As filed with the Securities and
Exchange Commission on April 30, 2003 Registration No. 333-86532
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
POST-EFFECTIVE 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)
Utah 2673 87-0496065
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
PLIANT CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
Utah 2673 87-0473075
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
PLIANT FILM PRODUCTS OF MEXICO, INC.
(Exact name of registrant as specified in its charter)
Utah 2673 87-0500805
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
PLIANT SOLUTIONS CORPORATION
(Exact name of registrant as specified in its charter)
Utah 2673 87-0563872
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
PLIANT PACKAGING OF CANADA, LLC
(Exact name of registrant as specified in its charter)
Utah 2673 87-0580929
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
UNIPLAST HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 2673 13-3999589
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
UNIPLAST U.S., INC.
(Exact name of registrant as specified in its charter)
Delaware 2673 04-3199066
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
TUREX, INC.
(Exact name of registrant as specified in its charter)
Rhode Island 2673 05-0354901
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
PIERSON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 2673 04-2692382
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
UNIPLAST MIDWEST, INC.
(Exact name of registrant as specified in its charter)
Indiana 2673 98-0166923
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
----------
1475 Woodfield Road, Suite 700
Schaumburg, Illinois 60173
(847) 969-3300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
----------
JACK E. KNOTT II
Chief Executive Officer
1475 Woodfield Road, Suite 700
Schaumburg, Illinois 60173
(847) 969-3300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With a copy to:
Michael D. Annes, Esq. Reed W. Topham, Esq.
Pliant Corporation Paul M. Wilson, Esq.
1475 Woodfield Road, Suite 700 Stoel Rives LLP
Schaumburg, Illinois 60173 201 South Main Street, Suite 110
(847) 969-3300 Salt Lake City, Utah 84111
(801) 328-3131
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Approximate date of commencement of proposed sale to the public: As
promptly as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective date
registration statement for the same offering. [ ]
----------
The registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such a date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
********************************************************************************
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the post-effective amendment to the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
********************************************************************************
Subject to completion, dated April 30, 2003
Prospectus
[LOGO]
PLIANT
CORPORATION
Films. Packaging.
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 2002 exchange offer $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.
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.
Maturity
.. The Notes will mature on June 1, 2010.
Interest
.. Interest on the Notes is payable 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 72.
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 10 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 ________, 2003
TABLE OF CONTENTS
Page
----
Market and industry data......................................................i
Important information.........................................................i
Summary.......................................................................1
Risk factors.................................................................10
Disclosure regarding forward-looking statements..............................19
Use of proceeds..............................................................20
Capitalization...............................................................21
Selected financial data......................................................22
Management's discussion and analysis of financial condition and results
of operations.............................................................24
Business.....................................................................38
Management...................................................................47
Security ownership of certain beneficial owners and management and
related stockholder matters....................... .......................57
Certain relationships and related transactions...............................60
Description of credit facilities and other indebtedness......................65
Description of the notes.....................................................70
Book-entry; delivery and form...............................................113
Plan of distribution........................................................116
Legal matters...............................................................116
Experts.....................................................................116
Where you can find more information.........................................117
Index to consolidated financial statements..................................F-1
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Market and industry data
All industry data presented in this prospectus are for the year ended December
31, 2002. 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. We have not independently verified any of the data from
third-party sources. Similarly, internal company surveys and management
estimates, while we believe them to be reliable, have not been verified by any
independent sources. While we are not aware of any misstatements regarding our
industry data presented in this prospectus, 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. Some of the industry data
presented in this prospectus were obtained from the Flexible Packaging
Association. Jack E. Knott II, our Chief Executive Officer, is chairman of the
Flexible Packaging Association.
Important information
This prospectus incorporates important business and financial information about
us that is not included in or delivered with the document. This information is
available without charge to our security holders upon written or oral request.
Security holders may request this information by writing or calling us at the
following address or phone number:
Pliant Corporation
1475 Woodfield Road, Suite 700
Schaumburg, Illinois 60173
(847) 969-3300
Attention: Michael D. Annes, Secretary
i
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SUMMARY
The following summary highlights all material information of this prospectus but
does not contain all 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 some of the most diverse product lines in the film
industry and have achieved leading positions in many of these product lines. 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, 2002, we generated net sales of $879.2
million.
Our products are sold into numerous markets for a wide variety of end uses. Our
operations consist of three operating segments: Pliant U.S., Pliant
International and Pliant Solutions.
. Our Pliant U.S. segment manufactures and sells films and other
flexible packaging products primarily in the United States. Our Pliant
U.S. segment accounted for 84.5%, 87.6% and 89.3% of our net sales in
2002, 2001 and 2000, respectively. The principal products of our
Pliant U.S. segment include personal care and medical films, converter
films, printed products, barrier films, agricultural films, stretch
films and PVC films.
. Our Pliant International segment manufactures and sells films and
other flexible packaging products. We have manufacturing operations
located in Australia, Brazil, Canada, Germany and Mexico. These
operations service Australia, Southeast Asia, Latin America, Canada,
Europe and Mexico. In addition, our operation in Mexico provides the
film for our Pliant Solutions segment. Our Pliant International
segment accounted for 12.3%, 12.4% and 10.7% of our net sales in 2002,
2001 and 2000, respectively. The principal products of our Pliant
International segment vary depending on the particular country or
region.
. Our Pliant Solutions segment consists primarily of the consumer
products business we acquired from Decora Industries, Inc. and its
operating subsidiary, Decora Incorporated, in May 2002. Net sales of
the Pliant Solutions segment since the acquisition date accounted for
3.2% of our net sales in 2002. Our Pliant Solutions segment
manufactures and markets decorative and surface coverings, including
self-adhesive and non-adhesive coverings, primarily in the United
States and Canada. We market these consumer products primarily under
the Con-Tact(R) brand name, which is considered to be the most
recognized brand of consumer decorative and surface coverings.
Our principal executive offices are located at 1475 Woodfield Road, Suite 700,
Schaumburg, Illinois 60173, and our telephone number is (847) 969-3300.
Industry overview
We manufacture and sell a variety of plastic films and flexible packaging
products. Flexible packaging is the largest end market for plastic films. The
plastic film industry serves a variety of flexible packaging markets, as well as
secondary packaging and non-packaging end use markets, including pharmaceutical,
medical, personal care, household, industrial and agricultural film markets.
According to the Flexible Packaging Association, the North American market for
flexible packaging was approximately $20.4 billion in 2002 and has grown at a
compound annual growth rate, or CAGR, of approximately 3.9% from
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1
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1992 to 2002. Many of our plastic films are flexible packaging products as
defined by the Flexible Packaging Association. However, the flexible packaging
market, as defined by the Flexible Packaging Association, does not include
certain of the products we sell, such as agricultural 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 also
affect the markets for many of our other products.
Flexible packaging is used to package a variety of products, particularly food,
which accounts for approximately half of all flexible packaging shipments.
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. 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 are often used instead of corrugated boxes and
metal strapping to unitize, bundle and protect items during shipping and
storage.
Our competitive strengths
Market positions. We have leading market positions in many of our product lines.
We are North America's largest supplier of converter and frozen food films and
its second largest supplier of PVC films and films for the bread and bakery
goods market. We also maintain significant market shares in personal care and
stretch films in North America.
Manufacturing capability. Over the past three years, excluding acquisitions, we
have invested a total of $171.3 million to expand, upgrade and maintain our
asset base and information systems. With 26 plants, we are often able to
allocate lines to specific products.
Technology and product development capabilities. Our research and development
group provides the latest resin and extrusion technology to our manufacturing
facilities and allows us to test new resins and process technologies. Our
technical center in Newport News, Virginia has a pilot plant that allows 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.
Customer relationships. Our films are components of flexible packaging for some
of the largest food companies in the world. Our customers also include many of
North America's largest flexible packaging converters and the largest national
distributors of industrial films. In addition, we manufacture and supply film to
some of the largest non-food film consumers in North America.
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.
Strategy
In order to continue to expand our business and increase our profitability, we
continue to focus on developing new products and new markets and enhancing
customer relationships. We have brought innovative technological advances to the
marketplace through acquisitions, internal product development and purchasing or
licensing technology from other film companies. We have long-standing
relationships with customers who value product innovation and reliable supply
and, consequently, exercise great care in establishing and maintaining their
supplier relationships. We intend to 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.
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2
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History
We were founded in 1992. We have combined strategic acquisitions, internal
growth, product innovation and operational improvements to grow our business
from net sales of $310.8 million in 1996 to $879.2 million in 2002. We have
acquired and integrated numerous film and flexible packaging operations since
1992, including, most recently:
. the August 2002 acquisition of the business of Roll-O-Sheets Canada
Limited, a converter and seller of PVC and polyethylene film for the
food industry, with operations in Canada;
. the May 2002 acquisition of the business of Decora Industries, Inc.
and its operating subsidiary, Decora Incorporated, a manufacturer and
marketer of adhesive and non-adhesive decorative surface coverings,
including plastic films and other consumer products sold under the
Con-Tact(R) brand name; and
. the July 2001 acquisition of Uniplast Holdings Inc. and its operating
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, 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 at that time 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.
J.P. Morgan Partners (BHCA), L.P. and/or affiliates own approximately 55% of our
outstanding common stock, 75% of our preferred stock warrants to purchase common
stock and 59% of our outstanding preferred stock, subject to certain preemptive
rights with respect to 10,000 shares of preferred stock issued on March 25,
2003. 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 United States. J.P. Morgan Partners, LLC is a global private equity
organization, with over $11 billion under management. Through its affiliates,
J.P. Morgan Partners, LLC is a leading provider of equity capital for middle
market buyouts, growth equity and venture capital.
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Recent developments
Effective March 24, 2003, we entered into an amendment to our credit facilities
to, among other things, permit us to issue up to $50 million of equity
securities. The amendment also adjusted certain financial covenants, including
the leverage and interest coverage ratios. As a condition to the effectiveness
of the amendment, we agreed to issue 10,000 shares of our Series A preferred
stock and warrants to purchase 43,962 shares of our common stock to J.P. Morgan
Partners (BHCA), L.P. for $10 million. We completed this sale on March 25, 2003.
All of the proceeds of this sale were used to reduce our term debt. The
amendment allows us to issue up to an additional $40 million of equity
securities between March 25, 2003 and March 31, 2005 in order to obtain cash to
reduce the revolving borrowings and/or term borrowings under our credit
facilities. J.P. Morgan Partners is required to purchase up to $25 million of
such additional equity securities to the extent necessary to enable us to meet
our leverage ratio or the target senior debt leverage ratio specified in the
amendment at the end of any calendar quarter or fiscal year ending on or before
December 31, 2004. Any such additional issuance of Series A preferred stock to
J.P. Morgan Partners will also include warrants to purchase 4.3962 shares of our
common stock for every $1,000 face amount of preferred stock issued. Generally,
if we are required to issue any portion of such $25 million of equity securities
under the amendment with respect to any fiscal quarter in 2003, we must use 50%
of the net proceeds from the issuance of any such equity securities to reduce
our revolving borrowings, and 50% to reduce our term borrowings. If we are
required to issue any such equity securities under the amendment with respect to
any fiscal quarter in 2004, we must use 100% of the net proceeds to reduce our
term borrowings. The issuance of the remaining $15 million of equity securities
is voluntary on our part, and neither J.P. Morgan Partners nor any other person
is required to purchase such equity securities.
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4
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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 issued under the applicable indenture
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 will be 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.
Similarly, the guarantees of the Notes by our
subsidiaries that also guarantee our credit
facilities are unsecured and;
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. 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.
As of December 31, 2002:
. we had approximately $424.7 million of senior
debt to which the Notes were subordinated
(which amount does not include the remaining
availability of $67.6 million under our
revolving credit facility after giving effect
to outstanding letters of credit);
. we did not have any senior subordinated debt
other than the Notes;
. we did not have any subordinated debt; and
. our subsidiaries that are not guarantors of
the Notes had $57.1 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;
. 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."
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6
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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.
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Summary historical financial data
The following selected financial data for the years ended December 31, 2000,
2001 and 2002 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.
Years Ended December 31,
------------------------
2000 2001 2002
------ ------ ------
(Dollars in Millions)
Statement of operations data:
Net sales................................... $843.8 $840.4 $879.2
Cost of sales............................... 696.7 665.1 714.5
------ ------ ------
Gross profit................................ 147.1 175.3 164.7
Total operating expenses(1)................. 132.7 101.1 136.6
------ ------ ------
Operating income............................ 14.4 74.2 28.1
Interest expense............................ (68.5) (76.0) (75.3)
Other income (expense), net................. 0.3 6.5 2.3
------ ------ ------
Income (loss) before income taxes and
extraordinary item....................... (53.8) 4.7 (44.9)
Income tax expense (benefit)................ (14.3) 6.8 (1.5)
------ ------ ------
Income (loss) before extraordinary item..... (39.5) (2.1) (43.4)
Extraordinary item(2)....................... (11.3)
------ ------
Net income (loss)........................... $(50.8) $ (2.1) $(43.4)
====== ====== ======
Other financial data:
EBITDA(3)................................... $ 42.9 $127.7 $ 77.3
Net cash provided by operating activities... 60.3 30.3 43.6
Net cash used in investing activities....... (65.6) (87.3) (55.2)
Net cash provided by financing activities... 0.3 55.0 12.4
Depreciation and amortization............... 39.5 47.0 46.9
Restructing and other costs(1).............. 19.4 (4.6) 43.1
Non-cash stock-based compensation expense... 2.6 7.0
Capital expenditures........................ 65.6 56.4 49.2
Ratio of earnings to fixed charges(4) 1.1x
December 31,
2002
------------
Balance Sheet Data:
Cash and cash equivalents................... $ 1.6
Working capital............................. 45.8
Total assets................................ 853.2
Total debt.................................. 736.4
Total liabilities........................... 960.1
Redeemable preferred stock(5)............... 150.8
Redeemable common stock..................... 13.0
Stockholders' equity (deficit).............. (270.9)
- ----------
(1) Total operating expenses for 2002 include $43.1 million of restructuring
and other costs, including $19.2 million related to the closure of our
plant in Merced, California, a portion of our plant in Shelbyville,
Indiana, a part of our plant in Toronto, Canada, one of our plants in
Mexico, and our Fort Edward, New York facility (acquired as part of the
Decora acquisition). In addition, these costs reflect $7.9 million for the
costs of relocating several of our production lines related to plant
closures and costs associated with production rationalizations at several
plants. Total operating expenses for 2002 also include $7.4 million related
to severance costs, including benefits for several company-wide workforce
reduction programs that were completed in 2002. A $8.6 million charge for
the impairment of goodwill on our Pliant International segment is also
reflected in total operating expenses for 2002.
Total operating expenses for 2001 include $7.0 million of non-cash
stock-based compensation expense, $3.0 million of restructuring and other
costs, $4.0 million for expenses 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. In addition,
total operating expenses for 2001 includes a credit for $7.6 million
related to the reversal of the previously accrued charge for the closure of
our Harrington plant. In 2001, we decided not to proceed with our
previously announced closure of our Harrington plant. 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, $19.4 million of
restructuring and
- --------------------------------------------------------------------------------
8
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other 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.
(2) 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.
(3) EBITDA reflects income before interest expense, income taxes, depreciation
and amortization. We believe that EBITDA information enhances an investor's
understanding of our ability to satisfy principal and interest obligations
with respect to our indebtedness and to utilize cash for other purposes. In
addition, EBITDA is used as a measure in our indentures and credit
agreement in determining our compliance with certain covenants. However,
the EBITDA as defined in the indentures for debt incurrence purposes and
consolidated EBITDA as defined in the credit agreement for covenant
compliance purposes are computed with additional adjustments not reflected
in the EBITDA presented in the table. These adjustments include income and
gain/loss from discontinued operations, extraordinary items, restructuring
and other costs and all non-cash charges. In addition to these adjustments,
consolidated EBITDA as defined in the credit agreement is computed with
further adjustments for pre-acquisition earnings of acquisitions and
related synergistic cost savings. EBITDA 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. In addition, 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. A reconciliation of EBITDA to net income as set
forth in our consolidated statements of operations is as follows (dollars
in millions):
2000 2001 2002
------ ------ ------
Net income (loss).................. $(50.8) $ (2.1) $(43.4)
Adjustments:
Income tax expense (benefit).... (14.3) 6.8 (1.5)
Interest expense................ 68.5 76.0 75.3
Depreciation and amortization... 39.5 47.0 46.9
------ ------ ------
EBITDA............................. $ 42.9 $127.7 $ 77.3
====== ====== ======
(4) For purposes of this ratio, 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 2002 and 2000, earnings were insufficient to
cover fixed charges by approximately $44.9 million and $53.8 million,
respectively.
(5) The amount presented for 2002 includes proceeds of $131.0 million from the
issuance of preferred stock in 2000 and 2001, plus the accrued and unpaid
dividends of $49.6 million, less the unamortized discount due to detachable
preferred stock warrants and unamortized issuance costs totaling $29.8
million.
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9
Risk factors
You should carefully consider the risks described below as well as other
information and data included in this prospectus before making an investment
decision with respect to the Notes.
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.
The following chart shows certain important credit statistics as of December 31,
2002:
As of
(Dollars in Millions) December 31, 2002
-----------------
Total debt....................... $ 736.4
Redeemable preferred stock....... 150.8
Redeemable common stock.......... 13.0
Stockholders' equity (deficit)... (270.9)
Our earnings for the year ended December 31, 2002 were insufficient to cover
fixed charges by approximately $44.9 million.
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
. 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 estimated annual debt service in 2003 is approximately $90.2 million,
consisting of $3.9 million of scheduled mandatory principal payments, $10.0
million of voluntary principal payments as required by
10
our March 24, 2003 amendment to our credit facilities and approximately $76.3
million of interest payments.
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;
. prices and supply of raw materials; 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. An increase of 1.0% in the interest rates payable on our
variable rate indebtedness would increase our 2003 estimated debt service
requirements by approximately $2.2 million, after accounting for the effect of
our interest rate hedge agreements.
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
11
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. Effective September 30, 2002, we
entered into an amendment to our credit facilities which, among other changes,
further revised our leverage ratio financial covenant. Effective March 24, 2003,
we entered into an amendment to our credit facilities which, among other
changes, further adjusted the leverage and interest coverage ratios, required us
to issue $10 million of equity securities and use the proceeds to reduce our
term debt and required us to obtain a commitment for the purchase of up to $25
million of additional equity securities to the extent necessary to enable us to
comply with our leverage ratio or the target senior debt leverage ratio
specified in the amendment at the end of any calendar quarter or fiscal year
ending on or before December 31, 2004. 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, a significant amount of our revenue is
generated by our subsidiaries. For the year ended December 31, 2002, 21% of our
net sales was generated by our subsidiaries. As a result, our ability to pay
interest on the Notes and to satisfy our other debt service obligations will
depend significantly on our receipt of dividends or other intercompany transfers
of funds from our operating subsidiaries. The payment of dividends to us by our
subsidiaries is contingent upon the earnings of those subsidiaries and subject
to various business considerations as well as certain contractual provisions
which may restrict the payment of dividends and distributions and the transfer
of assets to us. See "Description of credit facilities and 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.
12
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, 2002, the aggregate principal amount of our senior indebtedness was $424.7
million (which amount does not include the remaining availability of $67.6
million under our revolving credit facility after giving effect to outstanding
letters of credit). 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, 2002, there was 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."
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 15.4% of our net sales for
the year ended December 31, 2002. As of December 31, 2002, our subsidiaries that
are not guarantors accounted for 12.2% of our total assets and had total
liabilities (excluding liabilities owed to us) of $57.1 million. As of December
31, 2002, our subsidiaries that are guarantors had total liabilities (excluding
liabilities owed to us and guarantees of the credit facilities and the Notes) of
$15.2 million.
13
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."
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 J.P. Morgan Securities Inc. currently intends to continue
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 is 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 Notes. Accordingly, the
ability of J.P. Morgan Securities Inc. to make a market in the Notes may, in
part, depend on our ability to maintain a current market-making prospectus. If a
trading market does not develop for the Notes or is not maintained, you may
experience difficulty in reselling the Notes or you may be unable to sell them
at all. If a market develops for the Notes, future trading prices of the Notes
will depend on many factors, including, among other things, prevailing interest
rates, our financial condition and results of operations, and the market for
similar notes. Depending on these and other factors, the Notes may trade for
less than what you paid for them.
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, polypropylene and other resins in
manufacturing our products. For the year ended December 31, 2002, resin costs
comprised approximately 62% of our total manufacturing costs. Significant
increases in the price of resins would increase our costs, reduce our operating
margins and impair our ability to service our debt unless we were able to pass
all of the increase on to our customers. The price of resins is a function of,
among other things, manufacturing capacity, demand, and the price of crude oil
and natural gas feedstocks. Since the resins used by us are derived 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 this 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
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."
14
Over the past several months, we have experienced a period of extreme
uncertainty with respect to resin supplies and prices. High crude oil and
natural gas pricing, resulting in part from harsh winter weather conditions in
the eastern United States and uncertainties regarding the situation with Iraq,
have had a significant impact on the price and supply of resins. During the same
period, many major suppliers of resin have announced price increases to cover
their increases in feedstock costs. While the prices of our products generally
fluctuate with the price of resins, certain of our customers have contracts that
limit our ability to pass the full cost of higher resin pricing through to our
customers immediately. Further, competitive conditions in our industry may make
it difficult for us to sufficiently increase our selling prices for all
customers to reflect the full impact of increases in raw material costs. If this
period of high resin pricing continues, we may be unable to pass on the entire
effect of these price increases to our customers, which would adversely affect
our profitability and working capital. In addition, further increases in crude
oil and natural gas prices could make it difficult for us to obtain an adequate
supply of resin from manufacturers affected by these factors.
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.
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 service a large portion
of the film and flexible packaging market, 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. Some of our competitors are substantially larger, are more
diversified, and have greater resources than we have, and, therefore, may have
certain competitive advantages.
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.
Although no single customer accounted for more than 10% of our net sales for the
year ended December 31, 2002, we are dependent upon a limited number of large
customers with substantial purchasing power for a significant percentage of our
sales. Several of our largest customers satisfy some of their film requirements
by manufacturing film themselves. The loss of one or more major customers, or a
material reduction in sales to these 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."
Our ongoing efforts to achieve cost savings may not improve our operating
results.
We regularly evaluate our operations in order to identify potential cost
savings. From time to time, we implement plant restructurings or other
initiatives designed to improve the efficiency of our operations and reduce our
costs. These initiatives may not result in cost savings, however, particularly
if our estimates and assumptions relating to the anticipated cost savings prove
to be incorrect. Further, even if a cost savings initiative is successful, we
may not be able to improve our operating results as a result of other factors
discussed in the prospectus, many of which are beyond our control, such as a
reduction in the demand for our products or increases in raw material costs.
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 routinely 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
15
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 expect to continue to make acquisitions as opportunities arise within the
constraints of our credit facilities, as amended. However, without the consent
of the lenders under our credit facilities, we cannot make an acquisition under
the terms of our amended credit facilities unless our leverage ratio will be
equal to or less than 4.0 to 1.0 after the acquisition is completed. Our efforts
to integrate businesses acquired in the future may not result in increased
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 restrictions on investments 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, 2003, affiliates of J.P. Morgan Partners, LLC beneficially owned
approximately 55% of our outstanding common stock, 75% of our preferred stock
warrants to purchase common stock and 59% of our outstanding preferred stock,
subject to certain preemptive rights with respect to 10,000 shares of preferred
stock issued on March 25, 2003. Subject to certain limitations contained in the
stockholders' agreement among us, an affiliate of J.P. Morgan Partners, LLC, our
other stockholders, and holders of our preferred stock warrants, J.P. Morgan
Partners, LLC, through its affiliate, controls us. The interests of J.P. Morgan
Partners, LLC may not in all cases be aligned with your interests as a holder of
the Notes.
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, 2003, we had approximately 3,250 employees, of which
approximately 1,000 employees were subject to a total of 12 collective
bargaining agreements that expire on various dates between February 19, 2004 and
March 7, 2007. We have had one labor strike in the United States 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
16
representing the approximately 150 employees at our Chippewa Falls, Wisconsin
manufacturing plant. We also had a temporary work stoppage at our Australia
facility in 2001 that lasted approximately 30 days.
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.
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, and we perform periodic audits to monitor compliance. 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.
17
Risks related to our prior auditors
Your ability to assert claims against Arthur Andersen LLP is limited.
We have not been able to obtain, after reasonable efforts, the written consent
of Arthur Andersen LLP to the inclusion in this prospectus of their report with
respect to the consolidated financial statements and financial statement
schedule of Pliant Corporation included in this prospectus as of December 31,
2001 and for the two years then ended, as required by Section 7 of the
Securities Act of 1933. Accordingly, we have dispensed with the requirement to
file such consent in reliance upon Rule 437a of the Securities Act. Because
Arthur Andersen has not consented to the inclusion of their report in this
prospectus, you may have no effective remedy against Arthur Andersen under
Section 11 of the Securities Act for any untrue statements of a material fact
contained in the financial statements audited by Arthur Andersen, or any
omissions to state a material fact required to be stated therein. In addition,
the ability of Arthur Andersen to satisfy any claims (including claims arising
from its provision of auditing and other services to us) may be limited as a
practical matter due to recent events regarding Arthur Andersen.
18
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 major 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;
. availability of qualified personnel; and
. increases in the cost of compliance with laws and regulations,
including environmental laws and regulations.
19
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.
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.
20
Capitalization
The following table sets forth our capitalization as of December 31, 2002.
(Unaudited)
(Dollars in Millions) December 31, 2002
-----------------
Cash and cash equivalents....................... 1.6
-------
Total debt:
Credit Facilities
Revolving Credit Facility(1) ............. $ 28.4
Tranche A Facility and Mexico Facility(2). 142.7
Tranche B Facility(2)..................... 251.9
13% Senior Subordinated Notes due 2010....... 311.7
Insurance premium financing.................. 0.7
Obligations under capital leases and other... 1.0
-------
Total debt............................. 736.4
Redeemable Preferred Stock................... 150.8
Redeemable Common Stock...................... 13.0
Stockholders' deficit........................ (270.9)
-------
Total capitalization................... $ 629.3
=======
- ----------
(1) As of April 14, 2003, the outstanding borrowings under the revolving credit
facility were $71.3 million. Amounts outstanding under the revolving credit
facility vary on a daily basis. The amount shown does not include $6.6
million of outstanding letters of credit that reduce available borrowings
under our revolving credit facility.
(2) On March 25, 2003, we sold 10,000 shares of our Series A preferred stock
and warrants to purchase 43,962 shares of our common stock for $10 million.
All of the proceeds of this sale were used to reduce our term debt. As of
April 14, 2003, the outstanding borrowings under the Tranche A Facility and
Mexico Facility were $139.1 million, and the outstanding borrowings under
the Tranche B Facility were $245.5 million.
21
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."
Years Ended December 31,
----------------------------------------------
1998 1999 2000 2001 2002
------- ------ ------- ------- -------
(Dollars in Millions)
Statement of Operations Data:
Net sales..................................................... $ 681.1 $813.7 $ 843.8 $ 840.4 $ 879.2
Cost of sales................................................. 561.6 655.7 696.7 665.1 714.5
------- ------ ------- ------- -------
Gross profit.................................................. 119.5 158.0 147.1 175.3 164.7
Total operating expenses/(1)/ ................................ 70.1 82.0 132.7 101.1 136.6
------- ------ ------- ------- -------
Operating income.............................................. 49.4 76.0 14.4 74.2 28.1
Interest expense.............................................. (37.5) (44.0) (68.5) (76.0) (75.3)
Other income (expense), net................................... (0.8) 0.4 0.3 6.5 2.3
------- ------ ------- ------- -------
Income (loss) before income taxes, discontinued operations and
extraordinary item......................................... 11.1 32.4 (53.8) 4.7 (44.9)
Income tax expense (benefit).................................. 8.6 14.1 (14.3) 6.8 (1.5)
------- ------ ------- ------- -------
Income (loss) before discontinued operations and extraordinary
item....................................................... 2.5 18.3 (39.5) (2.1) (43.4)
Income from discontinued operations/(2)/...................... 0.6 -- -- -- --
Gain on sale of discontinued operations/(2)/.................. 5.2 -- -- -- --
Extraordinary item/(3)/....................................... -- -- (11.3) -- --
------- ------ ------- ------- -------
Net income (loss)............................................. $ 8.3 $ 18.3 $ (50.8) $ (2.1) $ (43.4)
======= ====== ======= ======= =======
Other Financial Data:
EBITDA/(4)/................................................... $ 81.5 $111.4 $ 42.9 $ 127.7 $ 77.3
Net cash provided by operating activities..................... 45.5 51.4 60.3 30.3 43.6
Net cash used in investing activities......................... (314.8) (46.0) (65.6) (87.3) (55.2)
Net cash provided by financing activities..................... 275.9 (16.7) 0.3 55.0 12.4
Depreciation and amortization................................. 27.1 35.0 39.5 47.0 46.9
Restructuring and other costs/(1)/............................ 4.9 2.5 19.4 (4.6) 43.1
Non-cash stock-based compensation expense..................... -- 0.8 2.6 7.0 --
Capital expenditures.......................................... 52.1 35.7 65.6 56.4 49.2
Ratio of earnings to fixed charges/(5)/....................... 1.3x 1.7x -- 1.1x --
Balance Sheet Data (at period end):
Cash and cash equivalents..................................... $ 19.2 $ 9.1 $ 3.1 $ 4.8 $ 1.6
Working capital............................................... 93.4 103.8 57.6 58.4 45.8
Total assets.................................................. 734.3 769.0 785.0 851.7 853.2
Total debt.................................................... 524.9 510.4 687.4 713.3 736.4
Total liabilities............................................. 662.5 675.4 885.9 903.0 960.1
Redeemable preferred stock/(6)/............................... -- -- 88.7 126.1 150.8
Redeemable common stock....................................... 1.2 2.9 16.5 16.8 13.0
Stockholders' equity (deficit)................................ 70.6 90.7 (206.0) (194.5) (270.9)
/(1)/ Total operating expenses for 2002 include $43.1 million of restructuring
and other costs, including $19.2 million related to the closure of our
plant in Merced, California, a portion of our plant in Shelbyville,
Indiana, a part of our plant in Toronto, Canada, one of our plants in
Mexico, and our Fort Edward, New York facility (acquired as part of the
Decora acquisition). In addition, these costs reflect $7.9 million for the
costs of relocating several of our production lines related to plant
closures and costs associated with production rationalizations at several
plants. Total operating expenses for 2002 also include $7.4 million related
to severance costs, including benefits for several company-wide workforce
reduction programs that were completed in 2002. A $8.6 million charge for
the impairment of goodwill on our Pliant International segment is also
reflected in total operating expenses for 2002.
22
Total operating expenses for 2001 include $7.0 million of non-cash
stock-based compensation expense, $3.0 million of restructuring and other
costs, $4.0 million for expenses 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. In addition,
total operating expenses for 2001 includes a credit for $7.6 million
related to the reversal of the previously accrued charge for the closure of
our Harrington plant. In 2001, we decided not to proceed with our
previously announced closure of our Harrington plant. 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, $19.4 million of
restructuring and other 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.
/(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 reflects income before interest expense, income taxes, depreciation
and amortization. We believe that EBITDA information enhances an investor's
understanding of our ability to satisfy principal and interest obligations
with respect to our indebtedness and to utilize cash for other purposes. In
addition, EBITDA is used as a measure in our indentures and credit
agreement in determining our compliance with certain covenants. However,
the EBITDA as defined in the indentures for debt incurrence purposes and
consolidated EBITDA as defined in the credit agreement for covenant
compliance purposes are computed with additional adjustments not reflected
in the EBITDA presented in the table. These adjustments include income and
gain/loss from discontinued operations, extraordinary items, restructuring
and other costs and all non-cash charges. In addition to these adjustments,
consolidated EBITDA as defined in the credit agreement is computed with
further adjustments for pre-acquisition earnings of acquisitions and
related synergistic cost savings. EBITDA 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. In addition, 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. A reconciliation of EBITDA to net income as set
forth in our consolidated statements of operations is as follows (dollars
in millions):
1998 1999 2000 2001 2002
----- ------ ------ ------ ------
Net income (loss).................. $ 8.3 $ 18.3 $(50.8) $ (2.1) $(43.4)
Adjustments:
Income tax expense (benefit) 8.6 14.1 (14.3) 6.8 (1.5)
Interest expense................ 37.5 44.0 68.5 76.0 75.3
Depreciation and amortization 27.1 35.0 39.5 47.0 46.9
----- ------ ------ ------ ------
EBITDA............................. $81.5 $111.4 $ 42.9 $127.7 $ 77.3
===== ====== ====== ====== ======
/(5)/ For purposes of this ratio, 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 2002 and 2000, earnings were insufficient to
cover fixed charges by approximately $44.9 million and $53.8 million,
respectively.
/(6)/ The amount presented for 2002 includes proceeds of $131.0 million from the
issuance of preferred stock in 2000 and 2001, plus the accrued and unpaid
dividends of $49.6 million, less the unamortized discount due to detachable
preferred stock warrants and unamortized issuance costs totaling $29.8
million.
23
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, Latin 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. In addition, as discussed below under
"Acquisitions in 2002 and 2001," we recently acquired a consumer products
business that manufactures and sells products under the Con-Tact(R) brand name.
Acquisitions in 2002 and 2001
In August 2002, we purchased substantially all of the assets and assumed certain
liabilities of the business of Roll-O-Sheets Canada Limited ("Roll-O-Sheets").
The Roll-O-Sheets business consists of one plant in Barrie, Canada engaged in
the conversion and sale of PVC and polyethylene film for the food industry. In
addition, the business includes the distribution of purchased polyester film,
polypropylene food trays and other food service products.
In May 2002, we acquired substantially all of the assets and assumed certain
liabilities of Decora Industries, Inc. and its operating subsidiary, Decora
Incorporated (collectively, "Decora"), a New York based manufacturer and
reseller of printed, plastic films, including plastic films and other consumer
products sold under the Con-Tact(R) brand name. Our purchase of Decora's assets
was approved by the United States Bankruptcy Court. The initial purchase price
was approximately $18 million. The purchase price was negotiated with the
creditors committee and was paid in cash using borrowings from our existing
revolving credit facility. The assets purchased consisted of one plant in Fort
Edward, New York, and related equipment used by Decora primarily to print,
laminate and convert films into adhesive shelf liner. We have commenced the
process of closing the Decora plant in Fort Edward, New York and have moved the
production to our facilities in Mexico and Danville, Kentucky. The final
purchase price after adjustments totaled $23.2 million.
In July 2001, we acquired 100% of the outstanding stock of Uniplast Holdings,
Inc. ("Uniplast"), a manufacturer of multi-layer packaging films, industrial
films and cast-embossed films, with operations in the United States and Canada,
for an initial purchase price of approximately $56.0 million in cash and equity.
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 terminate certain of the sales, administration and technical employees of
Uniplast. All three of these plants were closed in 2001 and sold in the first
six months of 2002. The final purchase price after adjustments totaled $59.3
million.
We expect to continue to make acquisitions as opportunities arise within the
constraints of our credit facilities, as amended. However, without the consent
of the lenders under our credit facilities, we cannot make an acquisition under
the terms of our amended credit facilities unless our leverage ratio will be
equal to or less than 4.0 to 1.0 after the acquisition is completed.
24
Critical Accounting Policies
In the ordinary course of business, we make a number of estimates and
assumptions relating to the reporting of results of operations and financial
position in the preparation of financial statements in conformity with generally
accepted accounting principles. Actual results could differ significantly from
those estimates under different assumptions and conditions. We believe the
following discussion addresses our most critical accounting policies. These
policies require management to exercise judgments that are often difficult,
subjective and complex due to the necessity of estimating the effect of matters
that are inherently uncertain.
Revenue Recognition. Sales revenue is recognized when title transfers, the risks
and rewards of ownership have been transferred to the customer, the price is
fixed and determinable and collection of the related receivable is probable,
which is generally at the time of shipment.
We have several rebate programs with certain of our customers and a cash
discount program on accounts receivable. These costs are estimated at the time
of sale and are reported as a reduction to sales revenue. Periodic adjustments
are made as a part of our ongoing evaluation of all receivable related
allowances.
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 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, 2002 are of good quality.
Goodwill and Other Identifiable Intangible Assets. Goodwill associated with the
excess purchase price over the fair value of assets acquired is currently not
amortized. We have determined that certain of our trademarks have indefinite
lives, and thus they are not amortized. This is in accordance with Statements of
Financial Accounting Standards No. 142 effective for fiscal years beginning
after December 15, 2001. Goodwill and trademarks are currently tested annually
for impairment or more frequently if circumstances indicate that they may be
impaired. Other identifiable intangible assets, such as customer lists, and
other intangible assets are currently amortized on the straight-line method over
their estimated useful lives. These assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may be less than the undiscounted cash flows.
Retirement Plans. We value retirement plan assets and liabilities based on
assumptions and actuarial valuations. Assumptions for the retirement plans are
subject to the occurrence of future events, which are out of our control and
could differ materially from the amounts currently reported.
Insurance. Our insurance for worker's compensation and employee-related health
care benefits are covered using high deductible insurance policies. A
third-party administrator is used to process such claims. We require all
worker's compensation claims to be reported within 24 hours. As a result, we
accrue our worker's compensation liability based upon the claim reserves
established by the third-party administrator each month. Our employee health
insurance benefit liability is based on our historical claims experience rate.
Our earnings would be impacted to the extent actual claims vary from historical
experience. We review our accruals associated with the exposure to these
liabilities for adequacy at the end of each reporting period.
Deferred Taxes. We record deferred tax assets and liabilities for the
differences in the carrying amounts of assets and liabilities for financial and
tax reporting purposes. Deferred tax assets include amounts for net operating
loss, foreign tax credit and alternative minimum tax credit carryforwards.
Valuation allowances are recorded for amounts that management believes are not
recoverable in future periods.
25
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,
2002, 2001 and 2000.
Year Ended December 31,
------------------------------------------------
2002 2001 2000
-------------- -------------- --------------
(dollars in millions)
Net sales ......................... $879.2 100.0% $840.4 100.0% $843.8 100.0%
Cost of sales ..................... 714.5 81.3 665.1 79.2 696.7 82.6
------ ----- ------ ----- ------ -----
Gross profit ...................... 164.7 18.7 175.3 20.8 147.1 17.4
Operating expenses before
restructuring and other costs .. 93.5 10.6 105.7 12.6 113.3 13.4
Restructuring and other costs ..... 43.1 4.9 (4.6) (0.6) 19.4 2.3
------ ----- ------ ----- ------ -----
Total operating expenses .......... 136.6 15.5 101.1 12.0 132.7 15.7
------ ----- ------ ----- ------ -----
Operating income .................. $ 28.1 3.2% $ 74.2 8.8% $ 14.4 1.7%
====== ===== ====== ===== ====== =====
Year Ended December 31, 2002 Compared with the Year Ended December 31, 2001
Net sales. Net sales increased by $38.8 million, or 4.6%, to $879.2 million for
2002 from $840.4 million for 2001. An increase in sales volume of 7.2% was
partially offset by a decrease in selling prices of 2.4 cents per pound, or
2.4%. See "Operating Segment Review" below for a detailed discussion of sales
volumes and selling prices by segment and division.
Gross profit. Gross profit decreased by $10.6 million, or 6.0%, to $164.7
million for 2002 from $175.3 million for 2001. This decrease was primarily due
to lower margins, partially offset by the effect of higher sales volumes. See
"Operating Segment Review" below for a detailed discussion of the margin
variances by segment.
Operating expenses before restructuring and other costs. Operating expenses
before restructuring and other costs decreased $12.2 million, or 11.5%, to $93.5
million for 2002 from $105.7 million for 2001. This decrease was due primarily
to stock based compensation expenses of $7.0 million in 2001, and reductions in
operating expenses due to cost reduction programs implemented in 2002. In
addition, expenses for 2001 included $6.0 million related to fees and expenses
incurred in connection with a company-wide supply chain cost initiative. These
decreases were partially offset by additional selling and general expenses of
$5.9 million related to the Decora acquisition (the Pliant Solutions segment)
and a $2.6 million charge for bad debts in 2002.
Restructuring and other costs. Restructuring and other costs increased to $43.1
million for 2002 from a credit of $4.6 million in 2001. Restructuring and other
costs for 2002 reflect approximately $13.2 million related to the partial
closure of our Shelbyville, Indiana facility (including non-cash charges of
$12.2 million related to impaired assets), $3.7 million related to the closure
of our Merced, California facility (including non-cash charges of $0.7 million
related to impaired assets), $3.9 million related to costs associated with
moving production lines purchased in the Uniplast acquisition, approximately
$7.4 million related to severance costs related to several company-wide
workforce reduction programs implemented in 2002, approximately $2.3 million
related to costs associated with moving production equipment from our Fort
Edward, New York facility to our Mexico facility (including the costs associated
with the closure of the Fort Edward plant acquired in the Decora acquisition), a
non-cash charge of $1.0 million related to the impairment of certain
manufacturing assets in our U.S. plants, a non-cash charge of $8.6 million
related to the impairment of goodwill in our International segment and
approximately $3.0 million related to other costs associated with re-alignment
of production resources at several other plants. See Note 4 to the consolidated
financial statements included elsewhere in this prospectus.
26
Due to our decision not to proceed with the 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 2001. This credit was
partially offset by $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.
