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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1997
REGISTRATION NO. 333-28157
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TEKNI-PLEX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3086 22-3286312
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
201 INDUSTRIAL PARKWAY
SOMERVILLE, NEW JERSEY 08876
(908) 722-4800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DR. F. PATRICK SMITH
CHIEF EXECUTIVE OFFICER
TEKNI-PLEX, INC.
201 INDUSTRIAL PARKWAY
SOMERVILLE, NEW JERSEY 08876
(908) 722-4800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPY TO:
ROBERT W. GRAY, ESQ.
WINTHROP, STIMSON, PUTNAM & ROBERTS
ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10004
(212) 858-1000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
------------------------
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. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
================================================================================
<PAGE> 2
CROSS REFERENCE SHEET
FURNISHED PURSUANT TO ITEM 501(B) OF REGULATION S-K
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FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Facing Page of the Registration Statement;
Cross Reference Sheet; Outside Front Cover
Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page; Available
Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Prospectus Summary; Risk Factors; Selected
Historical Financial Information; Pro Forma
Unaudited Condensed Financial Information
4. Terms of the Transaction................... Outside Front Cover Page; Prospectus Summary;
Description of New Credit Facility; The
Exchange Offer; Description of Exchange
Notes; Certain United States Federal Income
Tax Considerations
5. Pro Forma Financial Information............ Pro Forma Unaudited Condensed Financial
Information
6. Material Contracts with the Company Being
Acquired................................. *
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... *
8. Interests of Named Experts and Counsel..... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
10. Information with Respect to S-3
Registrants.............................. *
11. Incorporation of Certain Information by
Reference................................ *
12. Information with Respect to S-2 or S-3
Registrants.............................. *
13. Incorporation of Certain Information by
Reference................................ *
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants........ Outside Front Cover Page; Prospectus Summary;
Risk Factors; Use of Proceeds;
Capitalization; Selected Historical
Financial Information; Pro Forma Unaudited
Condensed Financial Information;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Industry; Business; Management;
Security Ownership; Certain Transactions
15. Information with Respect to S-3
Companies................................ *
16. Information with Respect to S-2 or S-3
Companies................................ *
17. Information with Respect to Companies Other
than S-3 and S-2 Companies............... *
18. Information if Proxies, Consents or
Authorizations are to be Solicited....... *
19. Information if Proxies, Consents or
Authorizations are not to be Solicited,
or in an Exchange Offer.................. Management; Security Ownership; Certain
Transactions
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- ---------------
* Not Applicable
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 4, 1997
PROSPECTUS
TEKNI-PLEX, INC.
OFFER TO EXCHANGE ITS
SERIES B 11 1/4% SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING
11 1/4% SENIOR SUBORDINATED NOTES DUE 2007
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
Tekni-Plex, Inc., a Delaware corporation ("Tekni-Plex" or the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus (the "Prospectus") and the accompanying
Letter of Transmittal (the "Letter of Transmittal"), to exchange $1,000
principal amount of its Series B 11 1/4% Senior Subordinated Notes due 2007 (the
"Exchange Notes"), which will have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement of
which this Prospectus is a part, for each $1,000 principal amount of its
outstanding 11 1/4% Senior Subordinated Notes due 2007 (the "Old Notes"), of
which $75,000,000 aggregate principal amount is outstanding. The form and terms
of the Exchange Notes are substantially identical to the form and terms of the
Old Notes except that the Exchange Notes will bear a Series B designation and
will have been registered under the Securities Act and, therefore, will not bear
legends restricting their transfer and will not contain certain provisions
relating to an increase in the interest rate which were included in the terms of
the Old Notes in certain circumstances relating to the timing of the Exchange
Offer. The Exchange Notes will evidence the same debt as the Old Notes (which
they replace) and will be issued under and be entitled to the benefits of the
Indenture dated as of April 1, 1997 (the "Indenture") among Tekni-Plex, Dolco
Packaging Corp., formerly a wholly owned subsidiary of Tekni-Plex that has been
merged into Tekni-Plex ("Dolco"), and Marine Midland Bank, as trustee (the
"Trustee"), governing the Old Notes. The Exchange Notes will be fully and
unconditionally guaranteed (the "Exchange Guarantee") by the Guarantors (if any)
in and on substantially identical form and terms as the guarantee by Dolco of
the Old Notes (the "Old Guarantee"). Currently, there are no Guarantors since
Dolco has been merged into Tekni-Plex. See "The Exchange Offer" and "Description
of Exchange Notes."
As of June 27, 1997, the Company's total debt was $75.0 million (including
the Exchange Notes) and, in addition, the Company could have borrowed up to
$75.0 million of secured senior indebtedness under the New Credit Facility (as
defined) without requiring the consent of the holder of Exchange Notes. Other
than the foregoing, the Company does not intend or plan to incur any significant
indebtedness in the near future.
Tekni-Plex will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on , 1997,
unless extended by Tekni-Plex in its sole discretion (the "Expiration Date").
Notwithstanding the foregoing, Tekni-Plex will not extend the Expiration Date
beyond , 1997 (which, if extended to such date, would represent a
maximum Exchange Offer period of days). Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m. on the Expiration Date. The Old Notes may be
tendered only in integral multiples of $1,000 principal amount. The Exchange
Offer is subject to certain customary conditions. See "The Exchange Offer."
The Old Notes were sold on April 4, 1997 (the "Issue Date") to the Initial
Purchaser (as defined) in a transaction not registered under the Securities Act
in reliance upon an exemption under the Securities Act. The Initial Purchaser
subsequently placed the Old Notes with qualified institutional buyers in
reliance upon Rule 144A under the Securities Act and with a limited number of
institutional accredited investors that agreed to comply with certain transfer
restrictions and other conditions. Accordingly, the Old Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder in order to satisfy certain obligations of
Tekni-Plex under the Registration Rights Agreement (as defined) entered into in
connection with the offering of the Old Notes. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, Tekni-Plex believes the
Exchange Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of Tekni-Plex within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and such holder
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. See "The Exchange Offer -- Purpose and
Effect of the Exchange Offer" and "The Exchange Offer -- Resale of the Exchange
Notes." Each broker-dealer (a "Participating Broker-Dealer") that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Old Notes where such Old Notes were acquired by
such Participating Broker-Dealer as a result of market-making activities or
other trading activities. Tekni-Plex has agreed that, for a period of 180 days
after the Expiration Date, it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. Tekni-Plex will
pay all the expenses incurred by it incident to the Exchange Offer. See "The
Exchange Offer."
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DESCRIPTION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND IN
EVALUATING AN INVESTMENT IN THE EXCHANGE NOTES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is 1997.
<PAGE> 4
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE EXCHANGE
OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN EXCHANGE OFFER TO, AND THE COMPANY WILL
NOT ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF OR THAT INFORMATION SET FORTH HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE
EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 4
Risk Factors.......................... 13
Use of Proceeds....................... 17
Capitalization........................ 17
Selected Historical Financial
Information......................... 18
Pro Forma Unaudited Condensed
Financial Information............... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Industry.............................. 24
Business.............................. 26
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PAGE
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Management............................ 35
Security Ownership.................... 37
Certain Transactions.................. 37
Description of New Credit Facility.... 38
The Exchange Offer.................... 39
Description of Exchange Notes......... 48
Certain United States Federal Income
Tax Considerations.................. 72
Plan of Distribution.................. 73
Legal Matters......................... 74
Experts............................... 74
Available Information................. 74
Index to Financial Statements and
Schedule............................ F-1
</TABLE>
There has not previously been any public market for the Old Notes or the
Exchange Notes. Tekni-Plex does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors -- Lack of Public Market for the
Notes." Moreover, to the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes could be adversely affected.
Initially, the Exchange Notes will be available only in book-entry form.
Tekni-Plex expects that the Exchange Notes issued pursuant to this Exchange
Offer will be issued in the form of a Global Note (as defined), which will be
deposited with, or on behalf of, The Depository Trust Company (the "Depositary"
or "DTC") and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global Note representing the Exchange Notes will be
shown on, and transfers thereof to qualified institutional buyers will be
effected through, records maintained by DTC and its participants. After the
initial issuance of the Global Note, Exchange Notes in certified form will be
issued in exchange for the Global Note only on the terms set forth in the
Indenture. See "Description of Exchange Notes -- Book-Entry; Delivery and Form."
2
<PAGE> 5
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS." ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING,
WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE "PROSPECTUS SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," "INDUSTRY," AND "BUSINESS" AND LOCATED ELSEWHERE HEREIN REGARDING
THE COMPANY'S FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS,
INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROSPECTUS AND UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN AND
ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON
ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. All references in this Prospectus to "fiscal year"
refer to the Company's fiscal year which ends on the Friday closest to June 30
of that calendar year. For example, fiscal year 1996 refers to the year-ended
June 28, 1996. Unless otherwise noted, all references in this Prospectus to
market share refer to market share within the United States.
THE COMPANY
GENERAL
The Company designs, manufactures and markets packaging materials primarily
for the pharmaceutical and food industries. The Flexible Packaging Group sells
primarily flexible packaging materials to customers including pharmaceutical
companies. The Company is the market leader for clear, high-barrier laminations
for pharmaceutical blister packaging and the Company believes, based upon its
knowledge and experience in the industry, that it has a greater than 90% share
of the market for such products. These packaging materials are used for
fast-acting pharmaceuticals that are generally highly reactive to moisture. The
Foam Products Group sells primarily foamed polystyrene packaging products such
as egg cartons and processor trays to the poultry and meat industries. The
Company believes, based upon its knowledge and experience in the industry, that
it produces in excess of 80% of all foam egg cartons and has approximately 40%
of the egg carton market. The Company has also built a strong presence in the
processor tray market, where it believes, based upon its knowledge and
experience in the industry, that it has an estimated share of greater than 20%.
The management of the Company focuses on organizational development,
imparting a results-oriented culture to all areas of its businesses. Management
seeks and implements product and process improvements to produce higher quality
products, improve efficiencies, reduce labor and material costs, and create
differentiated products and product line extensions. The Company has also
expanded its product offerings by acquiring synergistic packaging companies and
has significantly reduced costs through product line rationalization and
re-negotiation of supplier agreements. Management believes that this focus will
continue with respect to the Company's on-going business and will be the basis
for successfully integrating future acquisitions.
In March 1994, the Company was acquired by its current controlling
shareholder, and Dr. F. Patrick Smith was appointed its Chief Executive Officer.
Kenneth W.R. Baker, the current Chief Operating Officer, was appointed in April
1994. At the time of the acquisition, the Company had two operating facilities
located in Somerville, New Jersey ("Somerville"), and Brooklyn, New York
("Brooklyn"), and its principal product lines were clear, high barrier
laminations and closure liners sold primarily to the pharmaceutical industry,
and foam processor trays used predominantly for poultry packaging. In December
1995, the Company acquired the Flemington, New Jersey, operation ("Flemington")
of Hargro Flexible Packaging Corporation ("Hargro"), thereby expanding the
Company's flexible packaging product line. In February 1996, the Company
acquired Dolco, the nation's leading supplier of foam egg cartons. In August
1997, Dolco was merged into Tekni-Plex.
Since its acquisition by the current owners, the Company has achieved
significant improvements in profitability. For the year ended June 27, 1997, the
Company had revenues of $144.7 million, income before extraordinary item of $8.4
million and EBITDA of $30.2 million for an EBITDA margin of 20.9%, compared with
revenues of $44.9 million, net income of $2.8 million and EBITDA of $3.8 million
for an EBITDA margin of 8.5% for the year ended December 31, 1993. "EBITDA" is
defined as net income before interest, income taxes, depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to incur and service debt. "EBITDA margin" is
calculated as the ratio of EBITDA to net sales for the period.
The Company competes within the nearly $15 billion flexible and semi-rigid
segment of the packaging industry. The Company believes that this segment is
growing at the expense of the more mature rigid packaging segments (e.g., glass,
metal and folding cartons) that currently account for roughly $28 billion in
revenues. The Company generally competes in technically sophisticated areas,
such as primary pharmaceuti-
4
<PAGE> 7
cal packaging which is subject to strict Federal Food and Drug Administration
("FDA") regulatory requirements.
COMPETITIVE STRENGTHS
The Company believes that its competitive strengths include:
- Producer of high quality, technically sophisticated products. The
Company believes, based upon its knowledge and experience in the
industry, that it has a long-standing reputation as a manufacturer of
high-quality, high performance primary packaging products (where the
packaging material comes into direct contact with the end-product). The
Company's emphasis on quality is evidenced by its product lines which
address the high-end of their respective markets. The Company primarily
competes in technically sophisticated areas such as the high-barrier
pharmaceutical blister packaging market where high performance
characteristics are required due to the sensitive nature of the product.
A significant portion of the Company's processor tray product line is
aimed at the high-performance segment of the processor tray market where
strength and durability are essential due to the high speed, automated
machinery used by the processors. As the leading supplier of foam egg
cartons, the Company produces a high quality product with superior
performance characteristics compared to competitive offerings.
- Cost efficient producer. The Company continually focuses on improving
underlying operations and reducing costs. Since the 1994 acquisition,
current management has improved the Company's cost structure from an
EBITDA margin (as defined) of 8.5% and income before income taxes as a
percent of sales of 6.8% on sales of $44.9 million for the year ended
December 31, 1993 to an EBITDA margin (as defined) of 20.9% and income
before income taxes and extraordinary item as a percent of sales of 9.1%
on sales of $144.7 million for the year ended June 27, 1997.
- Experienced management team. The current management team has been
successful in selecting and integrating strategic acquisitions and in
improving underlying business fundamentals in the regular course of
business. Members of the management team have worked together in the
packaging industry for many years and have a strong track record.
Together, they have integrated acquisitions, effected turnarounds,
provided strategic direction and leadership, increased sales and market
share, improved manufacturing efficiencies and productivity, and
developed new technologies to enhance the competitive strengths of the
companies they have managed. See "Management."
- Strong market share in core businesses. The Company has a strong market
presence in most of its core product lines. The Company believes that it
produces in excess of 80% of all foam egg cartons and has approximately
40% of the overall egg carton market which is split approximately equally
between foam and pulp-based products. The Company believes that it has an
estimated greater than 90% share of the market for clear, high-barrier
laminations for pharmaceutical blister packaging. The Company has also
built a strong presence in the processor tray market where it believes
that it has an estimated share of greater than 20%.
- Successful integration of acquisitions. The Company has a strong track
record of identifying and integrating both small and large acquisitions.
After significantly improving the business of Tekni-Plex following the
1994 acquisition, management successfully integrated both the Flemington
and Dolco operations, the latter being a public company then nearly twice
the Company's size. During the same period, the Brooklyn and Flemington
operations were merged, substantially improving production efficiencies
and reducing waste.
- Strong customer relationships. The Company has long-standing
relationships with many of its customers. The Company estimates the
average tenure among the Company's top ten customers at more than 14
years. The Company attributes its long relationships with its customers
to the ability to consistently manufacture high quality products and to
consistently provide a superior level of customer service. The Company
routinely wins recognition for its superior products and customer service
including a recent Outstanding Supplier Award from Pharmacia & Upjohn,
and an Outstanding Quality Award from Abbott Laboratories.
5
<PAGE> 8
BUSINESS STRATEGY
The Company seeks to maximize its growth and profitability and take
advantage of its competitive strengths by pursuing the following business
strategy:
- Ongoing cost reduction through technical process improvement. The
Company has an ongoing program to improve manufacturing and other
processes in order to drive down costs. Examples of cost improvement
programs include: (i) material and energy conservation through enhanced
process controls; (ii) reduction in machine set-up time through the use
of proprietary technology; (iii) continual product line rationalization;
and (iv) development of backward integration opportunities.
- Growth through acquisitions. The Company believes that there is a
significant opportunity to consolidate the highly fragmented packaging
industry in the United States. The Company makes acquisitions based on
the following factors: (i) the Company seeks to acquire product lines
which logically extend its presence in the markets it currently serves,
thereby enhancing the Company's value to its customers; (ii) the Company
seeks add-on acquisitions which increase its market share in a particular
product line, thereby providing opportunity to gain economies of scale
and reduce costs; (iii) the Company seeks opportunities for technology
sharing where acquired and existing operations are enhanced by combining
and sharing complementary technologies; and (iv) the Company seeks
acquisitions that provide opportunity for synergistic cost reduction due
to duplication of effort and acquisitions where imparting the Company's
focused, results-oriented culture will lead to enhanced operating
results.
