUDITED) 2001
- ---------------------------------------------------------------------------
Cash flows from operating activities:
Net loss................................................. $ (2,812)
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization......................... 2,255
Loss on Sale of Jacksonville Plant.................... 182
Deferred income taxes................................. (4)
Changes in assets and liabilities:
(Increase) decrease in current assets:
Trade accounts receivable.......................... 565
Inventories........................................ (366)
Prepaid expenses and other current assets.......... 103
(Decrease) increase in current liabilities:
Accounts payable & Accrued Expenses................ (1,742)
Due to affiliate................................... 500
Other.............................................. (44)
Income tax payable................................. 40
-------------
Net cash provided by (used in) operating activities... (1,323)
Cash flows from investing activities:
Equipment Lease Financing................................ 1,892
Proceeds from Sale of Jacksonville Plant................. 750
Capital expenditures for property and equipment.......... (360)
Net cash used in investing activities................. 2,282
Cash flows from financing activities:
Debt issuance costs...................................... (91)
Repayment of long term debt.............................. (292)
-------------
Net cash provided by (used in) financing activities... (383)
Effect of exchange rate changes on cash..................... 5
-------------
Net Increase (decrease) in cash............................. 581
Cash, beginning of year..................................... 470
-------------
Cash, end of year........................................... $ 1,051
- ---------------------------------------------------------------------------
</Table>
See notes to condensed consolidated financial statements.
F-68
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 June 30, 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 June 30, 2001 and December 31, 2000
consisted of the following (in thousands):
<Table>
<Caption>
- ------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
2001 2000
- ------------------------------------------------------------------------------------
Raw materials.............................................. $ 4,990 $ 5,089
Finished goods............................................. 3,161 3,139
Supplies................................................... 541 135
-----------------------
Subtotal................................................ 8,692 8,363
Less: Inventory reserves................................... (163) 200
-----------------------
Inventories, net........................................ $ 8,529 $ 8,163
- ------------------------------------------------------------------------------------
</Table>
F-69
3. INCOME TAXES
Income tax expense consists of the following (in thousands):
<Table>
<Caption>
- ---------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, 2001
- ---------------------------------------------------------------------------
Current:
Federal.................................................. $ (75)
State.................................................... 50
Foreign.................................................. 391
Deferred.................................................... 22
-------------
$ 388
- ---------------------------------------------------------------------------
</Table>
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 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. 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.
6. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The condensed consolidating financial statements present, in separate columns,
financial information for (1) Uniplast Holdings Inc., Uniplast U.S., Inc.,
Pierson Industries, Inc., Turex, Inc. and Uniplast Midwest, Inc. (the "guarantor
companies"), (2) Uniplast Industries Company and its consolidated subsidiaries
(the "non-guarantor" company), (3) eliminations necessary to arrive at the
consolidated Uniplast Holdings Inc. financial statements, and (4) Uniplast
Holdings Inc. consolidated financial statements, in each case as of and for the
three months ended March 31, 2001. Uniplast U.S., Inc. and Uniplast Industries
Company are wholly owned subsidiaries of Uniplast Holdings Inc., Pierson
Industries, Inc., Turex, Inc., and Uniplast Midwest, Inc. are wholly owned
subsidiaries of Uniplast U.S., Inc.
F-70
(A) CONDENSED CONSOLIDATING BALANCE SHEET
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------
CONSOLIDATED
GUARANTOR NON-GUARANTOR UNIPLAST
AS OF JUNE 30, 2001 (IN THOUSANDS) COMPANIES COMPANY ELIMINATIONS HOLDINGS INC.
- -----------------------------------------------------------------------------------------------------
ASSETS
Cash..................................... $ 467 $ 584 $ - $ 1,051
Trade accounts receivable, less allowance
for doubtful accounts................. 8,304 3,147 10 11,461
Inventories.............................. 6,248 2,275 6 8,529
Deferred income taxes.................... 1,206 - - 1,206
Prepaid expenses and other current
assets................................ 368 146 - 514
----------------------------------------------------------
Total current assets............... 16,593 6,152 16 22,761
Property, plant and equipment............ 18,262 7,042 31 25,335
Less: accumulated depreciation........... (2,800) (2,204) - (5,004)
----------------------------------------------------------
Net property, plant and
equipment....................... 15,462 4,838 31 20,331
Goodwill, net............................ 10,494 16,599 - 27,093
Investments.............................. 17,730 - (17,730) -
Other assets, net........................ 841 117 - 958
----------------------------------------------------------
Total Assets....................... $ 61,120 $ 27,706 $ (17,683) $ 71,143
----------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt........ 21,306 15,649 - 36,955
Trade accounts payable................... 6,140 1,770 - 7,910
Accrued expense.......................... 2,308 240 (52) 2,496
Due to affiliated company................ 2,500 - - 2,500
Income taxes payable..................... 330 (131) - 199
----------------------------------------------------------
Total current liabilities.......... 32,584 17,528 (52) 50,060
Long-term debt........................... - - - -
Deferred income taxes.................... 1,228 530 - 1,758
Other liabilities........................ 2,044 - - 2,044
Minority interest........................ - 1,639 - 1,639
----------------------------------------------------------
Total long term liabilities........ 3,272 2,169 - 5,441
Total liabilities.................. 35,856 19,697 (52) 55,501
Intercompany............................. 9,703 (9,863) 160 -
Shareholders' equity:
Common shares............................ 14 - - 14
Additional paid in capital............... 24,076 18,535 (17,730) 24,881
Treasury stock........................... (50) - - (50)
Retained earnings (accumulated
deficit).............................. (8,772) 414 (61) (8,419)
Accumulated other comprehensive loss..... 293 (1,077) - (784)
----------------------------------------------------------
Total stockholders' equity......... 15,561 17,872 (17,791) 15,642
Total liabilities and stockholders
equity.......................... $ 61,120 $ 27,706 $ (17,683) $ 71,143
- -----------------------------------------------------------------------------------------------------
</Table>
F-71
(B) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------
CONSOLIDATED
SIX MONTHS ENDED JUNE 30, 2001 GUARANTOR NON-GUARANTOR UNIPLAST
(IN THOUSANDS) COMPANIES COMPANY ELIMINATIONS HOLDINGS INC.
- -----------------------------------------------------------------------------------------------------
Sales.................................... $ 27,861 $ 14,671 $ - $ 42,532
Cost of sales............................ 25,988 12,041 - 38,029
----------------------------------------------------------
Gross profit.......................... 1,873 2,630 - 4,503
Operating expenses:
Selling, general and administrative
expense............................ 2,502 973 4 3,479
Goodwill amortization................. 303 501 - 804
----------------------------------------------------------
Income (loss) from operations...... (932) 1,156 (4) 220
Other expense:
Interest expense...................... 1,270 659 - 1,929
Management fee........................ 500 - - 500
Other expense......................... 215 - - 215
----------------------------------------------------------
Income (loss) before income tax
expense (benefit)............... (2,917) 497 (4) (2,424)
Income tax expense (benefit)............. 165 223 - 388
----------------------------------------------------------
Net loss........................... $ (3,082) $ 274 $ (4) $ (2,812)
- -----------------------------------------------------------------------------------------------------
</Table>
F-72
(C) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
CONSOLIDATED
SIX MONTHS ENDED JUNE 30, 2001 GUARANTOR NON-GUARANTOR UNIPLAST
(IN THOUSANDS) COMPANIES COMPANY ELIMINATIONS HOLDINGS INC.