Operating income. Operating income decreased $46.1 million, or 62.1%, to $28.1
million for 2002 from $74.2 million for 2001 for the reasons discussed above.
Interest expense. Interest expense decreased $0.7 million, or 1%, to $75.3
million for 2002 from $76.0 million for 2001. The decrease in interest expense,
which resulted from lower outstanding term loans, due to repayments, and lower
interest rates applicable to our term debt and revolving credit facilities, due
to a decrease in LIBOR, was partially offset by higher interest costs from the
issuance of an additional $100 million of subordinated debt in April 2002.
Other income (expense). Other income decreased $4.2 million to $2.3 million in
2002 from $6.5 million for 2001. The decrease reflects an amount of other income
for the 2001 period that was primarily due to the proceeds and assets received
from a settlement with a potential customer in the second quarter of 2001.
Income tax expense (benefit). In 2002 our income tax benefit was $1.5 million,
compared to an income tax expense of $6.8 million in 2001. These amounts
represent effective tax rates of 3.3% and 143.8% for the years ended December
31, 2002 and 2001, 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, the provision for
valuation allowances and the amortization of goodwill in 2001. These differences
increase the effective tax rate in years in which we have pretax profit and
decrease our effective tax rate in years in which we have pretax loss. Pretax
loss in 2002 was $44.9 million as compared to pretax income of $4.7 million in
2001. As of December 31, 2002, our deferred tax assets totaled approximately
$79.1 million, of which $46.2 million related to net operating loss
carryforwards. Our deferred tax liabilities totaled approximately $84.0 million.
Due to uncertainty regarding the timing of the future reversals of existing
deferred tax liabilities we have recorded a valuation allowance of approximately
$3.8 million to offset the deferred tax asset relating to the net operating loss
carryforwards. Due to uncertainty regarding the realization of our foreign tax
credit carryforwards, we have recorded a valuation allowance of approximately
$7.0 million to offset all of our foreign tax credit carryforwards.
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. A decrease in selling prices of 6.0 cents per
pound, or 5.9%, was partially offset by an increase in sales volume of 5.8%. See
"Operating Segment Review" below for a detailed discussion of sales volumes and
selling prices by segment and division.
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 the effect of higher sales volumes and improved margins. See "Operating
Segment Review" below for a detailed discussion of the margin variances by
segment.
Operating expenses before restructuring and other costs. Operating expenses
before restructuring and other costs decreased $7.6 million, or 6.7%, to $105.7
million for 2001 from $113.3 million for 2000. As a percentage of sales, our
operating expenses were relatively high in both periods due to several unusual
items in 2001 and 2000.
The unusual items in 2001 included:
. $7.0 million of non-cash stock compensation costs;
27
. $4.0 million related to the relocation of our corporate offices from
Salt Lake City, Utah to Schaumburg, Illinois;
. $6.0 million related to fees and expenses incurred in connection with
a company-wide supply chain cost initiative; and
. $3.0 million increase in depreciation expenses due primarily to new
computer systems.
The unusual items in 2000 included:
. $10.8 million of costs related to the recapitalization;
. $10.8 million related to fees and expenses incurred in connection with
a company-wide supply chain cost initiative;
. $7.1 million related to a company-wide work force reduction program;
and
. $2.6 million of non-cash stock compensation costs.
Restructuring and other costs. Restructuring and other costs for 2001 consisted
of a credit of $4.6 million as compared to restructuring and other expenses of
$19.4 million in 2000. Due to our decision not to proceed with the previously
announced closure of our Harrington plant, approximately $7.6 million of the
costs accrued for plant closures in 2000 were credited to plant closing costs in
2001. This credit was partially offset by $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. The restructuring
and other costs for 2000 included costs related to the closure of our facilities
in Birmingham, Alabama and Dallas, Texas. In addition, the restructuring and
other costs for 2000 included costs for the expected closure of our Harrington
facility.
Operating income. Operating income increased $59.8 million to $74.2 million for
2001 from $14.4 million for 2000 for the reasons 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.
Income tax expense (benefit). In 2001, our income tax expense was $6.8 million,
compared to an income tax benefit of $14.2 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. Due to
uncertainty regarding the realization of our foreign tax credit carryforwards,
we have recorded a valuation allowance of approximately $1.9 million to offset
all of our foreign tax credit carryforwards.
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. We evaluate
the performance of our operating segments based on net sales (excluding
intercompany sales) and segment profit. The segment profit reflects income
before
28
discontinued operations, extraordinary items, interest expense, income taxes,
depreciation, amortization, restructuring and other costs, all non-cash charges
and certain other adjustments defined by our credit agreement. For more
information on our operating segments, including a reconciliation of segment
profit to net income, see Note 14 to the consolidated financial statements
included elsewhere in this prospectus. The total of the segment profit amounts
presented in this section for our three operating segments and unallocated
corporate expenses differs from the amount of EBITDA disclosed in "Summary
historical financial data" and "Selected financial data" due to additional
adjustments applied in computing the segment profit amounts.
In previous reporting periods we had three reporting segments classified by
product types: Specialty Films, Design Products and Industrial Films. During the
third quarter of 2002, we reorganized our operations under three new operating
segments: Pliant U.S., Pliant International and Pliant Solutions. Segment
information below with respect to 2001 and 2000 has been restated for
comparative purposes.
Summary of segment information (in millions of dollars):
Unallocated
Pliant Pliant Pliant Corporate
U.S. International Solutions Expenses Total
------ ------------- --------- ----------- ------
Year ended December 31, 2002
Net sales .................... $742.6 $108.3 $28.3 $ -- $879.2
------ ------ ----- ------ ------
Segment profit ............... 118.0 15.6 2.7 (14.7) 121.6
------ ------ ----- ------ ------
Total assets ................. 659.8 104.0 27.6 61.8 853.2
------ ------ ----- ------ ------
Year ended December 31, 2001
Net sales .................... $736.1 $104.3 -- $ -- $840.4
------ ------ ----- ------ ------
Segment profit ............... 136.5 19.4 -- (14.1) 141.8
------ ------ ----- ------ ------
Total assets ................. 685.0 113.4 -- 53.3 851.7
------ ------ ----- ------ ------
Year ended December 31, 2000
Net sales .................... $753.2 $ 90.6 -- $ -- $843.8
------ ------ ----- ------ ------
Segment profit ............... 110.4 17.1 -- (19.9) 107.6
------ ------ ----- ------ ------
Total assets ................. 626.6 90.6 -- 67.8 785.0
------ ------ ----- ------ ------
Year Ended December 31, 2002 Compared with the Year Ended December 31, 2001
Pliant U.S.
Net sales. The net sales of our Pliant U.S. segment increased $6.5 million, or
0.9%, to $742.6 million for 2002 from $736.1 million for 2001. This increase was
primarily due to a 4.9% increase in our sales volumes, partially offset by a
decrease in our average selling prices of 3.9 cents per pound, or 3.8%. The
increase in sales volumes is discussed for each Pliant U.S. division, below, and
the decrease in our average selling prices is discussed under "Segment profit,"
below.
Net sales in our Industrial Films division decreased $2.8 million, or 1.8%, to
$158.7 million for 2002 from $161.5 million for 2001. This decrease was
principally due to a decrease in our average selling prices of 5.2 cents per
pound, or 6.8%, partially offset by a 5.4% increase in sales volumes. The
increase in sales volume was primarily the result of incremental sales from new
stretch film production lines at our Lewisburg plant. Net sales in our Specialty
Films division decreased $2.8 million, or 1.7%, to $155.9 million for 2002 from
$158.7 million for 2001. This decrease was principally due to a decrease in our
average selling prices of 4.3 cents per pound, or 4.0%, partially offset by a
0.3% increase in sales volumes. Net sales in our Converter Films division
increased $10.4 million, or 4.9%, to $221.0 million for 2002 from $210.6 million
for 2001. This increase was principally due to an increase in our sales volumes
of 6.0%, primarily as a result of the Uniplast acquisition in July 2001,
partially offset by a
29
decrease in our average selling prices of 1.4 cents per pound, or 1.5%. Net
sales in our Printed and Barrier Films division increased $1.7 million, or 0.8%,
to $207.0 million for 2002 from $205.3 million for 2001. This increase was
principally due to an increase in our sales volumes of 7.1%, primarily due to
incremental sales from a new printing press, partially offset by a decrease in
our average selling prices of 8.9 cents per pound, or 5.9%.
Segment profit. The Pliant U.S. segment profit decreased $18.5 million, or
13.6%, to $118.0 million for 2002 from $136.5 million for 2001, primarily due to
a decrease in gross margins. The decrease in gross margins was principally a
result of lower selling prices, partially offset by the effect of the increase
in sales volumes discussed above.
Our average raw material costs for 2002 as a whole were comparable to average
raw material costs in 2001. However, there was a significant fluctuation in raw
material costs during the two year period. Raw material costs were relatively
high at the beginning of 2001 and declined throughout 2001 and the first quarter
of 2002. Raw material costs sharply increased throughout the second and third
quarters of 2002. As raw material costs declined in 2001, our average selling
prices also declined to reflect lower raw material costs partially offset by a
lag of contractual selling prices. As raw material costs began to sharply
increase, lagging contractual prices and a competitive pricing environment
resulted in a compression between our average selling prices and average raw
material costs. The lagging contractual prices were the result of specific
agreements with certain customers that in some cases delayed the implementation
of price increases and decreases as raw material costs changed. As a result of
these factors, our average selling prices continued to remain low during the
second half of 2002 while our average raw material costs increased. A change in
our sales mix toward lower margin products, in part resulting from the slowdown
in the economy, also contributed to a decrease in our average selling prices.
Segment profit was also adversely affected by a $2.6 million charge related to
bad debts.
Segment total assets. The Pliant U.S. segment total assets decreased $25.2
million, or 3.7%, to $659.8 million as of December 31, 2002 from $685.0 million
as of December 31, 2001. The decrease was due primarily to decreases in accounts
receivable and property, plant and equipment of $8.2 million and $18.4 million,
respectively, and a $2.0 million writedown of intangible assets, partially
offset by an increase in inventory levels of $3.6 million. Property plant and
equipment decreased primarily due to a sale and leaseback transaction of $17.1
million, and $26.4 million of depreciation expense, partially offset by capital
expenditures of $28.5 million.
Pliant International
Net sales. The net sales of our Pliant International segment increased $4.0
million, or 3.8%, to $108.3 million for 2002 from $104.3 million for 2001. This
increase was principally due to a 13.9% increase in our sales volume, primarily
due to the Uniplast acquisition in July 2001, partially offset by a decrease in
our average selling prices of 9 cents per pound, or 8.9%. Among other factors,
our average selling prices were adversely affected by a reduction in sales of
our higher value personal care film sold in Mexico and Argentina, each of which
has experienced economic turmoil.
Segment profit. The Pliant International segment profit decreased $3.8 million,
or 19.6%, to $15.6 million for 2002 from $19.4 million for 2001. The decrease
was due principally to lower gross margins as a result of lower selling prices
as discussed above.
Segment total assets. The Pliant International segment total assets decreased
$9.4 million, or 8.3%, to $104.0 million as of December 31, 2002, from $113.4
million as of December 31, 2001. This decrease was due principally to a goodwill
writedown of $8.6 million. Capital expenditures of $9.0 million were partially
offset by depreciation expense of $6.2 million.
Pliant Solutions
30
Our Pliant Solutions segment was created in 2002 following the Decora
acquisition. Therefore, a discussion of results of operations or total assets
for this segment as compared to 2001 is not presented.
Pliant Solutions had net sales of $28.3 million and segment profit of $2.7
million from the date of acquisition in May 2002 to December 31, 2002. Pliant
Solutions had segment total assets of $27.6 million as of December 31, 2002.
Unallocated Corporate Expenses
Unallocated corporate expenses increased $0.6 million, or 4.3%, to $14.7 million
for 2002 from $14.1 million for 2001.
Year Ended December 31, 2001 Compared with the Year Ended December 31, 2000
Pliant U.S.
Net sales. The net sales of our Pliant U.S. segment decreased $17.1 million, or
2.3%, to $736.1 million for 2001 from $753.2 million for 2000. This decrease was
primarily due to a decrease in our average selling prices of 5.5 cents per
pound, or 5.1%, partially offset by an increase in our sales volumes of 3%. The
increase in sales volumes is discussed for each Pliant U.S. division, below, and
the decrease in our average selling prices is discussed under "Segment profit,"
below.
Net sales in our Industrial Films division increased $15.6 million, or 10.7%, to
$161.5 million for 2001 from $145.9 million for 2000. This increase was
principally due to a 16.9% increase in sales volumes partially offset by a
decrease in our average selling prices of 4.2 cents per pound, or 5.3%. The
increase in sales volume was primarily the result of increased sales of stretch
film. Net sales in our Specialty Films division decreased $30.0 million, or
15.9%, to $158.7 million for 2001 from $188.7 million for 2000. This decrease
was principally due to a decrease in sales volumes of 14.7% and a decrease in
our average selling prices of 2.5 cents per pound, or 2.3%. The sales volumes
decreased due to a significant reduction in sales at our Harrington plant, which
was downsized in 2001, and a reduction in sales volume at our Washington plant
due to a decrease in sales of our personal care films. Net sales in our
Converter Films division increased $12.8 million, or 6.4%, to $210.6 million for
2001 from $197.8 million for 2000. This increase was principally due to an
increase in our sales volumes of 10.6%, primarily as a result of the Uniplast
acquisition in July 2001, partially offset by a decrease in our average selling
prices of 3.7 cents per pound, or 3.7%. Net sales in our Printed and Barrier
Films division decreased $15.5 million, or 7.0%, to $205.3 million for 2001 from
$220.8 million for 2000. This decrease was principally due to a decrease in
sales volumes of 5.7% due to the closure of our Birmingham, Alabama plant,
substantial downsizing of our Shelbyville, Indiana plant and a decrease in our
average selling prices of 2.2 cents per pound, or 1.4%.
Segment profit. The Pliant U.S. segment profit increased $26.1 million, or
23.6%, to $136.5 million for 2001 from $110.4 million for 2000. The increase was
primarily due to the increase in sales volumes, discussed above, and an increase
in gross margins. The increase in gross margins was principally a result of
lower raw material prices that were only partially offset by lower selling
prices during 2001.
Segment total assets. The Pliant U.S. segment total assets increased $58.4
million, or 9.3%, to $685.0 million as of December 31, 2001 from $626.6 million
as of December 31, 2000. The increase was primarily due to an increase in
property plant and equipment as a result of the Uniplast acquisition of $19.9
million, capital expenses of $48.5 million, and increase in goodwill of $14.2
million, principally due to the Uniplast acquisition. The increase in segment
total assets was partially offset by depreciation and amortization expense of
$26.0 million.
Pliant International
Net sales. The net sales of our Pliant International segment increased $13.7
million, or 15.1%, to $104.3 million for 2001 from $90.6 million for 2000. This
increase was principally due to a 31.2% increase in our sales volume, primarily
due to the Uniplast acquisition in July 2001, partially offset by a decrease in
31
our average selling prices of 14.2 cents per pound, or 12.2%. Our average
selling prices decreased due to a change in sales mix.
Segment profit. The Pliant International segment profit increased $2.3 million,
or 13.5%, to $19.4 million for 2001 from $17.1 million for 2000. The increase
was due principally to the effect of higher sales volume discussed above,
partially offset by lower gross margins as a result of lower selling prices
discussed above.
Segment total assets. The Pliant International segment total assets increased
$22.8 million, or 25.2%, to $113.4 million as of December 31, 2001, from $90.6
million as of December 31, 2000, primarily due to the acquisition of Uniplast,
partially offset by depreciation expenses.
Pliant Solutions
Our Pliant Solutions segment was created in 2002 following the Decora
acquisition. Therefore, a discussion of results of operations or total assets
for this segment is not presented.
Unallocated Corporate Expenses
Unallocated corporate expenses decreased $5.8 million, or 29.1%, to $14.1
million for 2001 from $19.9 million for 2000. Unallocated corporate expenses
were relatively high in both periods due to several unusual items in 2001 and
2000. For a discussion of these items see "Year Ended December 31, 2001 Compared
with the Year Ended December 31, 2000 - Operating expenses before restructuring
and other costs."
Liquidity and Capital Resources
Our principal sources of funds are cash generated by our operations and
borrowings under our credit facilities. In addition, we have raised funds
through the issuance of our senior subordinated notes and the sale of shares of
our preferred stock.
Credit facilities
As amended, our credit facilities consist of:
. tranche A term loans in an aggregate principal amount of $117.9
million outstanding as of December 31, 2002;
. Mexico term loans in an aggregate principal amount of $24.8 million
outstanding as of December 31, 2002;
. tranche B term loans in an aggregate principal amount of $251.9
million outstanding as of December 31, 2002; and
. revolving credit facility in an aggregate principal amount of up to
$100 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.
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. In accordance with the March 24,
2003 amendment to our credit facilities described below, the spread will not
exceed 4.0% for Adjusted LIBOR or 3.0% for ABR. Adjusted LIBOR is the London
inter-bank offered rate adjusted for statutory reserves. ABR is the alternate
base rate, which is the higher of the lender'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 or ABR, plus a spread determined by reference
to our leverage ratio. As amended, our credit facilities provide that the spread
will not exceed 4.75% for Adjusted LIBOR or 3.75% for ABR. We may elect interest
periods of one, two, three or six months for
32
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.
Compliance with financial covenants
Our credit facilities require us to maintain certain key financial ratios on a
quarterly basis. These key ratios include a leverage ratio and an interest
coverage ratio. Effective March 24, 2003, we entered into an amendment (the
"Amendment") of our credit facilities to, among other things, permit us to issue
up to $50 million of our common stock, qualified preferred stock, warrants to
acquire our common stock or qualified preferred stock, or any combination of our
common stock, qualified preferred stock or warrants, or other capital
contributions with respect to our common stock or qualified preferred stock. The
Amendment also adjusted certain financial covenants, including the leverage and
interest coverage ratios. As a condition to the effectiveness of the Amendment,
we agreed to issue 10,000 shares of our Series A preferred stock and warrants to
purchase 43,962 shares of our common stock to J.P. Morgan Partners (BHCA), L.P.
("J.P. Morgan Partners"), and J.P. Morgan Partners agreed to purchase such
shares and warrants for $10 million. We completed this sale on March 25, 2003.
All of the proceeds of this sale were used to reduce our term debt. In addition,
the Amendment allows us to issue an additional $40 million of equity securities
between March 25, 2003 and March 31, 2005 in order to obtain cash to reduce the
revolving borrowings and/or term borrowings under our credit facilities. J.P.
Morgan Partners is required to purchase up to $25 million of such additional
equity securities to the extent necessary to enable us to meet our leverage
ratio or the target senior debt leverage ratio specified in the Amendment at the
end of any calendar quarter or fiscal year ending on or before December 31,
2004. Any such additional issuance of Series A preferred stock to J.P. Morgan
Partners will also include warrants to purchase 4.3962 shares of our common
stock for every $1,000 face amount of preferred stock issued. Our obligations to
issue, and J.P. Morgan Partners' obligation to purchase such equity securities
are set forth in a Securities Purchase Agreement dated as of March 25, 2003.
Generally, if we are required to issue any portion of such $25 million of equity
securities under the Amendment with respect to any fiscal quarter in 2003, we
must use 50% of the net proceeds from the issuance of any such equity securities
to reduce our revolving borrowings, and 50% to reduce our term borrowings. If we
are required to issue any such equity securities under the Amendment with
respect to any fiscal quarter in 2004, we must use 100% of the net proceeds to
reduce our term borrowings. The issuance of the remaining $15 million of equity
securities is voluntary on our part, and neither J.P. Morgan Partners nor any
other person is required to purchase such equity securities. We incurred an
amendment fee of $2.2 million in connection with the amendment. We also incurred
approximately $0.5 million of legal and administrative expenses in connection
with negotiating the Amendment and the issuance of 10,000 shares of Series A
preferred stock.
Based on our current earnings forecast, our cash flow forecast and the proceeds
received from the sale of $10 million of Series A preferred stock, as described
above, we believe that we will comply with the covenants contained in our credit
facilities, as amended, during 2003. Further, J.P. Morgan Partners' commitment
to purchase additional equity securities will allow us to raise up to $25
million of additional funds to the extent necessary to enable us to comply with
the financial covenants if we do not meet our earnings and cash flow forecast.
However, if our actual earnings and cash flow are significantly below
expectations and we are unable to raise enough funds to maintain compliance with
the financial covenants through the sale of equity securities to J.P. Morgan
Partners, we may not be able to comply with our financial covenants. Absent a
waiver or further amendment of our credit facilities, the failure to comply with
our financial covenants would cause us to be in default under our credit
facilities. Any such default would have a material adverse effect on our
liquidity and financial condition.
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 4.0 to 1.0) exceeds the aggregate amount of voluntary prepayments made
since the last
33
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 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. See "Description of credit facilities and other
indebtedness."
Senior subordinated notes
In 2000, we issued $220 million aggregate principal amount of 13% Senior
Subordinated Notes due 2010. In 2002, we issued an additional $100 million of
13% Senior Subordinated Notes due 2010. The Notes mature on June 1, 2010, and
interest on the Notes is payable on June 1 and December 1 of each year. 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
Notes are unsecured. Prior to June 1, 2003, we 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 us at a
redemption price equal to 113% of the principal amount thereof, plus accrued and
unpaid interest. Otherwise, we may not redeem the Notes prior to June 1, 2005.
On or after that date, we 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. See "Description of the notes."
Preferred stock
We have approximately $141 million of Series A Cumulative Exchangeable
Redeemable Preferred Stock outstanding. The Series A preferred stock accrues
dividends at the rate of 14% per annum; however, our board of directors has
never declared or paid any dividends on the Series A preferred stock. Unpaid
dividends accumulate and are added to the liquidation amount of the Series A
preferred stock. After May 31, 2005 the annual dividend rate increases to 16%
unless we pay dividends in cash. The dividend rate also increases to 16% if we
fail to comply with certain of our obligations or upon certain events of
bankruptcy. The Series A Preferred Stock is mandatorily redeemable on May 31,
2011. See Note 10 to the consolidated financial statements included elsewhere in
this prospectus.
Net cash provided by operating activities
Net cash provided by operating activities was $43.6 million for the year ended
December 31, 2002, an increase of $13.3 million, or 43.9%, from $30.3 million in
2001. The increase was primarily due to changes in working capital items,
changes in restructuring and other costs and changes in operating earnings.
Net cash used in investing activities
Net cash used in investing activities was $55.2 million for the year ended
December 31, 2002, compared to $87.3 million for the same period in 2001.
Capital expenditures were $49.2 million and $56.4 million for the years ended
December 31, 2002 and 2001, 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 company-wide maintenance
projects. We received $17.1 million and $7.9 million as part of sale-leaseback
transactions of newly-acquired machinery and equipment in 2002 and 2001,
respectively. In addition, we invested $23.2 million in the Decora acquisition
and made additional adjustments to the Uniplast acquisition in 2002 and invested
$38.8 million in cash in the Uniplast acquisition in 2001.
Net cash provided by financing activities
Net cash provided by financing activities was $12.4 million in 2002, as compared
with $55.0 million in 2001. The 2002 activity represents principally the net
proceeds from the issuance of $100 million of 13%
34
Senior Subordinated Notes due 2010, partially offset by repayments of term debt
and revolving debt under our credit facilities. The activity in 2001 represents
the proceeds of $31.0 million from the issuance of shares of preferred stock and
preferred stock warrants used to fund the Uniplast acquisition and scheduled
repayments of term debt, net of borrowings and repayments under our revolving
credit facility.
Liquidity
As of December 31, 2002, we had approximately $45.8 million of working capital.
As of December 31, 2002, we had approximately $67.6 million available for
borrowings under our $100.0 million revolving credit facility, with outstanding
borrowings of approximately $28.4 million and approximately $4.0 million of
letters of credit issued under our revolving credit facility. Our outstanding
borrowings under our revolving credit facility fluctuate significantly during
each quarter as a result of the timing of payments for raw materials, capital
and interest, as well as the timing of customer collections. The outstanding
balance of our revolving credit facility had a peak balance of $78.7 million
during the year ended December 31, 2002. As of December 31, 2002, the debt under
our credit facilities and our senior subordinated notes bore interest at a
weighted average rate of 9.5%, including the effect of interest rate derivative
agreements.
As of December 31, 2002, we had approximately $1.6 million in cash and cash
equivalents, of which the majority was held by our foreign subsidiaries. High
effective repatriation tax rates may limit our ability to access cash and cash
equivalents generated by our foreign operations for use in our U.S. operations,
including to pay principal, premium, if any, and interest on the Notes and the
credit facilities.
We expect that our total capital expenditures will be approximately $20 to $30
million in each of 2003 and 2004. These expenditures will consist primarily of
ongoing maintenance capital expenditures.
The following table sets forth our total contractual cash obligations as of
December 31, 2002 after giving effect to the Amendment and the issuance of
10,000 shares of Series A preferred stock on March 25, 2003 (in thousands):
Payments Due by Period
------------------------------------------
Less
than After 5
Contractual Cash Obligations Total 1 year 1-3 years 4-5 years years
- ---------------------------------------------------- -------- ------- --------- --------- --------
Long-term debt (including capital lease obligations) $744,693 $14,745 $104,202 $177,338 $448,408
Operating leases ................................... 69,307 13,595 23,146 17,404 15,162
Redeemable preferred stock ......................... 160,816 -- -- -- 160,816
-------- ------- -------- -------- --------
Total contractual cash obligations ................. $974,816 $28,340 $127,348 $194,742 $624,386
The credit facilities and the indentures 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.
The interest expense and scheduled principal payments on our borrowings affect
our future liquidity requirements. We expect that cash flows from operating
activities and available borrowings under our revolving credit facility of $100
million will provide sufficient cash flow to operate our business, to make
expected capital expenditures and to meet foreseeable liquidity requirements. In
addition, we have a commitment from J.P. Morgan Partners to purchase up to an
additional $25 million of equity securities if necessary to maintain our
financial covenants under our credit facilities. However, any proceeds from the
issuance of any such equity securities must be used to repay amounts outstanding
under our credit facilities as described above.
35
Changes in raw material costs can significantly affect the amount of cash
provided by our operating activities, which can affect our liquidity
requirements. Over the past several months, we have experienced a period of
extreme uncertainty with respect to resin supplies and prices. High crude oil
and natural gas pricing, resulting in part from harsh winter weather conditions
in the eastern United States and uncertainties regarding the situation with Iraq
have had a significant impact on the price and supply of resins. During the same
period, many major suppliers of resin have announced price increases to cover
their increases in feedstock costs. While the prices of our products generally
fluctuate with the prices of resins, certain of our customers have contracts
that limit our ability to pass the full cost of higher resin pricing through to
our customers immediately. Further, competitive conditions in our industry may
make it difficult for us to sufficiently increase our selling prices for all
customers to reflect the full impact of increases in raw material costs. If this
period of high resin pricing continues, we may be unable to pass on the entire
effect of the price increases to our customers, which would adversely affect our
profitability and working capital. In addition, further increases in crude oil
and natural gas prices could make it difficult for us to obtain an adequate
supply of resin from manufacturers affected by these factors.
If (a) we are not able to increase prices to cover historical and future raw
materials cost increases, (b) we are unable to obtain adequate supply of resin,
(c) volume growth does not continue as expected, or (d) we experience any
significant negative effects to our business, we may not have sufficient cash
flow to operate our business, make expected capital expenditures or meet
foreseeable liquidity requirements. Any such event would have a material adverse
effect on our liquidity and financial condition.
Other Developments
On June 10, 2002, we entered into a separation agreement with Richard P. Durham,
our former Chairman and Chief Executive Officer. As of the date of the
separation agreement, Mr. Durham owned 28,289 shares of common stock, 12,083
performance vested shares, 2,417 time vested shares, warrants to purchase
1,250.48 shares of common stock and 1,232 shares of preferred stock of Pliant.
All of Mr. Durham's time vested shares and 2,416 of Mr. Durham's performance
vested shares had vested as of the date of the separation agreement. Pursuant to
the separation agreement, Mr. Durham agreed to convert an outstanding promissory
note issued as payment for a portion of his shares into two promissory notes.
The first note (the "Vested Secured Note"), in the principal amount of
$2,430,798, relates to Mr. Durham's time vested shares and the vested portion of
his performance vested shares. The second note (the "Non-Vested Secured Note"),
in the principal amount of $4,862,099, related to the 9,667 performance vested
shares which had not vested as of the date of the separation agreement. In
addition to these notes, Mr. Durham had an additional outstanding promissory
note (the "Additional Note"), with a principal amount of $1,637,974, relating to
a portion of the shares of common stock held by Mr. Durham. In accordance with
the separation agreement, we repurchased and canceled Mr. Durham's 9,667
unvested shares in exchange for cancellation of the Non-Vested Secured Note on
October 3, 2002.
The separation agreement preserved a put option established by Mr. Durham's
employment agreement with respect to his shares. For purposes of this put
option, the separation agreement provides that the price per share to be paid by
us is $483.13 with respect to common stock, $483.13 less any exercise price with
respect to warrants, and the liquidation preference with respect to preferred
stock. On July 9, 2002, Mr. Durham exercised his put option with respect to
28,289 shares of common stock, 1,232 shares of preferred stock and warrants to
purchase 1,250.48 shares of common stock. Mr. Durham's put option is subject to
any financing or other restrictive covenants to which we are subject at the time
of the proposed repurchase. Restrictive covenants under our credit facilities
limit the number of shares we can currently repurchase from Mr. Durham. On
October 3, 2002, as permitted by the covenants contained in our credit
facilities, we purchased 8,204 shares from Mr. Durham for a purchase price of
$3,963,599 less the outstanding amount of the Additional Note, which was
cancelled. In December 2002 we purchased an additional 1,885 shares of common
stock from Mr. Durham for an aggregate purchase price of approximately $910,700.
As of December 31, 2002, our total remaining purchase obligation to Mr. Durham
was approximately $10,623,097, excluding accrued preferred dividends. We are
limited to a
36
maximum purchase from Mr. Durham of $5,000,000 of shares in 2003, which purchase
may only be made if we meet certain leverage ratios. In connection with Mr.
Durham's resignation as Chairman and Chief Executive Officer, Jack E. Knott II
was appointed our Chief Executive Officer. Mr. Timothy J. Walsh, a director
since May 31, 2000, and a Partner of J.P. Morgan Partners, LLC, was appointed as
the non-executive Chairman of the Board of Directors. Mr. Durham continues to
serve as a member of our Board of Directors as a designee of The Christena Karen
H. Durham Trust, which holds 158,917 shares, or approximately 27.5%, of our
outstanding common stock.
During 2001, we completed 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.
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 our variable rate indebtedness would increase
our annual interest expense by approximately $2.2 million. We have six interest
rate derivative agreements with financial institutions that would reduce the
impact of changes in interest rates on our floating-rate, long-term debt. These
agreements include interest rate cap agreements, interest rate swap agreements
and an interest rate collar agreement. These agreements have a notional amount
of $358.0 million and expire from December 31, 2003 through January 18, 2005.
See Note 6 to the consolidated financial statements included elsewhere in this
prospectus.
Our raw material costs are comprised primarily of resins. Our resin costs
comprised approximately 62% of our total manufacturing costs in 2002. Market
risk arises from changes in resin costs. Although the average selling prices of
our products generally increase or decrease as the cost 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,
2002, 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, 2002 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.
37
Business
General
Pliant Corporation, with 2002 revenues of approximately $879 million, is 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 some of the most diverse product lines in the film
industry and have achieved leading positions in many of these product lines. We
operate 26 manufacturing and research and development facilities worldwide and
we currently have approximately 1.0 billion pounds of annual production
capacity.
We were founded in 1992. We have combined strategic acquisitions, internal
growth, product innovation and operational improvements to grow our business
from net sales of $310.8 million in 1996 to $879.2 million in 2002. We have
acquired and integrated numerous strategic film and flexible packaging
operations since 1992.
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, 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 at that time 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 restructured our indebtedness. We
refinanced all amounts outstanding under our then existing credit facility and
replaced it with amended and restated secured credit facilities.
Controlling Shareholders
J.P. Morgan Partners (BHCA), L.P. and/or affiliates own approximately 55% of our
outstanding common stock, 75% of our preferred stock warrants to purchase common
stock and 59% of our outstanding preferred stock, subject to certain preemptive
rights with respect to 10,000 shares of preferred stock issued on March 25,
2003. 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 United States. J.P. Morgan Partners, LLC is a global private equity
organization, with over $11 billion under management. Through its affiliates,
J.P. Morgan Partners, LLC is a leading provider of equity capital for middle
market buyouts, growth equity and venture capital.
38
Recent Acquisitions
In August 2002, we purchased substantially all of the assets and assumed certain
liabilities of the business of Roll-O-Sheets Canada Limited. The Roll-O-Sheets
business consists of one plant in Barrie, Canada engaged in the conversion and
sale of PVC and polyethylene film for the food industry. In addition, the
business includes the distribution of purchased polyester film and polypropylene
food trays and other food service products.
In May 2002, we acquired substantially all of the assets and assumed certain
liabilities of Decora Industries, Inc. and its operating subsidiary, Decora
Incorporated (collectively, "Decora"), a New York based manufacturer and
marketer of adhesive and non-adhesive decorative and surface coverings,
including plastic films and other consumer products sold under the Con-Tact(R)
brand name. The initial purchase price was approximately $18 million. The assets
purchased consisted of one plant in Fort Edward, New York, and related equipment
used by Decora primarily to print, laminate and convert films into adhesive
shelf liner. In addition, we accrued certain liabilities related to acquisition
costs and expenses related to the relocation of the production facility,
including severance payments to terminated employees. The final purchase price
after adjustments totaled $23.2 million.
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 an
initial purchase price of approximately $56.0 million in cash and equity. In
addition, we accrued certain liabilities related to acquisition costs and
expenses related to the relocation of the production facility including
severance payments to terminated employees. The final purchase price after
adjustments totaled $59.3 million.
Products, Markets and Customers
Our products are sold into numerous markets for a variety of end uses. Our
operations consist of three operating segments: Pliant U.S., Pliant
International and Pliant Solutions. 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. In previous reporting periods, we had
three operating segments classified by our primary product types. During the
third quarter of 2002, we reorganized our operations under our three current
operating segments. Segment information in this prospectus with respect to 2001
and 2000 has been restated for comparative purposes. For more information on our
operating segments and geographic information, see Note 14 to the consolidated
financial statements included elsewhere in this prospectus.
Pliant U.S.
Our Pliant U.S. segment manufactures and sells films and other flexible
packaging products primarily in the United States. Our Pliant U.S. segment
accounted for 84.5%, 87.6% and 89.3% of our net sales in 2002, 2001 and 2000,
respectively. The principal products of our Pliant U.S. segment include personal
care and medical films, converter films, printed products, barrier films,
agricultural films, stretch films and PVC films.
Personal Care and Medical Films. 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. We are also a specialized 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.
Converter Films. We are North America's largest producer of converter films.
Converter films are sold to converters of flexible packaging who laminate them
to foil, paper or other films, and/or print them, and ultimately fabricate them
into the final flexible packaging product. Our converter films are a key
39
component in a wide variety of flexible packaging products. Generally, our
converter films add value by providing the final packaging product with specific
performance characteristics.
Printed Products. Our printed 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. We are the
leading manufacturer of films used for frozen foods packaging in North America.
In addition, we are the second largest manufacturer of films for the bread and
bakery goods market in North America.
Barrier Films. We manufacture a variety of barrier films, primarily for food
packaging. We are North America's second largest producer of films for cookie,
cracker and cereal box liners. We are also a leading manufacturer of barrier
films for liners in multi-wall pet food bags, frozen baked goods and dry mix
packaging.
Agricultural Films. 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. We are one of North America's two largest
producers of mulch films.
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.
PVC Films. Our PVC films are used by supermarkets, delicatessens and restaurants
to wrap meat, cheese and produce. PVC films are preferred in these applications
because of their clarity, elasticity and cling. We also produce PVC films for
laundry and dry cleaning bags. Finally, we produce PVC films that are repackaged
by us and other companies 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.
The following table presents the net sales, excluding intercompany sales,
contributed by the primary divisions in our Pliant U.S. segment. The Industrial
Films division includes our stretch films and PVC films product categories. The
Specialty Films division includes the majority of the sales from our personal
care and medical films categories, as well as the sales from our agricultural
films category and sales from our facility in Newport News, Virginia, which
conducts a majority of our research and development. The Converter Films
division consists of our converter films product category and some sales from
our personal care and medical films product categories. The Printed and Barrier
Films division includes our barrier films as well as our printed products
categories.
Net sales, excluding intercompany sales (dollars in millions):
2002 2001 2000
------ ------ ------
Industrial Films ............ $158.7 $161.5 $145.9
Specialty Films ............. 156.0 158.7 188.7
Converter Films ............. 220.9 210.6 197.8
Printed and Barrier Films ... 207.0 205.3 220.8
------ ------ ------
Total Pliant U.S. $742.6 $736.1 $753.2
====== ====== ======
Pliant International
Our Pliant International segment manufactures and sells films and other flexible
packaging products. We have manufacturing operations located in Australia,
Brazil, Canada, Germany and Mexico. These operations service Australia,
Southeast Asia, Latin America, Canada, Europe and Mexico. In addition, our
40
operation in Mexico provides the film for our Pliant Solutions segment. Our
Pliant International segment accounted for 12.3%, 12.4% and 10.7% of our net
sales in 2002, 2001 and 2000, respectively. The principal products of our Pliant
International segment vary depending on the particular country or region.
Mexico
Our facility in Mexico produces a variety of films and flexible packaging
products. These products are sold primarily in Mexico, although we have a few
customers in other Latin American countries. Our facility in Mexico manufactures
personal care films, printed products and barrier films. We also sell stretch
films and PVC films manufactured by our U.S. plants in Mexico and the Latin
America region.
Personal Care Films. We are a leading supplier of personal care films in Mexico.
We produce both printed and unprinted films for use in disposable diapers,
feminine care products and adult incontinence products.
Printed Products. Our facility in Mexico produces printed rollstock, bags and
sheets used to package food and consumer products.
Barrier Films. We manufacture co-extruded barrier films in our Mexico facility.
These films are used for cookie, cracker and cereal box liners.
Stretch and Shrink Films. We are a leading supplier of stretch and shrink films
in Mexico. Stretch films are used to bundle, unitize and protect palletized
loads during shipment and storage. These stretch films are manufactured by our
U.S. plants. Shrink film is produced in our Mexican operations as well as our
U.S. plants for sale into this region.
PVC Films. We also sell PVC films in Mexico. Like our stretch films, our PVC
films are manufactured by our U.S. plants and shipped to customers in Mexico.
Germany
Our facility in Germany produces PVC films primarily for sale throughout Europe.
We are a leading producer of PVC films in Europe, where our films are sold
primarily to supermarkets and processors of red meat and poultry. In Southern
Europe, we also sell our PVC films to produce suppliers.
Australia
Our facility in Australia produces PVC films primarily for sale in Australia,
New Zealand and Southeast Asia. In this region, we sell our PVC films primarily
to supermarkets, delicatessens and restaurants to wrap meat, cheese and produce.
We also sell PVC films to converters that rewind and slit the PVC films for use
in retail cutter boxes.
Canada
We are a leading supplier of converter films in Canada. We manufacture converter
films at both our Canadian facilities and our U.S. facilities for sale in
Canada. In Canada, we sell our converter films primarily to converters of
flexible packaging, distributors and end users.
Pliant Solutions
Our Pliant Solutions segment consists primarily of the consumer products
business we acquired from Decora in May 2002. Net sales of the Pliant Solutions
segment since the acquisition date accounted for 3.2% of our net sales in 2002.
Our Pliant Solutions segment manufactures and markets decorative and surface
coverings, including self-adhesive and non-adhesive coverings, primarily in the
United States and Canada. We market these consumer products primarily under the
Con-Tact(R) brand name, which is considered to be the most recognized brand of
consumer decorative and surface coverings.
Decorative and surface coverings are manufactured through the conversion of
various films into consumer packaged goods. These products are sold by retailers
to consumers for a wide range of
41
applications, including shelf-lining, decorative accenting, glass covering,
surface repair, resurfacing and arts and crafts projects. Product lines
currently marketed by our Pliant Solutions segment under the Con-Tact(R) brand
name include multipurpose decorative coverings, Shelf Liner(TM), Grip Liner(TM)
and glass coverings. Consumers purchase these products based upon their ease of
application, design, durability and price.
We believe we are the largest provider of decorative and surface coverings in
the United States, which we attribute to the strength of our Con-Tact(R) brand
name. In North America, we sell our Con-Tact(R) brand products primarily to
retailers, including mass merchants, home centers, specialty stores, grocery
stores, and drug stores.
Sales and Marketing
Because of our broad range of product offerings and customers, our sales and
marketing efforts are generally specific to a particular product, customer or
geographic region. 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 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. In addition,
certain of our personal care and barrier films, and all of our agricultural
films are sold through brokers in the United States. Most of our printed
products are sold domestically through brokers. National grocery chains and some
smaller customer accounts are serviced by our own direct sales force.
Our stretch films and PVC films are generally sold to distributors, although we
also sell stretch films directly to large national accounts. 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.
No single customer accounted for more than 10% of our net sales for the year
ended December 31, 2002.