- Internal growth through product line extension and improvement. The
Company continually seeks to improve and extend its product lines and
leverage its existing technological capabilities in order to increase
market share and improve profitability. Before 1994, the Company's line
of pharmaceutical blister laminations addressed a relatively small
(although important) range of performance requirements, namely the
high-barrier segment of the market. New products developed since that
time have extended the Company's offerings to include the ultra-high
barrier segment (previously confined to foil-based products) and the
low-to-medium barrier segment (previously confined to solution-coated
products). In addition, the Company believes that it has a significant
opportunity to increase sales of its foamed polystyrene packaging
products by focusing on incremental improvements to these products. The
Company's strategy is to emphasize its expertise in providing primary
packaging materials with specific high performance characteristics
through the use of various plastic materials (and combinations thereof)
and proprietary production process techniques.
- Growth through international expansion. The Company currently exports
approximately ten percent of its pharmaceutical packaging sales. Given
the Company's reputation, its recently expanded product line, and the
multi-national nature of many of its customers, the Company believes
there is significant opportunity to expand international sales.
Accordingly, the Company has hired an international sales manager who has
significant experience in selling to the international pharmaceutical
industry. The Company has also begun to set up a network of agents in
various international markets.
6
<PAGE> 9
THE EXCHANGE OFFER
Old Notes.................. The Old Notes were sold on April 4, 1997 to J.P.
Morgan Securities Inc. (the "Initial Purchaser")
pursuant to a Purchase Agreement dated as of April
1, 1997 (the "Purchase Agreement") by and among the
Company, Dolco and the Initial Purchaser. The
Initial Purchaser subsequently resold the Old Notes
to qualified institutional buyers pursuant to Rule
144A under the Securities Act and to a limited
number of institutional accredited investors that
agreed to comply with certain transfer restrictions
and other conditions.
Registration Rights
Agreement.................. Pursuant to the Purchase Agreement, the Company,
Dolco and the Initial Purchaser entered into a
Registration Rights Agreement dated as of April 4,
1997 (the "Registration Rights Agreement"), which
grants to the holders of the Old Notes certain
exchange and registration rights. The Exchange
Offer is intended to satisfy certain of such
exchange rights which will terminate upon the
consummation of the Exchange Offer.
The Exchange Offer......... The Company is offering to exchange $1,000
principal amount of Exchange Notes for each $1,000
principal amount of Old Notes. As of the date
hereof, $75,000,000 aggregate principal amount of
Old Notes are outstanding.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that such Exchange Notes are acquired in
the ordinary course of such holder's business and
that such holder does not intend to participate and
has no arrangement or understanding with any person
to participate in the distribution of such Exchange
Notes.
Each Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of
Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired by such
Participating Broker-Dealer as a result of
market-making activities or other trading
activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it
will make this Prospectus available to any
Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
Any holder of Old Notes who tenders in the Exchange
Offer with the intention to participate, or for the
purpose of participating, in a distribution of the
Exchange Notes could not rely on the position of
the staff of the Commission enunciated in no-action
letters and, in the absence of an exemption
therefrom, must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with any resale
7
<PAGE> 10
transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities Act
for which the holder is not indemnified by the
Company.
Expiration Date............ 5:00 p.m., New York City time, on , 1997
unless the Exchange Offer is extended by the
Company in its sole discretion, in which case the
term "Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Notwithstanding the foregoing, the Company will not
extend the Expiration Date beyond ,
1997 (which, if extended to such date, would
represent a maximum Exchange Offer period of
days).
Interest................... Interest on Exchange Notes shall accrue from the
last interest payment date on which interest was
paid on the Old Notes so surrendered, or, if no
interest has been paid on such Old Notes, from
April 4, 1997. No interest will be paid on the Old
Notes accepted for exchange.
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Old Notes and any
other required documentation to the Exchange Agent
(as defined) at the address set forth herein. By
executing the Letter of Transmittal, each holder
will be deemed to represent to the Company, among
other things, that (i) the Exchange Notes acquired
pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such
person is the holder, (ii) neither the holder nor
any such other person has any arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes in violation of
the Securities Act, (iii) neither the holder nor
any such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of the
Company and (iv) such holder has full power and
authority to exchange the Old Notes for the
Exchange Notes. See "The Exchange Offer -- Purpose
and Effect of the Exchange Offer" and
"-- Procedures for Tendering."
Untendered Notes........... Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have any
further registration rights and such Old Notes will
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market
for such Old Notes could be adversely affected.
Consequences of
Failure to Exchange...... Old Notes that are not exchanged pursuant to the
Exchange Offer will remain restricted securities.
Accordingly, such Old Notes may be resold only (i)
to the Company, (ii) pursuant to Rule 144A or Rule
144 under the Securities Act or pursuant to some
other exemption under the Securities Act, (iii)
outside the United States to a foreign person
pursuant to the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective
registration statement under the Securities
8
<PAGE> 11
Act. See "The Exchange Offer -- Consequences of
Failure to Exchange."
Shelf Registration
Statement.................. If any holder of the Old Notes (other than any such
holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act) is not eligible under applicable securities
laws to participate in the Exchange Offer, and such
holder has provided information regarding such
holder and the distribution of such holder's Old
Notes to the Company for use therein, the Company
has agreed to register the Old Notes on a shelf
registration statement (the "Shelf Registration
Statement") and to use its best efforts to cause it
to be declared effective by the Commission as
promptly as reasonably practical on or after the
consummation of the Exchange Offer. The Company has
agreed to maintain the effectiveness of the Shelf
Registration Statement, under certain
circumstances, until the date on which the Old
Notes are no longer "restricted securities" (within
the meaning of Rule 144 under the Securities Act).
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes
in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer
of registered ownership may take considerable time.
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date,
must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes
and Delivery of
Exchange Notes........... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered on the earliest practicable date
following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
Use of Proceeds............ The Company will not receive any cash proceeds from
the issuance of the Exchange Notes in the Exchange
Offer. See "Use of Proceeds."
Exchange Agent............. Marine Midland Bank, as Trustee, is serving as
Exchange Agent in connection with the Exchange
Offer.
9
<PAGE> 12
THE EXCHANGE NOTES
General.................... The form and terms of the Exchange Notes are
substantially identical to the form and terms of
the Old Notes except that (i) the Exchange Notes
bear a Series B designation, (ii) the Exchange
Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting
the transfer thereof, and (iii) the holders of
Exchange Notes will not be entitled to certain
rights under the Registration Rights Agreement,
including the provisions providing for an increase
in the interest rate on the Old Notes in certain
circumstances relating to the timing of the
Exchange Offer, which rights will terminate when
the Exchange Offer is consummated. See "The
Exchange Offer -- Purpose and Effect of the
Exchange Offer." The Exchange Notes will evidence
the same debt as the Old Notes (which they replace)
and will be entitled to the benefits of the
Indenture. See "Description of Exchange Notes." The
Old Notes and/or the Exchange Notes, whichever was,
is or will be outstanding in the particular
context, are referred to herein collectively as the
"Notes."
Securities Offered......... $75,000,000 aggregate principal amount of Series B
11 1/4% Senior Subordinated Notes due 2007 of the
Company.
Maturity Date.............. April 1, 2007.
Interest Payment Dates..... April 1 and October 1 of each year, commencing
October 1, 1997.
Ranking.................... The Exchange Notes will constitute unsecured debt
obligations of the Company and will rank
subordinate in right of payment to all existing and
future Senior Debt including any Indebtedness (as
defined) under the Credit Agreement. At June 27,
1997, there was no outstanding indebtedness to
which the Notes were subordinated. However, the
Company can borrow up to approximately $75 million
under the terms of the Credit Agreement, all of
which would constitute Senior Debt. See
"Description of New Credit Facility."
Exchange Guarantee......... The Exchange Notes will be fully and
unconditionally guaranteed, jointly and severally,
on a senior subordinated basis by the Guarantors
(as defined), if any. Currently, there are no
Guarantors since Dolco has been merged into
Tekni-Plex. The form and terms of the Exchange
Guarantee (if any) will be substantially identical
to the form and terms of the Old Guarantee. The
Exchange Guarantee will be a general unsecured
obligation of each Guarantor and will rank
subordinate in right of payment to all existing and
future Senior Debt of such Guarantor, including
such Guarantor's guarantee of Indebtedness under
the Credit Agreement. The Exchange Guarantee will
rank pari passu in right of payment with any other
senior subordinated indebtedness of such Guarantor.
The Old Guarantee and/or the Exchange Guarantee,
whichever was, is or will be outstanding in the
particular context, are referred to herein
collectively as the "Guarantee."
Optional Redemption........ The Exchange Notes will be redeemable at the option
of the Company, in whole or in part, at any time on
or after April 1, 2002, at the redemption prices
set forth herein, plus accrued and unpaid interest
to the redemption date. In addition, on or prior to
April 1, 2000, the Company may redeem up to 33% in
aggregate principal amount of the Notes at a
redemption price of 111.25% of the principal amount
thereof, plus accrued and unpaid interest to the
redemption date, with the net cash proceeds
received by the Company from one or more public
10
<PAGE> 13
offerings of its Capital Stock (as defined) (other
than Disqualified Stock (as defined)); provided,
however, that at least $60.0 million in aggregate
principal amount of the Notes remains outstanding
immediately after any such redemption (excluding
any Notes owned by the Company or any of its
Affiliates (as defined)). See "Description of
Exchange Notes -- Optional Redemption."
Change of Control.......... Upon a Change of Control (as defined), each holder
of the Exchange Notes may require the Company to
repurchase such holder's Exchange Notes, in whole
or in part, at a purchase price equal to 101% of
the principal amount thereof plus accrued and
unpaid interest to the purchase date. See
"Description of Exchange Notes -- Change of
Control." The Credit Agreement prohibits the
purchase of outstanding Exchange Notes prior to
repayment of the borrowings under the Credit
Agreement. There can be no assurance that upon a
Change of Control the Company will have sufficient
funds to repurchase any of the Exchange Notes. See
"Description of New Credit Facility."
Modification of
the Indenture............ The Company and the Trustee, with the consent of
the holders of a majority in aggregate principal
amount of the outstanding Notes, may amend the
Indenture; provided, however, that consent is
required from the holder of each Note affected
thereby in instances such as reductions in the
amount or changes in the timing of interest
payments, reductions in the principal and changes
in the maturity, redemption or repurchase dates of
the Notes. See "Description of Exchange
Notes -- Modification and Waiver."
Events of Default.......... An Event of Default (as defined) occurs under the
Indenture in instances such as the failure to pay
principal when due, the failure to pay any interest
within 30 days of when due and payable, the failure
to perform or comply with various covenants under
the Indenture or the default under the terms of
certain other indebtedness of the Company. See
"Description of Exchange Notes -- Events of
Default."
Covenants.................. The Indenture contains certain covenants that,
among other things, limits the ability of the
Company or any of its Restricted Subsidiaries (as
defined) to incur additional Indebtedness, make
certain Restricted Payments (as defined) and
Investments (as defined), create Liens (as
defined), permit dividend or other payment
restrictions to apply to Subsidiaries (as defined),
enter into certain transactions with Affiliates or
Related Persons (as defined) or consummate certain
merger, consolidation or similar transactions. In
addition, in certain circumstances, the Company
will be required to offer to purchase Exchange
Notes at 100% of the principal amount thereof with
the net proceeds of certain asset sales. These
covenants are subject to a number of significant
exceptions and qualifications. See "Description of
Exchange Notes."
For additional information regarding the Exchange Notes, see "Description
of Exchange Notes."
RISK FACTORS
Prospective investors should carefully consider the specific matters set
forth under "Risk Factors" as well as the other information and data included in
this Prospectus in evaluating the Exchange Offer and an investment in the
Exchange Notes.
11
<PAGE> 14
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The following table sets forth (i) summary historical consolidated
financial information of the Company for the periods provided below, and (ii)
adjusted pro forma financial information for the Company as of and for the year
ended June 27, 1997. The information contained in the table has been derived
from, and should be read in conjunction with, the audited consolidated financial
statements of the Company, including the notes thereto. The accompanying pro
forma unaudited condensed statements of operations are based upon the
consolidated financial statements of Tekni-Plex, adjusted to give effect to the
Transactions (as defined), as if the Transactions had occurred at the beginning
of the period presented.
<TABLE>
<CAPTION>
ADJUSTED
YEARS ENDED PRO FORMA (a)
-------------------------------------- -------------
JUN. 30, JUN. 28, JUN. 27, YEAR
1995 1996 1997 ENDED
-------- -------- -------- JUN. 27,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................................... $ 44,688 $ 80,917 $144,736 $ 144,736
Gross profit....................................................... 9,747 18,582 107,007 107,007
Income from operations............................................. 4,933 8,243 37,729 37,729
Interest expense................................................... 4,322 5,816 8,094 8,856
Other expense...................................................... 234 469 646 646
Pre-tax income before extraordinary item........................... 377 1,958 13,103 12,341
Income tax provision............................................... 211 982 4,675 4,385
Income before extraordinary item................................... 166 976 8,428 7,956
Net income (loss).................................................. $ 166 $ 976 $(12,238) $ (12,710)
OTHER FINANCIAL DATA:
EBITDA (b)......................................................... $ 7,922 $ 14,157 $ 30,223 $ 30,223
EBITDA margin (b).................................................. 17.7% 17.5% 20.9% 20.9%
Depreciation and amortization...................................... $ 3,462 $ 6,821 $ 9,551 $ 9,551
Capital expenditures............................................... 614 2,275 3,934 3,934
Cash flows:
From operations................................................ 2,354 6,568 19,459 18,697
From investing................................................. (614) (49,522) (6,273) (6,273)
From financing................................................. (1,451) 43,669 (3,140) (3,140)
RATIOS:
Ratio of earnings to fixed charges (c)............................. 1.1x 1.3x 2.6x 2.4x
Ratio of EBITDA to interest expense................................ 3.4
BALANCE SHEET DATA (END OF PERIOD):
Working capital.................................................... $ 3,173 $ 11,660 $ 25,950 $ 25,950
Total assets....................................................... 53,415 121,770 129,029 129,029
Total debt (including current portion)............................. 35,004 70,436 75,000 75,000
Stockholders' equity............................................... 11,687 24,162 30,397 30,397
</TABLE>
- ---------------
(a) Amounts represent the pro forma statement of operations data, balance sheet
data and other financial data of the Company after giving effect to the
Transactions in the manner described under "Pro Forma Unaudited Condensed
Financial Information."
(b) EBITDA is defined as net income before interest, income taxes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
However, EBITDA should not be considered in isolation as a substitute for
net income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of the Company's profitability or
liquidity. In addition, this measure of EBITDA may not be comparable to
similar measures reported by other companies. EBITDA margin is calculated as
the ratio of EBITDA to net sales for the period. For fiscal 1996,
amortization included $522 related to the write off of prior unamortized
debt costs.
(c) For purposes of the ratio of earnings to fixed charges, (i) earnings are
calculated as the Company's earnings before income taxes, extraordinary item
and fixed charges and (ii) fixed charges include interest on all
indebtedness, amortization of deferred financing costs and accretion of all
warrants.
12
<PAGE> 15
RISK FACTORS
Holders of Old Notes should consider carefully the following factors as
well as the other information and data included in this Prospectus prior to
tendering their Old Notes in the Exchange Offer.
SUBSTANTIAL LEVERAGE; RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S
INDEBTEDNESS
The Company's total debt and stockholder's equity was $75.0 million and
$30.4 million, respectively, as of June 27, 1997. On a pro forma basis after
giving effect to the Transactions, the Company's annual debt service would have
been $8.5 million and the ratio of earnings to fixed charges would have been 2.4
to 1 for the fiscal year ended June 27, 1997.
As of June 27, 1997, and subject to certain restrictions, the Company could
have borrowed up to $75.0 million of secured senior indebtedness under the New
Credit Facility without requiring the consent of the holders of Exchange Notes.
If the entire $75.0 million under the New Credit Facility had been outstanding
from the beginning of fiscal year 1997, the Company's annual debt service (all
interest) for such fiscal year would have increased by approximately $6.4
million based on an assumed fixed interest rate of 8.5%. A substantial increase
in the Company's leverage and obligations could have important consequences to
the holders of Exchange Notes, including: (i) the impairment of the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or other purposes; (ii) the use of a substantial
portion of the Company's cash flow from operations for debt service; (iii) the
competitive disadvantages that may result from the Company being more highly
leveraged than some of its competitors; and (iv) making the Company more
vulnerable to economic downturns and limiting its ability to withstand
competitive pressures.
In addition, the Company's operating flexibility with respect to certain
business matters will be limited by covenants contained in the Indenture and the
New Credit Facility. Among other things, these covenants will limit the ability
of the Company and its subsidiaries to incur additional indebtedness, create
liens upon assets, apply the proceeds from disposal of assets, make dividend
payments and other distributions on capital stock and redeem capital stock.