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities:
Net income (loss)..................... $ (3,082) $ 274 $ (4) $ (2,812)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization...... 1,273 982 - 2,255
Loss on sale of Jacksonville
plant........................... 182 - - 182
Deferred income taxes.............. 4 (8) - (4)
Changes in assets and liabilities:
(Increase) decrease in current
assets:
Trade accounts receivable....... 324 241 - 565
Inventories..................... (427) 61 - (366)
Prepaid expenses and other
current assets............... (21) 124 - 103
(Decrease) increase in current
liabilities:
Trade accounts payable and
accrued expenses............. (873) (872) 3 (1,742)
Due to affiliate................ 500 - - 500
Other........................... (19) (25) - (44)
Income tax payable.............. 99 (59) - 40
--------------------------------------------------------
Net cash provided by (used in)
operating activities............ (2,040) 718 (1) (1,323)
Cash flows from investing activities:
Proceeds from sale of Jacksonville
plant.............................. 750 - - 750
Equipment lease financing............. 1,892 - - 1,892
Capital expenditures for plant and
equipment.......................... (261) (100) 1 (360)
--------------------------------------------------------
Net cash used in investing
activities...................... 2,381 (100) 1 2,282
Cash flows from financing activities:
Principal payments on long-term
debt............................... (158) (134) - (292)
Debt issuance costs................... (53) (38) - (91)
--------------------------------------------------------
Net cash provided by (used in)
financing activities............ (211) (172) - (383)
Effect of exchange rate changes on
cash.................................. 152 (147) - 5
--------------------------------------------------------
Net increase (decrease) in cash.......... 282 299 - 581
Cash, beginning of year.................. 185 285 - 470
--------------------------------------------------------
Cash, end of year........................ $ 467 $ 584 $ - $ 1,051
- ---------------------------------------------------------------------------------------------------
</Table>
F-73
[PLIANT LOGO]
[ALTERNATIVE FRONT COVER FOR MARKET-MAKING PROSPECTUS]
PROSPECTUS
[PLIANT 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 2000 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.
Upon completion of our 2002 exchange offer, which we expect to complete in May
2002, we will issue up to $100,000,000 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.
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 $112,000,000 of the Notes using the proceeds of
certain equity offerings completed before June 1, 2003.
- - The redemption prices are described on page .
CHANGE OF CONTROL
- - If we experience a change of control, we must offer to purchase the Notes.
SECURITY AND RANKING
- - The Notes are unsecured. The Notes are subordinated to all of our existing and
future senior debt, rank equally with all of our future 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. J.P.
Morgan Securities Inc. may act as principal or agent in these transactions.
These sales will be made at prices related to prevailing market prices at the
time of sale. We will not receive any of the proceeds of these sales.
---------------------
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE OF THIS
PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION IN THE NOTES.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this prospectus is April 25, 2002
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
SUMMARY OF THE TERMS OF THE NOTES
ISSUER..................Pliant Corporation.
NOTES...................$320 million aggregate principal amount of 13% Senior
Subordinated Notes due 2010.
MATURITY................June 1, 2010.
INTEREST PAYMENT
DATES...................June 1 and December 1 of each year.
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.
GUARANTEES..............Each of our existing domestic restricted subsidiaries
has, and each of our future domestic restricted
subsidiaries will, fully and unconditionally guarantee
the Notes on an unsecured senior subordinated basis.
Also, if any of our existing or future restricted
foreign subsidiaries guarantees any senior debt (other
than a foreign subsidiary that guarantees senior debt of
another foreign subsidiary), such foreign subsidiary
will be required to fully and unconditionally guarantee
the Notes on an unsecured senior subordinated basis. 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 our credit
facilities.
RANKING.................The Notes are unsecured and:
- are subordinated to all of our existing and any future
senior debt;
- rank equally with all of our existing and any future
senior subordinated debt;
- rank senior to any future subordinated debt;
- are effectively subordinated to our secured debt to
the extent of the value of the assets securing such
indebtedness; and
- are effectively subordinated to all liabilities of our
subsidiaries that do not guarantee the Notes.
A-1
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
Similarly, the guarantees of the Notes by our
subsidiaries that also guarantee our credit facilities
are unsecured and:
- are subordinated to all of the applicable guarantors'
existing and any future senior debt;
- rank equally with all of the applicable guarantors'
existing and any future senior subordinated debt;
- rank senior to any of the applicable guarantors'
future subordinated debt; and
- are effectively subordinated to any secured debt of
such guarantor to the extent of the value of the assets
securing such debt.
Assuming we had completed the issuance of the Notes
under the 2002 Indenture (as defined below) and applied
the net proceeds therefrom on December 31, 2001, on a
pro forma basis:
- we would have had approximately $436.6 million of
senior debt to which the Notes would be subordinated
(which amount does not include the remaining
availability of $94.7 million under our revolving credit
facility after giving effect to outstanding letters of
credit and possible additional borrowings under our
uncommitted incremental tranche B 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 $57.5 million of liabilities, excluding
liabilities owed to us.
The indentures relating to the Notes permit us to incur
a significant amount of additional senior debt.
CERTAIN COVENANTS.......The indentures relating to the Notes limit 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;
A-2
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
- sell capital stock of subsidiaries;
- merge or consolidate; and
- enter into transactions with affiliates.
These covenants are subject to a number of important
exceptions. For more details, see "Description of the
notes--Certain covenants."
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" and "Risk factors."
RISK FACTORS
You should carefully consider all the information contained in this prospectus
and, in particular, should consider carefully the factors set forth under the
caption "Risk factors" before making an investment in the Notes.
A-3
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 J.P. Morgan
Securities Inc. that as of the date of this prospectus J.P. Morgan Securities
Inc. intends to make a market in the Notes. J.P. Morgan Securities Inc. 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 J.P. Morgan Securities Inc. is
our affiliate, J.P. Morgan Securities Inc. is required to deliver a current
"market-making" prospectus and otherwise comply with the registration
requirements of the Securities Act in any secondary market sale of the New
Notes. Accordingly, the ability of J.P. Morgan Securities Inc. to make a market
in the New 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.
A-4
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the Notes by J.P.
Morgan Securities Inc. in market-making transactions. We will not receive any of
the proceeds from these transactions.
A-5
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 $320 million aggregate principal amount of its 13% Senior
Subordinated Notes due 2010 under two separate indentures. The Company issued
$100 million aggregate principal amount of the New Notes under the Indenture
dated as of April 10, 2002 (the "2002 Indenture"), among the Company, the Note
Guarantors and The Bank of New York, as trustee (the "Trustee"), and issued $220
million aggregate principal amount of the 2000 Notes under the 2000 Indenture.
In this section, the New Notes and the 2000 Notes are referred to collectively
as the "Notes," and the 2002 Indenture and the 2000 Indenture are referred to
collectively as the "Indentures." We have combined the discussion of the
Indentures in this section because the covenants and other material provisions
of the Indentures are substantially identical. However, the 2000 Notes are
governed by the 2000 Indenture and the New Notes are governed by the 2002
Indenture. The Indentures are filed or incorporated by reference as exhibits to
the registration statement of which this prospectus forms a part.
The Indentures contain provisions which define your rights under the Notes. In
addition, the Indentures govern the obligations of the Company and of each Note
Guarantor under the Notes. The terms of the Notes include those stated in the
Indentures and those made a part of the Indentures by reference to the TIA.
The following description is meant to be only a summary of certain provisions of
the Indentures. It does not restate the terms of the Indentures in their
entirety. We urge that you carefully read the Indentures as they, and not this
description, govern 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 any future Senior
Indebtedness of the Company;
- pari passu in right of payment with all existing and any 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.
A-6
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 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.;
- 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. has a 50% interest in Alliant Company LLC, a
joint venture with a European plastics manufacturer.
The Restricted Subsidiaries that are not Note Guarantors generated 15.1% of the
Company's net sales for the year ended December 31, 2001, and accounted for
12.5% of the assets of the Company and its Subsidiaries on a consolidated basis
as of December 31, 2001.