Manufacturing
Over the past three years, excluding acquisitions, we have invested a total of
$171.3 million to expand, upgrade and maintain our asset base and information
systems. With 26 plants, we are often able to allocate lines to specific
products. Our multiple manufacturing sites and varied production capabilities
also allow us to offer multiple plant service to our national customers.
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. Blown film is
produced by extruding molten resin through a circular die and chilled air ring
to form a bubble. In the cast film process, molten resin is extruded through a
horizontal die onto a chill roll, where the film is quickly cooled. 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.
Technology and Research and Development
We believe our technology base and research and development support provide
critical support to our business and customers. Our research and development
group provides the latest resin and extrusion
42
technology to our manufacturing facilities and allows us to test new resins and
process technologies. Our technical center in Newport News, Virginia has a pilot
plant that allows 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.
Our technical representatives often work with customers to help them develop
new, more competitive products. This allows us to enhance our relationships with
these customers by providing the technical service needed to support
commercialization of new products and by helping them to improve operational
efficiency and quality throughout a product's life cycle.
We spent $8.1 million, $9.8 million and $8.6 million on research and development
in 2002, 2001 and 2000, respectively, before giving effect to revenues from
pilot plant sales.
Intellectual Property Rights
Patents, trademarks and licenses are significant to our business. We have patent
protection on many of our products and processes, and we regularly apply for new
patents on significant product and process developments. We have registered
trademarks on many of our products. We also rely on unpatented proprietary
know-how, continuing technological innovation and other trade secrets to develop
and maintain our competitive position. In addition to our own patents, trade
secrets and proprietary know-how, we license from third parties the right to use
some of their intellectual property. Although we constantly seek to protect our
patents, trademarks and other intellectual property, there can be no assurance
that our precautions will provide meaningful protection against competitors or
that the value of our trademarks will not be diluted.
Raw Materials
Polyethylene, PVC, polypropylene and other resins and additives constitute the
major raw materials for our products. We purchase most of our resin from major
oil companies and petrochemical companies in North America. For the year ended
December 31, 2002, resin costs comprised approximately 62% of our total
manufacturing costs. The price of resins is a function of, among other things,
manufacturing capacity, demand, and the price of crude oil and natural gas
feedstocks. Resin shortages or significant increases in the price of resin could
have a significant adverse effect on our business.
Over the past several months, we have experienced a period of extreme
uncertainty with respect to resin supplies and prices. High crude oil and
natural gas pricing, resulting in part from harsh winter weather conditions in
the eastern United States and uncertainties regarding the situation with Iraq,
have had a significant impact on the price and supply of resins. During the same
period, many major suppliers of resin have announced price increases to cover
their increases in feedstock costs. While the prices of our products generally
fluctuate with the price of resins, certain of our customers have contracts that
limit our ability to pass the full cost of higher resin pricing through to our
customers immediately. Further, competitive conditions in our industry may make
it difficult for us to sufficiently increase our selling prices for all
customers to reflect the full impact of increases in raw material costs. If this
period of high resin pricing continues, we may be unable to pass on the entire
effect of the price increases to our customers, which would adversely affect our
profitability and working capital. In addition, further increases in crude oil
and natural gas prices could make it difficult for us to obtain an adequate
supply of resin from manufacturers affected by these factors.
43
Employees
As of February 28, 2003, we had approximately 3,250 employees, of which
approximately 1,000 employees were subject to a total of 12 collective
bargaining agreements that expire on various dates between February 19, 2004 and
March 7, 2007. 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 1475 Woodfield Road, Suite 700,
Schaumburg, Illinois 60173. We own most of the improved real property and other
assets used in our operations. We lease all or part of seven of the sites at
which we have manufacturing operations. We also lease warehouse and office space
at various locations. We consider the condition of our plants, warehouses and
other properties and the other assets owned or leased by us to be generally
good.
In an effort to maximize the efficiency of our facilities, we closed and
disposed of a number of facilities in 2000, 2001 and 2002, including certain
facilities acquired in connection with recent acquisitions. Production from
these facilities was moved in large part to plants that were not operating at
capacity. During 2000, we closed a facility in Dallas, Texas. In 2001, we closed
a facility in Birmingham, Alabama, two facilities in Palmer, Massachusetts, a
facility in Columbus, Indiana and a part of our facility in Toronto, Canada.
During 2002, we commenced a process to consolidate our two plants in Mexico. In
addition, during the fourth quarter of 2002 we substantially completed the
closure of our facility in Merced, California and a portion of our plant in
Shelbyville, Indiana. The remaining portion of the Shelbyville, Indiana plant
continues to operate as part of the Alliant joint venture. Alliant is a joint
venture between us and Supreme Plastics Ltd., a company based in the United
Kingdom. Alliant manufactures and sells recloseable zipper products. We have
also commenced the process of closing a facility in Fort Edward, New York, which
was acquired as part of the Decora acquisition, and have moved the production to
our facilities in Mexico and Danville, Kentucky.
We have an annual film production capacity of approximately one billion pounds.
Our principal manufacturing plants are listed below. Unless otherwise indicated,
we own each of these properties.
Location Products
-------- --------
Pliant U.S.
Barrie, Canada* PVC and polyethylene films
Bloomington, Indiana* Barrier and custom films
Burrillville, Rhode Island Converter films
Calhoun, Georgia PVC films
Chippewa Falls, Wisconsin Converter and personal care films
Dalton, Georgia Converter, barrier and custom films
Danville, Kentucky Stretch and converter films
Deerfield, Massachusetts Converter films
Harrington, Delaware Personal care, medical and converter films
Kent, Washington Printed bags and rollstock
Langley, British Columbia* Printed bags and rollstock
Lewisburg, Tennessee Stretch films
Macedon, New York+ Personal care films, printed bags and rollstock
McAlester, Oklahoma Personal care, medical and converter films
Newport News, Virginia Research facility and pilot plant
Odon, Indiana* Barrier and custom films
Shelbyville, Indiana Reclosable zipper products
Toronto, Canada PVC films
Washington, Georgia Personal care, medical and agricultural films
44
Pliant International
Mexico City, Mexico* Barrier and personal care films, printed bags
and rollstock
Orillia, Canada (two plants) Converter films
Phillipsburg, Germany PVC films
Porte Allegra, Brazil Personal care bags
Preston, Australia* PVC films
Pliant Solutions
Danville, Kentucky* Packaging and distribution
- ----------
* 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.
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.
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 service a large portion
of the film and flexible packaging market, 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. Some of our competitors are substantially larger, are more
diversified, and have greater resources than we have, and, therefore, may have
certain competitive advantages.
Legal proceedings
On November 19, 2001, S.C. Johnson & Son, Inc. and S.C. Johnson Home Storage,
Inc. (collectively, "S.C. Johnson") filed a complaint against us in the U.S.
District Court for the District of Michigan, Northern Division (Case No.
01-CV-10343-BC). The complaint alleges misappropriation of proprietary trade
secret information relating to certain componentry used in the manufacture of
reclosable "slider" bags. We counterclaimed alleging that S.C. Johnson
misappropriated certain of our trade secrets relating to the extrusion of flange
zipper and unitizing robotics. Both the S.C. Johnson complaint and our
counterclaim seek damages and injunctive and declaratory relief. Discovery in
this proceeding is currently
45
expected to conclude on July 31, 2003. We intend to resist S.C. Johnson's claims
and to pursue our counterclaim vigorously. We do not believe this proceeding
will have a material adverse affect on our financial condition or results of
operations.
On February 26, 2003, former employees of our Fort Edward, New York
manufacturing facility, which we acquired as part of the Decora acquisition,
named us as defendants in a complaint filed in the Supreme Court of the State of
New York, County of Washington (Index No. 4417E). We received service of this
complaint on April 2, 2003. The complaint alleges claims against us for
conspiracy to defraud and breach of contract arising out of our court-approved
purchase of the assets of Decora Industries, Inc. and Decora, Incorporated.
Plaintiffs' complaint seeks compensatory and punitive damages and a declaratory
judgment nullifying severance agreements for lack of consideration and economic
duress. Our response to the complaint is due on May 2, 2003, and we intend to
resist the plaintiffs' claims vigorously. We do not believe this proceeding will
have a material adverse affect on our financial condition or results of
operations.
We are involved in other litigation matters from time to time in the ordinary
course of our business. In our opinion, none of such litigation is material to
our financial condition or results of operations.
46
Management
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 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.
Name Age Position
- ---- --- --------
Jack E. Knott II......... 48 Chief Executive Officer and Director
Brian E. Johnson......... 47 Executive Vice President and Chief Financial Officer
Stanley B. Bikulege...... 39 Executive Vice President and President, Pliant U.S.
Elise H. Scroggs......... 41 Executive Vice President and President, Pliant International
Len Azzaro............... 53 Executive Vice President and President, Flexible Packaging
Douglas W. Bengtson...... 55 Executive Vice President, Procurement and Strategic Sourcing
Timothy J. Walsh ........ 39 Chairman of the Board and Director
Richard P. Durham........ 38 Director
Donald J. Hofmann, Jr. .. 45 Director
John M. B. O'Connor...... 48 Director
Edward A. Lapekas........ 59 Director
Albert (Pat) MacMillan... 59 Director
Jack E. Knott II became our Chief Executive Officer in June 2002 and was our
President from March 2001 through June 2002. Mr. Knott also served as our Chief
Operating Officer from September 1, 1997 through June 2002. From September 1997
through March 2001, Mr. Knott also served as an 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 and
President, Rexene Products, and 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 is currently chairman of the Flexible Packaging Association. 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 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 an M.B.A. degree from the
Kellogg School of Management at Northwestern University.
Stanley B. Bikulege became Executive Vice President and President, Pliant U.S.
in June 2002. Mr. Bikulege served as Executive Vice President Operations from
July 2001 through June 2002. Mr.
47
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.
Elise H. Scroggs became Executive Vice President and President, Pliant
International in June 2002. Ms. Scroggs served as Senior Vice President of
International Operations from December 2001 through June 2002. Ms. Scroggs'
prior positions with Pliant include numerous management positions overseeing
transportation, customer service, purchasing, operations and administration.
Prior to joining us in 1997, Ms. Scroggs held sales management positions with
Rexene Corporation. Ms. Scroggs received a B.Sc. degree in Textile Chemistry
from Auburn University.
Len Azzaro became Executive Vice President and President, Flexible Packaging on
February 3, 2003. Prior to joining Pliant, Mr. Azzaro spent 30 years in global
sales, marketing and general management at Dow Chemical. Most recently he served
as leader of Dow's global polyethylene business. Mr. Azzaro holds a B.S. degree
from Youngstown State and an M.B.A. degree from the Kellogg School of Management
at Northwestern University.
Douglas W. Bengtson became our Executive Vice President, Procurement and
Strategic Sourcing in June 2002. Mr. Bengtson served as Executive Vice President
of Sales from July 2001 through June 2002. 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, a division of Rexene
Corporation, and Vice President, Sales and Marketing, of the Polymer division of
Rexene Corporation. Mr. Bengtson received a B.S. degree in Business/Marketing
from Colorado State University.
Timothy J. Walsh became one of our directors on May 31, 2000 and the chairman of
the board of directors in June 2002. Mr. Walsh is an executive officer of JPMP
Capital Corp., which is the general partner of JPMP Master Fund Manager, L.P.,
which is the general partner of J.P. Morgan Partners (BHCA), L.P., which is a
principal stockholder of the Company. Since 1999, Mr. Walsh has been a Partner
of J.P. Morgan Partners, LLC (formerly, Chase Capital Partners), a global
private equity organization with approximately $11.7 billion of direct private
equity under management. J.P. Morgan Partners, LLC provides equity capital for
middle market buyouts, growth equity and venture 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, Klockner Pentaplast S.A. and Metokote
Corporation. Mr. Walsh received a B.S. degree from Trinity College and an M.B.A.
degree 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.
Richard P. Durham became one of our directors on May 31, 2000. Mr. Durham also
served as our President, from March 1997 through March 2001, and as our Chief
Executive Officer, from March 1997 through June 2002. He was also the chairman
of our board of directors from May 31, 2000 to June 2002. Mr. Durham has been
with various Huntsman Corporation affiliates since 1987. Prior to becoming our
President, Mr. Durham served as Co-President and Chief Financial Officer of
Huntsman Corporation. 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.
48
Donald J. Hofmann, Jr. became one of our directors on May 31, 2000. Since
January 2003, Mr. Hofmann has been a Senior Advisor of J.P. Morgan Partners, LLC
(formerly, Chase Capital Partners), a global private equity organization with
approximately $11.7 billion of direct private equity under management. J.P.
Morgan Partners, LLC provides equity capital for middle market buyouts, growth
equity and venture capital. From 1992 until January 2003, Mr. Hofmann was a
partner of J.P. Morgan Partners, LLC. Mr. Hofmann is also a director of Advanced
Accessory Systems, LLC. 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.
John M. B. O'Connor became one of our directors on May 31, 2000. Mr. O'Connor is
an executive officer of JPMP Capital Corp., which is the general partner of JPMP
Master Fund Manager, L.P., which is the general partner of J.P. Morgan Partners
(BHCA), L.P., which is a principal stockholder of the Company. 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 approximately $11.7 billion of direct private equity under
management. J.P. Morgan Partners, LLC provides equity capital for middle market
buyouts, growth equity and venture capital. From 1993 to 1999, Mr. O'Connor held
various positions with J.P. Morgan Partners, LLC in Europe and North America.
Mr. O'Connor is also on the Board of TK Aluminum Ltd., AdvisorTech Corporation,
FHC Value Options. Mr. O'Connor is an appointee of New York City's Mayor
Bloomberg to the Board of the Center for Animal Care and Control, a Director of
The Fund for the City of New York and a Director of the American Society for the
Prevention of Cruelty to Animals ("ASPCA"). Mr. O'Connor received his B.A.
degree from Tulane University and an M.B.A. degree from the Columbia University
Graduate School of Business. Pursuant to the stockholders' agreement, Mr.
O'Connor is one of the designees to the board by our institutional common
stockholders and warrantholders.
Edward A. Lapekas became one of our directors on December 19, 2001. Since
November 2002, Mr. Lapekas has served as Chairman and Chief Executive Officer of
NEXPAK, a media packaging company. Prior to that, 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. Mr. Lapekas is also a director of Silgan
Corp. He received a B.A. degree from Albion College and an M.B.A. degree 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. degree in Business and an M.B.A. degree 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, 2002, 2001 and 2000
by each person serving as chief executive officer during 2002 and the five other
most highly compensated executive officers of Pliant (as of the end of the last
fiscal year) (collectively, the "Named Executive Officers").
49
SUMMARY COMPENSATION TABLE
Long Term Compensation(2)
Annual -------------------------
Compensation(1) Securities All Other
----------------- Underlying LTIP Compen-
Salary Bonus Options/SARs Payouts sation
Name And Principal Position Year ($) ($) (#) ($) ($)
- --------------------------- ---- ------- ------- ------------ ------- ---------
Jack E. Knott II.................................. 2002 375,000 163,659 -- -- 5,700(3)
Chief Executive Officer 2001 337,500 163,428 -- -- 5,100(4)
2000 316,667 104,274 -- -- 1,037,271(5)
Richard P. Durham................................. 2002 250,000 185,800 -- -- 270,708(6)
Chairman and Chief Executive Officer 2001 500,000 381,024 -- -- 5,100(4)
Until June 10, 2002(12) 2000 500,000 245,568 -- -- 136,350(7)
Brian E. Johnson.................................. 2002 265,200 41,928 -- -- 5,700(3)
Executive Vice President 2001 179,333 44,370 5,000 -- 5,100(4)
And Chief Financial Officer(13) 2000 -- -- -- -- --
Stanley B. Bikulege............................... 2002 247,083 47,093 2,720 -- 5,700(3)
Executive Vice President, President, Pliant USA 2001 203,125 66,245 250 -- 56,931(8)
2000 182,250 60,304 1,030 298,521 52,600(9)
Elise H. Scroggs.................................. 2002 205,417 32,972 2,200 -- 5,700(3)
Executive Vice President, President, 2001 151,917 46,207 425 -- 3,184(10)
Pliant International 2000 115,916 15,984 375 62,394 35,100(11)
Douglas W. Bengtson............................... 2002 222,500 35,147 720 -- 5,700(3)
Executive Vice President, 2001 204,583 66,245 250 -- 5,100(4)
Procurement and Strategic Sourcing 2000 190,000 121,293 1,030 517,122 52,600(9)
Ronald A. Artzer.................................. 2002 223,846 39,216 1,500 -- 5,700(3)
Senior Vice President, President, 2001 -- -- -- -- --
Pliant Solutions Corporation(14) 2000 -- -- -- -- --
- ----------
(1) Perquisites and other personal 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, 2002, the number of shares of restricted stock held by
Messrs. Durham and Knott were 4,833 and 7,750, respectively. The value of
such shares of restricted stock at December 31, 2002 has not been reported
as compensation because it did not exceed the consideration paid by the
applicable Named Executive Officer.
(3) Consists of $5,700 for employer's 401(k) contributions.
(4) Consists of $5,100 for employer's 401(k) contributions.
(5) Consists of (a) $836,785 gross-up payment of taxes payable for the exercise
of options in connection with the recapitalization, (b) relocation expense
reimbursement of $114,136, (c) a $81,250 retention bonus and (d) employer's
401(k) contributions of $5,100.
(6) Consists of (a) a $250,008 severance payment, (b) a $15,000 director's fee
for the period subsequent to Mr. Durham's resignation as Chief Executive
Officer and (c) $5,700 for employer's 401(k) contributions.
(7) Consists of (a) a $125,000 retention bonus, (b) employer's 401(k)
contributions of $5,100 and (c) a $6,250 director's fee.
(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 $3,184 for employer's 401(k) contributions.
(11) Consists of (a) a $30,000 retention bonus and (b) employer's 401(k)
contributions of $5,100.
50
(12) Mr. Durham resigned as Chairman and Chief Executive Officer on June 10,
2002 and Jack E. Knott II was appointed Chief Executive Officer.
(13) Mr. Johnson joined Pliant in April 2001.
(14) Mr. Artzer joined Pliant in May 2002 and left his position as Senior Vice
President and President, Pliant Solutions Corporation on April 21, 2003.
Stock Options and Restricted Stock
Pursuant to the recapitalization, options covering a total of 8,902 common
shares were rolled over from a previous plan. In addition, we adopted our 2000
Stock Incentive Plan. The 2000 plan became effective as of the consummation of
the recapitalization and authorizes grants of nonqualified stock options or
restricted stock to employees, officers, directors, managers or advisors of
Pliant or any of its subsidiaries. As amended, a total of 65,600 shares are
authorized for issuance under the 2000 plan. As of December 31, 2002, we had
outstanding grants of restricted stock covering 13,208 shares of common stock
and options to acquire 42,440 shares of common stock under the 2000 plan. Shares
of restricted stock that are forfeited, and unissued shares reserved for
issuance pursuant to options that terminate, expire or are canceled without
having been fully exercised, become available to be issued pursuant to new
grants under the 2000 Plan.
In August 2002, we adopted our 2002 Stock Incentive Plan. The 2002 plan
authorizes grants of incentive stock options, nonqualified stock options and
stock bonuses, as well as the sale of shares of common stock, to our employees,
officers, directors and consultants of Pliant or any of its subsidiaries. A
total of 4,793 shares are authorized for issuance under the 2002 plan. As of
December 31, 2002, no options or shares had been granted or sold under the 2002
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
Individual Grants Potential Realizable
- ------------------------------------------------------------------------------- Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options/SARs Price Appreciation for
Underlying Granted to Excercise or Option Terms(1)(3)(4)
Options/SARs Employees in Base Price(1) Expiration ----------------------
Name Granted (#) Fiscal Year ($/Sh) Date(2) 5%($) 10%($)
- ---- ------------ ------------ ------------- ---------- ------- --------
Stanley B. Bikulege 1,720 8% $483.13 5/31/12 522,601 1,324,37
1,000 5% $483.13 11/25/12 303,838 769,985
Elise H. Scroggs 1,200 6% $483.13 5/31/12 364,605 923,982
1,000 5% $483.13 11/25/12 303,838 769,985
Ronald A. Artzer 500 2% $483.13 5/31/12 151,919 384,992
1,000 5% $483.13 11/1/12 303,838 769,985
Douglas W. Bengtson 720 4% $483.13 5/31/12 218,763 554,389
- ----------
51
(1) The exercise price was greater than or equal to fair market value on date
of grant. There is no established trading market for our common stock and,
therefore, the aggregate market value of our shares cannot be determined by
reference to recent sales or bid and asked prices. The fair market value
was assumed to be equal to 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 2002 are
subject to vesting requirements. All of the options granted to each Named
Executive Officer vest in increments upon the achievement of a specified
market value of equity applicable to such increment. Such market value of
equity is determined pursuant to a formula based upon our adjusted
earnings.
The following table provides information as to the options held by each of the
Named Executive Officers at the end of 2002. There is no established trading
market for our common stock and, therefore, the aggregate market value of our
shares cannot be determined by reference to recent sales or bid and asked
prices. The value of unexercised in-the-money options was assumed to be equal to
the price per share paid in the recapitalization ($483.13 per share). None of
the Named Executive Officers exercised any options during the last fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Value Of Unexercised In-
Number Of Securities Underlying The-Money Options/SARs At
Shares Acquired Value Unexercised Options/SARs At FY-End (#) FY-End ($)
Name On 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 -- -- 393/3,607 0/0
Elise H. Scroggs -- -- 210/2,790 0/0
Ronald A. Artzer -- -- 0/1,500 0/0
Douglas W. Bengtson -- -- 393/1,607 0/0
The options or restricted common stock granted prior to January 1, 2001 pursuant
to the 2000 plan, as amended, provide for vesting as follows: (1) one-sixth are
"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 increments upon the
achievement of performance targets as follows: (a) vesting in full, if 100% or
more of the applicable performance target is achieved as of the end of any
calendar quarter during the option term and (b) partial vesting if more than 90%
of the applicable performance target is achieved as of the end of any calendar
quarter during the option term. 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. Options granted pursuant to the 2000 plan subsequent to
January 1, 2001 vest similarly, except that all of the options are "performance
vested" options, which vest in increments upon the achievement of performance
targets.
Pension Plans
52
The following table shows the estimated annual benefits payable under our
tax-qualified defined benefit pension plan in specified final average earnings
and years of service classifications.
Pliant Corporation Pension Plan Table
Years of Benefit Service at Retirement
-------------------------------------------------------------------
Final Average Compensation 10 15 20 25 30 35 40
- -------------------------- ------- ------- ------- ------- ------- ------- -------
$100,000 $16,000 $24,000 $32,000 $40,000 $48,000 $56,000 $64,000
125,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000
150,000 24,000 36,000 48,000 60,000 72,000 84,000 96,000
175,000 28,000 42,000 56,000 70,000 84,000 98,000 112,000
200,000 32,000 48,000 64,000 80,000 96,000 112,000 128,000
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. In
certain circumstances, covered compensation for purposes of the pension plan
includes compensation earned with our former affiliates. The Named Executive
Officers (excluding Ronald A. Artzer) were participants in the pension plan in
2002. The final average compensation for purposes of the pension plan in 2002
for each of the Named Executive Officers is $200,000, which is the maximum that
can be considered for the 2002 plan year under federal regulations. Federal
regulations also provide that the maximum annual benefit paid from a qualified
defined benefit plan cannot exceed $160,000 as of January 1, 2002. Benefits are
calculated on a straight life annuity basis. The benefit amounts under the
pension plan are offset for Social Security as described above.
The number of completed years of credited service as of December 31, 2002
under our pension plan for the Named Executive Officers participating in the
plan were as follows:
Name Years of Credited Service
- ---- -------------------------
Richard P. Durham/(1)/........ 17
Jack E. Knott II/(1)/......... 17
Brian E. Johnson.............. 1
Stanley B. Bikulege........... 10
Douglas W. Bengtson/(2)/...... 5
Elise H. Scroggs.............. 9
- ----------
/(1)/ The years of credited service under the pension plan include 12 years of
service credited with the predecessor to 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 5 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 a five-year employment agreement with Jack E.
Knott II, our Chief Executive Officer. The employment agreement provides 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
53
termination of employment with us (unless termination is due to the term
expiring). Mr. Knott 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 him while employed by us belong to us. In
addition, if Mr. Knott'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. Knott 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.
We also entered into a five-year employment agreement with Richard P. Durham,
our former Chief Executive Officer, on May 31, 2000. The terms of Mr. Durham's
employment agreement were substantially similar to Mr. Knott's employment
agreement. On February 1, 2001, however, we amended the employment agreement
with Mr. Durham to, among other things, specify the duties he would 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 was 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.
On June 10, 2002, we entered into a separation agreement with Richard P. Durham.
As of the date of the separation agreement, Mr. Durham owned 28,289 shares of
common stock, 12,083 performance vested shares, 2,417 time vested shares,
warrants to purchase 1,250.48 shares of common stock and 1,232 shares of
preferred stock of Pliant. All of Mr. Durham's time vested shares and 2,416 of
Mr. Durham's performance vested shares had vested as of the date of the
separation agreement. Pursuant to the separation agreement, Mr. Durham agreed to
convert an outstanding promissory note issued as payment for a portion of his
shares into two promissory notes. The first note (the "Vested Secured Note"), in
the principal amount of $2,430,798, relates to Mr. Durham's time vested shares
and the vested portion of his performance vested shares. The second note (the
"Non-Vested Secured Note"), in the principal amount of $4,862,099, related to
the 9,667 performance vested shares which had not vested as of the date of the
separation agreement. In addition to these notes, Mr. Durham had an additional
outstanding promissory note (the "Additional Note"), with a principal amount of
$1,637,974, relating to a portion of the shares of common stock held by Mr.
Durham. In accordance with the separation agreement, we repurchased and canceled
Mr. Durham's 9,667 unvested shares in exchange for cancellation of the
Non-Vested Secured Note on October 3, 2002.
The separation agreement preserved a put option established by Mr. Durham's
employment agreement with respect to his shares. For purposes of this put
option, the separation agreement provides that the price per share to be paid by
us is $483.13 with respect to common stock, $483.13 less any exercise price with
respect to warrants, and the liquidation preference with respect to preferred
stock. On July 9, 2002, Mr. Durham exercised his put option with respect to
28,289 shares of common stock, 1,232 shares of preferred stock and warrants to
purchase 1,250.48 shares of common stock. Mr. Durham's put option is subject to
any financing or other restrictive covenants to which we are subject at the time
of the proposed repurchase. Restrictive covenants under our credit facilities
limit the number of shares we can currently repurchase from Mr. Durham. On
October 3, 2002, as permitted by the covenants contained in our credit
facilities, we purchased 8,204 shares from Mr. Durham for a purchase price of
$3,963,599 less the outstanding amount of the Additional Note, which was
cancelled. In December 2002 we purchased an additional 1,885 shares of common
stock from Mr. Durham for an aggregate purchase price of approximately $910,700.
As of December 31, 2002, our total remaining purchase obligation to Mr. Durham
was approximately $10,623,097, excluding accrued preferred dividends. We are
limited to a maximum purchase from Mr. Durham of $5,000,000 of shares in 2003,
which purchase may only be
54
made if we meet certain leverage ratios. In connection with Mr. Durham's
resignation as Chairman and Chief Executive Officer, Jack E. Knott II was
appointed our Chief Executive Officer. Mr. Timothy J. Walsh, a director since
May 31, 2000, and a Partner of J.P. Morgan Partners, LLC, was appointed as the
non-executive Chairman of the Board of Directors. Mr. Durham continues to serve
as a member of our Board of Directors as a designee of The Christena Karen H.
Durham Trust, which holds 158,917 shares, or approximately 27.5%, of our
outstanding common stock.
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 Mr.
Johnson's present country club membership dues and participation in our other
employee benefit programs, including our management incentive program, and
includes non-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 II 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 John M. B. O'Connor and Edward A. Lapekas. The environmental
health and safety committee maintains oversight responsibilities with respect to
environmental health and safety matters, including environmental internal
controls and legal and regulatory compliance. The members of the environmental
health and safety committee are Jack E. Knott II, Donald J. Hofmann, Jr. and
Edward A. Lapekas.
Compensation Committee Interlocks and Insider Participation
During 2002, Richard P. Durham, Albert (Pat) MacMillan and Timothy J. Walsh
served as members of our compensation committee. Mr. Walsh is an executive
officer of JPMP Capital Corp., which is the general partner of JPMP Master Fund
Manager, L.P., which is the general partner of J.P. Morgan Partners (BHCA),
L.P., which is a principal stockholder of the Company. Mr. Walsh is also a
partner of J.P. Morgan Partners, LLC, which serves as investment advisor to J.P.
Morgan Partners (BHCA), L.P., and a limited partner of JPMP Master Fund Manager,
L.P. During 2002, none of our executive officers served as a member of the
compensation committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) or as a
director of another entity,
55
one of whose executive officers served as a member of our compensation committee
or as one of our directors.
Compensation of Directors
Each director who is not an employee of Pliant or a partner or senior advisor of
J.P. Morgan Partners, LLC is entitled to receive an annual fee of $30,000, plus
$10,000 per year per committee. Currently there are three directors of Pliant
who receive director fees.
56
Security ownership of certain beneficial owners
and management and related stockholder matters
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 28, 2003 by
. each person known to own beneficially more than 5% of our 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 March 28, 2003.
Notwithstanding the beneficial ownership of common stock presented below, the
stockholders' agreement governs the stockholders' exercise of their voting
rights with respect to election of directors and certain other material events.
The parties to the stockholders' agreement have agreed to vote their shares to
elect the board of directors as set forth therein. See "Certain Relationships
and Related Transactions."
The amounts and percentages of shares beneficially owned are reported on the
basis of SEC regulations governing the determination of beneficial ownership of
securities. Under SEC rules, a person is deemed to be a "beneficial owner" of a
security if that person has or shares voting power or investment power, which
includes the power to dispose of or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities of which that
person has a right to acquire beneficial ownership within 60 days. Securities
that can be so acquired are deemed to be outstanding for purposes of computing
such person's ownership percentage, but not for purposes of computing any other
person's percentage. Under these rules, more than one person may be deemed to be
a beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which such person has no economic interest.
Except as otherwise indicated in these footnotes, each of the beneficial owners
listed has, to our knowledge, sole voting and investment power with respect to
the indicated shares of common stock.
Number of Shares
of Common Stock Percent
Name Of Beneficial Owner Beneficially Owned of Class
- ------------------------ ------------------ --------
J.P. Morgan Partners (BHCA), L.P.(1)........................... 406,191 61.0%
The Christena Karen H. Durham Trust(2)......................... 158,917 27.6%
Perry Acquisition Partners L.P.(3)............................. 34,527 5.9%
Richard P. Durham (4).......................................... 24,283 4.2%
Jack E. Knott II(5)............................................ 11,717 2.0%
Donald J. Hofmann, Jr.(6)...................................... -- *
Timothy J. Walsh(6)............................................ -- *
John M. B. O'Connor(6)......................................... -- *
Edward A. Lapekas.............................................. 207 *
Albert (Pat) MacMillan......................................... -- *
Brian E. Johnson............................................... 1,018 *
Stanley B. Bikulege............................................ 609 *
Elise H. Scroggs............................................... 318 *
Ronald A. Artzer............................................... -- *
Douglas W. Bengtson............................................ 646 *
All directors and executive officers as a group (13 persons)... 38,798 6.6%
57
- ----------
* 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) 43,962 shares of
common stock which are issuable upon exercise of preferred stock warrants
held by J.P. Morgan (BHCA), L.P., (iii) 44,816 shares of common stock which
are issuable upon exercise of preferred stock warrants held by Flexible
Films, LLC, which is controlled by J.P. Morgan Partners (BHCA) L.P. and
(iv) 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. 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) Includes 1,250 shares of common stock issuable upon exercise of preferred
stock warrants.
(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 in "Executive Compensation--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 positions with affiliates of J.P. Morgan Partners (BHCA), L.P.,
which controls both Southwest Industrial Films, LLC and Flexible Films,
LLC, as their managing member.
Securities authorized for issuance under equity compensation plans
The following table sets forth information relating to our equity compensation
plans as of December 31, 2002. Our equity securities are closely held and are
not publicly traded. In addition, as required by our stockholders' agreement, a
majority of our board of directors has been appointed by our institutional
common stockholders and warrant holders, including our controlling shareholder.
Therefore, our board of directors approves our equity compensation plans without
obtaining approval directly from our shareholders.
Equity Compensation Plan Information
- ------------------------------------------------------------------------------------------------------------------
Number of securities
Number of securities to be remaining available for
issued upon Weighted-average exercise future issuance under
exercise of outstanding price of outstanding equity compensation plans
options, warrants and options, warrants and (excluding securities
Plan category rights rights reflected in column (a))
- ------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- ------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders -- -- --
- ------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders 64,550(1) $430.29 9,952
- ------------------------------------------------------------------------------------------------------------------
Total 64,550 $430.29 9,952
- ------------------------------------------------------------------------------------------------------------------
(1) Includes 13,208 shares of restricted stock issued under the 2000 Stock
Incentive Plan.
58
The equity compensation plans not approved by security holders include our 2000
Stock Incentive Plan and 2002 Stock Incentive Plan. The material features of
these plans are described under "Executive compensation--Stock options and
restricted stock" and in Note 11 to our consolidated financial statements.
59
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 $1.2 million in 2000. In addition to the amount 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.
Transactions with Management
Prior to the recapitalization, we sold shares of Class C common stock to certain
members of management for cash. We also issued shares of Class C common stock to
certain members of our senior management in exchange for promissory notes.
Approximately one-half of these shares were purchased and approximately one-half
were "rolled over" as common stock in the recapitalization. In connection with
the recapitalization, we issued additional shares of restricted stock to each of
our executive officers serving at that time in exchange for promissory notes.
The original promissory notes of our executive officers were amended during 2000
and 2001 in connection with the recapitalization, certain severance arrangements
and other events relating to the transition to a new management team. The terms
of these promissory notes and the related transactions are described below for
each person who served as an executive officer during 2000, 2001 or 2002.
Jack E. Knott II
In connection with our May 31, 2000 recapitalization, we issued 1,292
time-vested shares and 6,458 performance-vested shares to Mr. Knott in exchange
for a promissory note of $3,744,260. Interest on Mr. Knott's promissory note
accrued at the rate of 7% per annum through December 31, 2000. On April 21,
2001, we amended the terms of Mr. Knott's promissory note so that no interest
would accrue after December 31, 2000 and 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. Unless satisfied by returning
the restricted stock to us, the interest accrued on Mr. Knott's promissory note
through December 31, 2000, in the amount of $216,140, is payable in three annual
installments of $72,047, beginning May 31, 2006, and the principal balance of
$3,744,260 is payable on May 31, 2008.
Richard P. Durham
Mr. Durham served as our Chairman and Chief Executive Officer until June 2002.
Prior to his resignation, we issued common stock to Mr. Durham in exchange for
promissory notes on three separate occasions. In connection with our split-off
from Huntsman Corporation in 1997, we issued 5,000 shares of our Class A common
stock and 2,000 shares of our Class B common stock to Mr. Durham in exchange for
a $700,000 promissory note which bore interest at the rate of 7% per annum. This
note was repaid in full by Mr. Durham during 2001. On February 22, 1999, we sold
15,734 shares of Class C common stock to Mr. Durham in exchange for a $1,573,400
promissory note. On May 31, 2000, we also issued 2,417 time-vested shares and
12,083 performance-vested shares in exchange for a $7,005,389 promissory note.
In connection with an amendment to Mr. Durham's employment agreement in February
2001, we amended the $1,573,400 promissory note and the $7,005,389 promissory
note, which originally bore interest at the rate of 7% per annum, to provide
that no interest would accrue on these notes after December 31, 2000. We also
amended the $1,573,400 promissory note to provide that our sole recourse against
Mr. Durham with respect to the obligation under this promissory note would be
the 14,500 shares
60
of restricted stock pledged as collateral. At the time of Mr. Durham's
resignation, the balances of his two outstanding promissory notes, including
accrued interest, were $7,292,897 and $1,637,974.
On June 10, 2002, we entered into a separation agreement with Mr. Durham. As of
the date of the separation agreement, Mr. Durham owned 28,289 shares of common
stock, 12,083 performance vested shares, 2,417 time vested shares, warrants to
purchase 1,250.48 shares of common stock and 1,232 shares of preferred stock of
Pliant. All of Mr. Durham's time vested shares and 2,416 of Mr. Durham's
performance vested shares had vested as of the date of the separation agreement.
Pursuant to the separation agreement, Mr. Durham agreed to convert the
outstanding promissory note issued as payment for his time-vested and
performance vested shares into two promissory notes. The first note (the "Vested
Secured Note"), in the principal amount of $2,430,798, related to Mr. Durham's
time vested shares and the vested portion of his performance vested shares. The
second note (the "Non-Vested Secured Note"), in the principal amount of
$4,862,099, related to the 9,667 performance vested shares which had not vested
as of the date of the separation agreement. Mr. Durham's other note (the
"Additional Note") with an outstanding balance of $1,637,974 was not amended by
the separation agreement. In accordance with the separation agreement, we
repurchased and canceled Mr. Durham's 9,667 unvested shares in exchange for
cancellation of the Non-Vested Secured Note on October 3, 2002.
The separation agreement preserved a put option established by Mr. Durham's
employment agreement with respect to his shares. For purposes of this put
option, the separation agreement provides that the price per share to be paid by
Pliant is $483.13 with respect to common stock, $483.13 less any exercise price
with respect to warrants, and the liquidation preference with respect to
preferred stock. On July 9, 2002, Mr. Durham exercised his put option with
respect to 28,289 shares of common stock, 1,232 shares of preferred stock and
warrants to purchase 1,250.48 shares of common stock. Mr. Durham's put option is
subject to any financing or other restrictive covenants to which we are subject
at the time of the proposed repurchase. Restrictive covenants under our credit
facilities limit the number of shares we can currently repurchase from Mr.
Durham. On October 3, 2002, as permitted by the covenants contained in our
credit facilities, we purchased 8,204 shares from Mr. Durham for a purchase
price of $3,963,599 less the outstanding amount of the Additional Note, which
was cancelled. In December 2002, we purchased an additional 1,885 shares of
common stock from Mr. Durham for an aggregate purchase price of approximately
$910,700. As of December 31, 2002, our total remaining purchase obligation to
Mr. Durham was approximately $10,623,097, excluding accrued preferred dividends.
We are limited to a maximum purchase from Mr. Durham $5,000,000 for shares in
2003, which purchase may only be made if we meet certain leverage ratios. The
principal balance of Mr. Durham's Vested Secured Note, which is still
outstanding, is payable on May 31, 2008.
Scott K. Sorensen
Mr. Sorensen served as our Executive Vice President and Chief Financial Officer
until February 2001. Prior to his resignation, we issued common stock to Mr.
Sorensen in exchange for promissory notes on two separate occasions. On February
22, 1999, we sold 7,867 shares of Class C common stock to Mr. Sorensen in
exchange for a $786,700 promissory note. On May 31, 2000, we also issued 1,125
time-vested shares and 5,625 performance-vested shares in exchange for a
$3,261,129 promissory note. Each of Mr. Sorensen's promissory notes originally
bore interest at the rate of 7% per annum. As part of our severance arrangements
with Mr. Sorensen in February 2001, we cancelled all interest, in the amount of
approximately $132,000, accrued under Mr. Sorensen's $3,261,129 promissory note.
We also redeemed all 6,750 of Mr. Sorensen's time-vested and performance-vested
shares in exchange for cancellation of this promissory note. In addition, we
amended Mr. Sorensen's $786,700 promissory note to provide that no interest
would accrue after February 28, 2001. As of December 31, 2002, the amount
outstanding under Mr. Sorensen's remaining promissory note, including accrued
interest, was $896,838. This amount is payable in three annual installments
beginning on May 31, 2006.
61
Ronald G. Moffitt
Mr. Moffitt served as our Senior Vice President and General Counsel until
February 2001. Prior to his resignation, we issued common stock to Mr. Moffitt
in exchange for promissory notes on two separate occasions. On February 22,
1999, we sold 2,622 shares of Class C common stock to Mr. Moffitt in exchange
for a $262,200 promissory note. On May 31, 2000, we also issued 625 time-vested
shares and 3,125 performance-vested shares in exchange for a $1,811,739
promissory note. Each of Mr. Moffitt's promissory notes originally bore interest
at the rate of 7% per annum. As part of our severance arrangements with Mr.
Moffitt in February 2001, we cancelled all interest, in the amount of
approximately $85,500, accrued under Mr. Moffitt's $1,811,739 promissory note.
We also redeemed all 3,125 of Mr. Moffitt's performance-vested shares for an
aggregate purchase price of $1,509,781, which was set-off against this
promissory note. In addition, we amended Mr. Moffitt's $262,200 promissory note
to provide that no interest would accrue after February 28, 2001. As of December
31, 2002, the amounts outstanding under Mr. Moffitt's two promissory notes,
including accrued interest, were $301,956 and $275,877. Pursuant to the terms of
the notes, each of these amounts is payable in three annual installments
beginning on May 31, 2006. Mr. Moffitt's severance agreement preserved a put
option established by his employment agreement with respect to his shares. On
March 28, 2003, Mr. Moffitt exercised his put option with respect to all 3,457
shares of common stock beneficially owned by him. We are currently evaluting our
obligations with respect to the exercise of this put option.