There can be no assurance that such covenants will not adversely affect the
Company's ability to finance its future operations or capital needs or to engage
in other business activities that may be in the interest of the Company. See
"Description of New Credit Facility" and "Description of Exchange
Notes -- Covenants."
The Company expects that its cash flow will be sufficient to cover its
expenses, including fixed charges. However, no assurance can be given that the
Company's operating results will be sufficient for the Company to meet such
obligations. The Company's ability to satisfy its obligations will be dependent
upon its future performance, which is subject to prevailing economic conditions
and financial, business and other factors, including factors beyond the
Company's control.
RAW MATERIAL PRICE VOLATILITY AND AVAILABILITY
The Company's polystyrene foam products are manufactured from high heat
crystal polystyrene resin ("polystyrene resin"). Polystyrene resin is a
commodity petrochemical that is readily available in bulk quantities from
numerous large, vertically integrated chemical companies. The Company purchases
polystyrene resin from several of the top suppliers. Prices for polystyrene
resin have fluctuated in the past and may continue to do so in the future.
Historically, the Company has been able to pass on substantially all of the
price increases in raw materials to its customers. However, there can be no
assurance that the Company will be able to do so in the future. If raw material
prices increase and the Company is unable to pass such price increases on to its
customers, employ successful hedging strategies, enter into supply contracts at
favorable prices or buy on the spot market at favorable prices, the Company's
profitability may be adversely affected.
A key raw material used in manufacturing the Company's blister packaging
materials is Aclar(R), a proprietary material produced by Allied Signal. Allied
Signal is currently the sole manufacturer and supplier of Aclar(R). There is no
long-term supply contract with Allied Signal and any interruption in the supply
of this material could disrupt production of the Company's blister packaging
materials. To the extent that the
13
<PAGE> 16
Company's supply of raw materials is hindered and no alternative source can be
found, the Company's profitability may be adversely affected.
COMPETITION
Many of the Company's competitors are larger and, in some cases, have
significantly greater resources than the Company. Within the polystyrene foam
processor tray market, the Company competes principally with Tenneco Packaging
and W.R. Grace, both of which have significantly greater financial resources
than the Company and together control the largest share of this market. In the
egg packaging market, the Company's primary competitor is Tenneco Packaging
which manufactures pulp-based egg cartons. The Company's clear, high-barrier
pharmaceutical blister packaging products primarily compete with solution-coated
and foil-based products manufactured by various competitors including Klockner
Pentaplast. See "Business -- Competition." While the packaging industry overall
is relatively large, the market for high performance pharmaceutical-type
packaging materials is considerably smaller, and the Company's achievement of
its internal expansion goals assumes expansion of its customers' volume for its
products, finding new applications for its existing high performance materials,
and development of new materials for new applications.
INTEGRATION OF ACQUISITIONS
As part of its business strategy, the Company intends to pursue suitable
acquisitions. Nonetheless, there can be no assurance that the Company will
identify suitable acquisitions or that such acquisitions can be made at an
acceptable price. In the event the Company acquires additional businesses, it
may require substantial capital. Although the Company will be able to borrow
under the New Credit Facility under certain circumstances to fund acquisitions,
there can be no assurance that such borrowings will be available in sufficient
amount or that other financing will be available in amounts and on terms that
the Company deems acceptable. Furthermore, the integration of acquired
businesses may result in unforeseen difficulties that require a disproportionate
amount of management's attention and other Company resources. There can be no
assurance that the Company will continue to achieve synergies comparable to
those from recent acquisitions.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the management experience and continued
services of its executive officers, including Dr. F. Patrick Smith and Kenneth
W.R. Baker. See "Management." The loss of the services of these officers could
have a material adverse effect on the Company's business. In addition, the
Company's continued growth depends on its ability to attract and retain
experienced key employees.
ENVIRONMENTAL MATTERS
Like similar companies, the Company's facilities, operations, and
properties are subject to federal, state, and local environmental laws and
regulations. As a result, the Company is involved from time to time in
administrative or legal proceedings relating to environmental matters. There can
be no assurance that the aggregate amount of future compliance costs and other
environmental liabilities will not be material. The Company cannot predict what
environmental legislation or regulations will be enacted in the future, how
existing or future laws or regulations will be administered or interpreted or
what environmental conditions may be found to exist. Enactment of more stringent
laws or regulations or more strict interpretation of existing laws and
regulations may require additional expenditures by the Company, some of which
could be material. See "Business -- Environmental Matters."
Prior to the 1994 acquisition of the Company, public awareness and interest
in environmental issues adversely affected the polystyrene foam packaging
industry. In particular, in 1990, McDonald's discontinued its well-recognized
polystyrene foam clam shell sandwich package in favor of paper packaging. In
response, various recycling programs were commenced in the United States.
Although the Company believes that the environmental concerns that negatively
affected demand for these products in the 1980s have subsided and, to some
extent, given way to a view by many that polystyrene foam does not have
significantly worse
14
<PAGE> 17
environmental problems than other materials, there can be no assurance that
public awareness and interest in environmental issues will not adversely affect
the plastics and polystyrene industry.
CONTROL OF THE COMPANY
The Company is owned by Tekni-Plex Partners L.P., a limited partnership
organized under the laws of the State of Delaware, and its related investors
(the "Tekni-Plex Partnership"). Tekni-Plex Partnership beneficially owns 100
percent of the outstanding shares of the Company and 97.5% of the Company on a
fully diluted basis and controls the affairs and policies of the Company.
Tekni-Plex Partnership is controlled by MST/TP Partners, L.P. ("MST/TP L.P."),
which in turn is controlled, directly or indirectly, by J. Andrew McWethy, Barry
A. Solomon, and Stephen A. Tuttle, who are all directors of the Company.
Circumstances may occur in which the interests of Tekni-Plex Partnership, MST/TP
L.P. and the three individuals could be in conflict with the interests of the
holders of the Exchange Notes. In addition, Tekni-Plex Partnership may have an
interest in pursuing acquisitions, divestitures or other transactions that, in
its judgment, could enhance the value of its individual partners' equity
investments in the partnership, even though such transactions may involve risks
to the holders of the Exchange Notes.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Exchange Notes
may require the Company to repurchase all or a portion of such holder's Exchange
Notes. If a Change of Control were to occur, there can be no assurance that the
Company would have sufficient financial resources, or would be able to arrange
financing to pay the repurchase price for all Exchange Notes tendered by holders
thereof. Further, the provisions of the Indenture may not afford holders of
Exchange Notes protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction involving the
Company that may adversely affect holders of Exchange Notes, if such transaction
does not result in a Change of Control. In addition, the terms of the New Credit
Facility may limit the Company's ability to repurchase any Exchange Notes and
will also identify certain events that would constitute a Change of Control, as
well as certain other events with respect to the Company or certain of its
subsidiaries, that would constitute an event of default under the New Credit
Facility. Any future credit agreements or other agreements relating to other
indebtedness to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Company is prohibited from repurchasing Exchange Notes, the Company
could seek the consent of its lenders to repurchase Exchange Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such consent or repay such borrowing, the Company would
remain prohibited from repurchasing Exchange Notes. In such case, the Company's
failure to repurchase tendered Exchange Notes would constitute an Event of
Default under the Indenture, which would, in turn, constitute a further default
under certain of the Company's existing debt agreements and may constitute a
default under the terms of other indebtedness that the Company may enter into
from time to time. See "Description of Exchange Notes -- Change of Control."
RANKING OF THE EXCHANGE NOTES
The Exchange Notes will be senior subordinated unsecured obligations of the
Company, and will rank subordinate in right of payment to all existing and
future senior indebtedness of the Company. In addition, the Exchange Notes will
be effectively subordinated in right of payment to all existing and future
secured indebtedness of the Company and the Company's subsidiaries, including
indebtedness under the New Credit Facility. Loans under the New Credit Facility
will be secured by substantially all of the assets of the Company. As of June
27, 1997, there was no outstanding indebtedness to which the Exchange Notes were
subordinated. However, the Company could have borrowed up to $75.0 million of
indebtedness under the New Credit Facility and, without the consent of the
holders of the Exchange Notes, may increase such facility to $100.0 million, all
of which would constitute Senior Debt. Further, the Company intends to borrow
under such facility in the relative short term. The Guarantee (if any) will be
senior subordinated unsecured obligations of the Guarantor (if any), and will
rank subordinate in right of payment to all existing and future senior
indebtedness of such Guarantor, including its guarantee (if any) under the New
Credit Facility. Under the
15
<PAGE> 18
terms of the Indenture, the Company will be permitted, upon the satisfaction of
certain conditions, to incur additional senior indebtedness. See "Description of
New Credit Facility," "Description of Exchange Notes -- Ranking" and
"-- Covenants."
LACK OF PUBLIC MARKET FOR THE NOTES
Prior to the Exchange Offer, there has not been any public market for the
Old Notes. The Old Notes have not been registered under the Securities Act and
will be subject to restrictions on transferability to the extent that they are
not exchanged for Exchange Notes by holders who are entitled to participate in
the Exchange Offer. The holders of Old Notes (other than any such holder that is
an "affiliate" of the company within the meaning of Rule 405 under the
Securities Act) who are not eligible to participate in the Exchange Offer are
entitled to certain registration rights, and the Company is required to file a
Shelf Registration Statement with respect to such Old Notes. The Exchange Notes
will constitute a new issue of securities with no established trading market,
and there can be no assurance as to (i) the liquidity of any such market that
may develop, (ii) the ability of holders of Exchange Notes to sell their
Exchange Notes or (iii) the price at which the holders of Exchange Notes would
be able to sell their Exchange Notes. If such a market were to exist, the
Exchange Notes could trade at prices that may be higher or lower than their
principal amount or purchase price, depending on many factors, including
prevailing interest rates, the market for similar notes and the financial
performance of the Company and its subsidiary. The Company does not intend to
list the Exchange Notes on any national securities exchange or to seek the
admission thereof to trading in the National Association of Securities Dealers
Automated Quotation System. The Company has been advised by the Initial
Purchaser that, following completion of the Exchange Offer, the Initial
Purchaser presently intends to make a market in the Exchange Notes. However, the
Initial Purchaser is not obligated to do so, and any market-making activity with
respect to the Exchange Notes may be 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 Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and may be limited during such exchange offer or the pendency
of an applicable shelf registration statement. There can be no assurance that an
active trading market will develop for the Exchange Notes or that such trading
market will be liquid. If a trading market does not develop or is not
maintained, holders of the Exchange Notes may experience difficulty in reselling
the Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market may be discontinued at any time.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof and, upon
consummation of the Exchange Offer, certain registration rights under the
Registration Rights Agreement will terminate. In addition, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transactions. Each Participating Broker-Dealer that receives Exchange
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution." To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes could be adversely affected. See "The Exchange Offer."
16
<PAGE> 19
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes in the
Exchange Offer.
On April 4, 1997, the gross proceeds of $75.0 million from the issuance of
the Old Notes and the net proceeds of approximately $18.4 million from the
additional contribution of capital to the Company were used to: (i) repay all
outstanding obligations under the then Existing Credit Facility (approximately
$36.8 million); (ii) repay the then existing senior subordinated notes,
including accrued interest and the applicable premium, (approximately $25.2
million); (iii) repurchase the then outstanding warrants ($20.0 million); and
(iv) pay transaction expenses related to the issuance of Old Notes
(approximately $4.2 million); and the remainder (approximately $7.2 million) was
retained for general corporate purposes. The issuance of the Old Notes, the
execution of the New Credit Facility and the additional contribution of capital
to the Company, collectively with the use of proceeds thereof set forth above,
are referred to herein as the "Transactions."
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of June 27, 1997. See "Use of Proceeds."
<TABLE>
<CAPTION>
ACTUAL
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
Long-term debt (including current portion):
New Credit Facility(a)........................................ $ --
11 1/4% Senior Subordinated Notes due 2007.................... 75,000
-------
Total long-term debt............................................ 75,000
-------
Stockholder's equity:
Common stock and additional paid-in capital................... 41,473
Retained earnings(b).......................................... (11,076)
-------
Total stockholder's equity...................................... 30,397
-------
Total capitalization.................................. $ 105,397
=======
</TABLE>
- ---------------
(a) As of June 27, 1997, the Company had approximately $75,000 unused and
available, subject to certain restrictions, under the New Credit Facility.
(b) Reflects loss on early extinguishment of notes, repurchase of warrants and
write-off of debt issue costs.
17
<PAGE> 20
SELECTED HISTORICAL FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The following table sets forth selected historical consolidated financial
information of the Company, and has been derived from and should be read in
conjunction with the Company's audited consolidated financial statements,
including the notes thereto. In addition, on March 18, 1994, Tekni-Plex was
acquired by the current owners, in a transaction accounted for under the
purchase method of accounting. The financial statements for the periods prior to
March 18, 1994 are presented on the predecessors' basis of accounting and
accordingly, are not comparable to the periods subsequent to March 18, 1994.
<TABLE>
<CAPTION>
FOR THE PERIODS
----------------------- YEARS ENDED
YEARS ENDED DEC. 31, JAN. 1 TO MAR. 19 TO ----------------------------------
--------------------- MAR. 18, JUL. 1, JUN. 30, JUN. 28, JUN. 27,
1992 1993 1994 1994 1995 1996 1997
------- ------- --------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $43,453 $44,878 $ 9,418 $ 12,723 $ 44,688 $ 80,917 $144,736
Cost of goods sold...................... 35,860 36,604 7,924 9,961 34,941 62,335 107,007
Gross profit............................ 7,593 8,274 1,494 2,762 9,747 18,582 37,729
Selling, general and administrative
expenses.............................. 4,057 5,076 602 1,521 4,814 10,339 15,886
Income from operations.................. 3,536 3,198 892 1,241 4,933 8,243 21,843
Interest expense........................ 196 160 22 1,141 4,322 5,816 8,094
Other (income) expense.................. (33) 7 45 62 234 469 646
Pre-tax income before extraordinary
item.................................. 3,373 3,031 825 38 377 1,958 13,103
Income tax provision(a)................. 305 267 56 17 211 982 4,675
Income before extraordinary item........ 3,068 2,764 769 21 166 976 8,428
Extraordinary item (loss)(d)............ -- -- -- -- -- -- (20,666)
Net income (loss)....................... $ 3,068 $ 2,764 $ 769 $ 21 $ 166 $ 976 $(12,238)
OTHER FINANCIAL DATA:
EBITDA(b)............................... $ 4,204 $ 3,800 $ 985 $ 1,988 $ 7,922 $ 14,157 $ 30,223
EBITDA margin(b)........................ 9.7% 8.5% 10.5% 15.6% 17.7% 17.5% 20.9%
Depreciation and amortization........... $ 636 $ 608 $ 138 $ 879 $ 3,462 $ 6,821 $ 9,551
Capital expenditures.................... 502 1,423 420 157 614 2,275 3,934
Cash flows:
From operations..................... 2,181 3,512 (564) 1,147 2,354 6,568 19,459
From investing...................... (1,295) (1,871) 315 (45,567) (614) (49,522) (6,273)
From financing...................... (680) (570) (1,121) 44,465 (1,451) 43,669 (3,140)
Ratio of earnings to fixed charges(c)... 18.2x 19.9x 38.5x 1.0x 1.1x 1.3x 2.6x
Ratio of EBITDA to interest expense..... 1.7 1.8 2.4 3.4
BALANCE SHEET DATA:
Working capital......................... $ 5,307 $ 6,023 $ 4,565 $ 1,673 $ 3,173 $ 11,660 $ 25,950
Total Assets............................ 13,204 15,701 14,900 53,724 53,415 121,770 129,029
Total debt (including current
portion).............................. 1,913 1,616 588 36,396 35,004 70,436 75,000
Stockholders' equity.................... 7,565 10,086 10,855 11,521 11,687 24,162 30,397
</TABLE>
- ---------------
(a)Prior to the acquisition of Tekni-Plex by the current owners, the previous
owners elected to be taxed as an "S" corporation for federal income tax
purposes. Accordingly, there was no provision for federal income taxes for
periods prior to March 18, 1994 as such income was reported on the federal
income tax returns of the shareholders.
(b) EBITDA is defined as net income before interest, income taxes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of the Company's ability to incur and service debt.
However, EBITDA should not be considered in isolation as a substitute for
net income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. In addition, this measure of EBITDA may not be comparable to
similar measures reported by other companies. EBITDA margin is calculated as
the ratio of EBITDA to net sales for the period. For fiscal 1996,
amortization included $522 related to the write off of prior unamortized
debt costs.