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;
- subordinated in right of payment to all existing and future Senior
Indebtedness of such Note Guarantor;
- pari passu in right of payment with all existing and future Senior
Subordinated Indebtedness of such Note Guarantor;
A-7
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
- senior in right of payment to any future Subordinated Obligations of
such Note Guarantor; and
- 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 $320 million under two
separate indentures, relating to $220 million aggregate principal amount of 2000
Notes and $100 million aggregate principal amount of New Notes, respectively.
The Notes 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 New Note bears interest at a rate of 13% per annum from April 10, 2002 or
from the most recent date to which interest has been paid or provided for. Each
2000 Note bears interest at a rate of 13% per annum from the most recent date to
which interest has been paid or provided for. We pay interest semiannually on
June 1 and December 1 of each year 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 15 Broad Street, New
York, New York 10007. 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
A-8
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
the relevant interest payment date), if redeemed during the 12-month period
commencing on June 1 of the years set forth below:
<Table>
<Caption>
- ------------------------------------------------------------------------------
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------
2005........................................................ 106.500%
2006........................................................ 104.333%
2007........................................................ 102.167%
2008 and thereafter......................................... 100.000%
- ------------------------------------------------------------------------------
</Table>
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
issued under the applicable Indenture 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 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
issued under the applicable Indenture 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 Indentures.
SELECTION
If we partially redeem Notes under the applicable Indenture, the Trustee will
select the Notes to be redeemed under that Indenture 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,
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 and senior in right of payment
to all future Subordinated Obligations of the Company. The Notes also 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"
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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, are 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 December 31, 2001, the
Subsidiaries of the Company, other than those Subsidiaries that are Note
Guarantors, would have had total liabilities, including trade payables, of
approximately $57.5 million (excluding liabilities owed to the Company). As of
December 31, 2001, after giving effect to the issuance of the Notes under the
2002 Indenture and the application of the net proceeds therefrom, there would
have been outstanding:
(1) approximately $436.6 million of Senior Indebtedness of the Company, all
of which would have been Secured Indebtedness (exclusive of unused commitments
of $94.7 million under the Revolving Credit Facility);
(2) in addition to the Senior Subordinated Indebtedness of the Company
represented by the Notes, 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
(4) in addition to the Senior Subordinated Indebtedness of the Note
Guarantors represented by the Note Guarantees, no Indebtedness of the Note
Guarantors that is subordinate or junior in right of payment to the Note
Guarantees.
Subject to certain conditions, the Indentures permit 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 2000 Notes 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);
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
(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 Indentures, 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
Indentures.
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
Indentures 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,
(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
A-11
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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
(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 Indentures 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 Indentures should not have been made to them,
such Holders will be required
A-12
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 Indentures otherwise permit payment at that time.
By reason of the subordination provisions of the Indentures, 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, have jointly and
severally unconditionally Guaranteed, or, in the case of future Subsidiaries,
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 Indentures (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 have agreed, or, in the case of
future Subsidiaries, 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 is, or, in the case of future Subsidiaries, 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 Subsidiary) to execute and deliver to the Trustee a supplemental
indenture pursuant to which such Restricted Subsidiary will Guarantee payment of
the Notes. See "--Certain covenants--Future note guarantors" below.
The obligations of a Note Guarantor under its Note Guarantee are senior
subordinated obligations. As such, the rights of Holders to receive payment by a
Note Guarantor pursuant to its Note Guarantee will be subordinated in right of
payment to the rights of holders of Senior Indebtedness of such Note Guarantor.
The terms of the subordination provisions described above with respect to the
Company's obligations under the Notes apply equally to a Note Guarantor and the
obligations of such Note Guarantor under its Note Guarantee.
A-13
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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
Indentures 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 under the applicable Indenture pursuant to
this section in the event that it has exercised its right to redeem all the
Notes outstanding under that Indenture 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
A-14
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
power of the Voting Stock of such parent entity and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of such parent entity);
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors (A) selected in accordance with the
Stockholders Agreement so long as such agreement is in effect or otherwise
nominated by the Permitted Holders or (B) whose election by the Board of
Directors of the Company or whose nomination for election by the stockholders of
the Company was approved by a vote of at least a majority of the members of the
Board of Directors of the Company, then still in office, who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved by the Board of Directors or in accordance
with the Stockholders Agreement or otherwise by the Permitted Holders) cease for
any reason to constitute a majority of the Board of Directors of the Company
then in office;
(4) the adoption of a plan relating to the liquidation or dissolution of the
Company; or
(5) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale of all or
substantially all the assets of the Company to another Person (other than a
Person that is controlled by the Permitted Holders), and, in the case of any
such merger or consolidation, the securities of the Company that are outstanding
immediately prior to such transaction and which represent 100% of the aggregate
voting power of the Voting Stock of the Company are changed into or exchanged
for cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving Person or transferee that represent
immediately after such transaction, at least a majority of the aggregate voting
power of the Voting Stock of the surviving Person or transferee.
In the event that at the time of such Change of Control the terms of any
agreement governing Bank Indebtedness of the Company or its Subsidiaries
restrict or prohibit the repurchase of Notes pursuant to this covenant, then
prior to the mailing of the notice to Holders provided for in the immediately
following paragraph but in any event within 30 days following any Change of
Control, the Company shall:
(1) repay in full all such Bank Indebtedness or offer to repay in full all
such Bank Indebtedness and repay the Indebtedness of each lender who has
accepted such offer, or
(2) obtain the requisite consent of the lenders under such agreements to
permit the repurchase of the Notes as provided for below.
If the Company does not obtain such consents or repay such Bank Indebtedness,
the Company will remain prohibited from repurchasing the Notes pursuant to this
covenant. In such event the Company's failure to make an offer to purchase Notes
pursuant to this covenant would constitute an Event of Default under the
Indentures which in turn would constitute a default under the Credit Agreement.
In such circumstances, the subordination provisions of the Indentures 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 all or a portion (in integral multiples of
$1,000) of such Holder's Notes at
A-15
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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
(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
Indentures 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 purchasers of the Notes. 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
Indentures, 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 Indentures do 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 applicable Indenture relative to
the Company's obligation to make an offer to repurchase the
A-16
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
Notes outstanding under that Indenture 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 outstanding under that Indenture.