Transactions Between Pliant and New Stockholders
Common Stock Registration Rights Agreement
Pursuant to a registration rights agreement entered into on May 31, 2000, as
amended, 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, 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
62
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;
. 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 Note Offerings
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 in 2000, 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. J.P. Morgan Securities Inc. 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, approximately $0.6 million in April
2002, approximately $0.6 million in October 2002 and approximately $0.5 million
in March 2003, 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
55% of our outstanding common stock and currently has the right under the
stockholders' agreement to appoint four of our directors, and of Flexible Films,
LLC, which, together with affiliates, owns approximately 59% of our outstanding
preferred stock, subject to certain preemptive rights with respect to 10,000
shares of preferred stock issued on March 25, 2003. Southwest Industrial Films,
LLC and Flexible Films, LLC are subsidiaries of J.P. Morgan Partners (BHCA),
L.P. During 2002, Donald J. Hofmann, Jr., Timothy J. Walsh and John M.B.
O'Connor, who serve as our directors, were partners of J.P. Morgan Partners,
LLC, which serves as investment advisor to
63
J.P. Morgan Partners (BHCA), L.P. and JPMP Capital Corp. JPMP Capital Corp. is a
subsidiary of J.P. Morgan Chase & Co. and is the general partner JPMP Master
Fund Manager, L.P., which is the general partner of J.P. Morgan Partners (BHCA),
L.P. Messrs. Walsh and O'Connor are executive officers of JPMP Capital Corp. and
limited partners of JPMP Master Fund Manager, L.P.
64
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 $114.9
million outstanding as of April 14, 2003;
. Mexico term loans in an aggregate principal amount of $24.2 million
outstanding as of April 14, 2003;
. tranche B term loans in an aggregate principal amount of $245.5
million outstanding as of April 14, 2003; and
. revolving credit facility in an aggregate principal amount of up to
$100.0 million.
. Up to $30.0 million (plus an additional amount up to $40.0
million to support certain borrowings by our principal Mexican
subsidiary) of the revolving credit facility is available in the
form of letters of credit.
Availability
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.
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 4.00%
for Adjusted LIBOR or 3.00% for ABR. Adjusted LIBOR is the London inter-bank
offered rate adjusted for statutory reserves. ABR is the alternate base rate,
which is the higher of the lender'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 or ABR, plus a spread determined by reference to our
leverage ratio. The spread will not exceed 4.75% for Adjusted LIBOR or 3.75% for
ABR. 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) 0.750%
per annum on the undrawn portion of the revolving credit facility commitments in
respect of the credit facilities, which began to
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accrue on May 31, 2000 and is payable quarterly in arrears after May 31, 2000,
subject to certain adjustments, and (b) a fee at a per annum rate equal to the
spread over Adjusted LIBOR under the revolving credit facility accruing on the
aggregate face amount of outstanding letters of credit under the revolving
credit facility, which is payable in arrears at the end of each quarter and upon
the termination of the revolving credit facility, in each case for the actual
number of days elapsed over a 360-day year. The fees referred to in (b) are
distributed to the lenders participating in the revolving credit facility pro
rata in accordance with the amount of each such lender's revolving credit
facility commitment. In addition, we pay to the issuing bank, for its own
account, (i) a per annum fronting fee on the aggregate face amount of
outstanding letters of credit, payable in arrears at the end of each quarter and
upon the termination of the revolving credit facility, in each case for the
actual number of days elapsed over a 360-day year, and (ii) customary issuance
and administration fees. We also pay the administrative agent a customary annual
administration fee.
Guarantees; security
Our obligations under the credit facilities, under the related security
documentation and under any interest protection or other hedging arrangements
entered into by us with a lender (or any affiliate thereof) are unconditionally
guaranteed by each of our existing and subsequently acquired or organized
domestic (and, to the extent no adverse tax consequences would result therefrom,
foreign) restricted subsidiaries.
These obligations are secured by substantially all of our assets (subject to
customary exceptions) and by the assets of each of our existing and subsequently
acquired or organized domestic (and, to the extent no adverse tax consequences
would result therefrom, foreign) restricted subsidiaries, including but not
limited to:
. a first-priority pledge of all capital stock held by us or any other
of our domestic (and, subject to the foregoing limitation, foreign)
restricted subsidiaries and held by subsequently acquired or organized
restricted subsidiaries of ours (which pledge, in the case of any
foreign subsidiaries, is limited to 65% of the capital stock of such
foreign subsidiary to the extent the pledge of any greater percentage
would result in adverse tax consequences to us); and
. a perfected first-priority security interest in and, in some cases,
mortgage 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 the following mandatory prepayments of the
loans under the credit facilities:
. Within ninety days following the end of each year, we are required to
prepay the term loan facilities 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 4.0:1.0) exceeds the aggregate amount of voluntary
prepayments made since the last excess cash flow payment, subject to
certain adjustments.
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. We are required to prepay the term loan facilities in an amount equal
to 100% of the net cash proceeds of equity (other than as described
below) and debt issuances (other than debt permitted under the credit
facilities) by us or any of our subsidiaries, subject to certain
exceptions.
. We are required to prepay the term loan facilities in an amount equal
to 100% of the net cash proceeds of asset sales or other dispositions
of property by us or any of our subsidiaries, subject to certain
exceptions.
. We are required to issue, and J.P. Morgan Partners (BHCA), L.P. is
required to purchase (the "Equity Commitment"), up to $25.0 million
(subject to adjustment for purchases by third parties) of our equity
securities to the extent necessary to enable us to meet our leverage
ratio or the target senior debt leverage ratio specified in the credit
facilities for any fiscal quarter ending on or prior to December 31,
2004. Generally, if we are required to issue any portion of such $25
million of equity securities with respect to any fiscal quarter in
2003, we must use 50% of the net proceeds to prepay the term loan
facilities and 50% to prepay the revolving credit facility. If we are
required to issue any such equity securities with respect to any
fiscal quarter in 2004, we must use 100% of the net proceeds to prepay
the term loan facilities.
Affirmative covenants
The credit facilities contain a number of affirmative covenants including, among
others, covenants relating to:
. delivery of financial statements and other information;
. notices of material events;
. information regarding collateral;
. existence;
. conduct of business;
. 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;
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. liens;
. fundamental changes;
. investments, loans, advances, guarantees and acquisitions, subject to
exceptions for certain permitted acquisitions;
. certain equity securities;
. asset sales;
. sale and lease-back transactions;
. hedging agreements;
. restricted payments;
. certain payments of indebtedness;
. transactions with affiliates;
. agreements that restrict the ability of our subsidiaries to pay
dividends or make loans to us or to guarantee our debt;
. capital expenditures;
. amendment of material documents; and
. designated senior debt.
Financial covenants
The credit facilities contain the following financial covenants:
. We must maintain a ratio of period-end consolidated debt to
Consolidated EBITDA for the period of no more than 6.60:1.0 for the
three month period ending on March 31, 2003, 6.85:1.0 for the three
month period ending on June 30, 2003, 6.50:1.0 for the three month
period ending September 30, 2003, 6.15:1.0 for the three month period
ending December 31, 2003, 5.80:1.0 for the three month period ending
March 31, 2004, 5.65:1.0 for the three month period ending June 30,
2004, 5.40:1.0 for the three month period ending September 30, 2004
and 5.15:1.0 for the three month period ending December 31, 2004.
Thereafter, the maximum ratio we are allowed becomes 4.00:1.00 for all
subsequent periods.
. We must maintain a ratio of Consolidated EBITDA to consolidated cash
interest expense of at least 1.4:1.0 for the three month period ending
on March 31, 2003, 1.4:1.0 for the three month period ending on June
30, 2003, 1.4:1.0 for the three month period ending September 30,
2003, 1.45:1.0 for the three month period ending December 31, 2003,
1.5:1.0 for the three month period ending March 31, 2004, 1.6:1.0 for
the three month period ending June 30, 2004, 1.7:1.0 for the three
month period ending September 30, 2004 and 1.8:1.0 for the three month
period ending December 31, 2004. Thereafter, the minimum ratio we are
required to maintain is 2.25:1.00 for 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
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. 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 a company-wide supply chain cost
initiative, plus
. the amount of all compensation expense relating to long-term incentive
plans, bonuses and severance payments incurred as a result of the
recapitalization and related transactions, plus
. the amount of all nonrecurring transaction and finance expenses
incurred as a result of the recapitalization and related 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 tranche B term loans, the Mexico term loans and/or the revolving
loans), Consolidated EBITDA also excludes the effect of a limited amount of
certain other nonrecurring charges relating to restructurings, plant closings,
early termination and modification of leases and similar actions. The definition
of Consolidated EBITDA contained in our credit facilities is different from the
definition of EBITDA contained in our indentures. Further, the definitions of
EBITDA contained in our credit facilities and our indentures are significantly
different from the presentation of EBITDA for all other purposes in this
prospectus, including under "Summary historical financial data" and "Selected
financial data."
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. In addition,
the invalidity or unenforceability of the Equity Commitment and the failure of
any party thereto to comply with the provisions of the Equity Commitment are
events of default under the credit facilities.
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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 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 2002 Notes under the 2002
Indenture, and issued $220 million aggregate principal amount of the 2000 Notes
under the 2000 Indenture. In this section, the 2002 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 2002 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.
The note guarantors
The Notes are guaranteed by each of the following domestic Restricted
Subsidiaries of the Company:
. Pliant Corporation International;
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. 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;
. Pliant Corporation Asia & Pacific Rim Pte Ltd.;
. Jacinto Mexico, S.A. de C.V.;
. 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 15.4% of the
Company's net sales for the year ended December 31, 2002, and accounted for
12.2% of the assets of the Company and its Subsidiaries on a consolidated basis
as of December 31, 2002.
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;
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. 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 2002 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 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 above. No service
charge will be made for any registration of transfer or exchange of Notes.
We, however, may require Holders to pay any transfer tax or other similar
governmental charge payable in connection with any such transfer or exchange.
Optional redemption
Except as set forth in the following paragraph, the Company may not redeem the
Notes prior to June 1, 2005. On or after that date, the Company may redeem the
Notes, in whole or in part, on not less than 30 nor more than 60 days' prior
notice, at the following redemption prices (expressed as percentages of
principal amount), plus accrued and unpaid interest and liquidated damages
thereon, if any, to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest and liquidated damages,
if any, due on the relevant interest payment date), if redeemed during the
12-month period commencing on June 1 of the years set forth below:
Year Redemption Price
- ---- ----------------
2005........................................................106.500%
2006........................................................104.333%
2007........................................................102.167%
2008 and thereafter.........................................100.000%
Prior to June 1, 2003, the Company may, on one or more occasions, also redeem up
to a maximum of 35% of the original aggregate principal amount of the Notes
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:
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(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" 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, 2002, the
Subsidiaries of the Company, other than those Subsidiaries that are Note
Guarantors, had total liabilities, including trade payables, of approximately
$57.1 million (excluding liabilities owed to the Company). As of December 31,
2002, there were outstanding:
(1) approximately $424.7 million of Senior Indebtedness of the Company, all
of which was Secured Indebtedness (exclusive of unused commitments of $67.6
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.
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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);
(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;
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provided, however, that the Company may pay the Notes without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representative of the Designated Senior Indebtedness with
respect to which either of the events set forth in clause (1) or (2) above has
occurred and is continuing.
During the continuance of any default (other than a default described in clause
(1) or (2) above) with respect to any Designated Senior Indebtedness of the
Company pursuant to which the maturity thereof may be accelerated immediately
without further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, we may not pay
the Notes for a period (a "Payment Blockage Period") commencing upon the receipt
by the Trustee (with a copy to us) of written notice, specified as a "Notice of
Default" and describing with particularity the default under such Designated
Senior Indebtedness (a "Blockage Notice"), of such default from the
Representative of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated:
(1) by written notice to the Trustee and the Company from the Person or
Persons who gave such Blockage Notice,
(2) by repayment in full of such Designated Senior Indebtedness, or
(3) because the default giving rise to such Blockage Notice is no longer
continuing).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the second preceding sentence and in
the immediately succeeding paragraph), unless the holders of such Designated
Senior Indebtedness or the Representative of such holders have accelerated the
maturity of such Designated Senior Indebtedness, the Company may resume payments
on the Notes after the end of such Payment Blockage Period, including any missed
payments.
Not more than one Blockage Notice may be given in any consecutive 360-day
period, irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period. However, if any Blockage Notice within such
360-day period is given by or on behalf of any holders of Designated Senior
Indebtedness other than the Bank Indebtedness, the Representative of the Bank
Indebtedness may give another Blockage Notice within such period. In no event,
however, may the total number of days during which any Payment Blockage Period
or Periods is in effect exceed 179 days in the aggregate during any 360
consecutive day period. For purposes of this paragraph, no default or event of
default that existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period shall be, or be made, the basis of the
commencement of a subsequent Payment Blockage Period by the Representative of
such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such default or event of default shall have been cured
or waived for a period of not less than 90 consecutive days.
Upon any payment or distribution of the assets of the Company to creditors upon
a total or partial liquidation or a total or partial dissolution of the Company
or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property:
(1) the holders of Senior Indebtedness of the Company will be entitled to
receive payment in full of such Senior Indebtedness before the Holders of the
Notes are entitled to receive any payment of principal of or interest on the
Notes; and
(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
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(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 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.
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
76
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 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
77
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 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.
78
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 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
79
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 (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
80
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
(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
81
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,
(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
82
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 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
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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;
(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
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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 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
85
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));
(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,
86
(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 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.
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(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 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:
88
(1) any Restricted Payment permitted to be paid pursuant to the covenant
described under "--Limitation on Restricted Payments,"
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, options to purchase Capital Stock of the Company and equity
ownership, restricted stock plans, long-term incentive plans, stock appreciation
rights plans, participation plans or similar employee benefits plans approved by
the Board of Directors,
(3) the grant of options (and the exercise thereof) to purchase Capital
Stock of the Company or similar rights to employees and directors of the Company
pursuant to plans approved by the Board of Directors,
(4) loans or advances to officers, directors or employees in the ordinary
course of business, but in any event not to exceed $2.0 million in the aggregate
outstanding at any one time 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
89
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 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' 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
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(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:
(1) 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
(2) 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 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.
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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,
(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.
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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,
(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),
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. 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, 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 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"
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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 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.
"2002 Notes" means the $100,000,000 aggregate principal amount of the Company's
13% Senior Subordinated Notes due 2010 issued under the 2002 Notes Indenture.
"2002 Notes Indenture" means the indenture dated as of April 10, 2002, among the
Company, the subsidiary guarantors party thereto and The Bank of New York, as
trustee, under which the 2002 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.
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"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain covenants--Limitation on
Transactions with Affiliates" and "--Certain covenants--Limitation on Sales of
Assets and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial
owner of shares representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Voting Stock (whether or not currently exercisable) and any Person
who would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"Asset Disposition" means any sale, lease (other than an operating lease entered
into in the ordinary course of business), transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be held by
a Person other than the Company or a Restricted Subsidiary),
(2) all or substantially all the assets of any division or line of business
of the Company or any Restricted Subsidiary or
(3) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted Subsidiary
other than, in the case of (1), (2) and (3) above,
(A) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Wholly Owned Subsidiary,
(B) for purposes of the provisions described under "--Certain
covenants--Limitation on Sales of Assets and Subsidiary Stock" only, the making
of a Permitted Investment or a disposition subject to the covenant described
under "--Certain covenants--Limitation on Restricted Payments,"
(C) sales of accounts receivable and related assets (including
contract rights) of the type specified in the definition of "Qualified
Securitization Transaction" to a Securitization Entity for the fair market value
thereof,
(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
96
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or scheduled redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by
(2) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of the
Credit Agreement and any Refinancing Indebtedness with respect thereto, as
amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board of Directors of
the Company.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"Closing Date" means 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 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
97
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.
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
98
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,
(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:
99
(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.
"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
100
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.
"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.
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"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.
"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.
"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
102
(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 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;
(3) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect thereto);
103
(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.
"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":
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(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 writeups, write-downs or write-offs with
respect to such Investments.
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions in New York State are authorized or required by law to close.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Material Subsidiary" means, at any date of determination, any Subsidiary of the
Company that, together with its Subsidiaries, (i) for the most recent fiscal
year of the Company accounted for more than 10.0% of the consolidated revenues
of the Company or (ii) as of the end of such fiscal year, was the owner of 10.0%
of the consolidated assets of the Company, all as set forth on the most recently
available consolidated financial statement of the Company and its consolidated
Subsidiaries for such fiscal year prepared in conformity with GAAP.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other non-cash form) therefrom, in each case net
of:
(1) all legal, accounting, investment banking, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition,
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
or other security agreement of any kind with respect to such assets, or which
must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be repaid out of the proceeds from such Asset
Disposition,
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition,
(4) the decrease in proceeds from Qualified Securitization Transactions
which results from such Asset Disposition, and
105
(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.
"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.
"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;
106
(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 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:
107
(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.
"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:
108
(A) Indebtedness of a Restricted Subsidiary that is not a Note Guarantor
that Refinances Indebtedness of the Company or
(B) Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Related Parties" means with respect to a Person (a) that is a natural person
(1) any spouse, parent or lineal descendant (including adopted children) of such
Person or (2) the estate of such Person during any period in which such estate
holds Capital Stock of the Company for the benefit of any person referred to in
clause (a)(1) and (b) any trust, corporation, partnership, limited liability
company or other entity, the beneficiaries, stockholders, partners, owners or
Persons beneficially owning an interest of more than 50% of which consist of
such Person and/or such other Persons referred to in the immediately preceding
clause (a).
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Investment" means any Investment other than a Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now owned
or hereafter acquired by the Company or a Restricted Subsidiary whereby the
Company or a Restricted Subsidiary transfers such property to a Person and the
Company or such Restricted Subsidiary leases it from such Person, other than (a)
leases between the Company and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries or (b) any arrangement whereby the transfer involves fixed or
capital assets and is consummated within 120 days after the date the Company or
a Restricted Subsidiary acquires or finishes construction of such fixed or
capital assets.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a Lien.
"Secured Indebtedness" of a Note Guarantor has a correlative meaning.
"Securitization Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company makes an
Investment and to which the Company or any Subsidiary of the Company transfers
accounts receivable and related assets) which engages in no activities other
than in connection with the financing of accounts receivable or equipment and
which is designated by the Board of Directors of the Company (as provided below)
as a Securitization Entity (a) no portion of the Indebtedness or any other
obligations (contingent or otherwise) of which (i) is guaranteed by the Company
or any Subsidiary of the Company (excluding guarantees of obligations (other
than the principal of, and interest on, Indebtedness) pursuant to Standard
Securitization Undertakings), (ii) is recourse to or obligates the Company or
any Subsidiary of the Company in any way other than pursuant to Standard
Securitization Undertakings or (iii) subjects any property or asset of the
Company or any Subsidiary of the Company, directly or indirectly, contingently
or otherwise, to the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings, (b) with which neither the Company nor any
Subsidiary of the Company has any material contract, agreement, arrangement or
understanding other than on terms no less favorable to the Company or such
Subsidiary than those that might be obtained at the time from Persons that are
not Affiliates of the Company, other than fees payable in the ordinary course of
business in connection with servicing receivables of such entity and (c) to
which neither the Company nor any Subsidiary of the Company has any obligation
to maintain or preserve such entity's financial condition or cause such entity
to achieve certain levels of operating results. Any such designation by the
Board of Directors of the Company shall be evidenced to the Trustee, by filing
with the Trustee a certified copy of the resolution of the Board of Directors
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions.
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"Senior Subordinated Indebtedness" of the Company means the Notes, the 2000
Notes, the 2002 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 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),
110
(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.(S)(S)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 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:
111
(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.
112
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.
TC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
participants include securities brokers and dealers, banks and trust companies,
clearing corporations and certain other organizations. Indirect access to DTC's
system is also available to other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Investors who are not participants
may beneficially own securities held by or on behalf of DTC only through
participants or indirect participants.
We expect that pursuant to procedures established by DTC ownership of the Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the interests of
participants) and the records of participants and the indirect participants
(with respect to the interests of persons other than participants).
The laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Accordingly, the
ability to transfer interests in the Notes represented by a global note to such
persons may be limited. In addition, because DTC can act only on behalf of its
participants, who in turn act on behalf of persons who hold interests through
participants, the ability of a person having an interest in Notes represented by
a global note to pledge or transfer such interest to persons or entities that do
not participate in DTC's system, or to otherwise take actions in respect of such
interest, may be affected by the lack of a physical definitive security in
respect of such interest.
113
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.
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.
114
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.
115
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 and may receive compensation in the form of
discounts and commissions. 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. 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, 2003, affiliates of J.P. Morgan Securities Inc., beneficially
owned approximately 55% of our outstanding common stock, 75% of our preferred
stock warrants to purchase common stock and 59% of our outstanding preferred
stock, subject to certain preemptive rights with respect to 10,000 shares of
preferred stock issued on March 25, 2003. In addition, 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 related stockholder
matters -- 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."
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 continue
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."
Legal matters
The validity of the Notes and the Note Guarantees has been passed upon for us by
O'Melveny & Myers LLP (formerly, O'Sullivan LLP), New York, New York.
Experts
The consolidated financial statements and financial statement schedule of Pliant
Corporation as of and for the year ended December 31, 2002 and the consolidated
financial statements of Decora Industries, Inc. as of and for the year ended
March 31, 2002 appearing in this prospectus have been audited by Ernst & Young
LLP, independent public accountants, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports given
on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements and financial statement schedule of Pliant
Corporation included in this prospectus as of December 31, 2001 and for the two
years then ended have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report with respect thereto appearing herein,
and are included herein in reliance upon the authority of said firm as experts
in giving said report.
We have not been able to obtain, after reasonable efforts, the written consent
of Arthur Andersen to the inclusion in this prospectus of their report with
respect to the consolidated financial statements and financial statement
schedule of Pliant Corporation included in this prospectus as of December 31,
2001 and for the two years then ended, as required by Section 7 of the
Securities Act of 1933. Accordingly, we have dispensed with the requirement to
file such consent in reliance upon Rule 437a of the Securities Act. Because
Arthur Andersen has not consented to the inclusion of their report in this
prospectus, you may have no effective remedy against Arthur Andersen under
Section 11 of the Securities Act for any untrue statements of a material fact
contained in the financial statements audited by Arthur Andersen, or any
omissions to state a material fact required to be stated therein. In addition,
the ability of Arthur Andersen
116
to satisfy any claims (including claims arising from its provision of auditing
and other services to us) may be limited as a practical matter due to recent
events regarding Arthur Andersen.
The consolidated financial statements of Decora Industries, Inc. as of March 31,
2001 and for the two years then ended included in this Prospectus have been so
included in reliance on the reports (which contain an explanatory paragraph
relating to the ability of Decora Industries, Inc. to continue as a going
concern as described in Note 1 to the financial statements of Decora Industries,
Inc.) of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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. 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. The SEC also maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of the
SEC's Internet site is http://www.sec.gov.
We provide copies to the holders of the Notes of the annual, quarterly and
current reports that we file with the SEC. The annual reports contain financial
information that has been examined and reported on, with an opinion expressed,
by an independent public accountant.
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.
117
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Pliant Corporation and Subsidiaries Financial Statements and Financial Statement
Schedule:
As of December 31, 2002 and 2001 and for the three years ended December 31, 2002, 2001 and 2000:
Report of Independent Public Accountants................................................................ F-3
Report of Independent Public Accountants................................................................ F-4
Consolidated Balance Sheets as of December 31, 2002 and 2001............................................ F-5
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000.............. F-6
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2002, 2001
and 2000............................................................................................. F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000.............. F-9
Notes to Consolidated Financial Statements.............................................................. F-11
Schedule II - Valuation and Qualifying Accounts......................................................... F-43
Decora Industries, Inc. and Subsidiaries Financial Statements:
As of and for the year ended March 31, 2002:
Report of Independent Auditors.......................................................................... F-44
Consolidated Balance Sheet as of March 31, 2002......................................................... F-45
Consolidated Statement of Operations for the year ended March 31, 2002.................................. F-46
Consolidated Statement of Shareholders' Deficit for the year ended March 31, 2002....................... F-47
Consolidated Statement of Cash Flows for the year ended March 31, 2002.................................. F-48
Notes to Consolidated Financial Statements.............................................................. F-49
As of and for the year ended March 31, 2001:
Report of Independent Accountants....................................................................... F-61
Consolidated Balance Sheet as of March 31, 2001......................................................... F-62
Consolidated Statement of Operations for the year ended March 31, 2001.................................. F-63
Consolidated Statement of Changes in Shareholders' Deficit for the year ended March 31, 2001............ F-64
Consolidated Statement of Cash Flows for the year ended March 31, 2001.................................. F-65
Notes to Financial Statements........................................................................... F-66
F-1
For the year ended March 31, 2000:
Report of Independent Accountants....................................................................... F-76
Consolidated Statement of Income for the year ended March 31, 2000...................................... F-77
Consolidated Statement of Cash Flows for the year ended March 31, 2000.................................. F-78
Notes to Consolidated Financial Statements.............................................................. F-79
Pliant Corporation Unaudited Pro Forma Consolidated Financial Statements:
For the year ended December 31, 2002:
Introduction to Unaudited Pro Forma Consolidated Financial Statements................................... F-90
Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2002.......... F-91
Notes to Unaudited Pro Forma Consolidated Financial Statements.......................................... F-92
F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Pliant Corporation
We have audited the accompanying consolidated balance sheet of Pliant
Corporation as of December 31, 2002, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year then
ended. Our audit also included the financial statement schedule for the year
ended December 31, 2002 listed in the Index at page F-1. These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audit. The financial statements
and schedule of Pliant Corporation as of December 31, 2001 and for the two years
then ended were audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on those statements and schedule in
their report dated January 28, 2002, before the restatement and inclusion of
additional disclosures referred to in the last paragraph of this report.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements and schedule referred
to above present fairly, in all material respects, the consolidated financial
position of Pliant Corporation as of December 31, 2002, and the results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
As discussed in Notes 1 and 5 to the financial statements, in the year
ended December 31, 2002 the Company changed its method of accounting for
goodwill.
As discussed above, the financial statements of Pliant Corporation as of
December 31, 2001 and for the two years in the period then ended were audited by
other auditors who have ceased operations. As described in Note 5, these
financial statements have been revised to include the transitional disclosures
required by Statement of Financial Accounting Standards No. 142, (SFAS 142)
Goodwill and Other Intangible Assets, which was adopted by the Company as of
January 1, 2002. Our audit procedures with respect to the disclosures in Note 5
with respect to 2001 and 2000 included (a) agreeing the previously reported net
income (loss) to the previously issued financial statements and the adjustments
to reported net income (loss) representing amortization expense (including any
related tax effects) recognized in those periods related to goodwill to the
Company's underlying records obtained from management, and (b) testing the
mathematical accuracy of the reconciliation of adjusted net income (loss) to
reported net income (loss). In our opinion the disclosures relating to adjusted
net income (loss) for 2001 and 2000 in Note 5 are appropriate. Also, as
described in Note 14, the Company changed the composition of its reportable
segments in 2002, and the amounts in the 2001 and 2000 financial statements
relating to reportable segments have been restated to conform to the 2002
composition of reportable segments. We audited the adjustments that were applied
to restate the disclosures for reportable segments reflected in the 2001 and
2000 financial statements. Our procedures included (a) agreeing the adjusted
amounts of segment net sales, segment profit (loss), segment depreciation and
amortization, segment interest expense, segment capital expenditures and segment
total assets to the Company's underlying records obtained from management, and
(b) testing the mathematical accuracy of the reconciliations of segment amounts
to the consolidated financial statements. In our opinion, such adjustments are
appropriate and have been properly applied. However, we were not engaged to
audit, review or apply any procedures to the 2001 or 2000 financial statements
of the Company other than with respect to such SFAS 142 transition disclosures
and segment adjustments, accordingly, we do not express an opinion or any other
form of assurance on the 2001 or 2000 financial statements taken as a whole.
/s/ Ernst & Young LLP
- -------------------------------------------
Chicago, Illinois
February 28, 2003, except for Note 6, as to
which the date is March 25, 2003
F-3
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.
/s/ Arthur Andersen LLP
- -------------------------
Chicago, Illinois
January 28, 2002
This report is a copy of the previously issued report covering 2000 and 2001.
The predecessor auditor has ceased operations and has not reissued their report.
F-4
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 2002 and 2001 (Dollars in Thousands, Except per Share Data)
- --------------------------------------------------------------------------------
2002 2001
--------- ---------
ASSETS
CURRENT ASSETS :
Cash and cash equivalents.......................................................... $ 1,635 $ 4,818
Receivables:
Trade accounts, net of allowances of $5,583 and $2,438, respectively............ 104,157 111,768
Other........................................................................... 14,866 13,668
Inventories........................................................................ 98,022 83,948
Prepaid expenses and other......................................................... 4,149 3,026
Income taxes receivable............................................................ 2,368 985
Deferred income taxes.............................................................. 8,182 2,563
--------- ---------
Total current assets......................................................... 233,379 220,776
PLANT AND EQUIPMENT, net:............................................................. 350,479 369,324
GOODWILL.............................................................................. 203,997 204,426
OTHER INTANGIBLE ASSETS, net:......................................................... 27,034 26,773
OTHER ASSETS.......................................................................... 38,314 30,384
--------- ---------
Total assets................................................................. $ 853,203 $ 851,683
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable............................................................. $ 113,988 $ 101,508
Accrued liabilities:
Interest payable................................................................ 16,175 10,392
Customer rebates................................................................ 10,439 7,571
Other........................................................................... 32,263 25,134
Current portion of long-term debt.................................................. 14,745 17,767
--------- ---------
Total current liabilities.................................................... 187,610 162,372
LONG-TERM DEBT, net of current portion................................................ 721,636 695,556
OTHER LIABILITIES..................................................................... 26,977 18,944
DEFERRED INCOME TAXES................................................................. 23,836 26,156
--------- ---------
Total liabilities............................................................ 960,059 903,028
--------- ---------
MINORITY INTEREST..................................................................... 192 271
COMMITMENTS AND CONTINGENCIES (Notes 7 and 12)........................................ -- --
REDEEMABLE STOCK:
Preferred stock - 200,000 shares authorized, 130,973 shares outstanding as of
December 31, 2002, and 2001 and designated as Series A, no par value with a
redemption and liquidation value of $1,000 per share plus accumulated
dividends....................................................................... 150,816 126,149
Common stock - 60,000 shares authorized, no par value; 34,240 shares
outstanding as of December 31,2002 and 53,996 outstanding as of December 31,
2001 net of related stockholders' notes receivable of $6,754 at December 31,
2002 and $12,720 at December 31, 2001.......................................... 13,008 16,778
--------- ---------
Total redeemable stock....................................................... 163,824 142,927
--------- ---------
STOCKHOLDERS' DEFICIT:
Common stock - no par value; 10,000,000 shares authorized, 542,638 and
542,571 shares outstanding as of December 31, 2002 and December 31, 2001,
respectively.................................................................... 103,376 103,362
Warrants to purchase common stock.................................................. 38,676 38,715
Accumulated deficit................................................................ (394,420) (326,356)
Stockholders' notes receivable..................................................... (660) (616)
Accumulated other comprehensive loss............................................... (17,844) (9,648)
--------- ---------
Total stockholders' deficit.................................................. (270,872) (194,543)
--------- ---------
Total liabilities and stockholders' deficit.................................. $ 853,203 $ 851,683
========= =========
See notes to consolidated financial statements.
F-5
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2002, 2001 and 2000 (Dollars in Thousands)
- --------------------------------------------------------------------------------
2002 2001 2000
-------- -------- --------
NET SALES........................................................... $879,197 $840,360 $843,797
COST OF SALES....................................................... 714,463 665,092 696,716
-------- -------- --------
Gross profit.................................................. 164,734 175,268 147,081
-------- -------- --------
OPERATING EXPENSES:
Selling, general and administrative.............................. 85,351 88,821 93,937
Research and development......................................... 8,124 9,821 8,596
Stock-based compensation related to administrative employees..... -- 7,033 --
Compensation and transaction costs related to recapitalization... -- -- 10,754
Restructuring and other costs.................................... 43,143 (4,588) 19,368
-------- -------- --------
Total operating expenses...................................... 136,618 101,087 132,655
-------- -------- --------
OPERATING INCOME.................................................... 28,116 74,181 14,426
INTEREST EXPENSE.................................................... (75,284) (75,988) (68,534)
OTHER INCOME, net................................................... 2,276 6,525 332
-------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAXES AND EXTRAORDINARY LOSS.............................. (44,892) 4,718 (53,776)
-------- -------- --------
INCOME TAX EXPENSE (BENEFIT):
Current.......................................................... 3,980 4,204 4,144
Deferred......................................................... (5,442) 2,582 (18,387)
-------- -------- --------
Total income tax expense (benefit)............................ (1,462) 6,786 (14,243)
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS............................ (43,430) (2,068) (39,533)
EXTRAORDINARY LOSS (net of income tax benefit of $7,500)............ -- -- (11,250)
-------- -------- --------
NET INCOME (LOSS)................................................... $(43,430) $ (2,068) $(50,783)
======== ======== ========
See notes to consolidated financial statements.
F-6
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 2002, 2001 and 2000 (In Thousands)
- --------------------------------------------------------------------------------
Warrants
Class A Class B to
Common Stock Common Stock Common Stock Purchase
----------------- --------------- ----------------- Common Accumulated
Total Shares Amount Shares Amount Shares Amount Stock Deficit
--------- ------ -------- ------ ------ ------ -------- -------- -----------
Balance, December 31, 1999........ $ 90,662 1,000 $ 63,161 7 $ 515 $ 32,042
Comprehensive income:
Net loss....................... (50,783) (50,783)
Foreign currency translation
adjustment.................. (2,504)
---------
Comprehensive loss (53,287)
---------
Recapitalization transaction.... (231,762) (1,000) (63,161) (7) (515) 508 86,932 18,550 (272,979)
Issuance of warrants to
purchase common stock
with senior notes.............. 7,950 7,950
Preferred stock dividends and
accretion...................... (8,771) (8,771)
Increase to redemption value
of redeemable common
stock.......................... (11,923) (11,923)
Issuance of stock to
management in exchange for
promissory notes............... 7 3,261
Discount on stockholder note
receivable..................... 323
Issuance of stock to
management..................... 797 2 797
Repurchase of common stock
from management and
cancellation of note........... (6) (3,001)
--------- ------ -------- --- ----- --- -------- ------- ---------
Balance, December 31, 2000........ (206,011) -- -- -- -- 511 87,989 26,500 (312,414)
Comprehensive income:
Net loss....................... (2,068) (2,068)
Fair value change in interest
rate derivatives classified
as cash flow hedges......... (2,944)
Foreign currency translation
adjustment.................. 557
---------
Comprehensive
loss........................ (4,455)
---------
Stock-based compensation
related to administrative
employees...................... 7,033 7,033
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)
--------- ------ -------- --- ----- --- -------- ------- ---------
Balance, December 31, 2001........ $(194,543) -- $ -- -- $ -- 543 $103,362 $38,715 $(326,356)
Accumulated
Stockholders' Other
Notes Comprehensive
Receivable Income/(Loss)
------------- -------------
Balance, December 31, 1999........ $ (299) $(4,757)
Comprehensive income:
Net loss.......................
Foreign currency translation
adjustment.................. (2,504)
Comprehensive loss
Recapitalization transaction.... (589)
Issuance of warrants to
purchase common stock
with senior notes..............
Preferred stock dividends and
accretion......................
Increase to redemption value
of redeemable common
stock..........................
Issuance of stock to
management in exchange for
promissory notes............... (3,261)
Discount on stockholder note
receivable..................... 323
Issuance of stock to
management.....................
Repurchase of common stock
from management and
cancellation of note........... 3,001
------- -------
Balance, December 31, 2000 (825) (7,261)
Comprehensive income:
Net loss.......................
Fair value change in interest
rate derivatives classified
as cash flow hedges......... (2,944)
Foreign currency translation
adjustment.................. 557
Comprehensive
loss........................
Stock-based compensation
related to administrative
employees......................
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)
------- -------
Balance, December 31, 2001........ $ (616) $(9,648)
See notes to consolidated financial statements.
F-7
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 2002, 2001 and 2000 (In Thousands)
- --------------------------------------------------------------------------------
Warrants
Class A Class B to
Common Stock Common Stock Common Stock Purchase
----------------- --------------- ----------------- Common Accumulated
Total Shares Amount Shares Amount Shares Amount Stock Deficit
--------- ------ -------- ------ ------ ------ -------- -------- -----------
Balance, December 31, 2001........ $(194,543) 543 $103,362 $38,715 $(326,356)
Comprehensive income:
Net loss...................... (43,430) (43,430)
Minimum pension liability,
net of taxes............... (937)
Fair value change in interest
rate derivatives classified
as cash flow hedges, net of
taxes....................... (2,453)
Foreign currency translation
adjustment.................. (4,806)
---------
Comprehensive
loss....................... (51,626)
---------
Issuance of common stock to
management for warrants........ -- 39 (39)
Preferred stock dividend and
accretion...................... (24,634) (24,634)
Purchase of stock by directors.... 63 63
Repurchase of stock from
management..................... (88) (88)
Amortization of discount on
stockholder's note receivable.. (44)
--------- --- --- --- --- --- -------- ------- ---------
Balance,
December 31, 2002................. $(270,872) -- $-- -- $-- 543 $103,376 $38,676 $(394,420)
========= === === === === === ======== ======= =========
Accumulated
Stockholders' Other
Notes Comprehensive
Receivable Income/(Loss)
------------- -------------
Balance, December 31, 2001........ $(616) $ (9,648)
Comprehensive income:
Net loss.......................
Minimum pension liability,
net of taxes................ (937)
Fair value change in interest
rate derivatives classified
as cash flow hedges, net of
taxes....................... (2,453)
Foreign currency translation
adjustment.................. (4,806)
Comprehensive
loss........................
Issuance of common stock to
management for warrants........
Preferred stock dividend and
accretion......................
Purchase of stock by directors....
Repurchase of stock from
management.....................
Amortization of discount on
stockholder's note receivable.. (44)
----- --------
Balance,
December 31, 2002................. $(660) $(17,844)
===== ========
See notes to consolidated financial statements.
F-8
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2002, 2001 and 2000 (Dollars in Thousands)
- --------------------------------------------------------------------------------
2002 2001 2000
-------- -------- ---------
Cash flows from operating activities:
Net income (loss)............................................................... $(43,430) $ (2,068) $ (50,783)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization................................................ 46,912 47,017 39,546
Amortization of deferred financing costs..................................... 3,707 -- --
Deferred income taxes........................................................ (5,442) 2,980 (18,387)
Change in provision for losses on accounts receivable........................ 2,635 272 (156)
Non-cash compensation expense related to stock options....................... -- 7,033 2,641
Discount on stockholder note receivable...................................... -- -- 323
Non-cash plant closing costs................................................. 14,204 (7,615) 14,801
Write down of impaired goodwill.............................................. 8,600 -- --
(Gain) or loss on disposal of assets......................................... 381 (433) 514
Extraordinary loss (net of income taxes)..................................... -- -- 11,250
Minority Interest............................................................ (79) 271 --
Changes in operating assets and liabilities - net of effects of acquisitions:
Trade accounts receivable................................................. 12,135 (182) 4,886
Other receivables......................................................... (1,565) (2,857) 2,055
Inventories............................................................... (8,505) 2,249 (952)
Prepaid expenses and other................................................ (950) (651) 661
Intangible assets and other assets........................................ (4,704) 1,090 1,930
Trade accounts payable.................................................... 5,180 (15,023) 48,962
Accrued liabilities....................................................... 9,129 (2,988) 4,355
Due to affiliates......................................................... -- -- (4,715)
Income taxes payable/receivable........................................... 145 1,733 (67)
Other liabilities......................................................... 5,243 (484) 3,402
-------- -------- ---------
Net cash provided by operating activities.............................. 43,596 30,344 60,266
-------- -------- ---------
Cash flows from investing activities:
Capital expenditures for plant and equipment.................................... (49,194) (56,418) (65,644)
Acquisitions, net of cash acquired.............................................. (23,164) (38,778) --
Proceeds from sale of assets.................................................... 17,122 7,914 --
-------- -------- ---------
Net cash used in investing activities.................................. (55,236) (87,282) (65,644)
-------- -------- ---------
Cash flows from financing activities:
Payment of capitalized loan fees................................................ (7,439) (1,932) (22,303)
Payment of fees for tender offer................................................ -- -- (10,055)
Redemption of common stock...................................................... -- -- (314,034)
Net proceeds (net of repurchases) from issuance of common and preferred stock... (3,227) 30,991 161,820
(Payments)/Borrowings on long-term debt......................................... -- 25,930 (507,002)
Payments received from stockholder on note receivable........................... -- -- 165
Proceeds from issuance of senior subordinated notes............................. 103,752 -- 691,684
Repayments of debt under credit facilities...................................... (80,694) -- --
-------- -------- ---------
Net cash provided by financing activities.............................. $ 12,392 $ 54,989 $ 275
-------- -------- ---------
See notes to consolidated financial statements.