(c) For purposes of the ratio of earnings to fixed charges, (i) earnings are
calculated as the Company's earnings before income taxes, extraordinary item
and fixed charges and (ii) fixed charges include interest on all
indebtedness, amortization of deferred financing costs and accretion of the
warrant.
(d) Extraordinary loss resulting from the early extinguishment of debt in
connection with the Transactions.
18
<PAGE> 21
PRO FORMA UNAUDITED CONDENSED FINANCIAL INFORMATION
The accompanying pro forma unaudited condensed statements of operations are
based upon the historical consolidated financial statements of Tekni-Plex,
adjusted to give effect to the Transactions, as if the Transactions had occurred
at the beginning of the period presented. The pro forma condensed statements of
operations are not necessarily indicative of the results that would have been
obtained if the Transactions had occurred on the dates indicated or for any
future period or date. The pro forma adjustments give effect to available
information and assumptions that the Company believes are reasonable. The pro
forma condensed financial information should be read in conjunction with the
Company's historical consolidated financial statements and notes thereto and the
historical consolidated financial statements of Dolco and the notes thereto. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PRO FORMA UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 27, 1997
--------------------------------------------
TRANSACTION ADJUSTED
TEKNI-PLEX ADJUSTMENTS PRO FORMA
-------------- ----------- ---------
<S> <C> <C> <C>
Net sales.............................................. $144,736 $ -- $ 144,736
Cost of sales.......................................... 107,007 -- 107,007
------- -------
Gross profit........................................... 37,729 -- 37,729
Selling, general and administrative expenses........... 15,886 -- 15,886
------- ------- -------
Income from operations................................. 21,843 -- 21,843
Other expenses (income):
Interest............................................. 8,094 762(a) 8,856
Other................................................ 646 -- 646
------- ------- -------
Income before provision for income taxes and
extraordinary item................................... 13,103 (762) 12,341
Provision for income taxes............................. 4,675 (290)(b) 4,385
------- ------- -------
Income before extraordinary item....................... $ 8,428 $(472) $ 7,956
Extraordinary item (loss).............................. (20,666) -- (20,666)
------- ------- -------
Net income (loss)............................ $(12,238) $(472) $ (12,710)
======= ======= =======
</TABLE>
- ---------------
Adjustments to reflect the Transaction, as if it had occurred as of June 29,
1996, are to record the following:
(a) The pro forma adjustments to interest expense for the period June 29,
1996 through April 3, 1997 reflect the following:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 27, 1997
-------------------
<S> <C>
Existing Credit Facility.......................................................... $(3,265)
Existing senior subordinated notes................................................ (2,160)
Amortization of existing deferred financing costs and warrants.................... (447)
Interest expense on the Notes at a rate of 11.25%................................. 6,329
Interest expense on the New Credit Facility at an assumed rate of 7.5%............ --
Amortization of estimated net deferred financing costs............................ 305
------------
$ 762
============
</TABLE>
(b) The tax benefit of $290 for the year ended June 27, 1997, on adjustment
(a), calculated at the Company's marginal effective tax rate of 38%.
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARABILITY OF PERIODS
Financial results for the year ended June 27, 1997 are not fully comparable
to the year ended June 28, 1996, and financial results for the year ended June
28, 1996 are not fully comparable to the year ended June 30, 1995, because of
the acquisition of Flemington on December 22, 1995 (although the Company does
not consider this acquisition in itself to be substantial in the overall
context) and the acquisition of Dolco on February 21, 1996.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Historical Financial Information" and the Financial Statements
included elsewhere in this Prospectus. The following table sets forth, for the
periods indicated, selected operating data as a percentage of net sales.
SELECTED FINANCIAL INFORMATION
(PERCENTAGE OF NET SALES)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
JUNE 30, JUNE 28, JUNE 27,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0%
Cost of sales.............................................. 78.2 77.0 73.9
Gross profit............................................... 21.8 23.0 26.1
Selling, general and administrative expenses............... 10.8 12.8 11.0
Income from operations..................................... 11.0 10.2 15.1
Interest expense........................................... 9.7 7.2 5.6
Provision for income taxes................................. 0.5 1.2 3.2
Income before extraordinary item........................... 0.4 1.2 5.8
Extraordinary item (loss).................................. -- -- (14.3)
Net income (loss).......................................... 0.4 1.2 (8.5)
Depreciation and amortization.............................. 7.7 8.4 6.6
EBITDA(a).................................................. 17.7 17.5 20.9
</TABLE>
- ---------------
(a) EBITDA is defined as net income before interest, income taxes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
However, EBITDA should not be considered in isolation as a substitute for
net income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of the Company's profitability or
liquidity. In addition, this measure of EBITDA may not be comparable to
similar measures reported by other companies.
YEAR ENDED JUNE 27, 1997 COMPARED TO YEAR ENDED JUNE 28, 1996
Net Sales for the year ended June 27, 1997 were $144.7 million, a 78.9%
increase over net sales of $80.9 million for the year ended June 28, 1996. The
increase was due primarily to the acquisition of Dolco in February 1996, which
accounted for $55.2 million, and to a much lesser extent to the acquisition of
Flemington in December 1995. The level of growth for the year ended June 27,
1997, is not necessarily indicative of future operations.
Cost of sales increased to $107.0 million for the year ended June 27, 1997,
of which the Dolco operation accounted for $40.3 million of such increase, from
$62.3 million for the same period in 1996. Expressed as a percentage of net
sales, cost of sales improved to 73.9% for the year ended June 27, 1997 from
77.0% for the same period in 1996. The decline in cost of sales as a percentage
of net sales was due primarily to a decline in raw material costs resulting from
improved market conditions and the increased purchasing power of the
20
<PAGE> 23
Company. This level of increase in costs and decrease as a percent of sales may
not be indicative of future operations.
Gross profit, as a result, increased to $37.7 million or 26.1% of net sales
for the year ended June 27, 1997, from $18.6 million or 23.0% of net sales for
the same period in 1996.
Selling, general and administrative expenses increased to $15.9 million or
11.0% of net sales for the year ended June 27, 1997, from $10.3 million or 12.8%
of net sales for the same period in 1996. Selling, general and administrative
expenses decreased as a percentage of net sales due primarily to the acquisition
of Dolco with no relatively comparable increase in the general and
administrative staff of the Company. See also note 9 to the financial statements
of the Company regarding stock options.
Income from operations increased to $21.8 million or 15.1% of net sales for
the year ended June 27, 1997, from $8.2 million or 10.2% of net sales for the
same period in 1996, for the reasons stated above.
Interest expense increased to $8.1 million or 5.6% of net sales for the
year ended June 27, 1997, from $5.8 million or 7.2% of net sales for the same
period in 1996 due primarily to increased borrowings related to the Dolco
acquisition which accounted for an increase of $2.4 million. Expressed as a
percentage of net sales, interest expense for the 1997 period fell to 5.6% from
7.2% for the 1996 period as a result of the decreasing debt as a percentage of
net sales following the Dolco and Flemington acquisitions.
Provision for income taxes increased to $4.7 million or 3.2% of net sales
for the year ended June 27, 1997, from $1.0 million or 1.2% of net sales for the
same period in 1996. The Company's effective tax rate was 36% for the year ended
June 27, 1997. The decrease from the Company's expected rate of 38% was a result
of the realization of certain state tax benefits.
Income before extraordinary item increased to $8.4 million or 5.8% of net
sales for the year ended June 27, 1997, from $1.0 million or 1.2% of net sales
for the same period in 1996, for the reasons discussed above.
Extraordinary loss on early extinguishment of debt. On April 4, 1997, the
Company issued $75.0 million of the Notes. Interest on the Notes is payable
semi-annually. The Company also received approximately $18.4 million in
additional capital contribution. These proceeds were used to repay the balance
of $36.8 million on the Existing Credit Facility, repay the then existing senior
subordinated notes for $25.2 million, including a prepayment penalty of $1.2
million, and repurchase the redeemable warrants for $20.0 million. These
transactions resulted in an extraordinary loss of $20.7 million for the year
ended June 27, 1997. The extraordinary loss comprised of (i) the prepayment
penalty of $1.2 million and the write-off of deferred financing costs and debt
discount of $3.4 million, net of the combined tax benefit of $1.8 million, and
(ii) the loss of the repurchase of the warrant of $17.8 million.
Net income (loss) decreased to a loss of $12.2 million or 8.5% of net sales
for the year ended June 27, 1997 from a net income of $1.0 million or 1.2% of
net sales for the same period in 1996, for the reasons discussed above.
Depreciation and amortization increased to $9.6 million or 6.6% of net
sales for the year ended June 27, 1997 from $6.8 million or 8.4% of net sales
for the same period in 1996. The increase in depreciation and amortization is
due to the acquisition of Dolco which represented $4.0 million of depreciation
and amortization.
EBITDA increased to $30.2 million or 20.9% of net sales for the year ended
June 27, 1997, from $14.2 million or 17.5% of net sales or the same period in
1996, for the reasons stated above.
YEAR ENDED JUNE 28, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
Net sales increased to $80.9 million in fiscal year 1996, representing an
increase of $36.2 million or 81.1% over net sales of $44.7 million in fiscal
year 1995. The increase in net sales was primarily the effect of four full
months of Dolco results.
Cost of sales increased to $62.3 million in fiscal year 1996 from $34.9
million in fiscal year 1995, primarily due to the acquisitions. However, when
expressed as a percent of net sales, cost of sales decreased to 77.0% for fiscal
year 1996 from 78.2% for fiscal year 1995. The decline in cost of sales as a
percentage of net sales was
21
<PAGE> 24
due primarily to the increased purchasing power of the Company and reductions in
manufacturing overhead as a result of the Dolco acquisition.
Gross profit, as a result, increased to $18.6 million or 23.0% of net sales
in fiscal year 1996 from $9.7 million or 21.8% of net sales in fiscal year 1995.
Selling, general and administrative expenses increased to $10.3 million or
12.8% of net sales in fiscal year 1996, from $4.8 million or 10.8% of net sales
in fiscal year 1995. The increase in selling, general and administrative
expenses was due primarily to the Dolco acquisition. The increase in selling,
general and administrative expenses as a percentage of net sales was due to the
to the historically higher selling, general and administrative expenses as a
percentage of net sales in the Dolco operation.
Income from operations increased to $8.2 million or 10.2% of net sales in
fiscal year 1996 from $4.9 million or 11.0% of net sales for the same period in
1995. As a percentage of net sales, the increase in gross profit was more than
offset by the increase in selling, general and administrative expenses.
Interest expense increased to $5.8 million or 7.2% of net sales in fiscal
year 1996, from $4.3 million or 9.7% of net sales in fiscal year 1995 due
primarily to an increase in borrowings related to the Dolco acquisition. The
lower percentage of net sales for 1996 interest expenses reflects the decreasing
debt as a percentage of net sales following the Dolco acquisition.
Provision for income taxes increased to $1.0 million and an effective tax
rate of 50.2% in fiscal year 1996, from $0.2 million and an effective tax rate
of 56.0% in fiscal year 1995. The effective tax rate is higher than the
Company's expected rate of 38% due to certain state and local taxes incurred
which relate to prior periods in both fiscal years.
Net income increased to $1.0 million or 1.2% of net sales in fiscal year
1996 from $0.2 million or 0.4% of net sales in fiscal year 1995, for the reasons
discussed above.
Depreciation and amortization increased to $6.8 million or 8.4% of net
sales for the year ended June 28, 1996 from $3.5 million or 7.7% of net sales
for the same period in 1995. The increase in depreciation and amortization is
due to the acquisition of Dolco.
EBITDA increased to $14.2 million or 17.5% of net sales in fiscal year 1996
from $7.9 million or 17.7% of net sales for fiscal year 1995, for the reasons
stated above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds since March 1994 consisted of cash
from operations and financing sources. For the year ended June 27, 1997, net
cash provided by operating activities was $19.5 million compared to net cash
provided by operating activities of $6.6 million for the year ended June 28,
1996, and $2.4 million for the year ended June 30, 1995.
Working capital at June 27, 1997 was $25.9 million compared to $11.7
million at June 28, 1996 and $3.2 million at June 30, 1995. The increase in
working capital at June 27, 1997 was due primarily to a higher cash balance and
elimination of the current portion of long term debt. The increase in working
capital at June 28, 1996 compared to the prior fiscal year end was due primarily
to the effects of the Dolco acquisition. The Company has managed its growth in
working capital through a combination of operating cash flow and borrowings
under the Existing Credit Facility (as defined).
On May 8, 1997, the Company entered into the New Credit Facility, and the
Company has terminated the Existing Credit Facility. See "Use of Proceeds." The
New Credit Facility includes various covenants including, but not limited to,
the maintenance of a minimum net worth of $22 million plus 75% of net income
after June 27, 1997, a minimum EBITDA of $24 million, a ratio of EBITDA to
interest expense of 2:1 (increasing over time) or greater, and a ratio of debt
to EDITDA of 5:1 (decreasing over time) or less. See "Description of New Credit
Facility." Also see "Description of Exchange Notes -- Covenants -- Limitation on
Indebtedness" for a description of an incurrence test ratio of EBITDA to
interest expense of 2:1. As of June 27, 1997, there was no outstanding balance
under the New Credit Facility. Annual debt service on the
22
<PAGE> 25
Notes will be $8.6 million. If the Company were to draw the entire $75.0 million
available under the New Credit Facility, annual debt service would increase by
approximately $6.4 million assuming a fixed interest rate of 8.5%.
The Company's capital expenditures for the years ended June 30, 1995, June
28, 1996 and June 27, 1997 were $0.6 million, $2.3 million and $3.9 million,
respectively. Management expects that annual capital expenditures will increase
from historical levels during the next few years as the Company makes
improvements needed to address air emissions at three of the Company's
manufacturing facilities, and as the Company pursues new development and
cost-reduction opportunities. Management has identified potential capital
investment opportunities of approximately $5.0 million for fiscal year 1998 in
addition to approximately $3.0 million of non-discretionary capital expenditures
anticipated during such period.
Apart from acquisitions, the Company's principal uses of cash for the next
several years will be debt service, capital expenditures and working capital
requirements. Management believes that cash generated from operations plus funds
from the current credit facilities will be sufficient to meet the Company's
expected debt service requirements, planned capital expenditures, and operating
needs. However, there can be no assurance that sufficient funds will be
available from operations or borrowings under the New Credit Facility to meet
the Company's cash needs to the extent management anticipates. The reduction in
debt service requirements resulting from the Transactions will provide the
Company with increased flexibility to make capital expenditures that management
believes will provide an attractive return on investment.
Part of the Company's strategy is to explore possible future acquisitions.
Under the New Credit Facility, the Company will be able to borrow initially up
to $50 million for use in possible acquisitions, with an additional $25 million
upon approval of the lenders thereunder. To the extent the Company pursues
future acquisitions, the Company may be required to obtain additional financing.
There can be no assurance that it will be able to obtain such financing in
amounts and on terms acceptable to it.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, SFAS 130, Reporting Comprehensive Income, and SFAS 131,
Disclosures about Segments of an Enterprise and Related Information, were
issued. SFAS 130 addresses standards for reporting and display of comprehensive
income and its components, and SFAS 131 requires disclosure of reportable
operating segments. Both statements are effective for the Company's 1999 fiscal
year. The Company will be reviewing these pronouncements to determine their
applicability to the Company, if any.
SEASONALITY
Although certain different product lines of the Company experience some
seasonality, their effects are generally offsetting, and the Company overall has
not experienced any material seasonality in the periods reflected herein.
EFFECTS OF INFLATION
The Company believes that inflation has not significantly affected its
results of operation in the periods reflected herein.
23
<PAGE> 26
INDUSTRY
The packaging industry in the United States has overall annual sales of
over $70 billion with growth prospects in line with Gross Domestic Product
("GDP"). The stability of the packaging industry through economic cycles results
from its central role in the distribution of basic consumer items such as food,
beverages, personal care products, and pharmaceuticals. The industry as a whole
has very diverse products.
A packaging customer's product choice criteria can be grouped into a small
number of categories: overall cost, physical characteristics of the product
being packaged, physical characteristics of the packaging itself, and consumer
preferences. The industry can be broken down into the following seven segments:
flexible and semi-rigid packaging, plastic bottles, metal cans, glass
containers, paper-corrugated, paper-folding, and closures. Several of the market
segments, including the flexible and semi-rigid segment, are highly fragmented
and are undergoing consolidations. The Company competes within the flexible and
semi-rigid segment of the packaging industry which accounts for nearly $15
billion or approximately 20% of total annual industry revenues.