CERTAIN COVENANTS
The Indentures contain covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company will not, and will not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company or any Restricted Subsidiary that is a Note
Guarantor may Incur Indebtedness if on the date of such Incurrence and after
giving effect thereto the Consolidated Coverage Ratio would be greater than
2.00:1.00 if such Indebtedness is Incurred on or prior to December 31, 2002 and
2.25:1.00 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted
Subsidiaries may Incur the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement in an aggregate
principal amount not to exceed $580.0 million at any one time outstanding less
the aggregate amount of all repayments of principal of such Indebtedness
pursuant to the covenant described under "--Limitation on Sales of Assets and
Subsidiary Stock;"
(2) Indebtedness of the Company owed to and held by any Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by the
Company or any Restricted Subsidiary; provided, however, that (A) any subsequent
issuance or transfer of any Capital Stock or any other event that results in any
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of any such Indebtedness (except to the Company or a
Restricted Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof, (B) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated to the
prior payment in full in cash of all obligations with respect to the Notes, (C)
if a Restricted Subsidiary is the obligor on such Indebtedness, such
Indebtedness is made pursuant to an intercompany note and (D) if a Note
Guarantor is the obligor on such Indebtedness and the Company is not the
obligee, such Indebtedness is subordinated in right of payment to the Note
Guarantee of such Note Guarantor;
(3) Indebtedness (A) represented by the Notes and the Note Guarantees, (B)
outstanding on the 2000 Notes Closing Date (other than the Indebtedness
described in clauses (1) and (2) above) or Incurred pursuant to Section 4.03(a)
of the 2000 Notes Indenture prior to the Closing Date, (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 Indentures;
(4) (A) Indebtedness Incurred pursuant to Section 4.03(b)(iv) of the 2000
Notes Indenture, (B) 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
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
(C) 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 its 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) (A) Indebtedness Incurred pursuant to Section 4.03(b)(vi) of the 2000
Notes Indenture and (B) 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);
provided that the aggregate principal amount of all Indebtedness Incurred
pursuant to subclauses (A) and (B) of this clause (6) and all Refinancing
Indebtedness Incurred to refund, refinance or replace any Indebtedness Incurred
pursuant to subclauses (A) and (B) of this clause (6), at any time outstanding,
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
Indentures, 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) (A) Indebtedness incurred pursuant to Section 4.03(b)(x) of the 2000
Notes Indenture and (B) Indebtedness of Foreign Subsidiaries; provided that the
aggregate outstanding amount of Indebtedness incurred by such Foreign
Subsidiaries under subclauses (A) and (B) of this clause (10) does not exceed at
any one time an amount equal to the sum of (A) 80% of the
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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) (A) Indebtedness incurred pursuant to Section 4.03(b)(xii) of the 2000
Notes Indenture and (B) 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)); provided
that the aggregate principal amount on the date of Incurrence, when added to all
other Indebtedness Incurred pursuant to subclauses (A) and (B) of 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 pursuant to paragraphs (a) or (b) above 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 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
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 2000 Notes 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,
(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 (including references to
Indebtedness incurred pursuant to certain sections of the 2000 Notes Indenture),
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
A-20
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 2000 Notes 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 2000 Notes Closing
Date occurred to the end of the most recent fiscal quarter ending prior to the
date of such Restricted Payment for which consolidated financial statements of
the Company are publicly available (or, in case such Consolidated Net Income
will be a deficit, minus 100% of such deficit);
(ii) 100% of the aggregate Net Cash Proceeds (other than in respect of
an Excluded Contribution) received by the Company (x) as capital contributions
to the Company after the 2000 Notes Closing Date or (y) from the issue or sale
of its Capital Stock (other than Disqualified Stock) subsequent to the 2000
Notes 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 2000 Notes 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 2000
Notes Closing Date of any Indebtedness of
A-21
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
the Company or its Restricted Subsidiaries issued after the 2000 Notes 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 2000 Notes 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 since the 2000 Notes Closing Date, 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 2000 Notes Closing Date (other than Disqualified Stock and other than
Capital Stock issued or sold to, or capital contributions from, a Subsidiary of
the Company or an employee equity ownership or participation plan or other trust
established by the Company or any of its Subsidiaries); provided, however, that:
(A) such Restricted Payment will be excluded in the calculation of the
amount of Restricted Payments, and
(B) the Net Cash Proceeds from such sale or capital contribution applied
in the manner set forth in this clause (1) will be excluded from the calculation
of amounts under clause (4)(C)(ii) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Obligations of the Company or a Restricted
Subsidiary made by exchange for, or out of the proceeds of the substantially
concurrent sale of, (x) Capital Stock of the Company or a Restricted Subsidiary
or (y) Subordinated Obligations of the Company or a Restricted Subsidiary that
are permitted to be Incurred pursuant to the covenant described under
"--Limitation on Indebtedness"; provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
will be excluded in the calculation of the amount of Restricted Payments;
A-22
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
(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 since the 2000 Notes Closing Date 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 2000 Notes 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 commencing with fiscal year 2000 (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 Indentures, 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 since the 2000
Notes Closing Date to enable the Company to make payments to holders of its
Capital Stock in lieu of the issuance of fractional shares of its Capital Stock;
provided, however, that such payments will be excluded in the calculation of the
amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries. The
Company will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock or
pay any Indebtedness or other obligations owed to the Company or any of its
Restricted Subsidiaries (it
A-23
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 2000 Notes 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 Indentures,
(iii) contained in security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or restriction restricts
the transfer of the property subject to such security agreements, or
(iv) encumbrances or restrictions relating to Indebtedness permitted
to be Incurred pursuant to clause (b)(6) of the covenant described under
"--Limitation on Indebtedness" for property acquired in the ordinary course of
business that only imposes encumbrances or restrictions on the property so
acquired (it being agreed that any such encumbrance or restriction may also
secure other Indebtedness permitted to be Incurred by the Company and provided
by the same financing source providing the Indebtedness Incurred pursuant to
such clause (b)(6));
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
(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 Indentures;
(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
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
clause (A), to make an Offer (as defined below) to purchase Notes pursuant to
and subject to the conditions set forth in section (b) of this covenant;
provided, however, that if the Company elects (or is required by the terms of
any Senior Subordinated Indebtedness), such Offer may be made ratably to
purchase the Notes and other Senior Subordinated Indebtedness of the Company;
and
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) (other than the proviso thereof) and
(B), for any general corporate purpose not restricted by the terms of the
Indentures;
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 since the 2000 Notes Closing Date
that is not applied in accordance with this covenant or Section 4.06 of the 2000
Notes Indenture exceeds $10.0 million since the 2000 Notes Closing Date.
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 (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date) in accordance with the procedures
(including prorating in the event of oversubscription), set forth in the
Indentures. 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
Indentures. 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 since the 2000 Notes Closing Date (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
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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
applicable Indenture relative to the Company's obligation to make an offer to
repurchase the Notes outstanding under that Indenture 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 outstanding under that Indenture.
Limitation on Transactions with Affiliates. (a) The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of the Company (an
"Affiliate Transaction") unless such transaction is on terms:
(1) that are no less favorable to the Company or such Restricted Subsidiary,
as the case may be, than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an Affiliate,
(2) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $5.0 million,
(A) are set forth in writing, and
(B) except as provided in clause (a)(3) below, have been approved by a
majority of the members of the Board of Directors having no personal stake in
such Affiliate Transaction (if any such members exist), and
(3) that, in the event (i) such Affiliate Transaction involves an amount in
excess of $10.0 million, or (ii) if there are no members of the Board of
Directors having no personal stake in such Affiliate Transaction and such
Affiliate Transaction involves an aggregate amount in excess of $5.0 million,
have been determined by a nationally recognized appraisal, accounting or
investment banking firm to be fair, from a financial standpoint, to the Company
and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any Restricted Payment permitted to be paid pursuant to the covenant
described under "--Limitation on Restricted Payments,"
(2) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment arrangements,
options to purchase Capital Stock of the Company and equity ownership,
restricted stock plans, long-term incentive plans, stock appreciation rights
plans, participation plans or similar employee benefits plans approved by the
Board of Directors,
(3) the grant of options (and the exercise thereof) to purchase Capital
Stock of the Company or similar rights to employees and directors of the Company
pursuant to plans approved by the Board of Directors,
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
(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 with respect to all loans or advances made since the
2000 Notes Closing Date,
(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 J.P. Morgan Partners, LLC and Persons directly or
indirectly controlled by J.P. Morgan Partners, LLC) 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 2000 Notes Closing Date,
(8) sales of Capital Stock to Permitted Holders approved by a majority of
the members of the Board of Directors who do not have a material direct or
indirect financial interest in or with respect to the transaction being
considered, or
(9) the existence or performance by the Company or any Restricted Subsidiary
under any agreement as in effect as of the 2000 Notes 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 2000 Notes 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
Indentures 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
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 Indentures;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been Incurred by
the Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness under
paragraph (a) of the covenant described under "--Certain covenants--Limitation
on Indebtedness;" and
(4) the Company shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Indentures.
The Successor Company will succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indentures, 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'
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indentures; 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,
(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 Indentures,
(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 Indentures,
(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
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 Indentures or any Note Guarantee and
such Default continues for 10 days after receipt of the notice specified in the
Indentures.
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 under the applicable Indenture until the Trustee or the Holders
of at least 25% in principal amount of the outstanding Notes under that
Indenture 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 under the applicable Indenture, the Trustee or the Holders of at
least 25% in principal amount of the outstanding Notes under that Indenture 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
under the applicable Indenture, the principal of and interest and liquidated
damages on all the Notes outstanding under that Indenture 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 under the applicable
Indenture may rescind any such acceleration with respect to the Notes
outstanding under that Indenture and its consequences.