F-9
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (Continued)
For the Years Ended December 31, 2002, 2001 and 2000 (Dollars in Thousands)
- --------------------------------------------------------------------------------
2002 2001 2000
------- ------- -------
Effect of exchange rate changes on cash and cash equivalents.................. $(3,935) $ 3,707 $ (934)
------- ------- -------
Net increase (decrease) in cash and cash equivalents.......................... (3,183) 1,758 (6,037)
Cash and cash equivalents, beginning of the year.............................. 4,818 3,060 9,097
------- ------- -------
Cash and cash equivalents, end of the year.................................... $ 1,635 $ 4,818 $ 3,060
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest................................................................ $69,207 $69,503 $62,781
======= ======= =======
Income taxes............................................................ $ 4,884 $(1,594) $(4,160)
======= ======= =======
Supplemental schedule of non-cash investing and financing activities:
On July 16, 2001, certain assets were acquired and certain liabilities were
assumed of Uniplast Films Corporation for an initial 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 Note 13 to the Consolidated Financial Statements.
In 2002 we repurchased $6.5 million of redeemable common stock in exchange for
the cancellation of $6.5 million of notes receivable.
See notes to consolidated financial statements.
F-10
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Nature of operations - Pliant 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, Latin
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 Southwest Industrial Films, LLC
subsidiary and owns our preferred stock through Flexible Films, LLC.
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 amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition - Sales revenue is recognized when title transfers, the
risks and rewards of ownership have been transferred to the customer, the price
is fixed and determinable and collection of the related receivable is probable,
which is generally at the time of shipment. Revenue is reduced by rebates made
to customers based on an estimate of the amount of the rebate at the time the
sale is recorded.
Accounts Receivable - Accounts receivable consist primarily of amounts due
to us from our normal business activities. Accounts receivable amounts are
determined to be past due when the amount is overdue based on contractual terms.
We maintain an allowance for doubtful accounts to reflect the expected
uncollectibility of accounts receivable based on past collection history and
specific risks identified among uncollected amounts. Accounts receivable are
charged off against the allowance for doubtful accounts when we have determined
that the receivable will not be collected. One customer represented
approximately 5% and 9% of consolidated receivables at December 31, 2002 and
2001, respectively.
Inventories - Inventories consist principally of finished film and
packaging 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.
F-11
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
Plant and Equipment - Plant and equipment are stated at cost. Depreciation
is computed using the straight-line method over the estimated economic useful
lives of the assets as follows:
Land improvements................................. 20 years
Buildings and improvements........................ 20 years
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
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.
Goodwill and Other Intangible Assets - Intangible assets are stated at
cost. Generally, effective January 1, 2002, goodwill and other indefinite life
intangible assets are no longer amortized but are subject to an annual
impairment test. Amortization of other intangible assets is computed using the
straight-line method over the estimated economic useful lives of 2-15 years.
Impairment of Long-Lived Assets - When events or conditions indicate a
potential impairment, 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.
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. Deferred debt issuance costs are amortized using a straight
line method which approximates the effective yield method. 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 maturity
when purchased 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 - 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 - Our borrowings under the credit
facilities are at variable rates of interest and expose us to interest rate
risk. The Company has entered into several interest rate derivative contracts in
order to comply with the requirements of the agreements to the credit facilities
and to reduce the effect of interest rate increases. (See Note 6).
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.
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. For
the years ended December 31, 2001, and 2000, the Company recorded compensation
expense of $7.0 million and $2.6 million, respectively, related to these plans.
The Company did not have compensation expense for the year ended December 31,
2002. Had compensation cost for all the outstanding options been determined in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," our net
loss for the years ended December 31, 2002, 2001 and 2000 would have been the
following pro forma amounts (in thousands):
F-12
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
2002 2001 2000
-------- ------- --------
As reported $(43,430) $(2,068) $(50,783)
Stock compensation expense -- 7,033 2,641
Pro forma stock compensation expense (707) 442 (322)
-------- ------- --------
Pro forma $(44,137) $ 5,407 $(48,464)
======== ======= ========
The fair market value of each option is estimated on the date of grant
using the minimum value option-pricing model based on the following assumptions
for 2002, 2001 and 2000 grants, respectively: risk free rate of return of 6.02%
to 6.75%; expected life of 7 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 minimum value option-pricing model was $202 per share for
2002, 2001 and 2000 grants.
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
(in thousands):
2002 2001
------- -------
Finished goods............. $60,758 $50,738
Raw materials and other.... 28,045 27,499
Work-in-process............ 9,219 5,711
------- -------
Total...................... $98,022 $83,948
======= =======
3. Restructuring and Other Costs
Restructuring and other costs include plant closing costs (including costs
related to relocation of manufacturing equipment), office closing costs and
other costs related to workforce reductions.
The following table summarizes Restructuring and Other costs for the years
ended December 31 (in thousands):
2002 2001 2000
------- ------- -------
Plant closing costs
Severance $ 3,956 $ -- $ 4,991
Reversal of Harrington -- (7,615) --
Relocation of production lines 3,000 3,027 --
Other 6,315 -- 797
Fixed asset impairment 13,906 13,580
Office closing costs -- -- --
Severance 7,013 -- --
Other 353 -- --
Goodwill impairment 8,600 -- --
------- ------- -------
$43,143 $(4,588) $19,368
======= ======= =======
Plant Closing Costs:
2002 -- In September 2002, we approved a plan to close our production
facility in Merced, California and relocate its production lines to our plants
in Toronto, Canada and Danville, Kentucky. As of December 31, 2002, we accrued
$1.6 million as part of plant closing costs for the severance expenses related
to the closure of the Merced facility. The cost of relocating the production
lines will be expensed to plant closing costs as incurred. In October 2002, we
approved a plan to close our production facility in Shelbyville, Indiana and
consolidate its production lines with our Alliant joint venture. As of December
31, 2002, we accrued $0.4 million as part of plant closing costs for severance
expenses. Other costs will be expensed to plant closing costs as incurred. The
F-13
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
Shelbyville closure and the Merced closure were completed in the first quarter
of 2003. We expect to utilize the remaining reserves related to these closures
of $1.9 million by December 2003.
In addition, we have commenced a process to consolidate our two plants in
Mexico. The cost of relocating the production lines will be expensed to plant
closing costs as incurred. We also incurred $2.3 million in plant closure costs
in connection with the closing of our Fort Edward, New York facility (acquired
as a part of the Decora acquisition) and moving production to our facilities in
Mexico and Danville, Kentucky. We also made certain production rationalizations
at our Toronto, Canada plant and Calhoun, Georgia plant.
As a part of the 2001 Uniplast acquisition the Company approved a plan to
close three Uniplast production facilities and reduce the sales and
administrative personnel. As of December 31, 2002 the closure of the production
plants and reduction of sales and administrative personnel were complete.
Severance costs associated with 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 as incurred. The
Company incurred approximately $3.9 million for these relocation costs in 2002.
There is no accrual remaining at December 31, 2002.
2000 - 2001 -- 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
Pliant U.S. segment. 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 2001
acquisition of Uniplast. These changes together with the movement of a
production line from our Birmingham plant 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 downsize the Harrington facility. The remaining balance of the plant
closure costs of $7.6 million accrued in 2000 was 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 (dollars in thousands):
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
------ ------ -------
Utilization of the reserves during 2002 is summarized below in thousands:
Utilized Utilized
Balance ----------------- Balance ---------------- Balance
12/31/00 Non-Cash Cash Reversal 12/31/01 Non-Cash Cash 12/31/02
-------- -------- ------ -------- -------- -------- ----- --------
Property and equipment
reserves........... $13,801 $5,001 $ -- $6,244 $2,556 $2,556 $ -- $--
Severance costs....... 4,371 -- 3,170 1,201 -- -- -- --
Other costs........... 585 -- 182 170 233 -- 233 --
------- ------ ------ ------ ------ ------ ---- ---
Total................. $18,757 $5,001 $3,352 $7,615 $2,789 $2,556 $233 $--
======= ====== ====== ====== ====== ====== ==== ===
F-14
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
As of December 31, 2002, all of the expected employee terminations had been
completed at our Dallas, Birmingham, and Harrington facilities. We do not
anticipate loss of substantial revenue or income from the closure of the
facilities due to the fact that their sales volumes were largely transferred to
other facilities.
Office Closing and Workforce Reduction Costs
2002 --During the year ended December 31, 2002, we implemented four
workforce reduction programs. During the year ended December 31, 2002, 111
employees were terminated, resulting in an estimated annual cost saving,
including benefits, of $10.1 million. Total severance cost, including benefits,
for these terminations was $6.9 million. The accrual remaining at December 31,
2002 was $3.5 million and the accrual is expected to be fully utilized by the
end of 2003.
Total plant closing costs and severance and related costs resulting from
the 2002 workforce reductions discussed above have been included as part of
restructuring and other costs in the consolidated statement of operations for
the year ended December 31, 2002.
2000 - 2001 --During the fourth quarter of 2000, we approved and announced
a cost saving initiative resulting in a company-wide workforce reduction,
relocation of the corporate office from Salt Lake City, Utah to 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.
The following is a summary of the key elements of this plan (dollars in
thousands):
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
====== ====== ==== ======
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. As of December 31, 2002, the remaining reserves related to
severance costs and other costs related to leases expected to continue through
May, 2004. 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. Utilization of these reserves during the period
ended December 31, 2002 is summarized below (in thousands):
Utilized Utilized
Balance ----------------- Additional Balance ---------------- Balance
12/31/00 Non-Cash Cash Accrual 12/31/01 Non-Cash Cash 12/31/02
-------- -------- ------ ---------- -------- -------- ----- --------
Leasehold improvements $1,000 $1,000 $ -- $ -- $ -- $-- $ -- $ --
------ ------
Severance cost........ 3,254 210 $2,916 -- 128 -- $ 78 50
Other costs related to
leases............. 803 -- 545 878 1,136 -- 806 330
------ ------ ------ ---- ------ --- ---- ----
Total cost............ $5,057 $1,210 $3,461 $878 $1,264 $-- $884 $380
====== ====== ====== ==== ====== === ==== ====
As of December 31, 2002, all of the expected employee terminations had been
completed in connection with the workforce reduction, closure of the Salt Lake
City and the closure of the Dallas offices.
F-15
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
4. Plant and Equipment
The cost and the related accumulated depreciation at December 31 is as
follows (in thousands):
2002 2001
--------- ---------
Land and improvements.................................. $ 7,504 $ 8,136
Buildings and improvements............................. 65,004 66,960
Machinery and equipment................................ 396,868 378,513
Computer equipment and software........................ 33,970 30,018
Furniture, fixtures and vehicles....................... 8,413 6,204
Leasehold improvements................................. 4,198 2,201
Construction in progress............................... 9,004 12,955
--------- ---------
524,961 504,987
Less accumulated depreciation and amortization......... (174,482) (135,663)
--------- ---------
Plant and equipment, net............................... $ 350,479 $ 369,324
========= =========
The depreciation expense for the years ended December 31, 2002, 2001 and
2000 was $43.4 million, $37.3 million and $30.3 million, respectively.
5. Goodwill and Intangible Assets
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other
Intangible Assets". SFAS No. 142, which was effective for fiscal years beginning
after December 15, 2001, requires that ratable amortization of goodwill be
replaced with periodic tests of goodwill impairment and that intangible assets,
other than goodwill, which have determinable useful lives, be amortized over
their useful lives. As required by SFAS 142, the Company stopped amortizing
goodwill effective January 1, 2002. The Company has evaluated any possible
impairment of goodwill under SFAS 142 guidelines. The Company revised its
reportable operating segments in the third quarter of 2002, and as a result
completed an evaluation of the fair values of the new segments. Based on this
evaluation the Company has determined that the goodwill in our international
segment was impaired, and the goodwill was written down in the fourth quarter.
The recorded impairment is based on methodology including prices of comparable
businesses and discounted cash flows.
We have three reporting segments, all of which have goodwill. During the
third quarter of 2002, a portion of goodwill related to the Decora acquisition
was allocated to intangible assets as a trademark in connection with the
finalization of the purchase price allocation. The changes in the carrying value
of goodwill for the year ended December 31, 2002 were as follows (in thousands):
Pliant Pliant Corporate/
Pliant U.S. International Solutions Other Total
----------- ------------- --------- ---------- --------
Balance as of December 31, 2001 $176,064 $28,362 $ -- $-- $204,426
Goodwill recorded in acquisitions 2,393 1,984 3,794 -- 8,171
Goodwill impaired -- (8,600) -- -- (8,600)
-------- ------- ------ --- --------
Balance as of December 31, 2002 $178,457 $21,746 $3,794 $-- $203,997
======== ======= ====== === ========
The changes to goodwill in the year ended December 31, 2002 relate to the
Decora acquisition, the Roll-O-Sheets acquisition, adjustments related to the
opening balance sheet of the Uniplast acquisition, and impairment of
international goodwill.
Following is a reconciliation of net income/(loss) between the amounts
reported in the 2001 and 2000 statements of operations and the pro forma
adjusted amount reflecting these new accounting rules under SFAS 142 (in
thousands):
F-16
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
Year Ended December 31
----------------------
2001 2000
------- --------
Net income (loss):
Reported net income (loss) $(2,068) $(50,783)
Goodwill amortization (net of income taxes) 7,023 6,759
------- --------
Adjusted net income (loss) $ 4,955 $(44,024)
======= ========
Other intangible assets that are amortized over their useful lives under
SFAS 142, are as follows as of December 31 (in thousands):
2002 2001
----------------------- -----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Value Amortization Value Amortization
-------- ------------ -------- ------------
Amortized other intangible assets:
Customer lists $25,500 $ (6,334) $25,500 $ (4,264)
Trademark 5,000 -- -- --
Other 19,209 (16,341) 22,332 (16,795)
------- -------- ------- --------
Total $49,709 $(22,675) $47,832 $(21,059)
======= ======== ======= ========
The estimated amortization for each of the next five years on the other
intangible assets included above is as follows (in thousands):
Year Ending December 31
- -----------------------
2003........................... $2,866
2004........................... 2,487
2005........................... 2,477
2006........................... 2,405
2007........................... 2,237
Amortization expense for other intangible assets was approximately $3.5
million, $2.6 million, and $2.1 million for the years ended December 31, 2002,
2001 and 2000, respectively.
F-17
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
6. Long-Term Debt
Long-term debt as of December 31, consists of the following (in thousands):
2002 2001
-------- --------
Credit Facilities:
Revolver, variable interest, 5.1% as of December 31,
2002.................................................... $ 28,404 $ 39,511
Tranche A and B term loans, variable interest at a weighted
average rate of 5.4 % as of December 31,
2002.................................................... 394,575 463,800
Senior subordinated notes, interest at 13.0% (net of
unamortized issue discount, premium and discount related to
warrants of $8,312 and $12,747 at 2002 and 2001,
respectively).............................................. 311,688 207,253
Obligations under capital leases (see Note 7)................. 1,039 2,090
Insurance financing, interest at 3.21% as of December 31,
2002....................................................... 675 588
Other financing............................................... -- 81
-------- --------
Total................................................ 736,381 713,323
Less current portion.......................................... (14,745) (17,767)
-------- --------
Long-term portion............................................. $721,636 $695,556
======== ========
The scheduled maturities of long-term debt by year as of December 31, 2002
are as follows (in thousands):
Year Ending December 31,
- ------------------------
2003........................... $ 14,745
2004........................... 46,075
2005........................... 58,127
2006........................... 31,590
2007........................... 145,748
Thereafter..................... 440,096
--------
Total.......................... $736,381
========
Credit Facilities
As amended, our credit facilities consist of:
. tranche A term loans in an aggregate principal amount of $117.9
million outstanding as of December 31, 2002;
. Mexico term loans in an aggregate principal amount of $24.8
million outstanding as of December 31, 2002;
. tranche B term loans in an aggregate principal amount of $251.9
million outstanding as of December 31, 2002; and
. revolving credit facility in an aggregate principal amount of up
to $100 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.
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. In accordance with the
March 24, 2003 amendment to our credit facilities, the spread will not exceed
4.0% for Adjusted LIBOR or 3.0% for ABR. Adjusted LIBOR is the London inter-bank
offered rate adjusted for statutory reserves. ABR is the alternate base rate,
which is the higher of the lender'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 or ABR, plus a spread determined by reference to our
leverage ratio. As amended, our credit facilities provide that the spread will
not exceed
F-18
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
4.75% for Adjusted LIBOR or 3.75% for ABR. 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.
Our credit facilities require us to maintain certain key financial ratios
on a quarterly basis. These key ratios include a leverage ratio and an interest
coverage ratio. Effective March 24, 2003, we entered into an amendment (the
"Amendment") of our credit facilities to, among other things, permit us to issue
up to $50 million of our common stock, qualified preferred stock, warrants to
acquire our common stock or qualified preferred stock, or any combination of our
common stock, qualified preferred stock or warrants, or other capital
contributions with respect to our common stock or qualified preferred stock. The
Amendment also adjusted certain financial covenants, including the leverage and
interest coverage ratios. As a condition to the effectiveness of the Amendment,
we agreed to issue 10,000 shares of our Series A preferred stock and warrants to
purchase 43,962 shares of our common stock to J.P. Morgan Partners (BHCA), L.P.
("J.P. Morgan Partners") and J.P. Morgan Partners agreed to purchase such shares
and warrants for $10 million. We completed this sale on March 25, 2003. All of
the proceeds of this sale were used to reduce our term debt. In addition, the
Amendment allows us to issue an additional $40 million of equity securities
between March 25, 2003 and March 31, 2005 in order to obtain cash to reduce the
revolving borrowings and/or term borrowings under our credit facilities. J.P.
Morgan Partners is required to purchase up to $25 million of such additional
equity securities to the extent necessary to enable us to meet our leverage
ratio or the target senior debt leverage ratio specified in the Amendment at the
end of any calendar quarter or fiscal year ending on or before December 31,
2004. Our obligations to issue, and J.P. Morgan Partners' obligation to
purchase, such equity securities are set forth in a Securities Purchase
Agreement dated as of March 25, 2003. Generally, if we are required to issue any
portion of such $25 million of equity securities under the Amendment with
respect to any fiscal quarter in 2003, we must use 50% of the net proceeds from
the issuance of any such equity securities to reduce our revolving borrowings,
and 50% to reduce our term borrowings. If we are required to issue any such
equity securities under the Amendment with respect to any fiscal quarter in
2004, we must use 100% of the net proceeds to reduce our term borrowings. The
issuance of the remaining $15 million of equity securities is voluntary on our
part, and neither J.P. Morgan Partners nor any other person is required to
purchase such equity securities. We incurred an amendment fee of $2.2 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 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 4.0 to 1.0) 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 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 currently pay a quarterly commitment fee on the unused amount of the
Revolver at an annual rate of 0.75%. The commitment fee is subject to reduction
if we achieve certain financial ratios. As of December 31, 2002, we had
outstanding letters of credit of approximately $4.0 million.
Indebtedness under the Credit Facilities is secured by substantially all of
our assets, including our real and personal property, inventory, accounts
receivable, intellectual property, and other intangibles. Our obligations under
the Credit Facilities are guaranteed by substantially all of our domestic
subsidiaries and secured by substantially all of our domestic assets. The Credit
Facilities are also secured by a pledge of 65% of the capital stock of each of
our foreign subsidiaries.
Senior Subordinated Notes
In 2000, we issued $220 million aggregate principal amount of 13% Senior
Subordinated Notes due 2010 including 18,532 warrants (the "Note Warrants") to
purchase common stock at an exercise price of $0.01 per share. In 2002, we
issued an additional $100 million of 13% Senior Subordinated Notes due 2010. The
Notes mature on June 1, 2010, and interest on the Notes is payable on June 1 and
December 1 of each year. 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 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 Note Warrants became exercisable on August 29, 2000,
and expire on June 1, 2010.
F-19
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
The Credit Facilities and the indentures relating to the Senior
Subordinated 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.
Interest Rate Risk and Derivative Instruments
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. 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 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 result in a material
effect to our financial statements.
We have entered into six 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, 2002 (dollars in
millions):
Notional Variable Fixed Maturity
Type Amount Rate* Rate ** Dates
- -------------------- -------- -------- ------------- ----------
Interest rate cap $128.0 LIBOR 10.00% 12/31/2003
Interest rate cap 30.0 LIBOR 7.25% 02/09/2004
Interest rate collar 40.0 LIBOR 4.15% - 7.25% 02/13/2004
Interest rate swap 60.0 LIBOR 5.40% 02/13/2004
Interest rate swap 50.0 LIBOR 4.32% 12/24/2004
Interest rate swap 50.0 LIBOR 3.90% 01/18/2005
* Three-month LIBOR, as defined; 1.38% as of December 31, 2002
** 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, 2002 and 2001 in other
liabilities of approximately $9.1 million and $3.0 million, respectively and in
other assets of approximately $0.1 million in each of 2002 and 2001. 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, 2002 and 2001 was not material.
The change in accumulated derivative loss included as a part of accumulated
other comprehensive loss as of December 31, is as follows (in thousands):
2002 2001
------ ------
Beginning accumulated derivative loss $2,944 $ --
Change associated with current period hedge transactions 2,674 2,961
Amount reclassified into earnings (221) (17)
------ ------
Ending accumulated derivative loss, net of taxes $5,397 $2,944
====== ======
F-20
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
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.
Our extraordinary loss for 2000 consisted of a $6.0 million charge (net of
tax) for the payment made pursuant to a tender offer for our previously issued
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
various debt facilities.
7. Leases
Capital Leases - We have acquired certain land, building, machinery and
equipment under capital lease arrangements that expire at various dates through
2008. At December 31, the gross amounts of plant and equipment and related
accumulated amortization recorded under capital leases were as follows (in
thousands):
2002 2001
------ ------
Land and building......................... $ 442 $ 442
Machinery and equipment................... 829 2,375
------ ------
Total assets held under capital leases.... 1,271 2,817
Less: accumulated amortization............ (276) (381)
------ ------
$ 995 $2,436
====== ======
The amortization expense is included in depreciation expense.
Operating Leases - We have non-cancelable operating leases, primarily for
vehicles, equipment, warehouse, and office space that expire through 2014, 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 $10.5 million, $7.8 million and $6.7 million for the years ended
December 31, 2002, 2001 and 2000, respectively. 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, 2002
are as follows (in thousands):
Operating Capital
Leases Leases
--------- -------
Year Ending December 31,
2003............................................ $13,595 $ 277
2004............................................ 12,103 287
2005............................................ 11,043 238
2006............................................ 10,262 243
2007............................................ 7,142 228
Thereafter...................................... 15,162 62
------- ------
Total minimum lease payments $69,307 $1,335
=======
Amounts representing interest (296)
------
Present value of net minimum capital lease payments $1,039
======
During the year ended December 31, 2001 the Company entered into a
transaction in which 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.
During the year ended December 31, 2002, the Company entered into a
transaction in which production lines were sold for approximately $15 million
($5 million of which was retained by the lessor as a required security deposit)
and leased back to the Company under an operating lease agreement. These
production lines were sold for their carrying values, thus no gain or loss was
recorded on the transactions.
F-21
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
8. Income Taxes
The components of income (loss) before income taxes and extraordinary loss
for the years ended December 31 are as follows (in thousands):
2002 2001 2000
-------- ------- --------
United States $(46,477) $(5,341) $(62,528)
Foreign 1,585 10,059 8,752
-------- ------- --------
Total $(44,892) $ 4,718 $(53,776)
======== ======= ========
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,
are as follows (in thousands):
2002 2001 2000
------- ------ --------
Current:
Federal...................................... $ -- $ 23 $ (112)
State........................................ 261 111 266
Foreign...................................... 3,719 4,070 3,990
------- ------ --------
Total current............................. 3,980 4,204 4,144
------- ------ --------
Deferred:
Federal...................................... (5,887) 2,021 (18,401)
State........................................ (1,848) 179 18
Foreign...................................... 2,293 382 (4)
------- ------ --------
Total deferred............................ (5,442) 2,582 (18,387)
------- ------ --------
Total income tax expense (benefit) (excluding
income taxes applicable to the extraordinary
item)........................................ $(1,462) $6,786 $(14,243)
======= ====== ========
The effective income tax rate reconciliations for the years ended December
31, are as follows (in thousands):
2002 2001 2000
-------- ------ --------
Income (loss) before income taxes and
extraordinary item........................... $(44,892) $4,718 $(53,776)
======== ====== ========
Expected income tax provision (benefit) at U.S.
statutory rate of 35%........................ (15,712) $1,652 $(18,822)
Increase (decrease) resulting from:
Goodwill..................................... -- 1,726 1,636
State taxes.................................. (1,092) 188 137
Change in valuation allowance................ 8,907 1,078 (174)
Foreign rate difference and other, net....... 6,435 2,142 1,099
Costs related to recapitalization............ -- -- 1,881
-------- ------ --------
Total income tax expense (benefit) (excluding
income taxes applicable to the extraordinary
item......................................... $ (1,462) $6,786 $(14,243)
======== ====== ========
Effective income tax rate....................... 3.3% 143.8% 26.5%
-------- ------ --------
F-22
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
Components of net deferred income tax assets and liabilities as of December
31, are as follows (in thousands):
2002 2001
-------- --------
Deferred income tax assets:
Net operating loss carryforwards.................... $ 46,157 $ 30,627
AMT and foreign tax credit carryforwards............ 8,237 4,346
Accrued pension costs............................... 10,531 4,893
Accrued employee benefits........................... 3,374 6,114
Accrued plant closing costs......................... 4,804 834
Allowance for doubtful trade accounts receivable.... 659 103
Inventory related costs............................. 1,326 642
Other............................................... 4,017 350
-------- --------
79,105 47,909
Valuation Allowance................................. (10,775) (1,868)
-------- --------
Total deferred income tax assets................. 68,330 46,041
-------- --------
Deferred income tax liabilities:
Tax depreciation in excess of book depreciation..... (70,419) (62,595)
Amortization of intangibles......................... (11,002) (5,123)
Other............................................... (2,563) (1,916)
-------- --------
Total deferred income tax liabilities............ (83,984) (69,634)
-------- --------
Net deferred income tax liability...................... $(15,654) $(23,593)
======== ========
As reported on consolidated balance sheets:
Net current deferred income tax asset............... $ 8,182 $ 2,563
Net non-current deferred income tax liability....... (23,836) (26,156)
-------- --------
Net deferred income tax liability................... $(15,654) $(23,593)
======== ========
The net operating loss carryforwards for federal tax purposes are
approximately $118.4 million. These losses expire in 2020 through 2022. Due to
uncertainty regarding realization, a valuation allowance of approximately $3.8
million has been recorded in 2002 to offset the deferred tax asset related to
the net operating losses.
The foreign tax credit carryforwards for federal tax purposes are
approximately $4.4 million expiring in 2005 through 2007, and $2.6 million with
no set expiration date. Due to uncertainty regarding realization, valuation
allowances of approximately $5.2 million and $1.8 million in 2002 and 2001,
respectively have been recorded to offset the deferred tax asset related to the
foreign tax credits.
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 up to 1% of the participants' compensation based on
our profits and also match employee contributions up to 2% of the participants'
compensation. We expensed approximately $2.4 million, $2.6 million and $2.6
million as our contribution to this plan for the years ended December 31, 2002,
2001 and 2000, 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 our plans in amounts to fulfill the funding
requirements of the Employee Retirement Income Security Act of 1974.
Contributions are intended to not only provide for benefits attributed to
service to date but also for those expected to be earned in the future. We also
sponsor a defined benefit plan in Germany (the "Germany Plan"). The consolidated
accrued net pension expense for the years ended December 31, 2002, 2001 and 2000
includes the following components (in thousands):
F-23
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
United States Plans 2002 2001 2000
- ------------------- ------- ------- -------
Service cost - benefits earned during the period.... $ 3,845 $ 3,707 $ 4,098
Interest cost on projected benefit obligation....... 4,582 4,101 4,192
Expected return on assets........................... (3,698) (4,183) (4,348)
Other............................................... 160 (273) (185)
------- ------- -------
Total accrued pension expense....................... $ 4,889 $ 3,352 $ 3,757
======= ======= =======
Germany Plan
Service cost - benefits earned during the period.... $ 82 $ 66 $ 62
Interest cost on projected benefit obligation....... 80 61 62
------- ------- -------
Total accrued pension expense....................... $ 162 $ 127 $ 124
======= ======= =======
The following table sets forth the funded status of the United States Plans
and the Germany Plan as of December 31, 2002, 2001 and 2000 and the amounts
recognized in the consolidated balance sheets at those dates (in thousands):
United States Plans 2002 2001 2000
- ------------------- -------- ------- -------
Change in benefit obligation:
Obligation at January 1........................................... $ 60,706 $58,036 $50,405
Service cost...................................................... 3,845 3,707 4,098
Interest cost..................................................... 4,582 4,101 4,192
Plan amendments................................................... 593 544 219
Transfer of liability from Huntsman Corporation plan.............. -- -- 138
Actuarial (gain) loss............................................. 5,388 (3,602) 942
Other............................................................. 152 -- --
Benefits paid..................................................... (2,263) (2,080) (1,958)
-------- ------- -------
Obligation at December 31............................................ $ 73,003 $60,706 $58,036
======== ======= =======
Change in plan assets:
Fair value of assets at January 1................................. $41,872 $46,964 $49,290
Actual return on plan assets...................................... (3,260) (4,378) (505)
Transfer of assets from Huntsman Corporation plan................. -- -- 138
Employer contributions............................................ 569 1,367 --
Other............................................................. 153 -- --
Benefit payments.................................................. (2,263) (2,081) (1,958)
-------- ------- -------
Fair value of plan assets at December 31............................. $ 37,071 $41,872 $46,965
======== ======= =======
Underfunded status at December 31.................................... $ 35,932 $18,833 $11,071
Unrecognized net actuarial (gain)loss................................ (12,661) (333) 5,011
Unrecognized prior service cost...................................... (2,469) (2,017) (1,584)
-------- ------- -------
Accrued long-term pension liability included in other liabilities.... $ 20,802 $16,483 $14,498
======== ======= =======
Amounts recognized in the balance sheet consist of:
2002 2001
-------- --------
Accrued benefit cost $(20,802) $(16,483)
Additional minimum liability (2,211) --
Intangible asset 699 --
Accumulated other comprehensive income 1,512 --
-------- --------
Accumulated pension liability $(20,802) $(16,483)
======== ========
F-24
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
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 2002 calculations,
the discount rate was 6.75% and expected rates of return on plan assets of 9.0%
were used for all plans. For the 2001 calculations, the 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, the 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.
Germany Plan 2002 2001
- ------------ ------ ------
Change in benefit obligation:
Obligation at January 1........................................... $1,142 $1,168
Service cost...................................................... 82 66
Interest cost..................................................... 80 61
Benefits paid..................................................... (16) (11)
Change due to exchange rate....................................... 303 (142)
------ ------
Obligation at December 31............................................ $1,591 $1,142
====== ======
Fair value of plan assets at December 31............................. None None
====== ======
Underfunded status at December 31.................................... $1,591 $1,142
Unrecognized net actuarial loss (gain)............................... (96) 85
------ ------
Accrued long-term pension liability included in other liabilities.... $1,495 $1,227
====== ======
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, 2002 and 2001.
Effective January 1, 2003 we revised the United States Plans to exclude the
participation of new non-union employees in such plans.
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 in 1998,
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, 2002 was approximately $2.0 million. This liability
was frozen at the time of the acquisition.
10. Redeemable Stock
Common Stock -- Prior to the Recapitalization, we sold 50,611 shares of
Class C nonvoting common stock to employees. As consideration, we received cash
of approximately $2.5 million and secured promissory notes for approximately
$2.6 million. We redeemed 1,100 of these shares prior to the Recapitalization.
An additional 17,967 shares were redeemed in connection with the
Recapitalization, and the remaining 31,544 shares were exchanged for the same
number of common shares.
As part of the Recapitalization, we entered into employment agreements with
our executive officers serving at that time: Richard P. Durham, Jack E. Knott
II, Scott K. Sorensen and Ronald G. Moffitt. The employment agreements
established repurchase rights and put options for shares held by these executive
officers following the Recapitalization. These repurchase rights allow us to
repurchase these shares from the employee in the event of termination for any
reason. The put options allow the employees to require us to purchase all of the
shares held by the employee in the event of resignation for good reason, death,
disability or retirement, subject to the restrictive provisions of our credit
facilities or any other agreements. The purchase price under the repurchase
rights and the put options is the fair market value of the common stock, as
determined in good faith by our board of directors.
The $2.6 million of notes receivable we originally received as partial
consideration for the shares sold prior to the Recapitalization related to
shares purchased by Mr. Durham, Mr. Sorensen and Mr. Moffitt. These secured
promissory notes bore interest at 7% per annum. These notes were amended in
connection with the Recapitalization and were further amended in connection
F-25
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
with certain severance arrangements and other events relating to the transition
to a new management team. Pursuant to these amendments, interest ceased to
accrue on Mr. Sorensen's note as of December 31, 2000, and interest ceased to
accrue on Mr. Durham's note and Mr. Moffitt's note as of February 28, 2001.
Interest accrued prior to these dates is payable in three annual installments
beginning on May 31, 2006 and the principal is due May 31, 2008.
In connection with the Recapitalization in May 2000, we sold an aggregate
of 32,750 shares of additional restricted common stock to Messrs. Durham, Knott,
Sorensen and Moffitt for $483.13 per share, the estimated fair market value. We
received, as consideration, notes receivable totaling $15.8 million. Under the
May 2000 restricted stock purchase agreements related to the restricted common
stock, we have repurchase rights, which allow us to repurchase unvested shares
from these individuals, if the individuals cease to be employees for any reason.
The repurchase rights lapsed with respect to one-sixth of these shares on
January 1, 2001. The repurchase rights lapsed with respect to an additional
one-sixth of these shares in January 2002 based on the financial results for the
year ended December 31, 2001. Vesting for the remainder of the shares 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 also 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. The foregoing repurchase rights with respect to
the restricted stock apply only to unvested restricted shares. As discussed
above, however, our employment agreements with Messrs. Durham, Knott, Sorensen
and Moffitt established additional repurchase rights and put options applicable
to all other shares held by these individuals.
The $15.8 million of secured promissory notes received as consideration for
the 32,750 shares of restricted common stock bore interest at 7% per annum.
These notes were also modified in connection with the severance arrangements and
other events relating to the transition to a new management team. These
modifications are described below.
On December 27, 2000, we entered into a severance agreement with Mr.
Sorensen. Under the agreement, we cancelled approximately $133,000 of accrued
interest on a note receivable. We repurchased 6,211 shares of restricted stock
for $483.13 per share and offset the purchase price against $3.0 million of note
principal. In addition, we agreed on January 2, 2001, to repurchase an
additional 539 shares of restricted stock for $483.13 per share and offset the
purchase price against $260,000 of note principal. The Company's repurchase
rights were changed on the remaining 7,423 shares of common stock owned by Mr.
Sorensen, 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 ceased to accrue on the remaining
$787,000 balance of the note related to Mr. Sorensen's purchase 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 Mr.
Sorensen 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 Mr.
Moffitt. 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 per share 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 Mr.
Moffitt's purchase 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 Mr. Moffitt's put option were changed on the
remaining 3,457 shares of common stock held by him. We agreed not to repurchase
and Mr. Moffitt 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 of common stock that are subject to the note
receivable.
On February 1, 2001, we amended Mr. Durham's promissory notes that were
issued in connection with his purchases of 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 related pledge agreement. As a
result of these modifications, Mr. Durham's purchase of stock for promissory
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
F-26
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
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.
On April 21, 2001, we amended the terms of Mr. Knott's promissory note
issued in connection with his purchase of stock in 2000. Further, Mr. Knott's
note was modified to remove the full recourse provisions and modify the related
pledge agreement. As a result of these modifications and the modifications to
the other officer's notes in the first quarter of 2001, Mr. Knott's purchase of
stock for a promissory note in 2000 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.
On June 10, 2002, we entered into a separation agreement with Mr. Durham.
As of the date of the separation agreement, Mr. Durham owned 28,289 shares of
common stock, 12,083 performance vested shares, 2,417 time vested shares,
warrants to purchase 1,250.48 shares of common stock and 1,232 shares of
preferred stock of Pliant. All of Mr. Durham's time vested shares and 2,416 of
Mr. Durham's performance vested shares had vested as of the date of the
separation agreement. Pursuant to the separation agreement, Mr. Durham agreed to
convert one of his outstanding promissory notes issued as payment for a portion
of his shares into two promissory notes. The first note (the "Vested Secured
Note"), in the principal amount of $2,430,798, relates to Mr. Durham's time
vested shares and the vested portion of his performance vested shares. The
second note (the "Non-Vested Secured Note"), in the principal amount of
$4,862,099, related to the 9,667 performance vested shares which had not vested
as of the date of the separation agreement. In addition to these notes, Mr.
Durham had an additional outstanding promissory note (the "Additional Note"),
with a principal amount of $1,637,974, relating to a portion of the shares of
common stock held by Mr. Durham. In accordance with the separation agreement, we
repurchased and canceled Mr. Durham's 9,667 unvested shares in exchange for
cancellation of the Non-Vested Secured Note on October 3, 2002.
The separation agreement preserved the put option established by Mr.
Durham's employment agreement with respect to his shares. For purposes of this
put option, the separation agreement provides that the price per share to be
paid by us is $483.13 with respect to common stock, $483.13 less any exercise
price with respect to warrants, and the liquidation preference with respect to
preferred stock. On July 9, 2002, Mr. Durham exercised his put option with
respect to 28,289 shares of common stock, 1,232 shares of preferred stock and
warrants to purchase 1,250.48 shares of common stock. Mr. Durham's put option is
subject to any financing or other restrictive covenants to which we are subject
at the time of the proposed repurchase. Restrictive covenants under our credit
facilities limit the number of shares we can currently repurchase from Mr.
Durham. On October 3, 2002, as permitted by the covenants contained in our
credit facilities, we purchased 8,204 shares from Mr. Durham for a purchase
price of $3,963,599 less the outstanding amount of the Additional Note, which
was cancelled. In December 2002 we purchased an additional 1,885 shares of
common stock from Mr. Durham for an aggregate purchase price of approximately
$910,700. As of December 31, 2002, our total remaining purchase obligation to
Mr. Durham was approximately $10,623,097, excluding accrued preferred dividends.
We are limited to a maximum purchase from Mr. Durham of $5,000,000 of shares in
2003, which purchase may only be made if we meet certain leverage ratios.
As of December 31, 2002, there were a total of 34,240 outstanding 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, 2002, 130,973 shares were issued and
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
F-27
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
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, 2002,
the carrying value of the Preferred Stock has been increased by $2.7 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, 2002 includes $49.6
million for accrued dividends.
11. Stock Option Plans
Pursuant to the Recapitalization, we adopted a 2000 stock incentive plan,
which, as amended, allows us to grant to employees nonqualified options to
purchase up to 65,600 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.
In August 2002, we adopted our 2002 Stock Incentive Plan. The 2002 plan
authorizes grants of incentive stock options, nonqualified stock options and
stock bonuses, as well as the sale of shares of common stock, to our employees,
officers, directors and consultants of Pliant or any of its subsidiaries. A
total of 4,793 shares are authorized for issuance under the 2002 plan. As of
December 31, 2002, no options or shares had been granted or sold under the 2002
plan.
A summary of stock option activity under the 2000 plan is as follows:
Weighted
Option Average
Shares Exercise Price
------ --------------
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
Granted.......................... 20,425 483.13
Exercised........................ -- --
Forfeited or cancelled........... (3,920) 483.13
------ -------
Outstanding at December 31, 2002.... 51,342 416.70
------ -------
Exercisable at December 31, 2002.... 15,149 $258.00
====== =======
The weighted average remaining contractual life of the options is 7.8 years
at December 31, 2002. The options granted prior to January 1, 2001 pursuant to
the 2000 plan, as amended, provide for vesting as follows: (1) one-sixth are
"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 increments upon the
achievement of performance targets as follows: (a) vesting in full, if 100% or
more of the applicable performance target is achieved as of the end of any
calendar quarter during the option term and (b) partial vesting if more than 90%
of the applicable performance target is achieved as of the end of any calendar
quarter during the option term. 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. Options granted pursuant to the 2000 plan subsequent to
January 1, 2001 vest similarly, except that all of the options are "performance
vested" options, which vest in increments upon the achievement of performance
targets.
F-28
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
Subsequent to December 31, 2002, unvested options to purchase 116 shares
were forfeited as a result of employee terminations and vested options to
purchase 260 shares were forfeited. Additional vested options to purchase 24
shares will be forfeited if not exercised within 90 days from the termination
date.
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.
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. The Agreements require us to pay the patent holder a fee
of $.05 for each pound of Winwrap produced and $.10 per pound for each pound of
coreless Winwrap produced. The Agreements terminate upon the expiration of the
related patents in 2009. During the years ended December 31, 2002, 2001 and
2000, we paid royalties of $1.5 million, $1.6 million and $1.1 million,
respectively, under the Agreements.
Litigation - On November 19, 2001, S.C. Johnson & Son, Inc. and S.C.
Johnson Home Storage, Inc. (collectively, "S.C. Johnson") filed a complaint
against us in the U.S. District Court for the District of Michigan, Northern
Division (Case No. 01-CV-10343-BC). The complaint alleges misappropriation of
proprietary trade secret information relating to certain componentry used in the
manufacture of reclosable "slider" bags. We counterclaimed alleging that S.C.
Johnson misappropriated certain of our trade secrets relating to the extrusion
of flange zipper and unitizing robotics. Both the S.C. Johnson complaint and our
counterclaim seek damages and injunctive and declaratory relief. Discovery in
this proceeding is currently set to close on April 30, 2003. We intend to resist
S.C. Johnson's claims and to pursue our counterclaim vigorously. We do not
believe this proceeding will have a material adverse affect on our financial
condition or results of operations.