FLEXIBLE AND SEMI-RIGID PACKAGING
The Company believes the flexible and semi-rigid packaging segment is
growing at a higher rate than GDP, driven by both favorable economic factors and
environmental issues. The Company believes that the plastics area of this
segment, which includes most of the Company's products, is growing at a faster
rate than the non-plastics areas because of the generally lower package cost and
broader range of functional characteristics of plastic packaging. The Company
believes that the technologies used to manufacture plastic packaging materials
continue to develop at a faster pace than those used in the more mature paper,
glass, and metal segments.
Source reduction in packaging is a growing focus of environmental
conservation. The term "source reduction" refers to the idea of accomplishing
requisite packaging functions with a minimum of packaging materials. By using
less material to perform the packaging function, the minimum environmental
impact is achieved: greater conservation of the Earth's resources, lower energy
usage in both the production of packaging materials and product distribution
costs, and fewer disposal issues. The Company believes that the flexible and
semi-rigid segment of the packaging industry consistently provides the materials
of choice from a source reduction viewpoint.
Much of the growth in the flexible and semi-rigid packaging segment of the
industry has come at the expense of the more mature metal, glass, and
paper-folding segments. The Company believes that this growth results from
flexible and semi-rigid materials generally offering a lower cost packaging
alternative to the more mature materials. The Company believes that the sheer
diversity of product offerings within the flexible and semi-rigid segment allows
the fine-tuning of materials to meet the customer's needs for product protection
(shelf-life), and marketing impact (customized graphics and package shape) at
the lowest cost.
The Company's products grouped by end-use are discussed below:
High-barrier blister materials. Transparent, high-barrier blister
packaging is primarily used to protect ethical drugs from moisture vapor
infiltration or desiccation. Blister packaging is the preferred packaging form
when dispenser handling can affect shelf life or drug efficacy, or when unit
dose packaging is needed. Unit dose packaging is being used to improve patient
compliance with regard to dosage regimen, and has been identified as the
packaging form of choice in addressing child safety aspects of drug packaging.
The advantages of transparent blisters, as opposed to opaque foil-based
materials, include the ability to visually inspect the contents of the blister
and to present the product with maximum confidence.
Closure liner materials. Closure liners perfect the seal between a
container and its closure, for example, between a bottle and its cap. The liner
material has become an integral part of the container/closure package. Without
the gasketing effect of the liner, most container/closure packages would not be
secure enough to protect the contents from contamination or loss of freshness.
The Company manufacturers a broad line of closure liner materials including some
of the most innovative structures available for tamper protection and special
barrier applications.
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Foamed polystyrene packaging. Foamed polystyrene packaging has been the
material of choice for food packaging cartons and trays for many years. In terms
of economic and functional characteristics, foamed polystyrene products offer a
combination of high strength, minimum material content and superior moisture
barrier performance. Foamed polystyrene products also offer greater dimensional
consistency that enhances the high speed mechanical feeding of cartons and trays
into automated package filling operations.
Entry barriers for the Company's pharmaceutical packaging products are high
due to the lengthy and stringent approval process employed by the FDA. Approval
requires that the drug be tested while packaged in the same packaging materials
intended for commercial use, so that changing materials after approval risks
renewed scrutiny by the FDA. Also, the high manufacturing and audit compliance
standards imposed by the pharmaceutical companies on their suppliers provide a
significant barrier to entry. There are significant disincentives for new
competitors to the Company's egg packaging products including (i) high capital
costs, including high opportunity costs associated with switching assets
presently dedicated to other uses to egg carton production; (ii) the high level
of technical competence required for the associated manufacturing processes; and
(iii) the high cost of meeting required customer order response times in a
job-shop environment.
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BUSINESS
GENERAL
The Company designs, manufactures and markets packaging materials primarily
for the pharmaceutical and food industries. The Flexible Packaging Group sells
primarily flexible packaging materials to customers including pharmaceutical
companies. The Company is the market leader for clear, high-barrier laminations
for pharmaceutical blister packaging and the Company believes, based upon its
knowledge and experience in the industry, that it has a greater than 90% share
of the market for such products. These packaging materials are used for
fast-acting pharmaceuticals that are generally highly reactive to moisture. The
Foam Products Group sells primarily foamed polystyrene packaging products such
as egg cartons and processor trays to the poultry and meat industries. The
Company believes, based upon its knowledge and experience in the industry, that
it produces in execss of 80% of all foam egg cartons and has approximately 40%
of the egg carton market. The Company has also built a strong presence in the
processor tray market, where it believes, based upon its knowledge and
experience in the industry, that it has an estimated share of greater than 20%.
The management of the Company focuses on organizational development,
imparting a results-oriented culture to all areas of its businesses. Management
seeks and implements continual product and process improvements to produce
higher quality products, improve efficiencies, reduce labor and material costs,
and create differentiated products and product line extensions. The Company has
also expanded its product offerings by acquiring synergistic packaging companies
and has significantly reduced costs through product line rationalization and
re-negotiation of supplier agreements. Management believes that this focus will
continue with respect to the Company's on-going business and will be the basis
for successfully integrating future acquisitions.
Since its acquisition by the current owners, the Company has achieved
significant improvements in profitability. For the year ended June 27, 1997, the
Company had revenues of $144.7 million, income before extraordinary item of $8.4
million and EBITDA of $30.2 million for an EBITDA margin of 20.9%, compared with
revenues of $44.9 million, net income of $2.8 million and EBITDA of $3.8 million
for an EBITDA margin of 8.5% for the year ended December 31, 1993. "EBITDA" is
defined as net income before interest, income taxes, depreciation and
amortization. "EBITDA margin" is calculated as the ratio of EBITDA to net sales
for the period.
COMPANY HISTORY
Tekni-Plex was founded as a Delaware corporation in 1967 to acquire the
General Felt Products division of Standard Packaging Corporation. The Company,
then located in Brooklyn, New York, built a reputation for solving difficult
packaging problems and providing customers with high quality, advanced packaging
materials. In 1970, the Company built an additional manufacturing facility in
Somerville, New Jersey, diversifying into the business of producing polystyrene
foam trays for the poultry processing industry. The Somerville facility serves
as the current headquarters of the Company.
1994 -- Acquisition by the Current Owner
In March 1994, Tekni-Plex was acquired by its current controlling
shareholder, and Dr. F. Patrick Smith was appointed its Chief Executive Officer.
Mr. Kenneth W.R. Baker, the current Chief Operating Officer, was appointed in
April 1994. At that time, the principal product lines in the Flexible Packaging
Group consisted of clear, high-barrier laminations for pharmaceutical blister
packaging, and closure (bottle cap) liners, primarily for pharmaceutical
end-uses. The principal product lines in the Foam Products Group consisted of
padded and unpadded foam processor trays primarily for the poultry industry.
At the time of the 1994 acquisition, the current management was faced with
three distinctly different situations in Tekni-Plex's three primary product
lines: (i) the clear, high-barrier blister packaging product line, produced in
Somerville, had achieved good operating margins, but, because it was limited to
a relatively narrow (but important) range of performance characteristics, it was
not positioned to take full advantage of the trends in new drug development in
the pharmaceutical industry; (ii) the closure liner products, produced in the
Brooklyn plant, had consistently generated operating losses; and (iii) the foam
processor tray market
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had become intensely competitive as to price and Tekni-Plex's heavy duty
products were too costly and thus ill-suited to compete in this environment.
In the ensuing months, management changed the Company's culture into a
focused, results-oriented, professional organization capable of managing change
and addressed each of the strategic issues facing the principal product lines as
follows:
Clear, high-barrier laminations. New lines of clear, high-barrier
laminations were developed that extended the range of pharmaceutical
packaging applications and laid the groundwork for future sales growth. By
working with suppliers and reorganizing and improving the production
scheduling function, management substantially reduced order lead times. In
addition, production waste was reduced and productivity was improved.
Closure liner products. In the Brooklyn operation, management
developed and implemented an item-specific, customer-specific-product
costing system. Once the true costs of the 600-plus basic items were
understood, a rational pricing policy was established. As a result,
unprofitable products were pared, simplifying the operation and allowing
further improvements in productivity as well as reduced waste. After five
consecutive years of negative cash flow prior to the 1994 acquisition,
management believed that it had turned around the Brooklyn operation so
that it could sustain on-going positive profit contributions. Nonetheless,
within 16 months the Brooklyn operation was moved and consolidated into the
Flemington operation for further efficiencies, as described below.
Foam processor trays. The foam processor tray operation was
reorganized, primarily to establish a clear delineation of
responsibilities. More cost-effective supply agreements were negotiated. A
new line of material-efficient products was introduced with increased
strength and lower production costs, allowing the Company to participate in
the price competitive market place. The manufacturing operation was
reconfigured to improve material flows, and focus was brought to bear on
the padding operations to reduce waste and inefficiency.
1995 -- Flemington Acquisition
In December 1995, Tekni-Plex acquired the Flemington, New Jersey, plant and
business of Hargro for approximately $7.5 million. The Flemington plant utilizes
lamination and coating technology to produce packaging materials for: (i)
pharmaceutical products (transdermal patches, sutures, iodine and alcohol swabs,
aspirin and other physician samples); (ii) electronics and telecommunications
products (optical fiber and conventional cable shielding, transformer and
ballast insulation); (iii) industrial products (photographic and automotive);
and (iv) food products (snack foods, dry powders). Management believed that the
Flemington acquisition offered significant benefits by providing a modern
facility that increased capacity and removed physical limitations associated
with the older Brooklyn plant, adding new technologies complimentary to
Tekni-Plex's then existing capabilities, and avoiding capital expenditures for
environmental compliance that would have been required at the Brooklyn plant.
Following the Flemington acquisition, management implemented a number of
changes: (i) the salaried workforce was reorganized to establish a clear
delineation of responsibilities; (ii) pricing changes were implemented that
resulted in the paring of unprofitable products with the associated labor and
overhead being eliminated; and (iii) needed capital improvements were made.
The Company relocated the Brooklyn equipment, personnel and business into
the Flemington facility during the quarter ending in June 1996, which was
concurrent with the expiration of the Brooklyn lease. The modern design and
layout of the Flemington plant lowered manufacturing waste levels and reduced
labor requirements in the production of closure liners. Having similar
technologies under one roof led to improved efficiencies as each group learned
the subtle enhancements developed over the years by the other. The merged
operations benefitted from new economies of scale. The result has been a
combined operation with considerably higher efficiencies and lower costs than
the sum of the stand-alone operations.
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1996 -- Dolco Acquisition
In February 1996, as Tekni-Plex was integrating the Flemington acquisition
from eight weeks earlier, it completed its acquisition of Dolco, a
publicly-traded $81 million foam products company which at the time was nearly
twice the size of Tekni-Plex. Dolco had been in the business of producing foam
packaging products since the 1960s and had attained the leading share of foam
egg carton sales in the United States. While Dolco had continued to address
changing market needs by, for example, introducing the use of post-consumer
recycled materials into its products, and had produced calendar year 1995 net
income of $6.8 million and EBITDA of approximately $8.7 million, the Company
believed it was under-performing financially.
Following the acquisition, management closed Dolco's headquarters in
California and absorbed the requisite functions into the Company. The Dolco
research and development facility in Lawrenceville, Georgia, was also closed
and, in part, moved to the nearby Dolco plant also in Lawrenceville. Dolco's
operations in Wenatchee (Washington), Dallas and Lawrenceville were reorganized.
Management negotiated more favorable material supply agreements, instituted
pricing policies consistent with those of the Company, and devised strategies to
address the environmental issues facing the Company. In August 1997, Dolco,
which was then a wholly owned subsidiary of Tekni-Plex, was merged into
Tekni-Plex.
COMPETITIVE STRENGTHS
The Company believes that its competitive strengths include:
- Producer of high quality, technically sophisticated products. The
Company believes, based upon its knowledge and experience in the
industry, that it has a long-standing reputation as a manufacturer of
high-quality, high performance primary packaging products (where the
packaging material comes into direct contact with the end-product). The
Company's emphasis on quality is evidenced by its product lines which
address the high-end of their respective markets. The Company primarily
competes in technically sophisticated areas such as the high-barrier
pharmaceutical blister packaging market where high performance
characteristics are required due to the sensitive nature of the product.
A significant portion of the Company's processor tray product line is
aimed at the high-performance segment of the processor tray market where
strength and durability are essential due to the high speed, automated
machinery used by the processors. As the leading supplier of foam egg
cartons, the Company produces a high quality product with superior
performance characteristics compared to competitive offerings.
- Cost efficient producer. The Company continually focuses on improving
underlying operations and reducing costs. Since the 1994 acquisition,
current management has improved the Company's cost structure from an
EBITDA margin (as defined) of 8.5% and income before income taxes as a
percent of sales of 6.8% on sales of $44.9 million for the year ended
December 31, 1993 to an EBITDA margin (as defined) of 20.9% and income
before income taxes and extraordinary item as a percent of sales of 9.1%
on sales of $144.7 million for the year ended June 27, 1997.
- Experienced management team. The current management team has been
successful in selecting and integrating strategic acquisitions and in
improving underlying business fundamentals in the regular course of
business. Members of the management team have worked together in the
packaging industry for many years and have a strong track record.
Together, they have integrated acquisitions, effected turnarounds,
provided strategic direction and leadership, increased sales and market
share, improved manufacturing efficiencies and productivity, and
developed new technologies to enhance the competitive strengths of the
companies they have managed. See "Management."
- Strong market share in core businesses. The Company has a strong market
presence in most of its core product lines. The Company believes that it
produces in excess of 80% of all foam egg cartons and has approximately
40% of the overall egg carton market which is split approximately equally
between foam and pulp-based products. The Company believes that it has an
estimated greater than 90% share of the market for clear, high-barrier
laminations for pharmaceutical blister packaging. The Company has also
built a strong presence in the processor tray market where it believes
that it has an estimated share of greater than 20%.
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- Successful integration of acquisitions. The Company has a strong track
record of identifying and integrating both small and large acquisitions.
After significantly improving the business of Tekni-Plex following the
1994 acquisition, management successfully integrated both the Flemington
and Dolco operations, the latter being a public company then nearly twice
the Company's size. During the same period, the Brooklyn and Flemington
operations were merged, substantially improving production efficiencies
and reducing waste.
- Strong customer relationships. The Company has long-standing
relationships with many of its customers. The Company estimates the
average tenure among the Company's top ten customers at more than 14
years. The Company attributes its long relationships with its customers
to the ability to consistently manufacture high quality products and to
consistently provide a superior level of customer service. The Company
routinely wins recognition for its superior products and customer service
including a recent Outstanding Supplier Award from Pharmacia & Upjohn,
and an Outstanding Quality Award from Abbott Laboratories.
BUSINESS STRATEGY
The Company seeks to maximize its growth and profitability and take
advantage of its competitive strengths by pursuing the following business
strategy:
- Ongoing cost reduction through technical process improvement. The
Company has an ongoing program to improve manufacturing and other
processes in order to drive down costs. Examples of cost improvement
programs include: (i) material and energy conservation through enhanced
process controls; (ii) reduction in machine set-up time through the use
of proprietary technology; (iii) continual product line rationalization;
and (iv) development of backward integration opportunities.
- Growth through acquisitions. The Company believes that there is a
significant opportunity to consolidate the highly fragmented packaging
industry in the United States. The Company makes acquisitions based on
the following factors: (i) the Company seeks to acquire product lines
which logically extend its presence in the markets it currently serves,
thereby enhancing the Company's value to its customers; (ii) the Company
seeks add-on acquisitions which increase its market share in a particular
product line, thereby providing opportunity to gain economies of scale
and reduce costs; (iii) the Company seeks opportunities for technology
sharing where acquired and existing operations are enhanced by combining
and sharing complementary technologies; and (iv) the Company seeks
acquisitions that provide opportunity for synergistic cost reduction due
to duplication of effort and acquisitions where imparting the Company's
focused, results-oriented culture will lead to enhanced operating
results.
- Internal growth through product line extension and improvement. The
Company continually seeks to improve and extend its product lines and
leverage its existing technological capabilities in order to increase
market share and improve profitability. Before 1994, the Company's line
of pharmaceutical blister laminations addressed a relatively small
(although important) range of performance requirements, namely the
high-barrier segment of the market. New products developed since that
time have extended the Company's offerings to include the ultra-high
barrier segment (previously confined to foil-based products) and the
low-to-medium barrier segment (previously confined to solution-coated
products). In addition, the Company believes that it has a significant
opportunity to increase sales of its foamed polystyrene packaging
products by focusing on incremental improvements to these products. The
Company's strategy is to emphasize its expertise in providing primary
packaging materials with specific high performance characteristics
through the use of various plastic materials (and combinations thereof)
and proprietary production process techniques.