Subject to the provisions of the applicable 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
applicable 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 applicable 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
under the applicable Indenture 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,
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
(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
under the applicable Indenture 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 under the applicable Indenture 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 Indentures 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 Indentures, 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 under the applicable Indenture and is
known to the Trustee, the Trustee must mail to each Holder of Notes outstanding
under that Indenture 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
under that Indenture. 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 applicable Indenture or the Notes under that
Indenture may be amended with the written consent of the Holders of a majority
in principal amount of the Notes then outstanding under that Indenture 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
under that Indenture. However, without the consent of each Holder of an
outstanding Note affected under the applicable Indenture, no amendment may,
among other things:
(1) reduce the amount of Notes whose Holders must consent to an amendment,
(2) reduce the rate of or extend the time for payment of interest or any
liquidated damages on any Note,
(3) reduce the principal of or extend the Stated Maturity of any Note,
(4) reduce the premium payable upon the redemption of any Note or change the
time at which any Note may be redeemed as described under "-- Optional
redemption" above,
(5) make any Note payable in money other than that stated in the Note,
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
(6) make any change to the subordination provisions of the applicable
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 Indentures to:
- cure any ambiguity, omission, defect or inconsistency,
- provide for the assumption by a successor corporation of the
obligations of the Company under the Indentures,
- 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 Indentures 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,
- in the case of the 2002 Indenture, provide for the issuance of the New
Notes, or
- comply with any requirement of the SEC in connection with the
qualification of the Indentures 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 Indentures, a Holder will be able to transfer or exchange Notes. Upon any
transfer or
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
exchange, the registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes required by law or permitted by
the Indentures. 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 Indentures ("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).
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under each of the Indentures and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
GOVERNING LAW
The Indentures and the Notes are governed by and construed in accordance with,
the laws of the State of New York without giving effect to applicable principles
of conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"2000 Note Guarantee" means each Guarantee of the obligations with respect to
the 2000 Notes issued by a Person pursuant to the 2000 Notes Indenture.
"2000 Notes" means the $220,000,000 aggregate principal amount of the Company's
13% Senior Subordinated Notes due 2010 issued under the 2000 Notes Indenture.
"2000 Notes Closing Date" means May 31, 2000.
"2000 Notes Indenture" means the indenture dated as of May 31, 2000, among the
Company, the subsidiary guarantors party thereto and The Bank of New York, as
trustee, under which the 2000 Notes were issued, as amended, modified or
supplemented from time to time.
"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 or any
improvement to any property or assets that are 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.
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
"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,
(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).
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
"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 April 10, 2002.
"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
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 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.
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 Indentures.
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,
(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,
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
(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 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
A-40
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 2000 Notes 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 JPMorgan Chase 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 Indentures. "Designated Senior
Indebtedness" of a Note Guarantor has a correlative meaning.
A-41
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
"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),
A-42
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
(5) other noncash charges of the Company and its Consolidated Restricted
Subsidiaries (excluding any such noncash charge to the extent it represents an
accrual of or reserve for cash expenditures in any future period),
(6) income or loss from discontinued operations,
(7) plant closing costs (as defined by GAAP), and
(8) noncash stock-based compensation expense.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and noncash charges of, a
Restricted Subsidiary of the Company shall be added to Consolidated Net Income
to compute EBITDA only to the extent (and in the same proportion) that the net
income (loss) of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended, loaned or advanced to the Company by
such Restricted Subsidiary without prior approval of Persons other than the
Board of Directors or holders of the Company's Capital Stock (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Restricted Subsidiary or its stockholders.
"Equity Offering" means any public or private sale of the common stock of the
Company, other than any public offering with respect to the Company's common
stock registered on Form S-8 or other issuances upon exercise of options by
employees of the Company or any of its Restricted Subsidiaries.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange and Registration Rights Agreement" means the Exchange and Registration
Rights Agreement dated April 10, 2002 among the Company, J.P. Morgan 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.
A-43
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
"GAAP" means generally accepted accounting principles in the United States of
America as in effect as of May 31, 2000, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board,
(3) such other statements by such other entities as are approved by a
significant segment of the accounting profession, and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and similar
written statements from the accounting staff of the SEC.
All ratios and computations based on GAAP contained in the Indentures 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;
A-44
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
(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);
(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.
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
"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
(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
A-46
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 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 to be 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 Indentures.
"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.
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
"Permitted Holders" means each of (i) JP Morgan Partners, LLC and its
Affiliates, (ii) Southwest Industrial Films, LLC 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 "--Certain covenants--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 "--Certain
covenants--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 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;
A-48
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
(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 2000 Notes 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 Indentures, 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 since the 2000 Notes Closing Date, plus (A) the aggregate
net after-tax amount returned since the 2000 Notes Closing Date to the Company
or any Restricted Subsidiary in cash on or with respect to any Investments made
since the 2000 Notes Closing Date 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 since the 2000 Notes Closing Date 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 since the 2000 Notes Closing Date of an Unrestricted
Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary;
and
(16) additional Investments since the 2000 Notes Closing Date 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.
"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,
A-49
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 2000
Notes 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 2000
Notes Closing Date or Incurred in compliance with the 2000 Notes Indenture (if
incurred prior to the Closing Date) or, if incurred on or after the Closing
Date, 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 2000 Notes 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 2000 Notes 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;
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
A-50
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions.
A-51
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
"Senior Subordinated Indebtedness" of the Company means the Notes, the 2000
Notes, the New 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
2000 Notes 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
A-52
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
of the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital, surplus and undivided
profits aggregating in excess of $250,000,000 (or the foreign currency
equivalent thereof) and whose long-term debt is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act),
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered into
with a bank meeting the qualifications described in clause (2) above,
(4) investments in commercial paper, maturing not more than 270 days after
the date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with a
rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc. ("S&P"),
(5) investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's
Investors Service, Inc., and
(6) investments in money market funds that invest substantially all of their
assets in securities of the types described in clauses (1) through (5) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sec.sec. 77aaa-77bbbb) as
in effect on the Closing Date.
"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"Trade Payables" means, with respect to any Person, any accounts payable or any
indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Trustee" means the party named as such in the Indentures 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) Pliant 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
A-53
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 "--Certain
covenants--Limitation on Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation:
(x) the Company could Incur $1.00 of additional Indebtedness under paragraph
(a) of the covenant described under "--Certain covenants--Limitation on
Indebtedness" and
(y) no Default shall have occurred and be continuing.
Any such designation of a Subsidiary as a Restricted Subsidiary or Unrestricted
Subsidiary by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other interests
(including partnership interests) of such Person then outstanding and normally
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all the
Capital Stock of which (other than directors' qualifying Capital Stock) is owned
by the Company or another Wholly Owned Subsidiary.
A-54
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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
A-55
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 global note for all purposes under the indentures.
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
indentures 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 indentures
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 indentures. Under the terms of
the indentures, 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.
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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
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 indentures or
- upon the occurrence of certain other events as provided in the
indentures,
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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[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This prospectus has been prepared for use by J.P. Morgan Securities Inc. in
connection with offers and sales of the Notes in market-making transactions
effected from time to time. J.P. Morgan Securities Inc. 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 J.P. Morgan Securities Inc. against certain liabilities, including
liabilities under the Securities Act, and to contribute payments which J.P.
Morgan Securities Inc. might be required to make in respect thereof.
As of March 31, 2002, J.P. Morgan Partners (BHCA), L.P. an affiliate of J.P.