We are subject to other litigation matters 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
In May 2002, we acquired substantially all of the assets and assumed
certain liabilities of Decora Industries, Inc. and its operating subsidiary,
Decora Incorporated (collectively, "Decora"), a New York based manufacturer and
reseller of printed, plastic films, including plastic films and other consumer
products sold under the Con-Tact(R) brand name. Our purchase of Decora's assets
was approved by the United States Bankruptcy Court. The purchase price was
approximately $18 million. The purchase price was negotiated with the creditors
committee and was paid in cash using borrowings from our existing revolving
credit facility. The assets purchased consisted of one plant in Fort Edward, New
York, and related equipment used by Decora primarily to print, laminate and
convert films into adhesive shelf liner. We have commenced the process of
closing the Decora plant in Fort Edward, New York and have moved the production
to our facilities in Mexico and Danville, Kentucky. This purchase expands our
product base to a new market. In addition, we expect to realize synergies from
lower costs and administrative expenses. In addition to the purchase price of
$18 million, we have accrued $5.2 million of liabilities related to acquisition
costs and severance payments. We sold our Fort Edward, New York plant on
September 30, 2002 for $2.1 million and leased it back for $1 for up to twelve
months. Results of operations from the date of acquisition are included in the
consolidated statement of operations.
The aggregate purchase price of $23.2 million, including accrued
liabilities related to acquisition costs and severance payments, has been
allocated to assets and liabilities. The allocation is as follows (dollars in
thousands):
Current Assets $15,805
Property Plant and Equipment 4,961
Goodwill 3,794
Intangible Assets - Trademark 5,000
Current Liabilities (6,312)
-------
Total Purchase Price $23,248
=======
Since the intangible assets have an indefinite life there is no
amortization. The amortization of goodwill is deductible for tax purposes.
F-29
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
The pro forma results of operations for the years ended December 31,
(assuming the Decora acquisition had occurred on January 1, 2002 and January 1,
2001, respectively) are as follows (dollars in thousands):
Year Ended December 31
----------------------
2002 2001
-------- --------
Net sales $894,505 $889,411
Net loss $(44,653) $(14,592)
The pro forma results reflect certain non-recurring items. The net loss for
the year ended December 31, 2001 include results from a division that was sold
by Decora in 2001. The net loss reflects the write down of goodwill and
long-lived assets and reorganization costs related to the bankruptcy that are
considered non-recurring. The reorganization items were $0.6 million and $2.3
million for the years ended December 31, 2002 and 2001, respectively. The
effective income tax rate for pre-acquisition results of operations of Decora
was 0% due to the net operating losses and valuation allowances.
On August 15, 2002, we purchased substantially all of the assets and
assumed certain liabilities of the business of Roll-O-Sheets Canada Limited
("Roll-O-Sheets"). The Roll-O-Sheets business consists of one plant in Barrie,
Canada primarily engaged in the conversion and sale of PVC and polyethylene film
for the food industry. In addition, the business includes the distribution of
polyester film and polypropylene food trays and other food service products.
Detailed financial information and pro forma results are not presented as they
are not material to our consolidated financial statements.
Uniplast Holdings - On July 16, 2001, we acquired 100% of the outstanding
stock of Uniplast Holdings, Inc. ("Uniplast") for an initial purchase price of
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 shares 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
$21.9 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.
During 2002 we made adjustments to the carrying value of Uniplast assets
and the initial purchase price totaling $3.3 million. The final purchase price
including adjustments made during 2002 to the initial purchase price of $56.0
million has been allocated to assets and liabilities as follows:
(in millions)
-------------
Current Assets $ 19.3
Property Plant and Equipment 20.6
Intangible Assets 14.4
Goodwill 21.9
Current Liabilities (13.1)
Long-term Liabilities (3.8)
------
Total Purchase Price $ 59.3
======
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):
2001
--------
Revenues............................... $882,860
Net income (loss)...................... (424)
F-30
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
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 operating segments: Pliant U.S., Pliant International and
Pliant Solutions. In previous reporting periods, we had three operating segments
classified by our primary product types. During the third quarter of 2002, we
reorganized our operations under our three current operating segments. Segment
information in this prospectus with respect to 2001 and 2000 has been restated
for comparative purposes. 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 the
performance of our operating segments based on net sales (excluding intercompany
sales) and segment profit. The segment profit reflects income before
discontinued operations, extraordinary items, interest expense, income taxes,
depreciation, amortization, restructuring costs, all non-cash charges and
certain other adjustments defined by our credit agreement. Our reportable
segments are managed separately with separate management teams, because each
segment has differing products, customer requirements, technology and marketing
strategies.
Segment profit and segment assets as of and for the years ended December
31, 2002, 2001 and 2000 are presented in the following table (in thousands).
Certain reclassifications have been made to the prior year amounts to be
consistent with the 2002 presentation.
Pliant Pliant Pliant Corporate/
U.S. International Solutions Other Total
-------- ------------- --------- ---------- --------
2002
Net sales to customers.......... $742,644 $108,263 $28,290 -- $879,197
Intersegment sales.............. $ 25,516 1,104 -- (26,620) --
-------- -------- ------- -------- --------
Total net sales................. 768,160 109,367 28,290 (26,620) 879,197
Depreciation and amortization... 26,390 6,246 1,195 13,081 46,912
Interest expense................ 125 2,122 23 73,014 75,284
Segment profit.................. 117,989 15,591 2,768 (14,731) 121,617
Segment total assets............ 659,757 103,971 27,625 61,850 853,203
Capital expenditures............ 34,508 9,004 43 5,639 49,194
2001
Net sales to customers.......... $736,067 $104,293 $ -- $ -- $840,360
Intersegment sales.............. 19,230 101 -- (19,331) --
-------- -------- ------- -------- --------
Total net sales................. 755,297 104,394 -- (19,331) 840,360
Depreciation and amortization... 25,998 6,043 -- 14,976 47,017
Interest expense................ 59 3,302 -- 72,627 75,988
Segment profit.................. 136,497 19,359 -- (14,024) 141,832
Segment total assets............ 684,982 113,417 -- 53,284 851,683
Capital expenditures............ 48,549 2,684 -- 5,185 56,418
2000
Net sales to customers.......... $753,216 $ 90,581 $ -- $ -- $843,797
Intersegment sales.............. 17,406 -- -- (17,406) --
-------- -------- ------- -------- --------
Total net sales................. 770,622 90,581 -- (17,406) 843,797
Depreciation and amortization... 23,132 6,037 -- 10,377 39,546
Interest expense................ 303 3,618 -- 64,613 68,534
Segment profit................. 110,437 17,072 -- (19,922) 107,587
Segment total assets............ 626,580 90,650 -- 67,804 785,034
Capital expenditures............ 46,160 6,443 -- 13,041 65,644
F-31
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
A reconciliation of the totals reported for the operating segments to the
totals reported in the consolidated financial statements is as follows (in
thousands):
2002 2001 2000
-------- -------- --------
Profit or Loss
Total segment profit....................... $121,617 $141,832 $107,587
Depreciation and amortization.............. (46,912) (47,017) (39,546)
Restructuring and other costs.............. (43,143) 4,588 (19,368)
Interest expense........................... (75,284) (75,988) (68,534)
Other expenses and adjustments for
non-cash charges and certain adjustments
defined by our credit agreement...... (1,170) (18,697) (33,915)
-------- -------- --------
Income (loss) from continuing operations
before taxes......................... $(44,892) $ 4,718 $(53,776)
======== ======== ========
Assets
Total assets for reportable segments....... $791,353 $798,399 $717,230
Other unallocated assets................... $ 61,850 53,284 67,804
-------- -------- --------
Total consolidated assets.................. $853,203 $851,683 $785,034
======== ======== ========
Our sales to a single customer and its affiliates represented approximately
13% and 12% of consolidated net sales in 2001 and 2000, respectively.
15. Warrants Outstanding
The following warrants were issued and outstanding as of December 31:
2002 2001
------ ------
Issued with the senior subordinated notes 18,532 18,532
Issued in connection with recapitalization transaction 43,242 43,242
Issued in connection with Uniplast acquisition 31,003 31,003
------ ------
Total outstanding 92,777 92,777
====== ======
As of December 31, 2002, 92,777 warrants were exercisable at an exercise
price of $0.01 per share. The Company has reserved up to 92,777 shares of common
stock for issuance upon the exercise of issued and outstanding warrants.
16. 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, accounts receivable and accounts payable, the carrying amount
is considered a reasonable estimate of fair value. The fair value of fixed and
floating rate debt in 2002 and 2001 was obtained from market quotes. Fair value
estimates are made at a specific point in time. Because no market exists for a
significant portion of our financial instruments, fair value estimates are based
on judgments regarding current economic conditions, risk characteristics of
various financial instruments, interest rate levels, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
judgment and therefore cannot be determined or relied on with any degree of
certainty. Changes in assumptions could significantly affect the estimates.
F-32
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
Below is a summary of our financial instruments' carrying amounts and
estimated fair values as of December 31, (in thousands):
2002 2001
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Financial assets:
Cash and cash equivalents.... $ 1,635 $ 1,635 $ 4,818 $ 4,818
Accounts receivable.......... 104,157 104,157 111,768 111,768
-------- -------- -------- --------
Total financial assets.......... $105,792 $105,792 $116,586 $116,586
======== ======== ======== ========
Financial liabilities:
Floating rate debt........... $422,979 $422,979 $503,311 $503,311
Fixed rate debt.............. 313,402 288,000 210,012 228,800
Accounts payable............. 113,988 113,988 101,508 101,508
-------- -------- -------- --------
Total financial liabilities..... $850,369 $824,967 $814,831 $833,619
======== ======== ======== ========
17. Related-Party Transactions
The accompanying consolidated financial statements for the year ended
December 31, 2000 includes the following transactions with companies affiliated
with Jon M. Huntsman, our majority stockholder prior to our Recapitalization (in
thousands). All related-party transactions have been recorded at estimated fair
market values for the related products and services.
2000
-------
With Huntsman Corporation and affiliates (HC)
Inventory purchases................................................ $20,363
Rent expense under operating lease................................. 377
Administrative expenses............................................ 796
Insurance Coverage - Prior to the Recapitalization, we obtained most of our
insurance coverage under policies of HC. Reimbursement payments to HC were based
on premium allocations, which were 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).
J.P. Morgan Partner and Affiliates - JPMorgan Chase Bank is the syndication
agent, and its affiliate, J.P. Morgan Chase & Co., 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 $1.2 million in 2002. 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 recapitalization and related
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 55% of
our outstanding common stock and currently has the right under the stockholders'
agreement to appoint
F-33
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
four of our directors, and of Flexible Films, LLC, which, together with
affiliates, owns approximately 59% of our Preferred Stock, subject to certain
preemptive rights with respect to 10,000 shares of Preferred Stock issued on
March 25, 2003.
18. Accumulated Other Comprehensive Income/(Loss)
The components of accumulated other comprehensive income/(loss) as of
December 31, were as follows (in thousands):
2002 2001
-------- -------
Minimum pension liability, net of taxes of $575 $ (937) $ --
Fair value change in interest rate derivatives
classified as cash flow hedges, net of taxes of $3,450 (5,397) (2,944)
Foreign currency translation adjustments (11,510) (6,704)
-------- -------
Accumulated other comprehensive income/(loss) $(17,844) $(9,648)
======== =======
19. 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 "2000 Indenture") relating to Pliant Corporation's $220 million senior
subordinated notes due 2010 (the "2000 Notes") and the Indenture, dated April
10, 2002 (the "2002 Indenture" and, together with the 2000 Indenture, the
"Indentures"), relating to Pliant's $100 million senior subordinated notes due
2010 (the "2002 Notes" and, together with the 2000 Notes, the "Notes") on a
combined basis, with any investments in non-guarantor subsidiaries specified in
the Indentures 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, 2002 and 2001 and for the years ended December 31, 2002,
2001 and 2000. The Notes are fully and unconditionally guaranteed on a joint and
several basis by each guarantor subsidiary and each guarantor subsidiary is
wholly owned, directly or indirectly, by Pliant Corporation. There are no
contractual restrictions limiting transfers of cash from guarantor and
non-guarantor subsidiaries to Pliant Corporation except from our Alliant joint
venture. 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.
In 2001, our Blessings subsidiary was merged with and into Pliant.
Accordingly, this former guarantor subsidiary company is now included as part of
the "Pliant Corporation Parent Only" column for all periods presented.
F-34
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2002 (In Thousands)
Pliant Combined Consolidated
Corporation Combined Non- Pliant
Parent Only Guarantors Guarantors Eliminations Corporation
----------- ---------- ---------- ------------ ------------
Assets
Current assets:
Cash and cash equivalents................... $ -- $ -- $ 1,635 $ -- $ 1,635
Receivables................................. 82,421 13,444 23,158 -- 119,023
Inventories................................. 71,586 15,832 10,604 -- 98,022
Prepaid expenses and other.................. 2,842 899 408 -- 4,149
Income taxes receivable..................... 1,145 4 1,219 -- 2,368
Deferred income taxes....................... 6,909 1,522 (249) -- 8,182
--------- ------- -------- -------- ---------
Total current assets..................... 164,903 31,701 36,775 -- 233,379
Plant and equipment, net....................... 283,638 17,919 48,922 -- 350,479
Goodwill....................................... 189,106 -- 14,891 -- 203,997
Intangible assets, net......................... 26,964 -- 70 -- 27,034
Investment in subsidiaries..................... 52,813 -- -- (52,813) --
Other assets................................... 34,871 17 3,426 -- 38,314
--------- ------- -------- -------- ---------
Total assets................................... $ 752,295 $49,637 $104,084 $(52,813) $ 853,203
========= ======= ======== ======== =========
Liabilities and stockholders' equity(deficit)
Current liabilities:
Trade accounts payable......................... $ 83,918 $ 8,675 $ 21,395 $ -- $ 113,988
Accrued liabilities............................ 48,091 4,818 5,968 -- 58,877
Current portion of long-term debt.............. 14,117 -- 628 -- 14,745
Due to (from) affiliates....................... (28,373) 15,316 13,057 -- --
--------- ------- -------- -------- ---------
Total current liabilities...................... 117,753 28,809 41,048 -- 187,610
Long-term debt, net of current portion......... 697,472 -- 24,164 -- 721,636
Other liabilities.............................. 25,101 -- 1,876 -- 26,977
Deferred income taxes.......................... 19,017 1,751 3,068 -- 23,836
--------- ------- -------- -------- ---------
Total liabilities........................ 859,343 30,560 70,156 -- 960,059
--------- ------- -------- -------- ---------
Minority interest.............................. -- -- 192 -- 192
Redeemable stock:
Preferred stock............................. 150,816 -- -- -- 150,816
Common stock................................ 13,008 -- -- -- 13,008
--------- ------- -------- -------- ---------
Total redeemable stock......................... 163,824 -- -- -- 163,824
--------- ------- -------- -------- ---------
Stockholders' (deficit):
Common stock................................ 103,376 14,020 29,240 (43,260) 103,376
Warrants to purchase common stock........... 38,676 -- -- -- 38,676
Retained earnings (deficit)................. (394,420) 5,067 14,489 (19,556) (394,420)
Stockholders' notes receivable.............. (660) -- -- -- (660)
Accumulated other comprehensive loss........ (17,844) (10) (9,993) 10,003 (17,844)
--------- ------- -------- -------- ---------
Total stockholders' (deficit)............ (270,872) 19,077 33,736 (52,813) (270,872)
--------- ------- -------- -------- ---------
Total liabilities and stockholders' (deficit).. $ 752,295 $49,637 $104,084 $(52,813) $ 853,203
========= ======= ======== ======== =========
F-35
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2002 (In Thousands)
Pliant Combined Consolidated
Corporation Combined Non- Pliant
Parent Only Guarantors Guarantors Eliminations Corporation
----------- ---------- ---------- ------------ ------------
Net sales...................................... $695,002 $75,360 $135,455 $(26,620) $879,197
Cost of sales.................................. 567,702 61,809 111,572 (26,620) 714,463
-------- ------- -------- -------- --------
Gross profit................................... 127,300 13,551 23,883 -- 164,734
Total operating expenses....................... 108,307 6,264 22,047 -- 136,618
-------- ------- -------- -------- --------
Operating income............................... 18,993 7,287 1,836 -- 28,116
Interest expense............................... (73,033) (23) (2,228) -- (75,284)
Equity in earnings of subsidiaries............. (5,159) -- -- 5,159 --
Other income (expense), net.................... 10,715 (5,697) (2,742) 2,276
-------- ------- -------- -------- --------
Income (loss) before income taxes and
extraordinary loss.......................... (48,484) 1,567 (3,134) 5,159 (44,892)
Income tax expense............................. (5,054) -- 3,592 -- (1,462)
-------- ------- -------- -------- --------
Net income (loss).............................. $(43,430) $ 1,567 $ (6,726) $ 5,159 $(43,430)
======== ======= ======== ======== ========
F-36
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2002 (In Thousands)
Pliant Combined Consolidated
Corporation Combined Non- Pliant
Parent Only Guarantors Guarantors Eliminations Corporation
----------- ---------- ---------- ------------ ------------
Cash flows from operating activities:............ $ 10,186 $ 9,013 $ 24,397 $-- $ 43,596
-------- -------- -------- --- --------
Cash flows from investing activities:
Capital expenditures for plant and equipment.. (35,181) (4,764) (9,249) -- (49,194)
Decora acquisition, net of cash acquired (8,794) (14,370) -- -- (23,164)
Asset transfer................................ (9,116) 9,762 (646) -- --
Proceeds from sale of assets.................. 15,033 3,589 (1,500) -- 17,122
-------- -------- -------- --- --------
Net cash used in investing activities...... (38,058) (5,783) (11,395) -- (55,236)
-------- -------- -------- --- --------
Cash flows from financing activities:
Payment of capitalized fees................... (7,439) -- -- -- (7,439)
Net proceeds from issuance of common and
preferred stock............................ (3,227) -- -- -- (3,227)
Borrowings/(payments) on long-term debt....... 31,266 -- (8,208) -- 23,058
-------- -------- -------- --- --------
Net cash provided by (used in) financing
activities.............................. 20,600 -- (8,208) -- 12,392
-------- -------- -------- --- --------
Effect of exchange rate changes on cash and
cash equivalents.............................. 7,272 (4,197) (7,010) -- (3,935)
-------- -------- -------- --- --------
Net (decrease)/increase in cash and cash
equivalents................................... -- (967) (2,216) -- (3,183)
Cash and cash equivalents at beginning of the
year.......................................... -- 967 3,851 -- 4,818
-------- -------- -------- --- --------
Cash and cash equivalents at end of the year..... $ -- $ -- $ 1,635 -- $ 1,635
======== ======== ======== === ========
F-37
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2001 (In Thousands)
Pliant Combined Consolidated
Corporation Combined Non- Pliant
Parent 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, net.................................... 185,808 2,122 16,496 -- 204,426
Intangible assets, net........................... 25,138 1,506 129 -- 26,773
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
========= ======= ======== ======== =========
F-38
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2001 (In Thousands)
Pliant Combined Consolidated
Corporation Combined Non- Pliant
Parent 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)
======== ======= ======== ======== ========
F-39
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2001 (In Thousands)
Pliant Combined Consolidated
Corporation Combined Non- Pliant
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
======== ======== ======== === ========
F-40
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2000 (In Thousands)
Pliant Combined Consolidated
Corporation Combined Non- Pliant
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)
======== ======= ======== ======== ========
F-41
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2000 (In Thousands)
Pliant Combined Consolidated
Corporation Combined Non- Pliant
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 loan 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 long-term debt............. (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
========= ======= ======== === =========
20. 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-42
PLIANT CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2002, 2001 and 2000
(In Thousands)
- --------------------------------------------------------------------------------
Additions
Balance at Charged to Balance
Beginning of Costs and at End
Description Year Expenses Other of Year
----------- ------------ ---------- ----------- -------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
2002 $2,438 $2,635 $510(1) $5,583
2001 2,166 155 117(2)(3) 2,438
2000 2,115 51(2) 2,166
(1) Represents allowance acquired in the Decora acquisition.
(2) Represents the net of accounts written off against the allowance and
recoveries of previous write-offs.
(3) Represents an allowance acquired in the Uniplast acquisition.
F-43
Report of Independent Auditors
To the Board of Directors of
Decora Industries, Inc.
We have audited the accompanying consolidated balance sheet of Decora
Industries, Inc. and its subsidiaries as of March 31, 2002 and the related
consolidated statements of operations, shareholders' deficit, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides 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 Decora Industries,
Inc. and subsidiaries at March 31, 2002 and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that Decora
Industries, Inc. and subsidiaries (the Company) will continue as a going
concern. As more fully described in Note 1, the Company filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code
("Chapter 11"). The Company is currently operating its business under the
jurisdiction of Chapter 11 of the United States Bankruptcy Court in Wilmington,
Delaware (the Bankruptcy Court) and continuation of the Company as a going
concern is contingent upon, among other things, the ability to raise a
significant amount of cash or sell the business. In addition, the Company has
experienced operating losses, and is in default of its prepetition debt
arrangements as well as its debtor-in-possession financing. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
accompanying consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classifications of liabilities that may result from
the outcome of these uncertainties.
/s/ ERNST & YOUNG LLP
-----------------------
July 19, 2002
F-44
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Consolidated Balance Sheet
(Dollars in Thousands)
March 31
2002
---------
Assets
Current assets:
Cash and cash equivalents, including
restricted cash of $1,698 $ 2,244
Accounts receivable, less allowance for doubtful
accounts of $1,049 7,400
Inventories 8,065
Prepaid expenses and other current assets 402
---------
Total current assets 18,111
Property, plant and equipment, net 7,292
Deferred financing costs 2,774
Other assets 1,781
---------
Total assets $ 29,958
=========
Liabilities and shareholders' deficit
Current liabilities:
Accounts payable $ 5,608
Accrued liabilities 1,874
Debtor in possession financing 15,097
---------
Total current liabilities 22,579
Liabilities subject to compromise 121,169
---------
Total liabilities 143,748
Shareholders' deficit:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, none issued --
Common stock, $.01 par value; 20,000,000 shares
authorized, 7,823,887 shares issued and outstanding 78
Additional paid-in capital 33,144
Accumulated deficit (147,012)
---------
Total shareholders' deficit (113,790)
---------
Total liabilities and shareholders' deficit $ 29,958
=========
See accompanying notes.
F-45
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Consolidated Statement of Operations
(Dollars in Thousands)
Year ended
March 31
2002
----------
Net sales $ 49,051
Cost of goods sold 37,789
--------
Gross profit 11,262
Selling, general, and administrative expenses 15,601
Write-down of impaired goodwill and long-lived assets 6,612
--------
Loss from operations (10,951)
Interest expense, net 2,936
--------
Loss before reorganization items and income taxes (13,887)
Reorganization expense items 1,356
--------
Loss before income taxes (15,243)
Income tax provision --
--------
Net loss $(15,243)
========
See accompanying notes.
F-46
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Consolidated Statement of Shareholders' Deficit
(In Thousands)
Common Stock Additional Total
--------------- Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Deficit
------ ------ ---------- ----------- -------------
Balance at March 31, 2001 7,824 $78 $33,144 $(131,769) $ (98,547)
Net loss -- -- -- (15,243) (15,243)
----- --- ------- --------- ---------
Balance at March 31, 2002 7,824 $78 $33,144 $(147,012) $(113,790)
===== === ======= ========= =========
See accompanying notes.
F-47
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Consolidated Statement of Cash Flows
(Dollars in Thousands)
Year ended
March 31
2002
----------
Operating activities
Net loss $(15,243)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 1,815
Other 65
Loss on fixed asset disposal 120
Write-down of goodwill and long-lived assets 6,612
Changes in operating assets and liabilities:
Accounts receivable 243
Inventory 3,869
Prepaid and other assets 541
Accounts payable 2,549
Accrued liabilities 598
Liabilities subject to compromise (162)
--------
Net cash provided before reorganization items 1,007
Net cash used for reorganization items (419)
--------
Net cash provided by operating activities 588
Investing activities
Proceeds from the sale of fixed assets 105
Purchase of equipment (42)
--------
Net cash provided by investing activities 63
Financing activities
Debtor in possession financing proceeds 43,500
Debtor in possession financing payments (42,917)
--------
Net cash provided by financing activities 583
--------
Net increase in cash and cash equivalents 1,234
Cash and cash equivalents at beginning of year 1,010
--------
Cash and cash equivalents at end of year $ 2,244
========
Supplemental cash flow information is as follows:
Cash paid during the year for interest $ 2,753
See accompanying notes.
F-48
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Consolidated Financial Statements
Year ended March 31, 2002
1. Proceedings Under Chapter 11 of the Bankruptcy Code
General
Decora Industries, Inc. and subsidiaries (the Company), debtors and debtors-in
possession (collectively, the Debtors) commenced a reorganization case (the
Reorganization Case) by filing a petition for relief under Chapter 11 (Chapter
11), Title 11 of the United States Code, (as amended, the Bankruptcy Code) on
December 5, 2000 (the Petition Date) in the United States Bankruptcy Court for
the District of Delaware (the Bankruptcy Court). The Reorganization Case is
being jointly administered, for procedural purposes only, before the Bankruptcy
Court under Case No.00-4459 (JJF). Pursuant to Sections 1107 and 1108 of the
Bankruptcy Code, the Company, as debtor-in-possession, has continued to manage
and operate its assets and businesses subject to the supervision and orders of
the Bankruptcy Court, pending confirmation of the plan of reorganization (the
Reorganization Plan) contained in the disclosure statement (the Disclosure
Statement) filed with the Bankruptcy Court on December 5, 2000, pursuant to
Section 1125 of the Bankruptcy Code. Because the Company is operating as
debtor-in-possession under the Bankruptcy Code, the existing directors and
officers of the Company continue to govern and manage the operations of the
Company, respectively, subject to the supervision and orders of the Bankruptcy
Court.
The Disclosure Statement filed at the inception of the bankruptcy did not
provide any recovery to the Company's equity security holders. Accordingly,
management believes that current equity security holders will not receive any
distribution under any reorganization plan as a result of the issuance of new
equity to existing creditors. The Company needs to raise a significant amount of
debt or equity in order to emerge from bankruptcy. The extent to which equity
needs to be raised may result in the sale of the Company. Any such sale of the
Company will require the requisite vote of impaired creditors entitled to vote
under the Bankruptcy Code and confirmation of the plan by the Bankruptcy Court.
See Note 11 for subsequent sale of Company assets.
F-49
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Consolidated Financial Statements (continued)
1. Proceedings under Chapter 11 of the Bankruptcy Code (continued)
Basis of Financial Statement Presentation
The consolidated financial statements have been presented in accordance with the
American Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
(SOP 90-7), and have been prepared in accordance with accounting principles
generally accepted in the United States applicable to a going concern, which
principles, except as otherwise disclosed, assume that assets will be realized
and liabilities will be discharged in the ordinary course of business. As a
result of the Reorganization Case and circumstances relating to this event, and
default on Decora Industries' prepetition debt, such realization of assets and
liquidation of liabilities are subject to significant uncertainty. While under
the protection of Chapter 11, the Company may sell or otherwise dispose of
assets, and liquidate or settle liabilities for amounts other than those
reflected in the financial statements. Additionally, the amounts reported on the
consolidated balance sheet could materially change because of changes in
business strategies and the effects of any proposed plan of reorganization.
The appropriateness of using the going concern basis is dependent upon, among
other things, the ability to raise a significant amount of debt or equity,
future profitable operations, the ability to comply with the terms of the
debtor-in-possession financing facility (see Note 5 for additional discussion of
the default on the debtor in possession financing) and the ability to generate
sufficient cash from operations and financing arrangements to meet obligations.
In the Reorganization Case, substantially all unsecured liabilities as of the
Petition Date are subject to compromise or other treatment under a plan of
reorganization which must be confirmed by the Bankruptcy Court after submission
to vote by affected parties. For financial reporting purposes, pending the
outcome of the Reorganization Case, all unsecured and undersecured prepetition
liabilities have been segregated and classified as liabilities subject to
compromise under reorganization proceedings in the consolidated balance sheet.
Generally, all actions to enforce or otherwise effect repayment of prepetition
liabilities as well as all pending litigation against the Debtors are stayed
while the debtors continue their business operations as debtors-in-possession.
Unaudited schedules have been filed by the Debtors with the Bankruptcy Court
setting forth the assets and liabilities of the debtor as of the Petition Date
as reflected in the Debtors' accounting records. The ultimate amount of and
settlement terms for such liabilities are
F-50
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Consolidated Financial Statements (continued)
1. Proceedings under Chapter 11 of the Bankruptcy Code (continued)
subject to an approval plan of reorganization and accordingly are not presently
determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject real estate
leases, employment contracts, personal property leases, service contracts and
other prepetition executory contracts, subject to Bankruptcy Court approval. The
debtors have not reviewed all leases for assumption or rejection but will
analyze their leases and executory contracts and may assume or reject leases or
contracts. Such rejections could result in additional liabilities subject to
compromise.
Pursuant to SOP 90-7, revenues and expenses, realized gains and losses, and
provisions for losses resulting from the reorganization of the business are
reported in the consolidated statement of operations separately as
reorganization items. Professional fees are expensed as incurred. Interest
expense is reported only to the extent that it will be paid during the
Reorganization Case or that it is probable that it will be an allowed claim.
Reorganization items are also reported separately within the operating,
investing and financing categories of the consolidated statement of cash flows,
as applicable.
2. Description of Business and Summary of Significant Accounting Policies
Description of Business
The Company is a leading manufacturer and marketer of self-adhesive consumer
decorative and surface coverings. The Company is a holding company with
operations primarily conducted by its wholly owned subsidiary Decora, Inc.
(Decora) based in the United States. The Company's principal products are sold
under the Con-Tact brand. The Company owns Decora Industries Deutschland GmbH
(DI Deutschland), which is now a dormant operating company with no assets or
operations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
F-51
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Consolidated Financial Statements (continued)
2. Description of Business and Summary of Significant Accounting Policies
(continued)
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with maturities
of three months or less when purchased. Under the terms of the Reorganization
Case the Company had $1,698,000 of restricted cash at March 31, 2002.
Accounts Receivable
The Company sells to a large number of customers. Credit evaluations are
ongoing, and collateral or other security is generally not required on trade
accounts receivable. An allowance for doubtful accounts is maintained at a level
management believes is sufficient to cover potential credit losses.
Inventories
Inventories are stated at the lower of cost (first in, first out method) or
market.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated depreciation
determined by the straight-line method over the estimated useful lives of the
assets, generally three to thirty years.
Goodwill and Impairment
The excess of the aggregate purchase price over the fair values of the net
assets of businesses and product lines acquired has been recorded as goodwill
and was being amortized on a straight-line basis over forty years. Goodwill
amortization was $379,000 for the year ended March 31, 2002.
In accordance with Financial Accounting Standards Board Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of (FAS 121), the Company assesses impairment losses to be recorded
on long-lived assets when indications of impairment are present. As a result of
the Company's operating losses for fiscal 2002 and the filing under Chapter 11,
the Company performed an impairment analysis as required under FAS 121 and
concluded an impairment had to be recognized. The estimated fair value of the
impaired assets (used in measuring the impairment loss) was determined by
reference to the sales price in
F-52
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Consolidated Financial Statements (continued)
2. Description of Business and Summary of Significant Accounting Policies
(continued)
the transaction that occurred subsequent to March 31, 2002 (see Note 11). The
impairment resulted in the Company writing off its entire goodwill balance
totaling $6,100,000 and $512,000 of its net property, plant and equipment
balance.
Revenue Recognition
The Company records revenues when all of the following criteria are met: (i)
terms of the sale are evidenced by a binding purchase order or on-line
authorization; (ii) shipment has occurred; (iii) the price is fixed or
determinable; and (iv) collection of amounts owed for goods shipped is
reasonably assured.
Shipping and Handling Costs
Shipping and handling costs are classified in cost of sales in the accompanying
statement of operations.
Advertising Costs
Advertising costs expensed as incurred were approximately $3,104,000 in 2002.
The Company also provides in-store displays to its customers which are
capitalized and amortized over 3 years. At March 31, 2002, the balance of these
displays totaled $1,781,000 and is classified as "other assets" on the
accompanying balance sheet and the related amortization was $1,043,000 for the
year ended March 31, 2002 which is classified as selling, general and
administrative expenses in the accompanying statement of operations.
Research and Development Costs
The Company expenses all research and development costs as incurred which
amounted to $381,000 for the year ended March 31, 2002.
F-53
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Consolidated Financial Statements (continued)
2. Description of Business and Summary of Significant Accounting Policies
(continued)
Income Taxes
The liability method is used to account for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Deferred income tax expense is measured by the change
in the deferred tax asset or liability during the year. A valuation allowance is
recorded when, based upon available evidence it is more likely than not that
deferred tax assets will not be realized.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion (APB) No.
25, Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock options rather than the alternative fair value
accounting provided for under SFAS No. 123, Accounting for Stock Based
Compensation. Under APB No. 25, when the exercise price of employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recorded.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimates.
3. Inventories
Inventories at March 31, 2002, consist of the following (in thousands):
Raw materials $1,641
Work-in-process 1,343
Finished goods 5,081
------
$8,065
======
F-54
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Consolidated Financial Statements (continued)
4. Property, Plant and Equipment
Property, plant and equipment at March 31, 2002, consists of the following (in
thousands):
Land $ 379
Buildings 2,841
Machinery and equipment 14,341
Furniture and fixtures 615
Leasehold improvements 4,665
Construction-in-progress 74
--------
22,915
Less: Accumulated depreciation (15,623)
--------
$ 7,292
========
5. Debt
In Apri1 1998, the Company issued $112,750,000 of 11.0% senior secured notes
(the Notes). The Notes were issued with an original issue discount of $2,664,000
with interest payable semi-annually and no principal payments required prior to
maturity on May 1, 2005. The fair value of the Notes at March 31, 2002, was
approximately $18,000, which was determined by the Company using market
information provided by an investment banking firm as to the market value of
similar debt amounts. The estimated fair value of the Notes does not necessarily
reflect the amount at which the debt could be settled.
On December 5, 2000 the Company entered into an agreement with its senior
secured lender to provide up to $19 million debtor in possession financing
during the duration of its bankruptcy. It was subsequently reduced to $18
million. The proceeds were used to refinance a portion the term notes and
revolving credit facility described above. In January 2001 the Company failed to
comply with certain covenants of this financing. As with its previous financing,
Decora has been able to continue to draw under the revolving facility subject to
restricted availability and payment of interest at the default rate of the prime
rate plus 5.5% as defined in the agreement. The outstanding balance on this
facility at March 31, 2002, was $15,097,000 and is classified as a current
liability.
F-55
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Consolidated Financial Statements (continued)
6. Liabilities Subject to Compromise
The principal categories of obligations classified as liabilities subject to
compromise to unrelated parties under Reorganization Cases are identified below.
The amounts below in total may vary from the stated amount of proofs of claim
that will be filed with the Bankruptcy Court and maybe subject to future
adjustment depending on the Bankruptcy Court action, further developments with
respect to potential disputed claims, determination as to the value of any
collateral securing claims, or other events.
Additional claims may arise from the rejection of additional real estate leases
and executory contracts by the debtors.
At March 31, 2002, liabilities subject to compromise consisted of the following
(in thousands):
11.0% senior secured notes (Note 5) $106,398
Trade payables 7,219
Accrued interest 7,050
Other accrued expenses 502
--------
$121,169
========
As a result of the Reorganization Case, no principal or interest payments will
be made on the unsecured and undersecured prepetition debt without Bankruptcy
Court approval or until a plan of reorganization providing for the repayment
terms has been confirmed by the Bankruptcy Court and becomes effective.
Therefore, interest on prepetition unsecured and undersecured obligations has
not been accrued after the Petition Date.
7. Employee Benefit Plans
Decora and its union have executed an agreement to provide retirement benefits
to qualified union employees through the Paper Industry Union - Management
Pension Fund (the Fund). Based upon this agreement, Decora contributes a
contractually agreed upon amount for each qualifying hour that a union employee
works. Total contributions to the Fund were $295,185 for the year ended March
31, 2002 and this amount was expensed in 2002.
F-56
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Consolidated Financial Statements (continued)
7. Employee Benefit Plans (continued)
The Company also has a profit sharing plan and a 401(k) plan covering its U.S.
salaried employees. The plan includes a contribution portion that is at a rate
of 10% of the employee contribution level capped at a 6% of salary limit. No
profit sharing contributions were made in fiscal year 2002. Total expense
related to plan fees and company contributions equaled $15,040 for the year
ended March 31, 2002.
8. Stock Options
The Company has several domestic long-term incentive plans under which shares of
the Company's common stock may be sold to directors, officers and key employees.
Certain other parties have been granted stock options by the Company in
connection with various transactions.
The Company adopted a Stock Option Plan in fiscal 1987 (the 1987 Plan) pursuant
to which 340,000 shares of common stock were available for grant. The 1987 Plan
terminated on July 8, 1997. The 1987 Plan is administered by a committee of
directors of the Company who are not covered by the 1987 Plan. All options
granted under the 1987 Plan terminate either five or ten years after the date of
grant and vest quarterly over a three-year period subsequent to the date of the
grant, unless modified by the Company.
In fiscal 2000, the shareholders of the Company approved the Decora Industries,
Inc. 1999 Stock Option Plan (the 1999 Plan) pursuant to which 1,000,000 shares
of common stock were available for grant. The Plan is administered by a
committee of directors of the Company. All options granted under the 1999 Plan
terminate five or ten years after the date of grant.
There were no options issued under either the 1987 Plan or the 1999 Plan during
the year ended March 31, 2002.
F-57
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Consolidated Financial Statements (continued)
8. Stock Options (continued)
A summary of stock option activity under both plans for the year ended March 31,
2002, follows (in thousands except average exercise price data):
Average
Options Exercise Price
------- --------------
March 31, 2001 2,270 $6.11
Granted -- --
Exercised -- --
Expired -- --
----- -----
March 31, 2002 2,270 $6.11
===== =====
The following table summarized information about stock options outstanding at
March 31, 2002:
Options Outstanding Options Exercisable
------------------------------ -------------------
Exercise Average Term Average
Price Shares Price (Months) Shares Price
- ------------- --------- ------- -------- --------- -------
$4.50 - $4.95 50,000 $4.63 10.20 16,667 $4.63
$5.00 - $5.50 818,000 5.33 23.01 605,000 5.42
$5.55 - $5.95 354,800 5.64 16.55 254,800 5.60
$6.00 - $6.99 730,000 6.36 16.04 540,000 6.37
$7.00 - $7.99 177,000 7.46 7.03 54,000 7.45
$8.00 - $9.30 140,000 8.03 2.36 44,000 8.09
--------- ---------
Total 2,269,800 1,514,467
Pro Forma information regarding net income under SFAS No.123 is not included as
it is not materially different from the amounts reported.
F-58
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Consolidated Financial Statements (continued)
9. Income Taxes
Net deferred tax assets (liabilities) are comprised of the following at March
31, 2002 (in thousands):
Current deferred tax assets (liabilities):
Nondeductible reserves $ 1,116
Other (12)
--------
1,104
Noncurrent deferred tax assets (liabilities):
Depreciation (268)
Tax credits 294
Net operating loss carryforwards 31,339
Intangibles 17,195
Other, net 297
--------
48,857
Total deferred tax assets 49,961
Valuation allowance (49,961)
--------
$ --
========
The provision for (benefit from) income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax rate
to pre-tax income due to nondeductible items and the valuation allowance.
Approximately $79,138,000 of the Company's net operating loss carryforwards
remain available at March 31, 2002. The net operating losses are limited to
future taxable earning and may be subject to certain limitations if the Company
were to experience a change in ownership. The net operating carryforwards expire
over the period 2003-2022.
The Company has recorded a valuation allowance against the entire amount of net
deferred tax assets as management believes that based upon available evidence,
it is more likely than not that these benefits will not be realized.
F-59
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies
The Company uses certain equipment under lease arrangements, all of which are
accounted for as operating leases. Rent expense was approximately $574,000 for
the year ended March 31, 2002. The Company has no rental commitments under
long-term noncancelable operating leases. During the bankruptcy period, no
leases were assumed.
11. Subsequent Event
On May 20, 2002, substantially all of the assets and certain liabilities of the
Company were purchased for approximately $18 million by Pliant Solutions
Corporation, a wholly-owned subsidiary of Pliant Corporation. This transaction
was approved by the Bankruptcy Court on May 17, 2002.
F-60
Report of Independent Accountants
To the Board of Directors and Shareholders of Decora Industries, Inc.