- Growth through international expansion. The Company currently exports
approximately ten percent of its pharmaceutical packaging sales. Given
the Company's reputation, its recently expanded product line, and the
multi-national nature of many of its customers, the Company believes
there is significant opportunity to expand international sales.
Accordingly, the Company has hired an international sales
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manager who has significant experience in selling to the international
pharmaceutical industry. The Company has also begun to set up a network of
agents in various international markets.
PRODUCTS
Certain Classes of Products
Sales of multi-material products (which are mostly laminated and/or coated
products) accounted for approximately 31% of the net sales of the Company in
fiscal year 1997, 48% in fiscal year 1996, and 69% in fiscal year 1995. Sales of
single-material products accounted for approximately 69% of the net sales of the
Company in fiscal year 1997, 52% in fiscal year 1996, and 31% in fiscal year
1995. The decrease in the percentage of multi-material products, and the
corresponding increase in the percentage of single-material products, was due
primarily to the acquisition of Dolco which sold primarily single-material
products.
Flexible Packaging Group
The Flexible Packaging Group sells printed and unprinted multi-layer
constructions of plastic, paper and metal films and sheets combined with layers
of other materials for particular purposes, with emphasis on pharmaceutical and
food applications. Most of these products fall under the multi-material class of
products. The principal product lines in this group are clear, high-barrier
laminations for pharmaceutical blister packaging, and closure (bottle cap) liner
products primarily for pharmaceutical end-uses.
The Company's line of pharmaceutical-grade, clear, high-barrier (to
moisture transmission) laminations are high quality, proprietary products which
have superior clarity and moisture-barrier characteristics. Manufacture of these
products uses proprietary adhesive technology to laminate Aclar(R) films, a
material that does not lend itself easily to adhesion onto other plastic films
and sheets.
The Company has a broad range of closure liner products currently available
in the marketplace. The Company's major closure liner products include PS22 (a
pressure sensitive coated polystyrene foam generally used for ethical drugs and
vitamins), VapoSeal(R) (vinyl coated aluminum foil used for highly hygroscopic
products such as antacid), Heat Sealable Innerseals (high-barrier seals for
highly-sensitive products), and Tekniseal(R) 33 (extruded polyethylene liner
used generally as a backing for aqueous applications).
Before 1994, the Company's line of blister laminations addressed a
relatively small (although important) range of performance requirements, namely,
the high-barrier category. New products developed since the 1994 acquisition
have extended the Company's offerings to include the ultra-high barrier
category, previously confined to foil-based (non-transparent) products, and the
low-to-medium barrier category, previously confined to solution-coated products
(as opposed to laminated products). The Flemington acquisition added
strategically important new pharmaceutical products to the Company's line for
the packaging of transdermal patches, sutures, iodine and alcohol swabs, aspirin
and other physician samples. In addition, the Company manufactures food
packaging laminations, optical fiber cable shielding materials, specialty wire
and cable wrap, electrical laminates, and other specialty coating laminates for
industrial applications.
Foam Products Group
The Foam Products Group sells a wide variety of foamed polystyrene
products, including egg packaging, processor trays for the poultry, pork and
sausage industries, apple packaging, mushroom tills, containers for food
products and baked goods, supermarket meat trays, disposable plates, and
hinged-lid containers for the foodservice industry. These products are primarily
used for the sale of food items and are designed for protection, freshness,
insulation, sanitation, and merchandising impact. Some of the foam products are
further laminated and/or coated with other materials prior to being sold to
customers and therefore fall under the multi-material class of products.
The principal product lines in this group are egg cartons and processor
trays. These products may be printed, embossed or laminated to meet customer
specifications. Egg packaging is almost always printed in multiple colors. By
utilizing both the inside and the outside surfaces of the egg cartons the
maximum amount of space can be made available for each customer's unique
advertising requirements. Processor trays are most often sold with an absorbent
pad fixed to the tray bottom. The trays and pads are generally designed to the
customer's specifications to meet functionality requirements.
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The Company (and through its former subsidiary, Dolco) is the leading
manufacturer of foam egg packaging products. The precise dimensions of
polystyrene foam cartons lend themselves to automated, high-speed, machine
dispensing systems used in the egg packing industry. The Company has been the
innovator of new packaging concepts and designs and was the first to manufacture
foam egg cartons in eight, twelve, and eighteen egg configurations. In addition,
the Company was the first to manufacture and sell foam egg cartons with
post-consumer recycle content with the approval of the FDA.
Processor trays require greater dimensional consistency, strength and
higher resiliency than trays used by supermarkets because of their use in
high-speed automated poultry and meat packaging machines and because of handling
during shipping. The Company's processor trays are widely recognized for their
high performance qualities. Since the 1994 acquisition, the Company, through
proprietary technological advances, has developed a new line of products that
have a lower density of polystyrene foam but still meet all customer
requirements for strength and durability.
SALES, MARKETING AND CUSTOMERS
As of June 27, 1997, the Company had a sales team comprised of 41 people,
covering both domestic and international sales. There were 14 salespeople in the
Flexible Packaging Group and 27 in the Foam Products Group. The Company believes
it has earned a solid reputation with its customers for high quality service.
The Company engages in various marketing activities such as participation in
trade shows, mailings of samples, direct calls to potential customers and
advertising. The Company is currently developing its own web-site on the
internet.
The Company's high-barrier, blister laminations are sold directly to the
major pharmaceutical companies (or their designated contract packagers), while
closure liners are sold to the closure (bottle cap) producers who, in turn,
supply these same pharmaceutical companies.
Distribution is accomplished from the manufacturing locations to the
customers via common carrier and/or customer pick up. In the Foam Products
Group, most sales are in full truckload quantities.
The Company has begun to market its full pharmaceutical product line
directly on a worldwide basis and is assembling a global network of sales
personnel (both direct and outside manufacturer's representatives).
The Company's customer base includes most of the major pharmaceutical
manufacturers, most of the egg packagers (including those owned by egg
retailers) and many of the poultry processors. Overall customer concentration is
low with the largest single customer accounting for less than six percent of
total sales and the top ten customers generating approximately 25% of sales.
MANUFACTURING
Laminations and Coatings
The Company manufactures primary flexible packaging materials in two
locations: Somerville, New Jersey, and Flemington, New Jersey. Both locations
have thermal oxidation devices that provide the controls necessary to meet clean
air emissions standards.
The manufacturing processes involve laminating, coating, printing and
slitting. Raw materials used include plastic films, metal foils, plastic resins,
paper, adhesives, inks and coatings. The Company has what it considers to be
numerous proprietary methods and formulations that are used to produce a wide
variety of multi-layer heterogeneous structures. These structures have specific
sets of functional properties suited for specific packaging end uses.
The packaging materials for pharmaceutical applications require special
documentation of material sources and uses within the manufacturing process as
well as heightened quality assurance measures. See "-- Competition."
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Foam Products
The Company manufactures foamed polystyrene packaging and foodservice
products in five locations: Somerville, Wenatchee (Washington), Decatur
(Indiana), Dallas (Texas) and Lawrenceville (Georgia).
The manufacturing processes include foam extrusion, thermoforming, printing
and application of absorbent padding. Raw materials used are polystyrene,
blowing agents, color concentrates, inks, tray padding materials and plastic
bags. The beginning step of the manufacturing process is foam extrusion. Solid
plastic pellets are introduced into an extrusion line along with a blowing agent
and a foamed sheet is generated in roll form. The rolls of foam sheet are then
held for a minimum period to allow for equilibration of the plastic and the
blowing agent, and are then thermoformed into various shapes using heat and
pressure. Upon exiting the thermoforming process, the formed articles are
trimmed out of the sheet to become individual products. Post thermoforming
processes can include printing or the application of an absorbent pad to a tray
article.
RAW MATERIALS
Polystyrene resin is the Company's largest single raw material component,
accounting for about one-third of total raw material costs. The Company
purchases polystyrene resin from several of the top suppliers. Aclar(R), a
specialty film material produced by Allied Signal and used in high barrier
laminations, is the second largest material component, accounting for roughly
about one-sixth of total material costs. Allied Signal is currently the sole
manufacturer and supplier of Aclar(R) films.
Historically, the Company has been able to pass through substantially all
of the price increases in raw materials to its customers. For example, over the
18 month period from January 1994 to June 1995, polystyrene prices rose by a
total of approximately 49%. Over that same period, the Company's gross margin,
expressed as a percentage of sales, rose from 18.4% to 21.8%. However, there can
be no assurance that the Company will be able to pass on raw material price
increases in the future.
PROPRIETARY TECHNOLOGY AND TRADEMARKS
The Company safeguards its proprietary technology through the filing and
registering of patents and trademarks, the use of confidentiality agreements,
and by restricting access to its plants. The Company does not consider its
patents and trademarks material to its operations.
COMPETITION
Flexible Packaging Group
The Company considers itself to be the market leader in clear, high-barrier
laminated blister materials with a greater than 90% share of the market for
these products. These products primarily compete with solution-coated and
foil-based products manufactured by various competitors including Klockner
Pentaplast. The closure liner market is somewhat fragmented, and it is more
difficult to estimate the Company's share since most cap manufacturers are
privately held, and many produce a portion of their needs internally.
Nonetheless, management, based on its own knowledge of the industry, estimates
that the Company holds about a 10% share of this market.
The Company believes that pharmaceutical packaging products sold in the
United States enjoy a significant barrier to entry due to the stringent approval
process employed by the FDA. The entire process for new drug approval in the
past has averaged approximately 10 years, beginning with clinical trials and
ending with stability testing. The stability step requires that the drug be
tested in the packaging materials intended for commercial use. The cost of
stability testing is substantial. Therefore, when FDA approval is finally
attained, the drug companies are generally compelled, as a practical matter,
either to use the same packaging materials (from the same supplier) or to
re-submit to the stability test phase all over again. If the drug company opts
to re-submit to the stability test phase, it risks the uncertainty of renewed
scrutiny by the FDA. Manufacturers of primary packaging materials for
pharmaceutical products (where the drug is in direct contact with the material)
must maintain a confidential Drug Master File at the FDA that describes each of
its products. Manufacturers of primary packaging materials for pharmaceutical
products must also submit to regular, on-
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site compliance audits performed by the major pharmaceutical companies.
Pharma-class Good Manufacturing Practices must be followed, and documentation of
each production run must provide an audit trail to allow the drug companies to
identify the genesis of each single package released to the market. Suppliers
that have a long history of consistently meeting the rigid requirements of the
pharmaceutical industry, such as the Company, are generally considered a
valuable asset to their pharmaceutical customers.
Foam Products Group
The Company believes that competition within the foam processor tray market
is based primarily on customer service, product quality and price. There are two
other domestic companies that are significant in the foam processor tray market,
namely Tenneco Packaging and the Formpac division of W.R. Grace. The Company
estimates, based on its own views of the market, that it has in excess of 20% of
the processor tray market.
The Company is one of the market leaders in producing egg cartons taking
into account both foam and pulp-based cartons. The Company believes that it
currently produces more than 80% of all foam egg cartons, and has approximately
a 40% share of the overall egg carton market. In this product line, the
Company's primary competitor is Tenneco Packaging which manufactures pulp-based
egg cartons.
The Company believes that, for its foam egg packaging products, there are
significant disincentives for new competitors that include: (i) high capital
costs, including high opportunity costs associated with switching assets
presently dedicated to other uses to egg carton production; (ii) the high level
of technical competence required for the associated manufacturing processes; and
(iii) the high cost of meeting required customer order response times in a
job-shop environment.
ENVIRONMENTAL MATTERS
Like similar companies, the Company's facilities, operations and properties
are subject to federal, state and local laws and regulations relating to, among
other things, emissions to air, discharges to water, the generation, handling,
storage, transportation and disposal of hazardous and nonhazardous materials and
wastes and the health and safety of employees. The Company maintains a primary
commitment to employee health and safety, and environmental responsibility. The
Company's intention and policy are to be at all times a responsible corporate
citizen.
The Company's management includes a Director of Environmental Affairs who
is primarily engaged in making certain that the Company is in compliance in all
material respects with all federal, state and local laws and regulations
relating to the environment, and health and safety. This director performs
internal auditing procedures at all of the Company's facilities and provides
direction to local facility managers in the compliance areas. The Director of
Environmental Affairs and the President of the Company direct outside
environmental counsel and an outside environmental consulting firm to ensure
that regulations are properly interpreted and reporting requirements are met.
With respect to air emissions, in each state where the Company operates a
manufacturing facility, the Company has obtained or is in the process of
obtaining an agreement with the regulatory authorities to ensure that it has
their consent for current operations and, where necessary, to place the Company
on an approved compliance schedule. There are currently no known environmental
improvements required in respect of the manufacturing facilities of the Company
used for laminated and coated materials. In respect of foam products, the
Company expects improvements will be needed to address air emissions at three of
its manufacturing facilities. The Company has established a capital budget to
address such issues.
Although the Company believes that, based on historical experience, the
costs of achieving and maintaining compliance with environmental laws and
regulations are unlikely to have a material adverse effect on the Company's
financial condition or operating results, it is possible that the Company could
incur significant fines, penalties, capital costs or other liabilities
associated with any confirmed noncompliance or cleanup liability at or related
to any of its current or former facilities, the precise nature of which the
Company cannot now predict. Furthermore, there can be no assurance that future
environmental laws or regulations will
33
<PAGE> 36
not require substantial expenditures by the Company or significant modifications
of the Company's operations. See "Risk Factors -- Environmental Matters."
FACILITIES
The Company operates six manufacturing facilities, including the
Somerville, New Jersey plant where the Company's headquarters are located. The
Company owns all of its manufacturing facilities with the exception of the
Dallas manufacturing facility which is currently leased. The Decatur,
Lawrenceville, and Wenatchee plants also lease additional warehousing space. The
Company owns or leases manufacturing, office and warehouse facilities at the
locations shown in the following table:
<TABLE>
<CAPTION>
OWNED/ SIZE (APPROX.
LOCATION LEASED SQUARE FEET) TYPE OF FACILITY (A) PRODUCT CATEGORY (B)
- --------------------------------- ------ ------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Somerville, NJ................... O 122,960 M/W/O P/F
Flemington, NJ................... O 145,000 M/W/O F
Lawrenceville, GA................ O 150,000 M/W/O P
L 31,662 W P
Wenatchee, WA.................... O 99,000 M/W/O P
L 26,400 W P
Decatur, IN...................... O 187,000 M/W/O P
L 3,750 W P
Dallas, TX....................... L 139,000 M/W/O P
</TABLE>
- ---------------
(a) M = Manufacturing; W = Warehouse: O = Office.
(b) P = Foam Products; F = Flexible Packaging.
The Company has closed Dolco's 5,850 square feet office facility in Studio
City, California, and subleased it to a third party. The Company is currently
investigating an option to purchase the manufacturing facility located in
Dallas. The Company believes that its present facilities are adequate for its
current and projected operations.
EMPLOYEES
As of June 27, 1997, the Company employed an average of 757 hourly and 127
salaried persons. The Company provides a competitive employee benefits package
that includes medical insurance, life insurance, holiday pay, vacations and a
401(k) savings plan. There is also a performance based incentive compensation
program for selected managers.
Among the Company's approximately 884 total employees, all are non-union
with the exception of approximately 85 employees in the Flemington, New Jersey,
manufacturing facility who are represented by a collective bargaining agent.
Their collective bargaining agreement will expire on September 30, 1999. The
Company believes that its relations with all of its employees are good.
LEGAL PROCEEDINGS
The Company is regularly involved in legal proceedings arising in the
ordinary course of business, none of which is currently expected to have a
material adverse effect on the Company's businesses or financial condition.
GENERAL
The Company's executive offices are located at 201 Industrial Parkway,
Somerville, New Jersey 08876, and its telephone number is (908) 722-4800.