Morgan Securities Inc., beneficially owned approximately 52.8% of our common
stock and certain of our directors are employed by an affiliate of J.P. Morgan
Securities Inc. See "Security ownership of certain beneficial owners and
management" and "Certain relationships and related transactions -- Transactions
between Pliant and new stockholders -- Credit facilities and offering of notes
by affiliates of stockholders." J.P. Morgan Securities Inc. 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 J.P. Morgan Securities Inc. that, subject to applicable
laws and regulations, J.P. Morgan Securities Inc. currently intends to make a
market in the Notes. However, J.P. Morgan Securities Inc. is not obligated to do
so and any such market-making may be interrupted or discontinued at any time
without notice. In addition, such market-making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act. There can be no
assurance that an active trading market will develop or be sustained. See "Risk
factors."
A-58
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
LEGAL MATTERS
The validity of the Notes and the Note Guarantees has been passed upon for us by
O'Sullivan LLP, New York, New York.
A-59
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with the
Securities and Exchange Commission (the 'SEC' or the 'Commission'). You can
inspect and copy these materials at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and over the Internet at the SEC's Web site
at http://www.sec.gov. Copies of these materials can also be obtained by mail at
prescribed rates from the SEC's Public Reference Room at the above address. You
can obtain information about the Public Reference Room by calling the SEC at
1-800-SEC-0330.
We have filed a Registration Statement on Form S-4 to register with the
Commission offers and sales of the Notes made by J.P. Morgan Securities Inc. in
market-making transactions effected from time to time. This prospectus is part
of that Registration Statement. As allowed by the Commission's rules, this
prospectus does not contain all of the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT US OR THE TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. IF YOU ARE GIVEN ANY INFORMATION OR
REPRESENTATIONS ABOUT THESE MATTERS THAT IS NOT DISCUSSED IN THIS PROSPECTUS,
YOU MUST NOT RELY ON THAT INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR
TO WHOM WE ARE NOT PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW.
SUBJECT TO OUR OBLIGATION TO AMEND OR SUPPLEMENT THIS PROSPECTUS AS REQUIRED BY
LAW AND THE RULES AND REGULATIONS OF THE COMMISSION, 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.
A-60
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
[PLIANT LOGO]
PLIANT CORPORATION
$320,000,000 PRINCIPAL AMOUNT OF
13% SENIOR SUBORDINATED NOTES DUE 2010
WHICH ARE GUARANTEED ON A SENIOR SUBORDINATED BASIS BY
SUBSTANTIALLY ALL OF OUR DOMESTIC SUBSIDIARIES
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 directors and officers and advancement of their expenses to the
fullest extent as from time to time permitted by applicable law, including,
without limitation, Section 16-10a-902 of the Utah Revised Business Corporation
Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<Table>
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)).
</Table>
II-1
<Table>
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 Amended 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 Amended and Restated Articles
of Incorporation of Pliant Corporation (incorporated by
reference to Exhibit 3.2 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
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 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)).
3.11 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)).
3.12 Certificate of Incorporation of Uniplast Holdings Inc., as
amended (incorporated by reference to Exhibit 3.14 to Pliant
Corporation's Registration Statement on Form S-1 (File No.
333-65754)).
</Table>
II-2
<Table>
3.13 Certificate of Incorporation of Uniplast U.S., Inc., as
amended (incorporated by reference to Exhibit 3.15 to Pliant
Corporation's Registration Statement on Form S-1 (File No.
333-65754)).
3.14 Certificate of Incorporation of Turex, Inc (incorporated by
reference to Exhibit 3.16 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
3.15 Articles of Organization of Pierson Industries, Inc., as
amended (incorporated by reference to Exhibit 3.17 to Pliant
Corporation's Registration Statement on Form S-1 (File No.
333-65754)).
3.16 Certificate of Incorporation of Uniplast Midwest, Inc.
(incorporated by reference to Exhibit 3.18 to Pliant
Corporation's Registration Statement on Form S-1 (File No.
333-65754)).
3.17 Amended and Restated Bylaws of Pliant Corporation
(incorporated by reference to Exhibit 3.19 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
3.18 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)).
3.19 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)).
3.20 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)).
3.21 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)).
3.22 Bylaws of Uniplast Holdings Inc., as amended (incorporated
by reference to Exhibit 3.25 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
3.23 Bylaws of Uniplast U.S., Inc., as amended (incorporated by
reference to Exhibit 3.26 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
3.24 Bylaws of Turex, Inc. (incorporated by reference to Exhibit
3.27 to Pliant Corporation's Registration Statement on Form
S-1 (File No. 333-65754)).
3.25 Bylaws of Pierson Industries, Inc., as amended (incorporated
by reference to Exhibit 3.28 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
3.26 Code of Bylaws of Uniplast Midwest, Inc. (incorporated by
reference to Exhibit 3.29 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
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 2000 Note (incorporated by reference to Exhibit B to
Exhibit 4.1).
</Table>
II-3
<Table>
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 (incorporated by reference to
Exhibit 4.3 to Pliant Corporation's Registration Statement
on Form S-1 (File No. 333-65754)).
4.4* Indenture, dated as of April 10, 2002, among Pliant
Corporation, the Note Guarantors party thereto and The Bank
of New York, as trustee.
4.5* Form of New Note (incorporated by reference to Exhibit B to
Exhibit 4.4).
4.6 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)).
4.7* Exchange and Registration Rights Agreement, dated as of
April 10, 2002, among Pliant Corporation, the Note
Guarantors party thereto, and J.P. Morgan Securities, Inc.
and Deutsche Bank Securities Inc., as Initial Purchasers.
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 (incorporated by reference to
Exhibit 10.3 to Pliant Corporation's Registration Statement
on Form S-1 (File No. 333-65754)).
10.4 Amendment No. 2 dated as of December 19, 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 (incorporated by reference to
Exhibit 10.4 to Pliant Corporation's Annual Report on Form
10-K for the year ended December 31, 2001).
10.5 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)).
10.6 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)).
</Table>
II-4
<Table>
10.7 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 (incorporated by reference to Exhibit 10.5 to
Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
10.8 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 ((incorporated by reference to Exhibit 10.7 to
Pliant Corporation's Registration Statement on Form S-1
(File No. 333-65754)).
10.9 Warrant Agreement, dated as of May 31, 2000, among Pliant
Corporation and Chase Domestic Investments, L.L.C.
(incorporated by reference to Exhibit 10.6 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.10 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
(incorporated by reference to Exhibit 10.9 to Pliant
Corporation's Registration Statement on Form S-1 (File No.
333-65754)).
10.11 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 (incorporated by reference to Exhibit 10.10 to
Pliant Corporation's Registration Statement on Form S-1
(File No. 333-65754)).
10.12 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 (the "Lenders"), Bankers
Trust Company, as Administrative Agent and Collateral Agent,
and The Chase Manhattan Bank, as Syndication Agent, and The
Bank of Nova Scotia, as the Documentation Agent
(incorporated by reference to Exhibit 10.7 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.13 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).
10.14 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 (incorporated by reference to
Exhibit 10.13 to Pliant Corporation's Registration Statement
on Form S-1 (File No. 333-65754)).
10.15* Amendment No. 3, dated as of April 2, 2002, to the Credit
Agreement dated as of September 30, 1997, as amended and
restated as of May 31, 2000.
10.16 Guarantee Agreement, dated as of September 30, 1997, as
amended and restated as of May 31, 2000, among the
subsidiary guarantors party thereto and Bankers Trust
Company, as Collateral Agent (incorporated by reference to
Exhibit 10.8 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
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
(incorporated by reference to Exhibit 10.15 to Pliant
Corporation's Registration Statement on Form S-1 (File No.
333-65754)).
</Table>
II-5
<Table>
10.18 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)).
10.19 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 (incorporated by
reference to Exhibit 10.17 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
10.20 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)).
10.21 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 (incorporated by
reference to Exhibit 10.19 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
10.22 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)).
10.23 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 (incorporated by reference to Exhibit 10.21
to Pliant Corporation's Registration Statement on Form S-1
(File No. 333-65754)).
10.24 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)).
10.25 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).
10.26 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)).