In our opinion, the accompanying consolidated balance sheet and related
consolidated statements of operations, shareholders' deficit and cash flows
present fairly, in all material respects, the financial position of Decora
Industries, Inc. and its subsidiaries at March 31, 2001 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. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company and its subsidiary Decora, Inc. filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). The
Company is currently operating its business under the jurisdiction of Chapter 11
of the United States Bankruptcy Court in Wilmington, Delaware (the "Bankruptcy
Court"), and continuation of the Company as a going concern is contingent upon,
among other things, the ability to formulate a plan of reorganization which will
gain approval of the requisite parties under the United States Bankruptcy Court
and confirmation of the Bankruptcy Court. In addition, the Company has
experienced operating losses, negative operating cash flows and is currently in
default of its prepetition debt arrangements as well as its debtor-in-possession
financing. These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
June 20, 2001
F-61
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Consolidated Balance Sheet
March 31, 2001 (Amounts in thousands except share data)
- --------------------------------------------------------------------------------
2001
---------
Assets
Current Assets:
Cash and cash equivalents $ 1,010
Accounts receivable, less allowance for doubtful accounts of $423 7,643
Inventories 11,934
Prepaid expenses and other current assets 291
---------
Total current assets 20,878
Property and equipment, net 9,510
Goodwill, net 6,392
Deferred financing costs, net 2,839
Other assets 2,433
---------
Total assets $ 42,052
=========
Liabilities and Shareholders' Deficit
Liabilities not subject to compromise
Current liabilities:
Accounts payable $ 3,478
Accrued liabilities 1,276
Debtor in possession financing 14,514
---------
Total current liabilities 19,268
Liabilities subject to compromise 121,331
---------
Total liabilities 140,599
Shareholders' deficit:
Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued --
Common stock, $.01 par value; 20,000,000 shares authorized,
7,823,887 shares issued and outstanding 78
Additional paid-in capital 33,144
Accumulated deficit (131,769)
---------
Total shareholders' deficit (98,547)
---------
Total liabilities and shareholders' deficit $ 42,052
=========
The accompanying notes are an integral part of these financial statements.
F-62
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Consolidated Statement of Operations
For the Year Ended March 31, 2001 (Amounts in thousands except share data)
- --------------------------------------------------------------------------------
Net Sales $ 54,524
Cost of goods sold 42,942
--------
Gross profit 11,582
Selling, general and administrative expenses 21,781
Write-down of impaired goodwill 57,000
Nonrecurring credit, net (7,224)
--------
Loss from operations (59,975)
Loss on the disposal of German subsidiary 24,307
Interest expense, net 12,723
--------
Loss before reorganization items, income taxes and extraordinary item (97,005)
Reorganization items 2,194
--------
Loss before income taxes and extraordinary item (99,199)
Income tax provision 7
--------
Loss before extraordinary item (99,206)
Extraordinary gain 2,790
--------
Net loss $(96,416)
========
The accompanying notes are an integral part of these financial statements.
F-63
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Consolidated Statement of Changes in Shareholders' Deficit
For the Year Ended March 31, 2001
(Amounts in thousands except share data)
- --------------------------------------------------------------------------------
Additional Total
Paid-in Accumulated Shareholders'
Shares Value Capital Deficit Deficit
------ ----- ---------- ----------- -------------
Balance at March 31, 2000 7,824 $78 $33,144 $ (35,353) $ (2,131)
Net loss -- -- -- (96,416) (96,416)
----- --- ------- --------- --------
Balance at March 31, 2001 7,824 $78 $33,144 $(131,769) $(98,547)
===== === ======= ========= ========
The accompanying notes are an integral part of these financial statements.
F-64
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Consolidated Statement of Cash Flows
For the Year Ended March 31, 2001 (Amounts in thousands except share data)
- --------------------------------------------------------------------------------
2001
--------
Cash flows from operating activities:
Net loss $(96,416)
Adjustments to reconcile net loss to net cash used in operating activities:
Extraordinary item, net of income taxes (2,790)
Depreciation and amortization 3,685
Amortization of debt discount and fees 956
Loss on the sale of German Subsidiary 24,307
Writedown of impaired goodwill 57,000
Net changes in assets and liabilities:
Accounts receivable 2,915
Inventory 2,826
Other assets (162)
Accounts payable 3,612
Accrued liabilities 630
Net change in amount due from Hornschuch 3,306
--------
Net cash used in operating activities (131)
--------
Cash flows from investing activities:
Proceeds from the sale of fixed assets 60
Proceeds from the sale of subsidiary 1,197
Purchase of property and equipment (219)
--------
Net cash provided by investing activities 1,038
--------
Cash flows from financing activities:
Payment of debt issue costs (275)
Repurchase of senior undersecured notes (1,812)
Issuance of long-term debt 79,186
Repayment of long-term debt (77,529)
--------
Net cash used in financing activities (430)
--------
Net increase in cash and cash equivalents 477
Cash and cash equivalents at beginning of year 533
--------
Cash and cash equivalents at end of year $ 1,010
========
Supplemental cash flow information is as follows:
Cash paid during the year for interest $ 9,142
========
Cash paid during the year for reorganization items $ 1,323
========
The accompanying notes are an integral part of these financial statements.
F-65
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Description of Business and Summary of Significant Accounting Policies
Decora Industries, Inc. ("DII" or the "Company") is a leading manufacturer
and marketer of self-adhesive consumer decorative and surface coverings.
The Company is comprised of a holding company operating primarily through
its wholly-owned subsidiary Decora, Inc. ("Decora") based in the United
States of America. The Company's principal products are sold under the
Con-Tact brand. Until February 8, 2001 the Company also owned Konrad
Hornschuch AG ("Hornschuch") a German based company 99% owned by Decora
Industries Deutschland GmbH ("DI Deutschland") which, in turn, is wholly
owned by DII. On February 8, 2001 the Company sold its interest in
Hornschuch for total consideration of DM 86.9 million (approximately $41.2
million). In connection with the sale the Company recorded a loss of $24.3
million. The Company continues to own DI Deutschland, which is now a
dormant operating company with no assets or operations. For purposes of
these consolidated financial statements the equity of DII in the earnings
of Hornschuch are netted against the loss on disposal of German subsidiary
and shown on the consolidated statement of operations.
DII and Decora (collectively "Decora Industries"), debtors and debtors-in
possession (collectively, the "Debtors") commenced a reorganization case
(the "Reorganization Case") by filing a petition for relief under chapter
11 ("Chapter 11"), title 11 of the United States Code, (as amended, the
"Bankruptcy Code") on December 5, 2000 (the "Petition Date") in the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). The Reorganization Case is being jointly administered, for
procedural purposes only, before the Bankruptcy Court under Case No.
00-4459 (JJF). Pursuant to sections 1107 and 1108 of the Bankruptcy Code,
the Company, as debtor-in-possession, has continued to manage and operate
its assets and businesses subject to the supervision and orders of the
Bankruptcy Court, pending confirmation of the plan of reorganization (the
"Reorganization Plan") contained in the disclosure statement (the
"Disclosure Statement") filed with the Bankruptcy Court on December 5,
2000, pursuant to Section 1125 of the Bankruptcy Code. Because the Company
is operating as debtor-in-possession under the Bankruptcy Code, the
existing directors and officers of the Company continue to govern and
manage the operations of the Company, respectively, subject to the
supervision and orders of the Bankruptcy Court.
The debtors contemplate emergence from bankruptcy in 2001; however, there
can be no assurance at this time that a Reorganization Plan will be
proposed by the Debtors or approved and confirmed by the Bankruptcy Court,
or that the Reorganization Plan will be consummated. The Disclosure
Statement filed at the inception of the bankruptcy did not provide any
recovery to the Company's equity security holders. Accordingly, management
believes that current equity security holders will not receive any
distribution under any reorganization plan as a result of the issuance of
new equity to existing creditors. As a result of the lower than expected
price obtained for the Company's German operations which were sold on
February 8, 2001, the Company needs to raise a significant amount of debt
or equity in order to emerge from bankruptcy. The extent to which equity
needs to be raised may result in the sale of the Company. Any such sale of
the Company will require the requisite vote of impaired creditors entitled
to vote under the Bankruptcy Code and confirmation of the plan by the
Bankruptcy Court.
The financial statements have been presented in accordance with the
American Institute of Certified Public Accountants Statement of Position
90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7"), and have been prepared in accordance with
accounting principles generally accepted in the United States of America
applicable to a going concern, which principles, except as otherwise
disclosed, assume that assets will be realized and liabilities will be
discharged in the ordinary course of
F-66
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Financial Statements
- --------------------------------------------------------------------------------
business. As a result of the Reorganization Case and circumstances relating
to this event, default on Decora Industries' prepetition debt and negative
cash flows, such realization of assets and liquidation of liabilities are
subject to significant uncertainty. While under the protection of Chapter
11, the Company may sell or otherwise dispose of assets, and liquidate or
settle liabilities for amounts other than those reflected in the financial
statements. Additionally, the amounts reported on the consolidated balance
sheet could materially change because of changes in business strategies and
the effects of any proposed plan of reorganization.
The appropriateness of using the going concern basis is dependent upon,
among other things, confirmation of a plan of reorganization, future
profitable operations, the ability to comply with the terms of the
debtor-in-possession financing facility (see Note 7 for additional
discussion of the default on the debtor in possession financing) and the
ability to generate sufficient cash from operations and financing
arrangements to meet obligations.
In the Reorganization Case, substantially all unsecured liabilities as of
the Petition Date are subject to compromise or other treatment under a plan
of reorganization which must be confirmed by the Bankruptcy Court after
submission to vote by affected parties. For financial reporting purposes,
pending the outcome of the Reorganization Case, all unsecured and
undersecured prepetition liabilities have been segregated and classified as
liabilities subject to compromise under reorganization proceedings in the
balance sheet. Generally, all actions to enforce or otherwise effect
repayment of prepetition liabilities as well as all pending litigation
against the Debtors are stayed while the debtors continue their business
operations as debtors-in-possession. Unaudited schedules have been filed by
the Debtors with the Bankruptcy Court setting forth the assets and
liabilities of the debtor as of the Petition Date as reflected in the
Debtors' accounting records.
Under the Bankruptcy Code, the Debtors may elect to assume or reject real
estate leases, employment contracts, personal property leases, service
contracts and other prepetition executory contracts, subject to Bankruptcy
Court approval. The debtors have not reviewed all leases for assumption or
rejection but will analyze their leases and executory contracts and may
assume or reject leases or contracts. Such rejections could result in
additional liabilities subject to compromise.
Pursuant to SOP 90-7, revenues and expenses, realized gains and losses, and
provisions for losses resulting from the reorganization of the business are
reported in the statement of operations separately as reorganization items.
Professional fees are expensed as incurred. Interest expense is reported
only to the extent that it will be paid during the cases or that it is
probable that it will be an allowed claim.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary Decora. For purposes of these consolidated
financial statements Hornschuch has been deconsolidated and the equity of
DII in the earnings of Hornschuch are netted against the loss on disposal
of German subsidiary and shown on the consolidated statement of operations.
F-67
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Financial Statements
- --------------------------------------------------------------------------------
Fair Value of Financial Instruments
The fair values of cash, accounts receivable, accounts payable and accrued
expenses approximate their carrying values. Financial instruments, when
acquired, are held for purposes other than trading.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with
original maturities of three months or less. The carrying amount of cash
and cash equivalents approximates their fair values.
Revenues and Receivables
The Company records revenues when all of the following criteria are met:
(i) terms of the sale are evidenced by a binding purchase order or on-line
authorization; (ii) shipment has occurred; (iii) the price is fixed or
determinable; and (iv) collection of amounts owed for goods shipped is
reasonably assured.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Property and Equipment
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally three to thirty years.
Goodwill
The excess of the aggregate purchase price over the fair values of the net
assets of businesses and product lines acquired has been recorded as
goodwill and is being amortized on the straight-line method over forty
years.
In accordance with Financial Accounting Standards Board Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of ("FAS 121"), the Company assesses impairment
losses to be recorded on long-lived assets when indications of impairment
are present. As a result of the Company's operating losses for fiscal 2001
and the filing under Chapter 11, the Company performed an impairment
analysis as required under FAS 121. The estimated fair value of the
impaired assets was determined by comparing expected future cash flows to
the combined recorded value of the net property, plant and equipment and
goodwill. The impairment analysis resulted in the Company recording a
charge of $57 million for fiscal 2001, relating to the write-down of
goodwill.
Income Taxes
Income taxes are provided based on the liability method pursuant to SFAS
No. 109, Accounting for Income Taxes. Deferred income taxes are recorded to
reflect expected future tax consequences of events that have been
recognized in the Company's financial statements or its tax returns, but
not both. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement carrying
amounts and tax bases of assets and liabilities using enacted tax rates in
the years in which the differences are expected to reverse.
F-68
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Financial Statements
- --------------------------------------------------------------------------------
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its employee stock options. Under APB No.
25, when the exercise price of employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense
is recorded. The Company has adopted the disclosure only provisions of SFAS
No. 123, Accounting for Stock Based Compensation (see Note 10).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and revenues, costs and expenses during
the reporting period. Actual results may differ from those estimates.
2. Acquisitions
On April 29, 1998, DII acquired certain assets, which had constituted
Rubbermaid's Decorative Coverings Group, for an adjusted purchase price of
approximately $60.5 million.
The assets acquired included inventory, manufacturing equipment, tradenames
(including the ConTact trademark) and all other rights to three product
lines: (i) the Con-Tact self-adhesive coverings line that was manufactured
exclusively for Rubbermaid by Decora; (ii) Shelf Liner, a proprietary
product line that was manufactured by Rubbermaid; and (iii) the Grip Liner
non-adhesive covering line which is manufactured by a third party pursuant
to the terms of an exclusive manufacturing agreement.
DII completed the Rubbermaid Acquisition pursuant to the terms of an asset
purchase agreement. DII and Rubbermaid entered into a service agreement
pursuant to which Rubbermaid agreed to provide certain logistics services
for a nine-month transition period following the acquisition (the
"Transition Services Agreement"). On or about April 1, 1999, the Company
commenced a proceeding against Rubbermaid with the American Arbitration
Association. The Company alleged causes of action for breach of contract,
breach of fiduciary duty, fraud and deceit, conversion, breach of the
covenant of good faith and fair dealing, constructive fraud, and money had
and received. The Company's claims arose from Rubbermaid's failure to
perform its obligations as set forth in the Transition Services Agreement.
On October 16, 2000, all claims against Rubbermaid were settled. As a
result of this settlement the Company received an arbitration award
totaling approximately $9.8 million (approximately $8 million net of
related legal expenses and amounts previously recorded). This amount is
included in the statement of operations as a nonrecurring credit.
F-69
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. Inventories
Inventories at March 31, 2001 consist of (000s):
Raw materials $ 1,533
Work-in-process 2,741
Finished goods 7,660
-------
$11,934
=======
4. Property and Equipment
Property and equipment at March 31, 2001 consist of (000s except useful
life data):
Useful
Life
------
Land $ 379
Buildings 30 6,889
Machinery and equipment 8-10 12,929
Furniture and fixtures 3-8 2,919
Leasehold improvements 5 617
Construction-in-progress 85
--------
23,818
Less - Accumulated depreciation (14,308)
--------
$ 9,510
========
Depreciation expense was $1,483,000 for fiscal 2001.
5. Goodwill
Goodwill at March 31, 2001 consist of the following (000s):
Goodwill $15,408
Less - Accumulated amortization (9,016)
-------
$ 6,392
=======
Goodwill amortization was $2,202,000 for fiscal 2001. See Note 1 for
discussion of write-down of goodwill recorded during fiscal 2001.
F-70
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Financial Statements
- --------------------------------------------------------------------------------
6. Employee Benefit Plans
Decora and its union have executed an agreement to provide retirement
benefits to qualified union employees through the Paper Industry Union --
Management Pension Fund (the "Fund"). Based upon this agreement, Decora
contributes a contractually agreed upon amount for each qualifying hour
that a union employee works. Total contributions to the Fund were $289,593
in fiscal 2001.
The Company has a profit sharing plan and a 401k plan covering its U.S.
salaried employees. The Company converted its plan November 2000 to include
a contribution portion that is at a rate of 10% of the employee
contribution level capped at a 6% of salary limit. No profit sharing
contributions were made in fiscal year 2001. Total expense related to plan
fees and company contributions equated to $11,516 in fiscal 2001.
7. Debt
In April 1998, in order to finance the Rubbermaid Acquisition the Company
issued $112,750,000 of 11.0% senior secured notes (the "Notes"). The Notes
were issued with an original issue discount of $2,664,000 with interest
payable semi-annually and no principal payments required prior to maturity
on May 1, 2005. The fair value of the Notes at March 31, 2001 was
approximately $8 million, which was determined by the Company using market
information provided by an investment banking firm as to the market value
of similar debt amounts. The estimated fair value of the Notes does not
necessarily reflect the amount at which the debt could be settled. During
the year, the company repurchased $4.5 million face value of these notes
(see note 8). The remaining notes have been classified as liabilities
subject to compromise.
On November 13, 1996, Decora borrowed $2,460,000 through the issuance of
Tax-Exempt Industrial Development Revenue Bonds (Decora Project), Series
1996 by the Counties of Warren and Washington, New York Industrial
Development Agency. These bonds had an original maturity date of November
1, 2004. However, they were refinanced during fiscal 2001.
On May 5, 2000, Decora completed the refinancing of its existing revolving
credit facility and Industrial Revenue Bonds (retired July 2001) and the
implementation of a secured term financing. This financing consisted of a
revolving credit agreement as well as three individual term notes.
Subsequently, on June 12, 2000, Decora was informed by its new lender of an
event of default under the terms of these secured financings. The new
lender collected interest at the default rate during the continuation of
the default. While the default permitted the lender to accelerate the
maturity of these secured financings and to prohibit the borrower from
drawing under the revolving facility, Decora was able to continue to draw
under the revolving facility.
In September 2000, the Company borrowed $5,000,000 through DI Deutschland
to be repaid upon the earlier of the sale of Hornschuch or 1 year. In
conjunction with this financing, DI Deutschland repurchased $4,500,000 of
the Company's 11% senior secured notes for $1,800,000 from one of the bond
holders. This resulted in the write-off of a portion of the previously
established unamortized debt acquisition costs as an extraordinary gain
(net of taxes) in the amount of $2,790,000.
On December 5, 2000 the Company entered into an agreement with its senior
secured lender to provide up to $19 million debtor in possession financing
during the duration of its bankruptcy. It was subsequently reduced to
F-71
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Financial Statements
- --------------------------------------------------------------------------------
$18 million. The proceeds were used to refinance the term notes and
revolving credit facility described above. In January 2001 the Company
failed to comply with certain covenants of this financing. As with its
previous financing, Decora has been able to continue to draw under the
revolving facility subject to restricted availability and payment of
interest at the default rate as defined in the agreement. The outstanding
balance on this facility at March 31, 2001 was $14,514,000 and is
classified as a current liability.
8. Liabilities Subject to Compromise
The principal categories of obligations classified as liabilities subject
to compromise to unrelated parties under Reorganization Cases are
identified below. The amounts below in total may vary from the stated
amount of proofs of claim that will be filed with the Bankruptcy Court and
may be subject to future adjustment depending on the Bankruptcy Court
action, further developments with respect to potential disputed claims,
determination as to the value of any collateral securing claims, or other
events.
Additional claims may arise from the rejection of additional real estate
leases and executory contracts by the debtors.
As of March 31, 2001, liabilities subject to compromise consisted of the
following (000s):
11.0% senior secured notes (Note 7) $106,398
Trade payables 7,382
Accrued interest 7,049
Other accrued expenses 502
--------
$121,331
========
As a result of the Reorganization Case, no principal or interest payments
will be made on the unsecured and undersecured prepetition debt without
Bankruptcy Court approval or until a plan of reorganization providing for
the repayment terms has been confirmed by the Bankruptcy Court and becomes
effective. Therefore, interest on prepetition unsecured and undersecured
obligations has not been accrued after the Petition Date.
9. Stock Options
The Company has several domestic long-term incentive plans under which
shares of the Company's common stock may be sold to directors, officers and
key employees. Certain other parties have been granted stock options by the
Company in connection with various transactions.
The Company adopted a Stock Option Plan in fiscal 1987 (the "1987 Plan")
pursuant to which 340,000 shares of common stock were available for grant.
The 1987 Plan terminated on July 8, 1997. The 1987 Plan is administered by
a committee of directors of the Company who are not covered by the 1987
Plan. All options granted under the 1987 Plan terminate either five or ten
years after the date of grant and vest quarterly over a three-year period
subsequent to the date of the grant, unless modified by the Company.
F-72
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Financial Statements
- --------------------------------------------------------------------------------
In fiscal 2000, the shareholders of the Company approved the Decora
Industries, Inc. 1999 Stock Option Plan (the "1999 Plan") pursuant to which
1,000,000 shares of common stock were available for grant. The Plan is
administered by a committee of directors of the Company. All options
granted under the 1999 Plan terminate five or ten years after the date of
grant.
There were no options issued under either the 1987 Plan or the 1999 Plan
during fiscal 2001.
A summary of stock option activity under both plans for the year ended
March 31, 2001 follows (000 except average price data):
Average
Options Price
------- -------
March 31, 2000 2,270 $6.11
Granted -- --
Exercised -- --
Expired -- --
------ -----
March 31, 2001 2,270 $6.11
===== =====
The following table summarizes information about stock options outstanding
at March 31, 2001:
Options outstanding Options exercisable
------------------- ----------------------------
Average Term Average
Exercise Price Shares Price (Months) Shares Price
-------------- ------- ------- -------- ------- -------
$4.50 - $4.95 50,000 $4.63 22.20 16,667 $4.63
$5.00 - $5.50 818,000 5.33 35.01 605,000 5.42
$5.55 - $5.95 354,800 5.64 28.55 254,800 5.60
$6.00 - $6.99 730,000 6.36 28.04 540,000 6.37
$7.00 - $7.99 177,000 7.46 19.03 54,000 7.45
$8.00 - $9.30 140,000 8.03 14.36 44,000 8.09
10. Income Taxes
Income taxes are summarized as follows (000s):
Current provision:
United States:
Federal $--
State 7
---
$ 7
===
F-73
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Financial Statements
- --------------------------------------------------------------------------------
Net deferred tax assets (liabilities) are comprised of the following
(000s):
March 31,
2001
---------
Current deferred tax assets (liabilities):
Non-deductible reserves $ 909
Other 8
--------
917
--------
Noncurrent deferred tax assets (liabilities):
Capital loss carryover 5,980
Depreciation (304)
Net operating loss carryforwards 30,986
Tax credits 294
Intangibles 16,130
Other, net 419
--------
53,505
Total deferred tax asset 54,422
Valuation allowance (54,422)
--------
$ --
--------
The provision for (benefit from) income taxes differs from the amount of
income tax determined by applying the applicable U.S. statutory federal
income tax rate to pre-tax income as a result of the following (000s):
2001
--------
Provision at statutory rate $(39,283)
State tax expense 7
Effect of permanent items 751
Valuation allowance 38,532
--------
Provision for income taxes $ 7
--------
Approximately $67,900,000 and $4,100,000 of the Company's net operating
loss carryforwards remain available at March 31, 2001 in the United States
and Germany, respectively. The United States net operating loss will be
reduced by $17,200,000 on April 1, 2001 due to the Company's bankruptcy
status. The net operating losses are also limited to future taxable
earnings in the respective countries. In the United States, the
carryforwards expire over the period 2003-2021, while in Germany the
carryforwards have an unlimited life.
The Company has recorded a valuation allowance against the entire amount of
net deferred tax assets since management believes that based upon available
evidence, it is more likely than not that these assets will not be
realized.
F-74
Decora Industries, Inc.
(Debtor in Possession as of December 5, 2000)
Notes to Financial Statements
- --------------------------------------------------------------------------------
11. Nonrecurring Credit
The statement of operations for fiscal 2001 reflects a net non-recurring
credit totaling $7,224,000. Of this credit $8,017,000 was income recorded
in conjunction with the settlement with Rubbermaid and $793,000 related to
severance costs for U.S. work force reductions.
12. Commitments and Contingencies
The Company uses certain equipment under lease arrangements, all of which
are accounted for as operating leases. Rent expense was $738,000 for fiscal
2001. Rental commitments under long-term noncancelable operating leases are
as follows (000s):
Fiscal 2002 $495
Fiscal 2003 246
Fiscal 2004 66
Fiscal 2005 --
Fiscal 2006 --
Thereafter --
F-75
Report of Independent Accountants
To the Board of Directors and Shareholders of
Decora Industries, Inc.
In our opinion, the accompanying consolidated statements of income and cash
flows present fairly, in all material respects, the net income, cash flows and
other data shown therein of Decora Industries, Inc., and its subsidiaries at
March 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform an audit to
obtain reasonable assurance about whether the statements of income and cash flow
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements of income and
cash flows, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall income statement and statement of
cash flows presentation. We believe that our audit of the statements of income
and cash flow provides a reasonable basis for the opinion.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully described in
Note 1, the Company incurred a net loss of $22 million for the year ended March
31, 2000, and had a net capital deficit as of March 31, 2000 of $6 million. In
addition, the Company is in default of covenants under certain of its secured
financings, and has disclosed that its ability to pay interest due in November
2000 on its 11% senior secured notes is uncertain. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
PricewaterhouseCoopers LLP
Stamford, Connecticut
June 30, 2000
F-76
Decora Industries, Inc.
Consolidated Statement of Income
Year ended March 31, 2000
Amounts in 000s (except per share data)
Net sales $162,450
Cost of goods sold 114,912
--------
Gross profit 47,538
Selling, general and administrative expenses 45,553
--------
Operating income 1,985
Interest expense, net 16,011
--------
Loss before income taxes, minority interest and extraordinary item (14,026)
Income tax provision 7,761
--------
Loss before minority interest and extraordinary item (21,787)
Minority interest in earnings of subsidiary 259
--------
Net loss $(22,046)
========
Per share of common stock
Net loss
Basic $(2.87)
Diluted (2.87)
See accompanying notes to consolidated financial statements.
F-77
Decora Industries, Inc.
Consolidated Statement of Cash Flows
Year ended March 31, 2000
Amounts in 000s
Cash flows from operating activities
Net loss $(22,046)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 9,090
Amortization of debt discount and fees 1,082
Minority interest in earnings of subsidiary 259
Deferred income tax provision 5,844
Net changes in current assets and liabilities 6,580
Other, net (2,304)
--------
Net cash used in operating activities (1,495)
Cash flows from investing activities
Rubbermaid acquisition (2,307)
Acquisition of Hornschuch shares (928)
Acquisition of Etch Art (350)
Purchase of property and equipment (5,723)
--------
Net cash used in investing activities (9,308)
Cash flows from financing activities
Issuance of long-term debt 14,021
Repayment of long-term debt (8,284)
Increase (decrease) in short-term borrowings 1,303
Proceeds from issuance of stock options 120
Payment of warrant exchange obligation (1,054)
Payment of debt penalties and fees -
--------
Net cash provided by financing activities 6,106
Effect of exchange rate fluctuations on cash and cash equivalents (1,186)
--------
Net decrease in cash and cash equivalents (5,883)
Cash and cash equivalents at beginning of year 6,662
--------
Cash and cash equivalents at end of year $ 779
========
See accompanying notes to consolidated financial statements.
F-78
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Decora Industries, Inc. ("DII" and, together with its subsidiaries, the
"Company") is a leading manufacturer and marketer of self-adhesive consumer
decorative and surface coverings and other specialty industrial products.
The Company is a holding company and operates primarily through two
subsidiaries, Decora, Incorporated ("Decora"), a wholly-owned subsidiary
based in the U.S., and Konrad Hornschuch AG ("Hornschuch"), which is based
in Germany and 90% owned by Decora Industries Deutschland GmbH ("DI
Deutchland"), which, in turn, is wholly-owned by DII. Hornschuch's results
have been included since its acquisition on October 1, 1997 (see Note 2).
The Company's principal products are sold under the Con-Tact and d-e-fix
brands. The Company operates in two business segments, consumer and
industrial.
GOING CONCERN MATTERS. The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company incurred a net loss of $22,046,000 for the year ended
March 31, 2000 and had a net capital deficit (excess of liabilities over
assets) of $6,323,000 as of March 31, 2000. In addition, as described in
Note 4, the Company was in default of covenants under certain of its
secured financings outstanding as of March 31, 2000. Also, as disclosed in
Note 5, the Company refinanced one of the aforementioned secured financings
as of May 15, 2000, but was informed of an event of default by its new
lender on June 12, 2000. As further disclosed in Note 5, relying solely on
the results of operations of Decora, the Company may not be able to pay the
interest due on November 1, 2000 under the 11% senior secured notes. The
company is reviewing Decora's business plan with its financial advisors and
lenders with the objective of seeking appropriate accommodations. The
Company is also evaluating potential changes in its capital structure and
additional financial resources. The Company's continuation as a going
concern is dependent, among other factors, upon its ability to comply with
the terms of its financing agreements and to obtain additional financing.
The financial statements do not include any adjustments relating to the
recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION. The consolidated
financial statements include the accounts of the Company. All significant
intercompany transactions have been eliminated in consolidation.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The fair values of cash, accounts
receivable, accounts payable and accrued expenses approximate their
carrying values. Financial instruments, when acquired, are held for
purposes other than trading.
The fair value of the Company's senior secured notes has been determined
based upon current market rates (see Note 4). The balance of the Company's
debt, in combination with interest rate swap agreements, bears current
market rates of interest or is payable on demand. Accordingly, the carrying
amount is considered a reasonable approximation of fair value.
REVENUES. Sales are recognized when products are shipped. Returns are
accounted for on the accrual basis. A portion of the sales made outside of
Germany are covered by confirmed letters of credit or credit insurance. The
Company does not generally require collateral for sales made within the
United States.
INVENTORIES. Inventories are stated at the lower of cost (first-in,
first-out method) or market.
PROPERTY AND EQUIPMENT. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, generally three to
fifty years. Depreciation expense was $5,983,000 for fiscal 2000.
GOODWILL AND OTHER INTANGIBLES. The excess of the aggregate purchase price
over the fair values of the net assets of businesses and product lines
acquired has been recorded as goodwill and is being amortized on the
straight-line method over forty years. Other intangibles are amortized over
periods ranging from three to forty years. Goodwill amortization was
$954,000 for fiscal 2000. Amortization of other intangibles was $1,928,000
for fiscal 2000.
LONG-LIVED ASSETS. The Company assesses impairment losses to be recorded on
long-lived assets when indications of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amounts.
F-79
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
INCOME TAXES. Income taxes are provided based on the liability method
pursuant to SFAS No. 109, Accounting for Income Taxes. Deferred income
taxes are recorded to reflect expected future tax consequences of events
that have been recognized in the Company's financial statements or its tax
returns, but not both. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities using
enacted tax rates in the years in which the differences are expected to
reverse.
RESEARCH AND DEVELOPMENT. Research and development costs related to both
present and future products are expenses as incurred and amounted to
$3,090,000 in fiscal 2000.
STOCK-BASED COMPENSATION. The Company has elected to follow Accounting
Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its employee stock
options. Under APB No. 25, when the exercise price of employee stock
options equals the market price of the underlying stock on the date of
grant, no compensation expenses is recorded. The Company has adopted the
disclosure only provisions of SFAS No.123, Accounting for Stock-Based
Compensation (see Note 6).
FOREIGN CURRENCY. The assets and liabilities of the Company's foreign
subsidiaries are translated into U.S. dollars using year-end exchange
rates. Income statement items are translated at average exchange rates
prevailing during the year. The resulting translation adjustments are
recorded as a separate component of shareholders' equity. Exchange rate
gains and losses on intercompany balances of a long-term investment nature
are also recorded as a component of shareholders' equity. Foreign currency
transaction gains and losses, which historically have been immaterial, are
included in net income. In addition, the Company also will occasionally
enter into foreign currency hedges.
INTEREST RATE HEDGES. The Company is party to four interest rate cap
agreements as of March 31, 2000 for DM 7.0 million, DM 5.6 million, DM 3.0
million and DM 3.0 million which are used to hedge against fluctuations in
interest rates for existing debt balances. As these instruments are used to
hedge existing debt, there is no requirement to record these agreements
fair value.
The Company is also party to three interest rate swap agreements as of
March 31, 2000 for DM 6.0 million, DM 5.0 million and DM 3.1 million. These
agreements were used to convert variable rate debt to fixed rate debt. For
the DM 5.0 million instrument, the related debt had been repaid early.
However, Hornschuch was obliged to maintain the swap and pay (receive) the
difference between Hornschuch's fixed rate and the original variable rate.
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 revenues, costs and expenses during the reporting period.
Actual results may differ from those estimates.
2. ACQUISITIONS
HORNSCHUCH ACQUISITION. On October 1, 1997, the Company acquired 73.2% of
the voting stock (the "Shares") of Hornschuch through a newly formed
subsidiary, DI Deutschland. The Shares and other intangible assets were
acquired directly from Hornschuch's two largest shareholders (the
"Hornschuch Acquisition") in private transactions for total consideration
of DM 61,582,280, or approximately $35,000,000. Since October 1, 1997, the
Company has increased its ownership to approximately 90% through open
market purchases and the completion of a tender offer in March 1999.
The purchase of the Shares and other intangible assets was funded by a
combination of debt and equity, including a loan (secured by the Shares) of
approximately $21,205,000 to DI Deutschland from a German bank (the "Bank
Loan"), a subordinated loan of $18,000,000 in the United States (the
"Subordinated Loan") provided by a pension fund (the "Pension Fund") and a
private placement of the Company's common stock in the amount of $750,000.
The Pension Fund was also granted Series A warrants which are currently
exercisable for the purchase of 1,818,000 shares of common stock of the
Company at an exercise price of $5.00 per share. The total amount raised
was sufficient to fund the purchase of the other intangible assets and up
to 75% of the shares of Hornschuch, repay an existing subordinated debt of
$2.9 million and pay a portion of the $2.8 million in closing costs
associated with the transaction.
RUBBERMAID DECORATIVE COVERINGS GROUP ACQUISITION. On April 29, 1998, the
Company acquired certain assets, which had constituted Rubbermaid's
Decorative Coverings Group (the "DCG"), for an initial purchase price
(subject to a purchase price contingency of $2.5 million based upon
calendar 1998 DCG sales levels) of approximately $62.5 million (the
"Rubbermaid Acquisition"). Based upon final 1998 calendar sales of the DCG,
the purchase price was adjusted downward to approximately $60.5 million.
F-80
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
The assets acquired included inventory, manufacturing equipment, tradenames
(including the Con-Tact trademark) and all other rights to three product
lines: (i) the Con-Tact self-adhesive coverings line that was manufactured
exclusively for Rubbermaid by Decora, (ii) Shelf Liner, a proprietary
product line that was manufactured by Rubbermaid, and (iii) the Grip Liner
non-adhesive covering line which is manufactured by a third party pursuant
to the terms of an exclusive manufacturing agreement.
In order to finance the Rubbermaid Acquisition and to improve its capital
structure, the Company issued $112,750,000 of 11.0% senior secured notes
(the "Notes"). The Notes were issued with an original issue discount of
$2,664,000 with interest payable semi-annually and no principal payments
required prior to maturity on May 1, 2005. In addition, Hornschuch borrowed
under its secured credit facilities approximately $10.0 million. Of the
total amount raised, approximately $60,800,000 (includes approximately
$300,000 of accrued interest) was paid to Rubbermaid, approximately
$32,100,000 was used to refinance existing debt and related fees (including
an $18.0 million 13% subordinated loan (the "Subordinated Loan") which had
been used to finance the Hornschuch Acquisition), approximately $5,800,000
was used to acquire additional Hornschuch shares (which increased DI
Deutschland's ownership from 76% to 90%) and approximately $8,800,000 was
used to pay acquisition and financing related transaction fees and
expenses. The remaining net proceeds were intended to be used to finance a
portion of the acquisition of the remaining 10% equity interest in
Hornschuch and for general corporate purposes, including working capital
requirements. At the same time Decora entered into a three year, $15.0
million secured revolving line of credit. Its availability was based on a
factor of the amount of Decora's accounts receivable and inventory. As of
March 31, 2000, the revolving line of credit had been fully utilized, and
as described in Note 7(f), this credit facility was in default. In May
2000, this Credit Facility was refinanced (see Note 5).
Direct financing transaction costs incurred of approximately $4.7 million
were deferred and are being amortized, using the effective interest rate
method, over the term of the respective financings.
The Company is vigorously pursuing legal action against Rubbermaid (see
Note 9).
ETCHART INC. ACQUISITION. In April 1999, Decora acquired certain assets
from EtchArt Inc., a manufacturer of "wallpaper" for Windows TM, a line of
window and glass coverings, including a customer list and inventory for
approximately $850,000.
3. EMPLOYEE BENEFIT PLANS
Hornschuch maintains two noncontributory defined benefit pension plans in
Germany. Both pension plans are unfunded as the laws requiring pension
funding in Germany are considerably different than those in the U.S. Plan A
represents a combination of individual pension arrangements negotiated with
approximately 36 participants representing past and present management
individuals and is open to additional participants based on individually
negotiated employment contracts. The pension benefits under Plan A may vary
to include only a specified annual benefit amount or may be based on
compensation level and years of service. Plan B covers all employees of the
Company with 1,652 active and retired participants. Plan B provides for a
fixed monthly retirement benefit after 10 years of service with benefit
increases based on additional years of service. Plan B was closed effective
January 1, 1989, and any active participant at that time was permitted to
accrue up to 10 more years of creditable service through December 31, 1998.
The following provides a reconciliation of the projected benefit obligation
("PBO") for Hornschuch's defined benefit plans (000s):
Balance at beginning of year $16,007
Service cost 127
Interest cost 849
Net amortization and deferral (89)
Total benefits paid 1,299
Adjustment for the minimum liability 68
Other (1,944)
-------
Balance at end of year $13,719
=======
Based on the purchase accounting for the Hornschuch Acquisition, the full
PBO liability of $15,740,000 was recognized at the acquisition date. The
projected benefit obligations at the end of fiscal 2000 and fiscal 1999 use
a discount rate of 6.5% and a salary increase assumption of 1.5% in the
actuarial valuation.
The Company has a profit sharing plan and a 401K plan covering its U.S.
salaried employees. The Company does not contribute to the 401K plan. The
Company contributes to the profit sharing plan based upon Company
performance. Total expense relative to the profit sharing contributions
amounted to $54,000 in fiscal 2000.
F-81
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
4. DEBT
Debt, at March 31, 2000, consists of (000s):
DII Senior Secured Notes (a) $112,750
DI Deutschland Credit Facility (b) 15,441
Hornschuch Lines of Credit (c) 11,299
Decora Term Loans (d) 42
Hornschuch Term Loans (e) 3,466
Decora Lines of Credit (f) 10,854
Decora Industrial Development Revenue Bonds (g) 1,960
--------
155,812
Less:
Amounts due within one year (31,434)
Unamortized debt discount (2,125)
--------
$122,253
========
(a) In April 1998, in order to finance the Rubbermaid Acquisition and to
improve its capital structure, the Company issued $112,750,000 of 11.0%
senior secured notes (the "Notes"). The Notes were issued with an original
issue discount of $2,664,000 with interest payable semi-annually and no
principal payments required prior to maturity on May 1, 2005. The fair
value of the Notes at March 31, 2000 was approximately $45,000,000, which
was determined by the Company using market information provided by an
investment banking firm as to the market value of similar debt amounts. The
estimated fair value of the Notes does not necessarily reflect the amount
at which the debt could be settled.
(b) On September 29, 1997, DI Deutschland entered into a loan agreement with a
German bank for approximately DM 37.3 million (approximately $18.3 million
at March 31, 2000) to provide a portion of the financing for the Hornschuch
Acquisition. The loan bears interest at the German interbank borrowing rate
plus 2.50%. In addition, DI Deutschland will be charged a fee of 0.50% per
annum on the average daily balance of the difference between the original
loan amount and the then current balance. The interest rate at March 31,
2000 was 5.6%.
The DI Deutschland Credit Facility is being repaid in semiannual
installments of approximately DM 3.0 million (approximately $1.5 million)
which commenced March 30, 1999. The final installment is due and payable on
September 30, 2004. The DI Deutschland Credit Facility is secured by a
pledge of all the capital stock of Hornschuch owned by DI Deutschland.
On March 30, 2000, the DI Deutschland failed to make principal and interest
payments due in the amount of DM 3.8 million (approximately $1.9 million )
and were informed by its lender that it was in default under the DI
Deutschland Credit Facility. Accordingly, the entire outstanding obligation
of $15,441,000 is included in current liabilities as of March 31, 2000.
(c) Hornschuch has separate lines of credit with its primary lender and certain
other financial institutions. Interest rates under the lines of credit
range from 4.05% to 7.24% at March 31, 2000. At March 31, 2000, the
availability under these lines was DM 14.0 million ($6.9 million).
(d) In September, 1995, Decora borrowed $375,000 from the Washington County
Local Development Corporation. The loan bears interest at 5.00% and is
payable in monthly installments ending September 1, 2000. It is secured by
certain of Decora's property and equipment. As of March 31, 2000, the
outstanding balance of this note was $42,000.
Effective April 1, 1997, Decora entered into an interest rate swap
agreement with its primary bank lender which expired on May 31, 1999. The
agreement effectively converted $8,523,000 of its variable rate borrowings
into fixed rate obligations. Under the terms of the agreement, Decora makes
payments at a fixed rate of 8.58% and receives variable rate payments at
LIBOR plus 200 basis points, repriced at the beginning of each month. While
the underlying debt obligations have been repaid, Decora continued to make
payments under the agreement until expiration in May 1999. The net amount
which was paid or received is included in interest expense.
(e) Hornschuch has two term loans aggregating approximately DM 7,050,000
(approximately $3,455,000) at March 31, 2000. The first term loan has a
balance of DM 2,850,000 (approximately $1,397,000), matures in March 2006,
bears interest at 4.8% and is secured by certain assets. The first loan
requires payments of DM 238,000 ($117,000) semiannually. The
F-82
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
second term loan of DM 4,200,000 (approximately $2,058,000) matures in
March 2003, bears interest at LIBOR plus 0.9% (4.1% at March 31, 2000) is
payable in semiannual installments of DM 700,000 (approximately $343,000)
and is secured by a new printing press.