34
<PAGE> 37
MANAGEMENT
The directors and executive officers of Tekni-Plex are listed below. Each
director is elected at the annual meeting of the stockholders of Tekni-Plex to
serve a one year term until the next annual meeting or until a successor is
elected and qualified, or until his earlier resignation. Each executive officer
holds his office until a successor is chosen and qualified or until his earlier
resignation or removal. Pursuant to its by-laws, Tekni-Plex indemnifies its
officers and directors to the fullest extent permitted by the General
Corporation Law of the State of Delaware and Tekni-Plex's certificate of
incorporation.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Dr. F. Patrick Smith................ 49 Chairman of the Board and Chief Executive Officer
Kenneth W.R. Baker.................. 52 President and Chief Operating Officer
Arthur P. Witt...................... 67 Corporate Secretary and Director
William H. Kaplan................... 46 Controller
Marvin Weintraub.................... 51 Director of Management and Information Systems
J. Andrew McWethy................... 56 Director
Barry A. Solomon.................... 49 Director
Stephen A. Tuttle................... 56 Director
Michael F. Cronin................... 43 Director
</TABLE>
Dr. F. Patrick Smith has been Chairman of the Board and Chief Executive
Officer of Tekni-Plex since March 1994. He received his doctorate degree in
chemical engineering from Texas A&M University in 1975. He served as Senior
Chemical Engineer to Texas Eastman Company, a wholly owned chemical and plastics
subsidiary of Eastman Kodak, where he developed new grades of polyolefin resins
and hot melt and pressure sensitive adhesives. In 1979, he became Technical
Manager of the Petrochemicals and Plastics Division of Cities Service Company,
and a Member of the Business Steering Committee of that division. From 1982 to
1984, Dr. Smith was Vice President of R&D and Marketing for Guardian Packaging
Corporation, a diversified flexible packaging company. Thereafter, he joined
Lily-Tulip, Inc. and managed their research and marketing functions before
becoming Senior Vice President of Manufacturing and Technology. Following the
acquisition of Lily-Tulip by Fort Howard Corporation in 1986, he became the
Corporate Vice President of Fort Howard, responsible for the manufacturing and
technical functions of the combined Sweetheart Products and Lily-Tulip
operations. From 1987 to 1990, Dr. Smith was Chairman and Chief Executive
Officer of WFP Corporation. Since 1990, Dr. Smith has been a principal of Brazos
Financial Group, a business consulting firm. Dr. Smith is a limited partner of
Tekni-Plex Partnership.
Kenneth W.R. Baker has served as Tekni-Plex's Chief Operating Officer since
April 1994 and as President since July 1995. He joined the Lily Division of
Owens-Illinois, Inc. in 1975, serving as its Manager of Systems Development from
1975 to 1977 and as its Financial and Planning Manager from 1977 to 1980. Since
1980, he has served in a number of technical and managerial positions. These
include Manager, Industrial Engineering at the Lily Division from 1980 to 1981,
Director, Corporate Technology at Lily-Tulip, Inc. from 1981 to 1986 and Vice
President, Operations at Fort Howard Cup Corporation from 1986 to 1987. In 1987,
Mr. Baker joined WFP Corporation, Inc. as Senior Vice President, Operations and
eventually became the company's President and CEO before leaving the company in
1992. Thereafter, Mr. Baker became Vice President, Research and Development at
the Molded Products Division of Carlisle Plastics, Inc. where he stayed until
joining the Company. Concurrently with the Offering, Mr. Baker became a limited
partner of Tekni-Plex Partnership.
Arthur P. Witt has been a director of Tekni-Plex since March 1994 and was
appointed Secretary in January 1997. Since July 1989, he has been president of
PAJ Investments which is involved in financial consulting and property
management. Over the same period, Mr. Witt also served as a temporary chief
financial officer for WFP Corporation and Flexible Technology. Prior to 1989,
Mr. Witt served in a number of senior management positions for companies such as
Lily-Tulip, Inc., BMC Industries and Fort Howard Paper Co. Mr. Witt is a limited
partner of Tekni-Plex Partnership.
William H. Kaplan joined Tekni-Plex in August 1992 and has been the
Company's Controller since March 1994. From 1977 until 1992, Mr. Kaplan was a
manager with Rich Baker Berman & Co., P.A.
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<PAGE> 38
Marvin Weintraub has served as Tekni-Plex's Director of Management and
Information Systems since August 1996. From 1980 until joining the Company, Mr.
Weintraub served as the MIS Director for N. Erlanger Blumgart Inc. where he was
responsible for all of that company's data processing activities.
J. Andrew McWethy has served as a director of Tekni-Plex since March 1994.
He is a co-founder of MST Partners L.P. ("MST L.P.") and MST Offshore Partners,
C.V. (together with MST L.P., the "MST Investment Partnerships"), each of which
was formed in 1989, and is a general partner of MST Management, L.P., a general
partner of MST Investment Partnerships. Prior to 1989, Mr. McWethy was employed
by Irving Trust Company for twelve years. See "Risk Factors -- Control of the
Company."
Barry A. Solomon has served as a director of Tekni-Plex since March 1994.
He is a co-founder of the MST Investment Partnerships and is a general partner
of MST Management, L.P. Prior to 1989, Mr. Solomon was employed by Irving Trust
Company for ten years. See "Risk Factors -- Control of the Company."
Stephen A. Tuttle has served as a director of Tekni-Plex since March 1994.
He is a co-founder of the MST Investment Partnerships and is a general partner
of MST Management, L.P. Prior to 1989, Mr. Tuttle was employed by Irving Trust
Company for four years. See "Risk Factors -- Control of the Company."
Michael F. Cronin has served as a director of Tekni-Plex since March 1994.
He has invested in emerging growth companies and various industrial and service
businesses since 1978. Since June 1991, Mr. Cronin has been a general partner of
Weston Presidio Capital.
COMPENSATION OF DIRECTORS
Tekni-Plex reimburses directors for any reasonable out-of-pocket expenses
incurred by them in connection with services provided in such capacity. In
addition, Tekni-Plex compensates outside directors for services provided in such
capacity of $15,000 or less per fiscal year for each such director.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the remuneration paid by Tekni-Plex to the
Chief Executive Officer and the next most highly compensated executive officer
of Tekni-Plex whose salary and bonus exceeded $100,000 for the years indicated
in connection with his position with Tekni-Plex:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------
FISCAL OTHER ANNUAL
NAME & PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------------------- ------ -------- ---------- ------------
<S> <C> <C> <C> <C>
Dr. F. Patrick Smith,.................. 1997 $490,385 $1,921,291 $ 15,417(a)
Chief Executive Officer 1996 351,923 859,248 21,245(a)
1995 300,000 333,678 6,624(a)
Mr. Kenneth W.R. Baker,................ 1997 $260,096 $ 960,645 $ 32,136(a)
President and Chief Operating Officer 1996 217,308 429,624 13,870(a)
1995 162,500 166,839 0
</TABLE>
- ---------------
(a) Amount reimbursed during the fiscal year for payment of taxes.
EMPLOYMENT AGREEMENTS
Tekni-Plex recently renewed its employment agreements with Dr. F. Patrick
Smith and Mr. Kenneth W.R. Baker. Both Dr. Smith and Mr. Baker's employment
agreements expire June 30, 2000 and have renewal provisions. The employment
agreements provide, among other things, for (i) payment of a base annual salary
in the amount of $550,000 in the case of Dr. Smith and $275,000 in the case of
Mr. Baker, and that these salaries may be increased (but not decreased) at the
sole discretion of Tekni-Plex's Board of Directors, (ii) payment of bonuses
based on Tekni-Plex's performance, and (iii) certain fringe benefits. Each
employment agreement provides that the executive may be terminated by Tekni-Plex
upon the following bases: (i) for cause or (ii) death or disability of the
executive. Each of Dr. Smith and Mr. Baker are entitled to severance benefits if
he is terminated due to the occurrence of an event specified in the preceding
sentence.
36
<PAGE> 39
The employment agreements also provide that the executives may not compete with
Tekni-Plex or its subsidiaries during the period of employment and for one year
thereafter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Witt, who is also the corporate secretary of Tekni-Plex, has served as
a member of the compensation committee of Tekni-Plex's board of directors. In
addition, as Chief Executive Officer of Tekni-Plex, Dr. Smith participated in
deliberations concerning the compensation of certain executive officers of
Tekni-Plex (but not the compensation for himself or Mr. Witt).
SECURITY OWNERSHIP
Tekni-Plex Partnership owns 100% of the outstanding shares of Tekni-Plex
and 97.5% of Tekni-Plex on a fully diluted basis.
Tekni-Plex Partnership has one general partner and six limited partners.
Messrs. McWethy, Solomon and Tuttle are affiliated with the general partner of
Tekni-Plex Partnership which owns an aggregate interest in the net profits of
Tekni-Plex Partnership equal to approximately 55% and Dr. Smith owns an interest
in the net profits of Tekni-Plex Partnership equal to approximately 18%, in each
case, subject to certain conditions contained in Tekni-Plex Partnership's
agreement of limited partnership and after giving effect to the Transactions and
all other transactions occurring concurrently herewith.
In 1994, Kenneth W.R. Baker was granted options on 2.5% of Tekni-Plex's
common stock, with anti-dilution provisions. Mr. Baker's option has a term of
fifteen years from the date of the grant. The option terminates immediately upon
Mr. Baker's termination for cause from Tekni-Plex. If Mr. Baker for any other
reason ceases to be employed by Tekni-Plex or is terminated by reason of a
disability, the option may be exercised for a period of six months following Mr.
Baker's cessation of employment. The option may be exercised by Mr. Baker's
estate for a year following Mr. Baker's death.
In connection with the Transactions, Tekni-Plex, Tekni-Plex Partnership and
Dr. F. Patrick Smith entered into an agreement pursuant to which: (i) so long as
Tekni-Plex Partnership continues, Dr. Smith has an option to acquire an interest
in Tekni-Plex Partnership representing up to 1.4% of the outstanding equity
interest in Tekni-Plex Partnership; and (ii) if Tekni-Plex Partnership has been
dissolved, Dr. Smith has an option to acquire shares of common stock of
Tekni-Plex representing up to 1.4% (less any options exercised pursuant to
clause (i) above) of the outstanding common stock. These options have a term of
five years from the date of the grant.
CERTAIN TRANSACTIONS
Tekni-Plex has a management consulting agreement with MST Management
Company and MST/TP Holding, Inc., both of whom are affiliated with Tekni-Plex's
controlling shareholder. Pursuant to their respective agreements, MST Management
Company and MST/TP Holding, Inc. provide regular and customary management
consulting services to Tekni-Plex. The terms of each agreement require
Tekni-Plex to pay a monthly management fee to MST Management Company and MST/TP
Holding, Inc. for a period of ten years from March 18, 1994. Consulting service
fees were in the aggregate approximately $274,000 for fiscal year 1996, and will
increase to approximately $400,000 for fiscal year 1997 as a result of the Dolco
acquisition. The Company's policy is not to enter into any significant
transaction with an affiliate of the Company unless a majority of the
disinterested directors of the board of directors of the Company determines, in
such majority's sole discretion (making such assumptions and determinations of
fact as such majority sees fit), that the terms of such transaction are, in all
material respects or taken as a whole, at least as favorable as the terms that
could be obtained by the Company in a comparable transaction made on an
arm's-length basis between unaffiliated parties.
Tekni-Plex has an arrangement with Arthur P. Witt, a director of
Tekni-Plex, whereby Mr. Witt provides customary management consulting services
to Tekni-Plex on an "as needed" basis. Tekni-Plex anticipates that compensation
to Mr. Witt for services rendered on behalf of Tekni-Plex will be roughly
$60,000 for fiscal year 1997.
37
<PAGE> 40
In connection with the Dolco acquisition, Tekni-Plex loaned to Arthur P.
Witt $100,000, at 8% annual interest, enabling Mr. Witt to acquire a partnership
interest in Tekni-Plex Partnership as a limited partner.
Concurrently with the Transactions, Tekni-Plex loaned to Kenneth W.R. Baker
$100,000, at 8% annual interest, enabling Mr. Baker to acquire a partnership
interest in Tekni-Plex Partnership as a limited partner.
DESCRIPTION OF NEW CREDIT FACILITY
On May 8, 1997, the Company entered into a revolving credit agreement
providing for bank commitments of $75.0 million, which amount may be increased
to $100.0 million (the "New Credit Facility"), of which $15.0 million may be
used for letters of credit.
The available commitments under the Credit Agreement can be used for
permitted acquisitions and general corporate purposes of the Company, including
working capital. Loans will bear interest at a rate based upon LIBOR or the
higher of the administrative agent's prime rate and a federal funds based rate.
The Company is required to pay quarterly commitment fees based on the amount of
unused commitments and fees based on the aggregate undrawn amount of all letters
of credit outstanding from time to time. The Credit Agreement will terminate on
the fifth anniversary of the date of execution of the Credit Agreement, unless
terminated sooner upon an event of default (as defined in the Credit Agreement).
Outstanding loans will be payable on such termination date or such earlier date
as may be required following the occurrence of an event of default.
The Credit Agreement contains various covenants customary for agreements of
this type. These covenants include but are not limited to the following:
financial covenants that require the Company to maintain minimum levels of net
worth ($22 million plus 75% of net income after June 27, 1997), minimum levels
of earnings before interest, taxes, depreciation, amortization and other similar
non-cash charges ($24 million), minimum fixed charge coverage (2:1) and maximum
leverage (5:1) ratios; restrictions on liens; restrictions on capital
expenditures; limitations on dividends and payments in respect of capital stock
of the Company, including loans or advances to, or guarantees of the obligations
of, other persons; limitations on acquisitions and other investments;
limitations on incurrence and repurchase or voluntary repayment of debt;
limitations on mergers, liquidations, consolidations and the sale and purchase
of assets; limitations on transactions with affiliates; restrictions on changes
in the nature of the Company's business; and limitations on guarantees and other
contingent obligations.
The Credit Agreement contains events of default customary in credit
agreements of this nature including but not limited to the following: failure to
pay amounts due under the Credit Agreement or the related security documents;
failure to perform or observe other covenants; if any of the representations or
warranties of the Company or any subsidiary is incorrect in any material respect
when made or given; the occurrence of a cross-default with respect to certain
other obligations of the Company and its subsidiaries; a default with respect to
ERISA obligations; if a judgment or decree is rendered against the Company or
any subsidiary, subject to certain limitations; certain changes in ownership or
control of the Company; the failure in the validity, perfection or priority of
any lien on any of the collateral securing the indebtedness under the Credit
Agreement; and insolvency, bankruptcy, reorganization or other similar
proceedings of the Company and any of its subsidiaries.
Indebtedness under the Credit Agreement ranks senior to the Exchange Notes
and is secured by a first priority lien on substantially all assets of the
Company, including but not limited to, receivables, inventory, equipment, real
estate, leases, licenses, patents, brand names, trademarks, contracts,
securities, and the proceeds of the foregoing. Any future subsidiaries of the
Company will be required to guarantee such obligations. Such guarantees will be
secured by first priority liens on substantially all the assets of the
respective guarantors.
38
<PAGE> 41
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold on April 4, 1997 to the Initial
Purchaser pursuant to the Purchase Agreement. The Initial Purchaser subsequently
resold the Notes to qualified institutional buyers in reliance on Rule 144A
under the Securities Act and to a limited number of institutional accredited
investors that agreed to comply with certain transfer restrictions and other
conditions. As a condition to the Purchase Agreement, the Company entered into
the Registration Rights Agreement with the Initial Purchaser pursuant to which
the Company has agreed, for the benefit of the holders of the Old Notes, at the
Company's cost, to use their best efforts (i) to file the Exchange Registration
Statement (as defined) within 60 days after the Issue Date of the Old Notes
(April 4, 1997) with the Commission with respect to the Exchange Offer for the
Exchange Notes and (ii) to cause the Exchange Registration Statement to be
declared effective under the Securities Act within 135 days after the date of
original issuance of the Old Notes. Upon the Exchange Registration Statement
being declared effective, the Company will offer the Exchange Notes in exchange
for surrender of the Old Notes. The Company will keep the Exchange Offer open
for not less than 30 calendar days (or longer if required by applicable law)
after the date on which notice of the Exchange Offer is mailed to the holders of
the Old Notes. For each Old Note surrendered to the Company pursuant to the
Exchange Offer, the holder of such Old Note will receive an Exchange Note having
a principal amount equal to that of the surrendered Old Note. Interest on
Exchange Notes will accrue from the last interest payment date on which interest
was paid on the Old Notes so surrendered, or, if no interest has been paid on
such Old Notes, from April 4, 1997. No interest will be paid on the Old Notes
accepted for exchange.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes would in general
be freely tradeable after the Exchange Offer without further registration under
the Securities Act. However, any purchaser of Old Notes who is an "affiliate" of
the Company or who intends to participate in the Exchange Offer for the purpose
of distributing the Exchange Notes (i) will not be able to rely on the
interpretation of the staff of the Commission, (ii) will not be able to tender
its Old Notes in the Exchange Offer and (iii) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or transfer of the Old Notes, unless such sale or transfer is made
pursuant to an exemption from such requirements.