10.27 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)).
10.28 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).
</Table>
II-6
<Table>
10.29 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)).
10.30 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).
10.31 Employment Agreement, dated as of March 30, 2001, between
Pliant Corporation and Brian E. Johnson (incorporated by
reference to Exhibit 10.30 to Pliant Corporation's Annual
Report on Form 10-K for the year ended December 31, 2001).
10.32 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)).
10.33 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)).
10.34 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)).
10.35 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).
10.36 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)).
10.37 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).
10.38 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)).
10.39 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)).
10.40 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)).
10.41 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)).
</Table>
II-7
<Table>
10.42 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)).
10.43 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)).
10.44 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).
10.45 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).
10.46 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)).
10.47 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)).
10.48 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).
10.49 Pliant Corporation Management Incentive Plan (2001)
(incorporated by reference to Exhibit 10.48 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2001).
10.50 Pliant Corporation Management Incentive Plan (2002)
(incorporated by reference to Exhibit 10.49 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2001).
12.1* Statement re: computation of ratios of earning to fixed
charges.
21.1 Subsidiaries of Pliant Corporation (incorporated by
reference to Exhibit 21.1 to Pliant Corporation's Annual
Report on Form 10-K for the year ended December 31, 2001).
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).
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.
99.1* Letter of Pliant Corporation regarding Arthur Andersen LLP.
99.2* Form of Letter of Transmittal.
99.3* Form of Notice of Guaranteed Delivery.
</Table>
II-8
<Table>
99.4* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.5* Form of Letter to Clients.
</Table>
- ---------------
* Filed previously.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts for the years ended December 31,
2001, 2000 and 1999 (included on page F-44 of the prospectus filed pursuant to
Part I of this registration statement)
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 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrants
pursuant to the forgoing provisions, or otherwise, the Registrants have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrants hereby undertake:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
II-9
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
3. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-10
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 25th day of April, 2002.
PLIANT CORPORATION
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
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:
<Table>
<Caption>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM Chairman of the Board of Directors April 25, 2002
- ------------------------------------------------ and Chief Executive Officer
Richard P. Durham (Principal Executive Officer)
/s/ JACK E. KNOTT II President, Chief Operating Officer April 25, 2002
- ------------------------------------------------ and Director
Jack E. Knott II
* Executive Vice President and Chief April 25, 2002
- ------------------------------------------------ Financial Officer (Principal
Brian E. Johnson Financial and Accounting Officer)
* Director April 25, 2002
- ------------------------------------------------
Donald J. Hofmann, Jr.
* Director April 25, 2002
- ------------------------------------------------
Timothy J. Walsh
* Director April 25, 2002
- ------------------------------------------------
John M.B. O'Connor
Director April , 2002
- ------------------------------------------------
Edward A. Lapekas
* Director April 25, 2002
- ------------------------------------------------
Albert MacMillan
*By: /s/ JACK E. KNOTT II
- ---------------------------------------------
Jack E. Knott II
Attorney-in-Fact
</Table>
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 25th day of April, 2002.
PLIANT CORPORATION INTERNATIONAL
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
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:
<Table>
<Caption>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and April 25, 2002
- ------------------------------------------------ Director (Principal Executive
Richard P. Durham Officer)
/s/ JACK E. KNOTT II President and Director April 25, 2002
- ------------------------------------------------
Jack E. Knott II
* Executive Vice President and April 25, 2002
- ------------------------------------------------ Director (Principal Financial and
Brian E. Johnson Accounting Officer)
*By: /s/ JACK E. KNOTT II
-----------------------------------------
Jack E. Knott II
Attorney-in-Fact
</Table>
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 25th day of April, 2002.
PLIANT FILM PRODUCTS OF MEXICO, INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
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:
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and Director April 25, 2002
- ------------------------------------------------ (Principal Executive Officer)
Richard P. Durham
/s/ JACK E. KNOTT II President and Director April 25, 2002
- ------------------------------------------------
Jack E. Knott II
* Executive Vice President and April 25, 2002
- ------------------------------------------------ Director (Principal Financial and
Brian E. Johnson Accounting Officer)
*By: /s/ JACK E. KNOTT II
-----------------------------------------
Jack E. Knott II
Attorney-in-Fact
</Table>
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 25th day of April, 2002.
PLIANT SOLUTIONS CORPORATION
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
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:
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and Director April 25, 2002
- ------------------------------------------------ (Principal Executive Officer)
Richard P. Durham
/s/ JACK E. KNOTT II President and Director April 25, 2002
- ------------------------------------------------
Jack E. Knott II
* Executive Vice President and April 25, 2002
- ------------------------------------------------ Director (Principal Financial and
Brian E. Johnson Accounting Officer)
*By: /s/ JACK E. KNOTT II
-----------------------------------------
Jack E. Knott II
Attorney-in-Fact
</Table>
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 25th day of April, 2002.
PLIANT PACKAGING OF CANADA, LLC
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
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:
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and Manager April 25, 2002
- ------------------------------------------------ (Principal Executive Officer)
Richard P. Durham
/s/ JACK E. KNOTT II President and Manager April 25, 2002
- ------------------------------------------------
Jack E. Knott II
* Executive Vice President and Manager April 25, 2002
- ------------------------------------------------ (Principal Financial and Accounting
Brian E. Johnson Officer)
*By: /s/ JACK E. KNOTT II
-----------------------------------------
Jack E. Knott II
Attorney-in-Fact
</Table>
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 25th day of April, 2002.
UNIPLAST HOLDINGS INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
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:
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and Director April 25, 2002
- ------------------------------------------------ (Principal Executive Officer)
Richard P. Durham
/s/ JACK E. KNOTT II Executive Vice President and April 25, 2002
- ------------------------------------------------ Director
Jack E. Knott II
* Executive Vice President and April 25, 2002
- ------------------------------------------------ Director (Principal Financial and
Brian E. Johnson Accounting Officer)
*By: /s/ JACK E. KNOTT II
-----------------------------------------
Jack E. Knott II
Attorney-in-Fact
</Table>
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 25th day of April, 2002.
UNIPLAST U.S., INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
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:
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and Director April 25, 2002
- ------------------------------------------------ (Principal Executive Officer)
Richard P. Durham
/s/ JACK E. KNOTT II Executive Vice President and April 25, 2002
- ------------------------------------------------ Director
Jack E. Knott II
* Executive Vice President and April 25, 2002
- ------------------------------------------------ Director (Principal Financial and
Brian E. Johnson Accounting Officer)
*By: /s/ JACK E. KNOTT II
-----------------------------------------
Jack E. Knott II
Attorney-in-Fact
</Table>
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 25th day of April, 2002.
TUREX, INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
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:
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and Director April 25, 2002
- ------------------------------------------------ (Principal Executive Officer)
Richard P. Durham
/s/ JACK E. KNOTT II Executive Vice President and April 25, 2002
- ------------------------------------------------ Director
Jack E. Knott II
* Executive Vice President and April 25, 2002
- ------------------------------------------------ Director (Principal Financial and
Brian E. Johnson Accounting Officer)
*By: /s/ JACK E. KNOTT II
-----------------------------------------
Jack E. Knott II
Attorney-in-Fact
</Table>
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 25th day of April, 2002.
PIERSON INDUSTRIES, INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
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:
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and Director April 25, 2002
- ------------------------------------------------ (Principal Executive Officer)
Richard P. Durham
/s/ JACK E. KNOTT II Executive Vice President and April 25, 2002
- ------------------------------------------------ Director
Jack E. Knott II
* Executive Vice President and April 25, 2002
- ------------------------------------------------ Director (Principal Financial and
Brian E. Johnson Accounting Officer)
*By: /s/ JACK E. KNOTT II
-----------------------------------------
Jack E. Knott II
Attorney-in-Fact
</Table>
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 25th day of April, 2002.