(f) On April 28, 1998, Decora entered into a $15.0 million revolving line of
credit which matures in May 2001 and is secured by various accounts
receivable and inventory. The amount outstanding under the facility, at the
borrower's election, bears interest at either the lender's prime rate or
LIBOR plus 2.25 basis points. As of March 31, 2000, Decora was unable to
comply with certain covenants under this line of credit. Accordingly, the
entire outstanding obligation of $10,854,000 is classified as a current
liability as of March 31, 2000. See Note 5 regarding the refinancing of the
revolving credit facility with a new lender.
Decora had a revolving line of credit of up to $6,000,000 which would have
matured in August 1998 and was secured by various accounts receivable,
inventory and equipment. The amount outstanding under the facility bore
interest at prime plus 1-1/4%. On March 27, 1997, Decora established a
second line of credit of up to $1,000,000 which also would have matured in
August 1998, bore interest at prime plus 1.0% and was secured by certain
accounts receivable. Availability under this credit facility was limited by
specified percentages of certain international trade accounts receivable.
At March 31, 1998, the amount outstanding under these lines of credit of
$2,500,000 was repaid in full with the proceeds of the Notes.
(g) On November 13, 1996, Decora borrowed $2,460,000 through the issuance of
Tax-Exempt Industrial Development Revenue Bonds (Decora Project), Series
1996 by the Counties of Warren and Washington, New York Industrial
Development Agency. These bonds mature on November 1, 2004 and require
sinking fund payments of $20,833 per month beginning November 1997 and bear
interest at a floating rate which is adjusted weekly based on the
remarketing agent's ability to re-market the bonds at par. As of March 31,
2000, the interest rate on the bonds was 3.05%. The bonds are credit
enhanced through a letter of credit issued by Decora's primary lender and,
in addition to interest on the bonds, Decora pays its primary lender an
annual letter of credit fee equal to 1.50% of the outstanding balance of
the letter of credit.
5. SUBSEQUENT EVENTS
On May 5, 2000, Decora completed the refinancing of the revolving credit
facility (see Note 4(f)) and the implementation of a secured term
financing. Subsequently, on June 12, 2000, Decora was informed by its new
lender of an event of default under the terms of these secured financings.
The new lender has advised Decora that it will collect interest at the
default rate during the continuation of the default. While the default
permits the lender to accelerate the maturity of these secured financings
and to prohibit the borrower from drawing under the revolving facility, to
date Decora has been able to continue to draw under the revolving facility
and the lender has not notified Decora of its intention to accelerate
payments under the financing. At June 30, 2000, Decora is not able to
comply with the covenants of these secured financings and Decora does not
believe that prospectively it will be able to comply with these covenants
without significant accommodation from its lender. While success in any of
these endeavors cannot be assured, the Company is currently negotiating
with Decora Deutschland's lenders to permit Decora Duetschland to fund the
interest payment on the 11% senior secured notes. Relying solely on the
results of operations of Decora operations, management believes the Company
will not be able to pay the interest due in November 2000 under the 11%
senior secured notes.
The Company is reviewing Decora's business plan with its financial advisers
and lenders with the objective of seeking appropriate accommodations and to
ascertain what actions can be taken to restore profitability. The Company
is also evaluating potential changes in its capital structure and
additional financial resources. There can be no assurance that the Company
will be able to successfully implement the changes necessary for the
Company to remain a going concern.
6. STOCK OPTIONS
The Company has several domestic long-term incentive plans under which
shares of the Company's common stock may be sold to directors, officers and
key employees. Certain other parties have been granted stock options by the
Company in connection with various transactions.
The Company adopted a Stock Option Plan in fiscal 1987 (the "1987 Plan")
pursuant to which 340,000 shares of common stock were available for grant.
The 1987 Plan terminated on July 8, 1997. The 1987 Plan is administered by
a committee of Directors of the Company who are not covered by the 1987
Plan. All options granted under the 1987 Plan terminate either five or ten
years after the date of grant and vest quarterly over a three-year period
subsequent to the date of the grant, unless modified by the Company.
F-83
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
In fiscal 1988, the shareholders of the Company approved the Decora
Industries, Inc. 1988 Employee Stock Purchase Plan (the "1988 Plan")
pursuant to which a total of 100,000 shares of the Company's Common Stock
could be issued to participants during the term of the 1988 Plan at an
issue price of 85% of the fair market value at the date of the purchase.
The 1988 Plan was administered by the Board of Directors provided that a
majority were not covered by the 1988 Plan, or by a committee appointed by
the Board of Directors. The 1988 Plan terminated on December 31, 1998; no
shares were purchased pursuant to the 1988 Plan.
In fiscal 2000, the shareholders of the Company approved the Decora
Industries, Inc. 1999 Stock Option Plan (the "1999 Plan") pursuant to which
1,000,000 shares of common stock were available for grant. The Plan is
administered by a committee of directors of the Company. All options
granted under the 1999 Plan terminate five or ten years after the date of
grant.
A summary of stock option activity under all plans for the year ended March
31, 2000 follows (000s except average price data):
Average
Options Price
--------- -------
Outstanding at:
March 31, 1999 1,939 $6.19
Granted 1,515 $5.83
Exercised (24) $5.00
Expired (1,160) $5.90
-------
March 31, 2000 2,270 $6.11
-------
The following table summarizes information about stock options outstanding
at March 31, 2000:
Options Outstanding Options Exercisable
------------------------------ -------------------
Exercise Average Term Average
Price Shares Price (months) Shares Price
------------- ------- ------- -------- ------- -------
$4.50 - $4.95 50,000 $ 4.63 34.20 16,667 $ 4.63
$5.00 - $5.50 818,000 5.33 47.01 605,000 5.42
$5.55 - $5.95 354,800 5.64 40.55 254,800 5.60
$6.00 - $6.99 730,000 6.36 40.04 540,664 6.37
$7.00 - $7.99 177,000 7.46 31.03 54,000 7.45
$8.00 - $9.30 140,000 8.03 26.36 44,000 8.09
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair values on the fiscal 2000 grant dates for
those awards, consistent with the requirements of SFAS No. 123. Accounting
for Stock-Based Compensation, the Company's net income and earnings per
common share would have been reduced to the pro forma amounts indicated
below (000s except per share data):
Net income (loss) - As Reported $(22,046)
- Pro Forma (23,559)
Basic and diluted earnings per share - As Reported (2.87)
- Pro Forma (3.07)
The fair value of each stock option grant has been estimated on the date of
each grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
Risk-free interest rate 5.83%
Expected life (months) 50.0
Expected volatility .510
Expected dividend yield --
The weighted average grant date fair values of options granted during
fiscal 2000 was $1.01.
The Company reserved 95,000 shares of common stock for the future possible
exercise of warrants, which can be exercised at prices ranging from $2.50
to $7.00 and expire on November 3, 2000.
F-84
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
7. INCOME TAXES
Income taxes are summarized as follows (000s):
Current provision:
United States:
Federal $ --
State 16
Foreign 1,758
------
1,774
------
Deferred provision (benefit):
United States:
Federal 6,383
State --
Foreign (396)
------
5,987
------
$7,761
======
The foreign provision for income taxes is based on foreign pre-tax earnings
of approximately $3.1 million for fiscal year 2000. Domestic operations
accounted for ($17.1) million of pre-tax loss in fiscal 2000.
The provision for (benefit from) income taxes differs from the amount of
income tax determined by applying the applicable U.S. statutory federal
income tax rate to pre-tax income as a result of the following (000s):
Provision at statutory rate $(4,909)
State tax expenses 16
Effect of nondeductible items 274
Change in valuation allowance 12,355
Other 25
-------
Income tax provision (benefit) $ 7,761
=======
Approximately $32,546,000 and $4,100,000 of the Company's net operating
loss carryforwards remain available at March 31, 2000 in the United States
and Germany, respectively. Their use is limited to future taxable earnings
in the respective countries. In the United States, the carryforwards expire
over the period 2003 through 2020, while in Germany the carryforwards have
an unlimited life.
At March 31, 2000, foreign subsidiary earnings of $9,489,000 were
considered permanently invested in those businesses. Accordingly, U.S.
income taxes have not been provided on these earnings. Foreign withholding
taxes would be payable to the foreign taxing authorities if these earnings
were remitted. Subject to certain limitations, the withholding taxes would
then be available for use as credits against the U.S. tax liability.
At fiscal year end 2000, the Company determined that it was appropriate to
record a full valuation allowance against its U.S. deferred income tax
assets as a result of its assessment of the probability of realizing those
assets in the ordinary course of business. This $6,370,000 valuation
allowance represents substantially all of the $7,761,000 year 2000 tax
provision, the remainder being attributable to non-U.S. operations.
F-85
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
8. NET INCOME PER SHARE
The number of shares of common stock and common stock equivalents used in
the computation of net income per common share, assuming dilution for each
period, is the weighted average number of common shares outstanding during
the periods and, if dilutive, common stock options, warrants and
convertible securities which are considered common stock equivalents. The
following is a reconciliation of the denominators for determining basic and
diluted net income per common share for fiscal 2000 (000s):
Weighted average shares
Shares outstanding at beginning of year 7,342
Shares issued on a weighted average-basis 341
-----
Shares used in the calculation of basic EPS 7,683
Effect of dilutive securities:
Contingently issuable shares --
Options/warrants --
-----
Shares used in the calculation of diluted EPS 7,683
=====
The total number of shares of common stock and common stock equivalents
that were not included in the computation of diluted income per common
share because they were anti-dilutive was approximately 2,685,000 for
fiscal 2000.
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company uses certain equipment under lease arrangements, all of which
are accounted for as operating leases. Rent expense was $1,977,000 for
fiscal 2000. Rental commitments under long-term noncancelable operating
leases are as follows (000s):
Fiscal 2001 $1,520
Fiscal 2002 1,002
Fiscal 2003 327
Fiscal 2004 37
Fiscal 2005 --
Thereafter --
LEGAL PROCEEDINGS
The Company made the Rubbermaid Acquisition pursuant to the terms of an
asset purchase agreement (the "Asset Purchase Agreement"). Decora and
Rubbermaid entered into a service agreement pursuant to which Rubbermaid
agreed to provide certain logistics services for a nine-month transition
period following the acquisition (the "Transition Services Agreement"). On
or about April 1, 1999, the Company commenced a proceeding against
Rubbermaid with the American Arbitration Association. The Company has
alleged causes of action for breach of contract, breach of fiduciary duty,
fraud and deceit, conversion, breach of the covenant of good faith and fair
dealing, constructive fraud, and money had and received. The Company's
claims arise from Rubbermaid's failure to perform its obligations as set
forth in the Transition Services Agreement. The Company seeks damages in
excess of $5,000,000 as a result of Rubbermaid's wrongful acts. The Company
is proceeding with the prosecution of its claims in arbitration.
On July 19, 1999, Rubbermaid filed a "counterclaim" against the Company in
connection with the parties' rights and obligation under the Transition
Services Agreement. Rubbermaid claims an entitlement to an amount in excess
of $1,280,000 as a result of services it allegedly performed and/or
payments it allegedly made in connection with the Transition Services
Agreement. The Company intends to continue to vigorously defend itself
against these claims, which it believes to be unfounded.
The date of the arbitration hearing with respect to the above matter is
August 28, 2000.
On September 16, 1999, the Company commenced a legal action against
Rubbermaid in the United States District Court for the Northern District of
Ohio. In the action, the Company has alleged causes of action for fraud and
negligent misrepresentation in connection with the Asset Purchase
Agreement. The Company claims that Rubbermaid fraudulently induced Decora
into acquiring Rubbermaid's Decorative Coverings Group by means of certain
material misrepresentations, including misrepresentations with respect to
the status of certain of the Decorative Covering Group's major customer
F-86
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
accounts. The Company seeks damages in excess of $14,000,000 as a result of
Rubbermaid's wrongful acts. In response, Rubbermaid generally has denied
the allegations in the Company's complaint but has not asserted any
affirmative claims, such as a cross-complaint, against the Company, except
that in its prayer for relief, Rubbermaid requests that it be awarded costs
and attorney's fees to which it may be entitled under the terms of the
Asset Purchase Agreement if it were the prevailing party in the action. The
parties have stipulated and the federal court has ordered that the claims
asserted in the federal action are to be arbitrated and that the
arbitration is to commence no later than August 28, 2000.
The Company also has asserted claims in federal court against Rubbermaid on
account of Rubbermaid's alleged fraud and negligent misrepresentation in
connection with the Asset Purchase Agreement. In response, Rubbermaid
generally has denied the allegations in Decora's complaint but has not
asserted any affirmative claims, such as a cross-complaint, against Decora,
except that in its prayer for relief, Rubbermaid requests that it be
awarded costs and attorney's fees to which it may be entitled under the
terms of the Asset Purchase Agreement if it were the prevailing party in
the action. The parties have stipulated and the federal court has ordered
that the claims asserted in the federal action are to be arbitrated and
that the arbitration is to commence no later than August 28, 2000.
The Company and its subsidiaries are defendants in pending actions which,
in the opinion of management of the Company, are not material to the
Company's financial condition or results of operations. Although no
assurances can be given regarding the ultimate outcome of such matters, the
Company has accrued amounts for defense and settlement costs which the
Company considers adequate.
GUARANTEE OF SUBSIDIARY DEBT
As part of the Hornschuch Acquisition, the Company acquired Hornschuch's
wholly-owned real estate subsidiaries. Management identified these
subsidiaries as noncore operations upon acquisition and decided to sell
them. The subsidiaries carry approximately $11.4 million in debt, with
Hornschuch made a guarantor of the debt by virtue of its profit pooling
agreement with the subsidiaries. The Company has estimated that the debt
exceeds the net realizable value of these subsidiaries by approximately
$2.9 million.
ARRANGEMENT WITH A PRIOR LENDER
On June 28, 1996, as part of an exchange, a lender (the "Holder") received
200,000 shares of the Company's common stock (the "new common stock"). The
new common stock contained a guaranty (the "Guaranty") requiring that the
Company deliver to the Holder (i) additional shares of the Company's common
stock, (ii) cash or (iii) a combination of additional shares of the
Company's common stock and cash if the Company's common stock price did not
exceed $15.00 per share on the valuation date in April 1998 (the "Shortfall
Amount").
On July 9, 1998, the Company and the Holder entered into a payment and
deferral agreement (the "Agreement") relative to the Shortfall Amount. As a
result, the Company paid $200,000 in cash to the Holder leaving an adjusted
Shortfall Amount of approximately $2.0 million. The adjusted Shortfall
Amount is accruing interest at 11.5% per annum until June 30, 1999. At that
time the Company will deliver to the Holder (i) additional shares of the
Company's common stock; (ii) cash.
The July 1998 agreement was amended and restated in its entirety pursuant
to the terms of an amended and restated payment deferral agreement dated
September 23, 1999. Pursuant to the terms of the September 1999 agreement,
the Company agreed to pay the entire Shortfall Amount in stock or cash by
November 30, 1999. However, the Company has not yet paid the entire
Shortfall Amount and is in negotiations with the Holder to obtain an
extension of the time for payment, or (iii) a combination of additional
shares of the Company's common stock and cash equal to the adjusted
Shortfall Amount plus accrued interest.
MINIMUM PURCHASE AGREEMENT
In conjunction with the Rubbermaid Acquisition, the Company entered into an
exclusive manufacturing agreement in which the Company was required to
purchase at least $6 million of product annually. In December 1999, the
agreement was terminated. However, the Company continues to make purchases
under an informal arrangement.
CHANGE IN CONTROL AGREEMENTS
The Company has granted to certain key executives compensation arrangements
such that a change in control of the Company and their subsequent
termination would result in a payment of a multiple of annual compensation.
F-87
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
10. MAJOR CUSTOMERS
Since the acquisition of Hornschuch on October 1, 1997, the Company's sales
reflect a broader range of customers. Prior to the acquisition of the DCG
(see Note 2), Decora's primary customer was Rubbermaid, which accounted for
31% of net sales in fiscal 1998. The Company has no other unusual credit
risks or concentrations. The Company estimates an allowance for doubtful
accounts based upon the credit worthiness of its customers as well as
general economic conditions.
11. SEGMENT FINANCIAL DATA
The Company's operating subsidiaries design, develop, manufacture and sell
products, classified in two principal operating segments. The Company's
operating segments were generally determined on the basis of strategic
business units within the operating subsidiaries which require different
marketing strategies.
Consumer products include global sales of self-adhesive, decorative and
surface protection products sold in a wide variety of retail stores
worldwide.
Industrial products primarily include converted films for use in the
manufacture of cabinets, furniture, automobiles, luggage and shoes which
are sold to users and OEM's in diversified markets, principally in Europe.
OPERATING SEGMENTS
Net sales (000s)
Consumer $108,931
Industrial 53,519
---------
Consolidated $ 162,450
=========
Operating profits (000s)
Consumer $4,856
Industrial 1,848
---------
Total segment 6,704
General corporate expenses 4,719
---------
1,985
16,011
---------
Interest expense, net
minority interest and extraordinary item $(14,026)
=========
Depreciation and amortization (000s)
Consumer $6,055
Industrial 3,035
---------
Consolidated $9,090
=========
GEOGRAPHIC AREAS
Net sales (000s)
United States $57,829
International:
Germany 45,402
Other 59,219
---------
Consolidated $ 162,450
=========
F-88
Decora Industries, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
12. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in current assets and liabilities, exclusive of acquisitions, were
as follows (000s):
Increase in accounts receivable $(3,825)
(Increase) decrease in inventory 3,170
Increase in other assets (173)
Increase in accounts payable 1,413
Increase (decrease) in accrued liabilities 5,092
Decrease in other current liabilities 903
-------
$ 6,580
=======
Supplemental cash flow information is as follows (000s):
Cash paid during the year for interest $14,627
Cash paid during the year for income taxes $ 193
F-89
Pliant Corporation
Introduction to Unaudited Pro Forma
Consolidated Financial Statements
The following unaudited pro forma consolidated statements of operations for
the year ended December 31, 2002 give effect to the Decora acquisition as if it
occurred on January 1, 2002.
F-90
Pliant Corporation
Unaudited Pro Forma Consolidated Statements of Operations
for the year ended December 31, 2002
(Dollars in Thousands)
Pliant
Pliant Corporation
Corporation Decora and
and business Pro forma Subsidiaries
Subsidiaries (January-May) adjustments Pro Forma
------------ ------------- ----------- ------------
Net sales $879,197 $15,308 $ $894,505
Cost of sales 714,463 10,946 (750) 724,659
-------- ------- ------- --------
Gross profit 164,734 4,362 750 169,846
Selling, general and administrative 85,351 4,466 (917) 88,900
Research and development 8,124 8,124
Plant closing costs, net 43,143 43,143
-------- ------- ------- --------
Total operating expenses 136,618 4,466 (917) 140,167
-------- ------- ------- --------
Operating income 28,116 (104) 1,667 29,679
Interest expense (75,284) (991) (1,152) (77,427)
Reorganization items (600) (600)
Other income, net 2,276 143 2,419
-------- ------- ------- --------
Income before income taxes (44,892) (1,552) 515 (45,929)
Income tax expense (1,462) 185 (1,277)
-------- ------- ------- --------
Net income $(43,430) $(1,552) $ 329 $(44,653)
======== ======= ======= ========
F-91
PLIANT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) The reduction to cost of sales reflects the reduction in raw material costs
and freight expense. The Company will internally produce a major portion of
the plastic film that was previously purchased by Decora. The Company has
sufficient unused capacity to produce the required raw material for Decora.
The Company has contracts with carriers for freight at rates that are
substantially lower than the rates paid by Decora.
(b) The reduction in selling, general and administrative expense reflect
reduction in administrative staff due to the duplication of duties between
the Pliant employees and the Decora employees. The employees that were
terminated were listed in the purchase agreement and were approved by the
bankruptcy courts. In addition, these savings relate to a liability
established pursuant to EITF 95-3.
(c) The adjustment to interest expense reflects incremental interest at current
borrowing rates of 6.4% on the $18 million of debt incurred for the
purchase.
(d) The adjustment to income taxes reflect the income tax adjustment for the
total pre-tax adjustments at an average statutory income tax rate of 36%.
F-92
[LOGO]
PLIANT
CORPORATION
Films. Packaging. Results.
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 Second 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 Second 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
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)).
II-1
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 3.3 to Pliant Corporation's Registration Statement on
Form S-1 (File No. 333-65754)).
3.4 Articles of Amendment of Third Amended and Restated Articles of
Incorporation of Pliant Corporation (incorporated by reference
to Exhibit 3.4 to Pliant Corporation's Annual Report on Form
10-K for the year ended December 31, 2002 filed on March 28,
2003).
3.5 Articles of Amendment of Third Amended and Restated Articles of
Incorporation of Pliant Corporation (incorporated by reference
to Exhibit 3.5 to Pliant Corporation's Annual Report on Form
10-K for the year ended December 31, 2002 filed on March 28,
2003).
3.6 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)).
3.7 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)).
3.8 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)).
3.9 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)).
3.10 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)).
3.11 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)).
3.12 Articles of Organization of Pliant Packaging of Canada, LLC
(formerly known as Huntsman Packaging of Canada, LLC)
(incorporated by reference to Exhibit 3.9 to Amendment No. 1 to
Pliant Corporation's Registration Statement on Form S-4 (File
No. 333-42008)).
II-2
3.13 Certificate of Amendment to the Articles of Organization of
Pliant Packaging of Canada, LLC (formerly known as Huntsman
Packaging of Canada, LLC) (incorporated by reference to Exhibit
3.18 to Post-Effective Amendment No. 1 to Pliant Corporation's
Registration Statement on Form S-4 (File No. 333-42008)).
3.14 Certificate of Incorporation of Uniplast Holdings Inc., as
amended (incorporated by reference to Exhibit 3.14 to Pliant
Corporation's Registration Statement on Form S-1 (File No.
333-65754)).
3.15 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)).
3.16 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)).
3.17 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)).
3.18 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)).
3.19 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)).
3.20 Second Amended and Restated Bylaws of Pliant Corporation
(incorporated by reference to Exhibit 3.6 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2002 filed on March 28, 2003).
3.21 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)).
3.22 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)).
3.23 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)).
3.24 Operating Agreement of Pliant Packaging of Canada, LLC (formerly
known as Huntsman Packaging of Canada, LLC) (incorporated by
reference to Exhibit 3.18 to Amendment No. 1 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
3.25 Bylaws of Uniplast Holdings Inc., as amended (incorporated by
reference to Exhibit 3.25 to Pliant Corporation's Registration
Statement on Form S-1 (File No. 333-65754)).
3.26 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)).
3.27 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)).
II-3
3.28 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)).
3.29 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'Melveny & Myers LLP (formerly, 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).
II-4
10.5 Amendment No. 3, dated as of March 25, 2003, 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 10.5 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2002 filed on March 28, 2003).
10.6 Registration Rights 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-4 (File
No. 333-42008)).
10.7 Amendment No. 1, dated as of June 13, 2000, to the Registration
Rights 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 Registration Statement on Form S-4 (File No.
333-42008)).
10.8 Amendment No. 2, dated as of March 25, 2003, to the Registration
Rights 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 10.8 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2002 filed on March 28, 2003).
10.9 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)).
10.10 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)).
10.11 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)).
10.12 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)).
10.13 Amendment No. 2, dated as of March 25, 2003, 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 10.13 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2002 filed on March 28, 2003).
10.14 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)).
II-5
10.15 Securities Purchase Agreement, dated as of March 25, 2003, among
Pliant Corporation and the Purchasers named therein
(incorporated by reference to Exhibit 10.15 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2002 filed on March 28, 2003).
10.16 Securities Purchase Agreement, dated as of March 25, 2003,
between Pliant Corporation and J.P. Morgan Partners (BHCA), L.P.
(incorporated by reference to Exhibit 10.16 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2002 filed on March 28, 2003).
10.17 Credit Agreement, dated as of September 30, 1997, as amended and
restated as of May 31, 2000, among Pliant Corporation, the
subsidiary guarantors party thereto, the various lenders from
time to time party thereto, Bankers Trust Company, as
Administrative Agent and Collateral Agent, and The Chase
Manhattan Bank, as Syndication Agent, and The Bank of Nova
Scotia, as the Documentation Agent (incorporated by reference to
Exhibit 10.7 to Pliant Corporation's Registration Statement on
Form S-4 (File No. 333-42008)).
10.18 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).
10.19 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)).
10.20 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 (incorporated by reference to
Exhibit 10.15 to Pliant Corporation's Registration Statement on
Form S-4 (File No. 333-86532)).
10.21 Amendment No. 4, dated as of September 30, 2002, to the Credit
Agreement dated as of September 30, 1997, as amended and
restated as of May 31, 2000 (incorporated by reference to
Exhibit 10.2 to Pliant Corporation's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2002).
10.22 Amendment No. 5, dated as of March 24, 2003, to the Credit
Agreement dated as of September 30, 1997, as amended and
restated as of May 31, 2000 (incorporated by reference to
Exhibit 10.22 to Pliant Corporation's Annual Report on Form 10-K
for the year ended December 31, 2002 filed on March 28, 2003).
10.23 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)).
10.24 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)).
II-6
10.25 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)).
10.26 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)).
10.27 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)).
10.28 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)).
10.29 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)).
10.30 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)).
10.31 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)).
10.32 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).
10.33 Separation Agreement, dated as of June 10, 2002, between Pliant
Corporation and Richard P. Durham (incorporated by reference to
Exhibit 10.1 to Pliant Corporation's Quarterly Report on Form
10-Q for the quarter ended June 30, 2002).
10.34 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)).
10.35 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)).
II-7
10.36 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).
10.37 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)).
10.38 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).
10.39 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).
10.40 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)).
10.41 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)).
10.42 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)).
10.43 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).
10.44 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)).
10.45 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).
10.46 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)).
10.47 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)).
10.48 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)).
II-8
10.49 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)).
10.50 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)).
10.51 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)).
10.52 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).
10.53 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).
10.54 Pliant Corporation 2000 Stock Incentive Plan (as amended and
restated through April 17, 2002) (incorporated by reference to
Exhibit 10.54 to Pliant Corporation's Annual Report on Form 10-K
for the year ended December 31, 2002 filed on March 28, 2003).
10.55 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)).
10.56 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).
10.57 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).
10.58 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).
10.59 Pliant Corporation 2002 Stock Incentive Plan (incorporated by
reference to Exhibit 10.1 to Pliant Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2002).
12.1 Statement re: computation of ratios of earning to fixed charges
(incorporated by reference to Exhibit 12.1 to Pliant
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2002 filed on March 28, 2003).
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, 2002 filed on March 28, 2003).
23.1* Consent of O'Melveny & Myers LLP (formerly, O'Sullivan LLP)
(included in Exhibit 5.1).
II-9
23.2 Consent of Ernst & Young LLP.
23.3 Consent of PricewaterhouseCoopers 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.
- ----------
* Filed previously.
(b) FINANCIAL STATEMENT SCHEDULES
Pliant Corporation and Subsidiaries--Schedule II--Valuation and Qualifying
Accounts for the years ended December 31, 2002, 2001 and 2000 (included on page
F-43 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 their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them 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
II-10
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into 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-11
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 Schaumburg, in the State of Illinois,
on the 30th day of April, 2003.
PLIANT CORPORATION
By: /s/ Jack E. Knott II
--------------------------------------
Jack E. Knott II
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:
Signature Title Date
- --------- ----- ----
/s/ Jack E. Knott II Chief Executive Officer April 30, 2003
- ----------------------------------- (Principal Executive Officer)
Jack E. Knott II
/s/ Brian E. Johnson Executive Vice President and Chief April 30, 2003
- ----------------------------------- Financial Officer (Principal
Brian E. Johnson Financial and Accounting Officer)
/s/ Richard P. Durham Director April 30, 2003
- -----------------------------------
Richard P. Durham
/s/ Donald J. Hofmann, Jr. Director April 30, 2003
- -----------------------------------
Donald J. Hofmann, Jr.
/s/ Timothy J. Walsh Director April 30, 2003
- -----------------------------------
Timothy J. Walsh
/s/ John M.B. O'Connor Director April 30, 2003
- -----------------------------------
John M.B. O'Connor
/s/ Edward A. Lapekas Director April 30, 2003
- -----------------------------------
Edward A. Lapekas
/s/ Albert MacMillan Director April 30, 2003
- -----------------------------------
Albert MacMillan
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 Schaumburg, in the State of Illinois,
on the 30th day of April, 2003.
PLIANT CORPORATION INTERNATIONAL
By: /s/ Jack E. Knott II
--------------------------------------
Jack E. Knott II
President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Jack E. Knott II President and Director April 30, 2003
- ----------------------------------- (Principal Executive Officer)
Jack E. Knott II
/s/ Brian E. Johnson Executive Vice President and Chief April 30, 2003
- ----------------------------------- Financial Officer (Principal
Brian E. Johnson Financial and Accounting Officer)
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 Schaumburg, in the State of Illinois,
on the 30th day of April, 2003.
PLIANT FILM PRODUCTS OF MEXICO, INC.
By: /s/ Jack E. Knott II
--------------------------------------
Jack E. Knott II
President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Jack E. Knott II President and Director April 30, 2003
- ----------------------------------- (Principal Executive Officer)
Jack E. Knott II
/s/ Brian E. Johnson Executive Vice President and Chief April 30, 2003
- ----------------------------------- Financial Officer (Principal
Brian E. Johnson Financial and Accounting Officer)
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 Schaumburg, in the State of Illinois,
on the 30th day of April, 2003.
PLIANT SOLUTIONS CORPORATION
By: /s/ Jack E. Knott II
--------------------------------------
Jack E. Knott II
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Jack E. Knott II Executive Vice President and April 30, 2003
- ----------------------------------- Director (Principal Executive
Jack E. Knott II Officer)
/s/ Brian E. Johnson Executive Vice President and
- ----------------------------------- Director (Principal Financial and April 30, 2003
Brian E. Johnson Accounting Officer)
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 Schaumburg, in the State of Illinois,
on the 30th day of April, 2003.
PLIANT PACKAGING OF CANADA, LLC
By: /s/ Jack E. Knott II
--------------------------------------
Jack E. Knott II
President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Jack E. Knott II President and Manager April 30, 2003
- ----------------------------------- (Principal Executive Officer)
Jack E. Knott II
/s/ Brian E. Johnson Executive Vice President and April 30, 2003
- ----------------------------------- Manager (Principal Financial and
Brian E. Johnson Accounting Officer)
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 Schaumburg, in the State of Illinois,
on the 30th day of April, 2003.
UNIPLAST HOLDINGS INC.
By: /s/ Stanley B. Bikulege
--------------------------------------
Stanley B. Bikulege
President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Stanley B. Bikulege President April 30, 2003
- ----------------------------------- (Principal Executive Officer)
Stanley B. Bikulege
/s/ Jack E. Knott II Executive Vice President and April 30, 2003
- ----------------------------------- Director
Jack E. Knott II
/s/ Brian E. Johnson Executive Vice President and April 30, 2003
- ----------------------------------- Director (Principal Financial and
Brian E. Johnson Accounting Officer)
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 Schaumburg, in the State of Illinois,
on the 30th day of April, 2003.
UNIPLAST U.S., INC.
By: /s/ Stanley B. Bikulege
--------------------------------------
Stanley B. Bikulege
President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Stanley B. Bikulege President April 30, 2003
- ----------------------------------- (Principal Executive Officer)
Stanley B. Bikulege
/s/ Jack E. Knott II Executive Vice President and April 30, 2003
- ----------------------------------- Director
Jack E. Knott II
/s/ Brian E. Johnson Executive Vice President and April 30, 2003
- ----------------------------------- Director (Principal Financial and
Brian E. Johnson Accounting Officer)
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 Schaumburg, in the State of Illinois,
on the 30th day of April, 2003.
TUREX, INC.
By: /s/ Stanley B. Bikulege
--------------------------------------
Stanley B. Bikulege
President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Stanley B. Bikulege President April 30, 2003
- ----------------------------------- (Principal Executive Officer)
Stanley B. Bikulege
/s/ Jack E. Knott II Executive Vice President and April 30, 2003
- ----------------------------------- Director
Jack E. Knott II
/s/ Brian E. Johnson Executive Vice President and April 30, 2003
- ----------------------------------- Director (Principal Financial and
Brian E. Johnson Accounting Officer)
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 Schaumburg, in the State of Illinois,
on the 30th day of April, 2003.
PIERSON INDUSTRIES, INC.
By: /s/ Stanley B. Bikulege
--------------------------------------
Stanley B. Bikulege
President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Stanley B. Bikulege President April 30, 2003
- ----------------------------------- (Principal Executive Officer)
Stanley B. Bikulege
/s/ Jack E. Knott II Executive Vice President and April 30, 2003
- ----------------------------------- Director
Jack E. Knott II
/s/ Brian E. Johnson Executive Vice President and April 30, 2003
- ----------------------------------- Director (Principal Financial and
Brian E. Johnson Accounting Officer)
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 Schaumburg, in the State of Illinois,
on the 30th day of April, 2003.
UNIPLAST MIDWEST, INC.
By: /s/ Stanley B. Bikulege
--------------------------------------
Stanley B. Bikulege
President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Stanley B. Bikulege President April 30, 2003
- ----------------------------------- (Principal Executive Officer)
Stanley B. Bikulege
/s/ Jack E. Knott II Executive Vice President and April 30, 2003
- ----------------------------------- Director
Jack E. Knott II
/s/ Brian E. Johnson Executive Vice President and April 30, 2003
- ----------------------------------- Director (Principal Financial and
Brian E. Johnson Accounting Officer)
INDEX TO EXHIBITS
2.1 Recapitalization Agreement, dated as of March 31, 2000 (the
"Recapitalization Agreement"), among Pliant Corporation, Chase
Domestic Investments, L.L.C., Richard P. Durham as Representative, and
the shareholders of Pliant Corporation signatory thereto (incorporated
by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by
Pliant Corporation on April 12, 2000).
2.2 Amendment No. 1, dated as of April 3, 2000, to the Recapitalization
Agreement (incorporated by reference to Exhibit 2.2 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
2.3 Amendment No. 2, dated as of May 31, 2000, to the Recapitalization
Agreement (incorporated by reference to Exhibit 2.3 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
3.1 Third Amended and Restated Articles of Incorporation of Pliant
Corporation (incorporated by reference to Exhibit 3.1 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-42008)).
3.2 Articles of Amendment of Third 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 3.3 to Pliant Corporation's Registration Statement on Form S-1
(File No. 333-65754)).
3.4 Articles of Amendment of Third Amended and Restated Articles of
Incorporation of Pliant Corporation (incorporated by reference to
Exhibit 3.4 to Pliant Corporation's Annual Report on Form 10-K for the
year ended December 31, 2002 filed on March 28, 2003).
3.5 Articles of Amendment of Third Amended and Restated Articles of
Incorporation of Pliant Corporation (incorporated by reference to
Exhibit 3.5 to Pliant Corporation's Annual Report on Form 10-K for the
year ended December 31, 2002 filed on March 28, 2003).
3.6 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)).
3.7 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)).
3.8 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)).
3.9 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)).
3.10 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)).
3.11 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)).
3.12 Articles of Organization of Pliant Packaging of Canada, LLC (formerly
known as Huntsman Packaging of Canada, LLC) (incorporated by reference
to Exhibit 3.9 to Amendment No. 1 to Pliant Corporation's Registration
Statement on Form S-4 (File No. 333-42008)).
3.13 Certificate of Amendment to the Articles of Organization of Pliant
Packaging of Canada, LLC (formerly known as Huntsman Packaging of
Canada, LLC) (incorporated by reference to Exhibit 3.18 to
Post-Effective Amendment No. 1 to Pliant Corporation's Registration
Statement on Form S-4 (File No. 333-42008)).
3.14 Certificate of Incorporation of Uniplast Holdings Inc., as amended
(incorporated by reference to Exhibit 3.14 to Pliant Corporation's
Registration Statement on Form S-1 (File No. 333-65754)).
3.15 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)).
3.16 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)).
3.17 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)).
3.18 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)).
3.19 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)).
3.20 Second Amended and Restated Bylaws of Pliant Corporation (incorporated
by reference to Exhibit 3.6 to Pliant Corporation's Annual Report on
Form 10-K for the year ended December 31, 2002 filed on March 28,
2003).
3.21 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)).
3.22 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)).
3.23 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)).
3.24 Operating Agreement of Pliant Packaging of Canada, LLC (formerly known
as Huntsman Packaging of Canada, LLC) (incorporated by reference to
Exhibit 3.18 to Amendment No. 1 to Pliant Corporation's Registration
Statement on Form S-4 (File No. 333-42008)).
3.25 Bylaws of Uniplast Holdings Inc., as amended (incorporated by
reference to Exhibit 3.25 to Pliant Corporation's Registration
Statement on Form S-1 (File No. 333-65754)).
3.26 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)).
3.27 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)).
3.28 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)).
3.29 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'Melveny & Myers LLP (formerly, 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 Amendment No. 3, dated as of March 25, 2003, 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 10.5 to Pliant Corporation's Annual Report on
Form 10-K for the year ended December 31, 2002 filed on March 28,
2003).
10.6 Registration Rights 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-4 (File No. 333-42008)).
10.7 Amendment No. 1, dated as of June 13, 2000, to the Registration Rights
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 Registration
Statement on Form S-4 (File No. 333-42008)).
10.8 Amendment No. 2, dated as of March 25, 2003, to the Registration
Rights 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 10.8 to Pliant Corporation's Annual Report on
Form 10-K for the year ended December 31, 2002 filed on March 28,
2003).
10.9 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)).
10.10 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)).
10.11 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)).
10.12 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)).
10.13 Amendment No. 2, dated as of March 25, 2003, 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 10.13 to Pliant Corporation's Annual Report on Form 10-K
for the year ended December 31, 2002 filed on March 28, 2003).
10.14 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)).
10.15 Securities Purchase Agreement, dated as of March 25, 2003, among
Pliant Corporation and the Purchasers named therein (incorporated by
reference to Exhibit 10.15 to Pliant Corporation's Annual Report on
Form 10-K for the year ended December 31, 2002 filed on March 28,
2003).
10.16 Securities Purchase Agreement, dated as of March 25, 2003, between
Pliant Corporation and J.P. Morgan Partners (BHCA), L.P. (incorporated
by reference to Exhibit 10.16 to Pliant Corporation's Annual Report on
Form 10-K for the year ended December 31, 2002 filed on March 28,
2003).
10.17 Credit Agreement, dated as of September 30, 1997, as amended and
restated as of May 31, 2000, among Pliant Corporation, the subsidiary
guarantors party thereto, the various lenders from time to time party
thereto, Bankers Trust Company, as Administrative Agent and Collateral
Agent, and The Chase Manhattan Bank, as Syndication Agent, and The
Bank of Nova Scotia, as the Documentation Agent (incorporated by
reference to Exhibit 10.7 to Pliant Corporation's Registration
Statement on Form S-4 (File No. 333-42008)).
10.18 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).
10.19 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)).
10.20 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 (incorporated by reference to Exhibit 10.15 to Pliant
Corporation's Registration Statement on Form S-4 (File No.
333-86532)).
10.21 Amendment No. 4, dated as of September 30, 2002, to the Credit
Agreement dated as of September 30, 1997, as amended and restated as
of May 31, 2000 (incorporated by reference to Exhibit 10.2 to Pliant
Corporation's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2002).
10.22 Amendment No. 5, dated as of March 24, 2003, to the Credit Agreement
dated as of September 30, 1997, as amended and restated as of May 31,
2000 (incorporated by reference to Exhibit 10.22 to Pliant
Corporation's Annual Report on Form 10-K for the year ended December
31, 2002 filed on March 28, 2003).
10.23 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)).
10.24 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)).
10.25 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)).
10.26 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)).
10.27 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)).
10.28 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)).
10.29 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)).
10.30 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)).
10.31 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)).
10.32 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).
10.33 Separation Agreement, dated as of June 10, 2002, between Pliant
Corporation and Richard P. Durham (incorporated by reference to
Exhibit 10.1 to Pliant Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2002).
10.34 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)).
10.35 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)).
10.36 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).
10.37 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)).
10.38 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).
10.39 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).
10.40 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)).
10.41 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)).
10.42 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)).
10.43 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).
10.44 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)).
10.45 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).
10.46 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)).
10.47 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)).
10.48 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)).
10.49 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)).
10.50 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)).
10.51 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)).
10.52 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).
10.53 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).
10.54 Pliant Corporation 2000 Stock Incentive Plan (as amended and restated
through April 17, 2002) (incorporated by reference to Exhibit 10.54 to
Pliant Corporation's Annual Report on Form 10-K for the year ended
December 31, 2002 filed on March 28, 2003).
10.55 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)).
10.56 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).
10.57 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).
10.58 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).
10.59 Pliant Corporation 2002 Stock Incentive Plan (incorporated by
reference to Exhibit 10.1 to Pliant Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002).
12.1 Statement re: computation of ratios of earning to fixed charges
(incorporated by reference to Exhibit 12.1 to Pliant Corporation's
Annual Report on Form 10-K for the year ended December 31, 2002 filed
on March 28, 2003).
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, 2002 filed on March 28, 2003).
23.1* Consent of O'Melveny & Myers LLP (formerly, O'Sullivan LLP) (included
in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of PricewaterhouseCoopers 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.
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* Filed previously.