UNIPLAST MIDWEST, INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chief Executive Officer
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:
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD P. DURHAM Chief Executive Officer and Director April 25, 2002
- ------------------------------------------------ (Principal Executive Officer)
Richard P. Durham
/s/ JACK E. KNOTT II Executive Vice President and April 25, 2002
- ------------------------------------------------ Director
Jack E. Knott II
* Executive Vice President and April 25, 2002
- ------------------------------------------------ Director (Principal Financial and
Brian E. Johnson Accounting Officer)
*By: /s/ JACK E. KNOTT II
-----------------------------------------
Jack E. Knott II
Attorney-in-Fact
</Table>
INDEX TO EXHIBITS
<Table>
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 Amended 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 Amended and Restated Articles
of Incorporation of Pliant Corporation (incorporated by
reference to Exhibit 3.2 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
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)).
</Table>
<Table>
3.10 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)).
3.11 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)).
3.12 Certificate of Incorporation of Uniplast Holdings Inc., as
amended (incorporated by reference to Exhibit 3.14 to Pliant
Corporation's Registration Statement on Form S-1 (File No.
333-65754)).
3.13 Certificate of Incorporation of Uniplast U.S., Inc., as
amended (incorporated by reference to Exhibit 3.15 to Pliant
Corporation's Registration Statement on Form S-1 (File No.
333-65754)).
3.14 Certificate of Incorporation of Turex, Inc (incorporated by
reference to Exhibit 3.16 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
3.15 Articles of Organization of Pierson Industries, Inc., as
amended (incorporated by reference to Exhibit 3.17 to Pliant
Corporation's Registration Statement on Form S-1 (File No.
333-65754)).
3.16 Certificate of Incorporation of Uniplast Midwest, Inc.
(incorporated by reference to Exhibit 3.18 to Pliant
Corporation's Registration Statement on Form S-1 (File No.
333-65754)).
3.17 Amended and Restated Bylaws of Pliant Corporation
(incorporated by reference to Exhibit 3.19 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
3.18 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)).
3.19 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)).
3.20 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)).
3.21 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)).
3.22 Bylaws of Uniplast Holdings Inc., as amended (incorporated
by reference to Exhibit 3.25 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
3.23 Bylaws of Uniplast U.S., Inc., as amended (incorporated by
reference to Exhibit 3.26 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
3.24 Bylaws of Turex, Inc. (incorporated by reference to Exhibit
3.27 to Pliant Corporation's Registration Statement on Form
S-1 (File No. 333-65754)).
</Table>
<Table>
3.25 Bylaws of Pierson Industries, Inc., as amended (incorporated
by reference to Exhibit 3.28 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
3.26 Code of Bylaws of Uniplast Midwest, Inc. (incorporated by
reference to Exhibit 3.29 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
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 2000 Note (incorporated by reference to 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 (incorporated by reference to
Exhibit 4.3 to Pliant Corporation's Registration Statement
on Form S-1 (File No. 333-65754)).
4.4* Indenture, dated as of April 10, 2002, among Pliant
Corporation, the Note Guarantors party thereto and The Bank
of New York, as trustee.
4.5* Form of New Note (incorporated by reference to Exhibit B to
Exhibit 4.4).
4.6 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)).
4.7* Exchange and Registration Rights Agreement, dated as of
April 10, 2002, among Pliant Corporation, the Note
Guarantors party thereto, and J.P. Morgan Securities, Inc.
and Deutsche Bank Securities Inc., as Initial Purchasers.
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 (incorporated by reference to
Exhibit 10.3 to Pliant Corporation's Registration Statement
on Form S-1 (File No. 333-65754)).
10.4 Amendment No. 2 dated as of December 19, 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 (incorporated by reference to
Exhibit 10.4 to Pliant Corporation's Annual Report on Form
10-K for the year ended December 31, 2001).
</Table>
<Table>
10.5 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)).
10.6 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)).
10.7 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 (incorporated by reference to Exhibit 10.5 to
Pliant Corporation's Registration Statement on Form S-4
(File No. 333-42008)).
10.8 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 ((incorporated by reference to Exhibit 10.7 to
Pliant Corporation's Registration Statement on Form S-1
(File No. 333-65754)).
10.9 Warrant Agreement, dated as of May 31, 2000, among Pliant
Corporation and Chase Domestic Investments, L.L.C.
(incorporated by reference to Exhibit 10.6 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.10 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
(incorporated by reference to Exhibit 10.9 to Pliant
Corporation's Registration Statement on Form S-1 (File No.
333-65754)).
10.11 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 (incorporated by reference to Exhibit 10.10 to
Pliant Corporation's Registration Statement on Form S-1
(File No. 333-65754)).
10.12 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 (the "Lenders"), Bankers
Trust Company, as Administrative Agent and Collateral Agent,
and The Chase Manhattan Bank, as Syndication Agent, and The
Bank of Nova Scotia, as the Documentation Agent
(incorporated by reference to Exhibit 10.7 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
10.13 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).
10.14 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 (incorporated by reference to
Exhibit 10.13 to Pliant Corporation's Registration Statement
on Form S-1 (File No. 333-65754)).
10.15* Amendment No. 3, dated as of April 2, 2002, to the Credit
Agreement dated as of September 30, 1997, as amended and
restated as of May 31, 2000.
</Table>
<Table>
10.16 Guarantee Agreement, dated as of September 30, 1997, as
amended and restated as of May 31, 2000, among the
subsidiary guarantors party thereto and Bankers Trust
Company, as Collateral Agent (incorporated by reference to
Exhibit 10.8 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
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
(incorporated by reference to Exhibit 10.15 to Pliant
Corporation's Registration Statement on Form S-1 (File No.
333-65754)).
10.18 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)).
10.19 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 (incorporated by
reference to Exhibit 10.17 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
10.20 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)).
10.21 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 (incorporated by
reference to Exhibit 10.19 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
10.22 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)).
10.23 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 (incorporated by reference to Exhibit 10.21
to Pliant Corporation's Registration Statement on Form S-1
(File No. 333-65754)).
10.24 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)).
10.25 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).
</Table>
<Table>
10.26 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)).
10.27 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)).
10.28 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).
10.29 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)).
10.30 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).
10.31 Employment Agreement, dated as of March 30, 2001, between
Pliant Corporation and Brian E. Johnson (incorporated by
reference to Exhibit 10.30 to Pliant Corporation's Annual
Report on Form 10-K for the year ended December 31, 2001).
10.32 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)).
10.33 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)).
10.34 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)).
10.35 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).
10.36 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)).
10.37 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).
10.38 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)).
</Table>
<Table>
10.39 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)).
10.40 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)).
10.41 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)).
10.42 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)).
10.43 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)).
10.44 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).
10.45 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).
10.46 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)).
10.47 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)).
10.48 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).
10.49 Pliant Corporation Management Incentive Plan (2001)
(incorporated by reference to Exhibit 10.48 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2001).
10.50 Pliant Corporation Management Incentive Plan (2002)
(incorporated by reference to Exhibit 10.49 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2001).
12.1* Statement re: computation of ratios of earning to fixed
charges.
21.1 Subsidiaries of Pliant Corporation (incorporated by
reference to Exhibit 21.1 to Pliant Corporation's Annual
Report on Form 10-K for the year ended December 31, 2001).
23.1* Consent of O'Sullivan LLP (included in Exhibit 5.1).
</Table>
<Table>
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of KPMG LLP.
24.1* Powers of Attorney (included on the signature pages).
25.1* Form T-1 Statement of Eligibility and Qualifications under
the Trust Indenture Act of 1939 of The Bank of New York, as
Trustee.
99.1* Letter of Pliant Corporation regarding Arthur Andersen LLP.
99.2* Form of Letter of Transmittal.
99.3* Form of Notice of Guaranteed Delivery.
99.4* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.5* Form of Letter to Clients.
</Table>
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* Filed previously.