Each holder of the Old Notes (other than certain specified holders) who
wishes to exchange the Old Notes for Exchange Notes in the Exchange Offer will
be deemed to represent in the Letter of Transmittal that (i) it is not an
affiliate of the Company, (ii) the Exchange Notes to be received by it were
acquired in the ordinary course of its business, (iii) at the time of
commencement of the Exchange Offer, it has no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes in violation of the Securities Act and
(iv) such holder has full power and authority to tender the Old Notes in
exchange for the Exchange Notes. In addition, in connection with any resales of
Exchange Notes, any Participating Broker-Dealer who acquired the Old Notes for
its own account as a result of market-making or other trading activities must
deliver a prospectus meeting the requirements of the Securities Act. The
Commission has taken the position that Participating Broker-Dealers may fulfill
their prospectus delivery requirements with respect to the Exchange Notes (other
than a resale of an unsold allotment from the original sale of the Old Notes)
with the prospectus contained in the Exchange Registration Statement. Under the
Registration Rights Agreement, the Company is required to allow Participating
Broker-Dealers and other persons, if any, subject to similar prospectus delivery
requirements to use the prospectus contained in the Exchange Registration
Statement in connection with the resale of such Exchange Notes.
In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect such an Exchange
Offer, or if for any other reason the Exchange Offer is not consummated within
165 days after the original issue date of the Old Notes, or if any holder of the
Old Notes (other than an "affiliate" of the Company or the Initial Purchaser) is
not eligible to participate in the Exchange Offer, or upon the request of the
Initial Purchaser under certain circumstances, the Company will, at its cost,
(a) as promptly as practicable, file the Shelf Registration Statement covering
resales of the Old
39
<PAGE> 42
Notes, (b) use its best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act and (c) use its best efforts to keep
effective the Shelf Registration Statement until the earlier of the date on
which the Old Notes are no longer "restricted securities" (within the meaning of
Rule 144 under the Securities Act) and such time as all of the applicable Old
Notes have been sold thereunder. The Company will, in the event of the filing of
the Shelf Registration Statement, provide to each applicable holder of the Old
Notes copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Old Notes. A holder of Old Notes that sells such Old
Notes pursuant to the Shelf Registration Statement generally will be required to
be named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations). In
addition, each holder of the Old Notes will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and to benefit from the provisions set forth
in the following paragraph.
If the Company fails to comply with the above provisions or if such
registration statement fails to become effective, then, as liquidated damages,
additional interest (the "Additional Interest") shall become payable with
respect to the Old Notes as follows:
(i) if neither the Exchange Registration Statement nor the Shelf
Registration Statement is filed on or prior to the 60th day after the Issue
Date, Additional Interest shall be accrued on the Old Notes over and above
the stated interest at a rate of 0.25% per annum for the first 90 days
commencing on the 61st day after the Issue Date, such Additional Interest
rate increasing by an additional 0.25% per annum at the beginning of each
subsequent 90-day period;
(ii) if neither the Exchange Registration Statement nor Shelf
Registration Statement is declared effective by the Commission on or prior
to the 135th day after the Issue Date, Additional Interest shall be accrued
on the Old Notes over and above the stated interest at a rate of 0.25% per
annum for the first 90 days commencing on the 136th day after the Issue
Date, such Additional Interest rate increasing by an additional 0.25% per
annum at the beginning of each subsequent 90-day period; or
(iii) if (A) the Company has not exchanged Exchange Notes for all Old
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to the 165th day after the Issue Date or (B) the Exchange
Registration Statement ceases to be effective at any time prior to the time
that the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the date
on which the Old Notes are no longer "restricted securities" (within the
meaning of Rule 144 under the Securities Act) (unless all the Old Notes
have been sold thereunder), then Additional Interest shall be accrued on
the Old Notes over and above the stated interest at a rate of 0.25% per
annum for the first 90 days commencing on (x) the 166th day after the Issue
Date with respect to the Old Notes validly tendered and not exchanged by
the Company in the case of (A) above, or (y) the day the Exchange
Registration Statement ceases to be effective or usable for its intended
purpose in the case of (B) above, or (z) the day such Shelf Registration
Statement ceases to be effective in the case of (C) above, such Additional
Interest rate increasing by an additional 0.25% per annum at the beginning
of each subsequent 90-day period;
provided, however, that the Additional Interest rate on the Old Notes may not
exceed at any one time in the aggregate 1.0% per annum; and provided, further,
that (1) upon the filing of the Exchange Registration Statement or a Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Exchange Registration Statement or a Shelf Registration
Statement (in the case of clause (ii) above), or (3) upon the exchange of
Exchange Notes for all Old Notes validly tendered (in the case of clause
(iii)(A) above), or upon the effectiveness of the Exchange Registration
Statement which had ceased to remain effective (in the case of clause (iii)(B)
above), or upon the effectiveness of the Shelf Registration Statement
40
<PAGE> 43
which had ceased to remain effective (in the case of clause (iii)(C) above),
Additional Interest on the Old Notes as a result of such clause (or the relevant
subclause thereof), as the case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment dates
as the Old Notes. The amount of Additional Interest will be determined by
multiplying the applicable Additional Interest rate by the principal amount of
the Old Notes, multiplied by a fraction, the numerator of which is the number of
days such Additional Interest rate was applicable during such period (determined
on the basis of a 360-day year comprised of twelve 30-day months and, in the
case of a partial month, the actual number of days elapsed), and, the
denominator of which is 360.
The statements made in this Prospectus relating to the Registration Rights
Agreement are intended to be summaries of all material elements of such
agreement in connection with the Exchange Offer and, as such, do not purport to
be complete. Reference is made to the Registration Rights Agreement, a copy of
which is filed as an exhibit to the Exchange Registration Statement of which
this Prospectus is a part, for a more complete description of the agreement or
matter involved.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are substantially identical to the
form and terms of the Old Notes except that (i) the Exchange Notes bear a Series
B designation and a different CUSIP Number from the Old Notes, (ii) the Exchange
Notes have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the Exchange
Notes will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Old Notes in certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
terminated. The Exchange Notes will evidence the same debt as the Old Notes
(which they replace) and will be entitled to the benefits of the Indenture.
The Exchange Notes will be fully and unconditionally guaranteed on a senior
subordinated basis by the Guarantors (if any). Currently, there are no
Guarantors since Dolco has been merged into Tekni-Plex. The form and terms of
the Exchange Guarantee will be substantially identical to the form and terms of
the Old Guarantee.
As of the date of this Prospectus, of the $75,000,000 aggregate principal
amount of Old Notes outstanding, $73,750,000 principal amount of the Old Notes
is registered in the name of Cede & Co., as nominee for DTC, and the remainder
of the Old Notes are registered in the respective names of the holders thereof.
Solely for reasons of administration (and for no other purpose) the Company has
fixed the close of business on , 1997 as the record date for the
Exchange Offer for purposes of determining the persons to whom this Prospectus
and the Letter of Transmittal will be mailed initially. Only a registered holder
of Old Notes (or such holder's legal representative or attorney-in-fact) as
reflected on the records of the Trustee under the Indenture may participate in
the Exchange Offer. There will be no fixed record date for determining
registered holders of Old Notes entitled to participate in the Exchange Offer.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the
41
<PAGE> 44
Exchange Offer in accordance with the applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes and for the purpose of receiving the Exchange Notes from the
Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned
(or in the case of Old Notes tendered by book-entry transfer through DTC, will
be credited to an account maintained with DTC), without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. Notwithstanding the
foregoing, the Company will not extend the Expiration Date beyond ,
1997 (which, if extended to such date, would represent a maximum Exchange Offer
period of days).
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, in its reasonable discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "-- Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
Interest on Exchange Notes shall accrue from the last interest payment date
on which interest was paid on the Old Notes so surrendered, or, if no interest
has been paid on such Old Notes, from April 4, 1997. No interest will be paid on
the Old Notes accepted for exchange.
PROCEDURES FOR TENDERING
For a holder of Old Notes to tender Old Notes validly pursuant to the
Exchange Offer, a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), with any required signature guarantee, or (in the case of a
book-entry transfer) an Agent's Message in lieu of the Letter of Transmittal,
and any other required documents, must be received by the Exchange Agent at the
address set forth below under "-- Exchange Agent" prior to 5:00 p.m., New York
City time, on the Expiration Date. In addition, prior to 5:00 p.m., New York
City time, on the Expiration Date, either (a) certificates for tendered Old
Notes must be received by the Exchange Agent at such address or (b) such Old
Notes must be transferred pursuant to the procedures for book-entry transfer
described below (and a confirmation of such tender received by the Exchange
Agent, including an Agent's Message if the tendering holder has not delivered a
Letter of Transmittal).
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<PAGE> 45
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the confirmation of a book-entry
transfer, which states that DTC has received an express acknowledgment from the
participant in DTC tendering Old Notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Company may enforce such
agreement against such participant. In the case of an Agent's Message relating
to guaranteed delivery, the term means a message transmitted by DTC and received
by the Exchange Agent, which states that DTC has received an express
acknowledgment from the participant in DTC tendering Old Notes that such
participant has received and agrees to be bound by the Notice of Guaranteed
Delivery.
By tendering Old Notes pursuant to the procedures set forth above, each
holder will be deemed to make to the Company the representations set forth above
in the third paragraph under the heading "-- Purpose and Effect of the Exchange
Offer."
The tender by a holder of Old Notes and the acceptance thereof by the
Company will constitute agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instruction
to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the book-entry transfer facility, The Depository Trust Company
("DTC" or the "Book-Entry Transfer Facility"), for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old
43
<PAGE> 46
Notes in accordance with the Book-Entry Transfer Facility's procedures for such
transfer. Although delivery of the Old Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility,
an appropriate Letter of Transmittal properly completed and duly executed with
any required signature guarantee, or, in the case of a book-entry transfer, an
Agent's Message in lieu of the Letter of Transmittal and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange Offer
by causing DTC to transfer Old Notes to the Exchange Agent in accordance with
DTC's ATOP procedures for transfer. DTC will then send an Agent's Message to the
Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its reasonable discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Old Notes not properly tendered or any Old Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right in its reasonable discretion to
waive any defects, irregularities or conditions of tender as to particular Old
Notes. The Company's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer
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<PAGE> 47
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent upon three New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Old Notes register the transfer of such Old Notes
into the name of the person withdrawing the tender and (iv) specify the name in
which any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
(or other similar exchange offers) which, in the sole judgment of the
Company, might materially impair the ability of the Company to proceed with
the Exchange Offer or any material adverse development has occurred in any
existing action or proceeding with respect to the Company or any of its
subsidiaries;
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders to withdraw such Old
Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
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<PAGE> 48
EXCHANGE AGENT
Marine Midland Bank has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C>
By Registered or Certified Mail,
Overnight Courier or Hand: By Facsimile:
Marine Midland Bank Marine Midland Bank
140 Broadway -- A Level Attention: Frank Godino
New York, New York 10005-1180 (212) 658-2292
Attention: Corporate Trust
Operations
Tel: (212) 658-5931
</TABLE>
Originals of all documents submitted by facsimile should be sent promptly
by registered or certified mail, overnight courier or hand. Delivery to an
address other than as set forth above will not constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, facsimile, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to
a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who
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<PAGE> 49
receives Exchange Notes, whether or not such person is the holder (other than a
person that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who receives Exchange Notes in exchange for Old Notes
in the ordinary course of business and who is not participating, does not intend
to participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires Exchange Notes in the Exchange Offer for the
purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating
Broker-Dealer that receives Exchange Notes for its own account in exchange for
Old Notes where such Old Notes were acquired by such Participating Broker-Dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Exchange Notes are to be
acquired by the holder or the person receiving such Exchange Notes, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Exchange Offer for the purpose
of distributing the Exchange Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on those no-action letters. As
indicated above, each Participating Broker-Dealer that receives an Exchange Note
for its own account in exchange for Old Notes must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. For a
description of the procedures for such resales by Participating Broker-Dealers,
see "Plan of Distribution."
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<PAGE> 50
DESCRIPTION OF EXCHANGE NOTES
As used below in this "Description of Exchange Notes" section, the
"Company" means Tekni-Plex, Inc. but not any of its subsidiaries. The Old Notes
were, and the Exchange Notes will be, issued under the Indenture, dated as of
April 1, 1997 (the "Indenture"), among the Company, Dolco and Marine Midland
Bank, as Trustee (the "Trustee"). The terms of the Exchange Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
Exchange Notes are subject to all such terms, and holders of the Exchange Notes
are referred to the Indenture and the Trust Indenture Act for a statement
thereof. A copy of the Indenture and the Registration Rights Agreement described
below will be made available to holders and prospective investors upon request.
The statements made in this Prospectus relating to the Exchange Notes, the
Indenture and the Registration Rights Agreement are intended to be summaries of
all material elements of such documents in connection with the Exchange Offer
and, as such, do not purport to be complete. Reference is made to each such
document, a copy of which is filed as an exhibit to the Exchange Registration
Statement of which this Prospectus is a part, for a more complete description of
the document or matter involved.
The Old Notes are, and the Exchange Notes will be, general unsecured
obligations of the Company, limited to $150,000,000 aggregate principal amount
of which $75,000,000 aggregate principal amount was issued in the offering of
the Old Notes. Additional amounts may be issued in one or more series from time
to time subject to the limitations set forth under "Covenants -- Limitation on
Indebtedness" and restrictions contained in the Credit Agreement. The Exchange
Notes will be senior subordinated obligations of the Company, subordinated in
right of payment to all Senior Debt of the Company. The Exchange Notes will be
issued only in fully registered form, without coupons, in denominations of
$1,000 and any integral multiple thereof. No service charge will be made for any
registration of transfer or exchange of Exchange Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. Initially, the Trustee will act as
paying agent and registrar for the Exchange Notes. The form and terms of the
Exchange Notes are substantially identical to the form and terms of the Old
Notes except that (i) the Exchange Notes bear a Series B designation, (ii) the
Exchange Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof, and (iii) the holders of
Exchange Notes will not be entitled to certain rights under the Registration
Rights Agreement, including the provisions providing for an increase in the
interest rate on the Old Notes in certain circumstances relating to the timing
of the Exchange Offer, which rights will terminate when the Exchange Offer is
consummated.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on April 1, 2007 and will bear interest at the rate
per annum shown on the cover page hereof from April 4, 1997 or from the most
recent interest payment date to which interest has been paid or provided for.
Interest will be payable semiannually on April 1 and October 1 of each year,
commencing October 1, 1997, to the Person in whose name a Note is registered at
the close of business on the preceding March 15 or September 15 (each, a "Record
Date"), as the case may be. Interest on the Notes will be computed on the basis
of a 360-day year of twelve 30-day months. Holders must surrender the Notes to
the paying agent for the Notes to collect principal payments. The Company will
pay principal and interest by check and may mail interest checks to a holder's
registered address.
OPTIONAL REDEMPTION
The Notes will be subject to redemption, at the option of the Company, in
whole or in part, at any time on or after April 1, 2002 and prior to maturity,
upon not less than 30 nor more than 60 days' notice mailed to each holder of
Notes to be redeemed at his address appearing in the register for the Notes, in
amounts of $1,000 or an integral multiple of $1,000, at the following redemption
prices (expressed as percentages of principal amount) plus accrued interest to
but excluding the date fixed for redemption (subject to the right of holders of
record on the relevant Record Date to receive interest due on an interest
payment date that is on or
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<PAGE> 51
prior to the date fixed for redemption), if redeemed during the 12-month period
beginning April 1 of the years indicated:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------- ----------
<S> <C>
2002.............................................. 105.625%
2003.............................................. 103.750
2004.............................................. 101.875
2005 and thereafter............................... 100.000
</TABLE>
In addition, prior to April 1, 2000, the Company may redeem up to 33% of
the principal amount of the Notes with the net cash proceeds received by the
Company from one or more public offerings of Capital Stock (other than
Disqualified Stock) of the Company, at a redemption price (expressed as a
percentage of the principal amount) of 111.25% of the principal amount thereof,
plus accrued and unpaid interest to the date fixed for redemption; provided,
however, that at least $60.0 million in aggregate principal amount of the Notes
remains outstanding immediately after any such redemption (excluding any Notes
owned by the Company or any of its Affiliates). Notice of redemption pursuant to
this paragraph must be mailed to holders of Notes not later than 60 days
following the consummation of such public offering.
Selection of Notes for any partial redemption shall be made by the Trustee,
in accordance with the rules of any national securities exchange on which the
Notes may be listed or, if the Notes are not so listed, pro rata or by lot or in
such other manner as the Trustee shall deem appropriate and fair. Notes in
denominations larger than $1,000 may be redeemed in part but only in integral
multiples of $1,000. Notice of redemption will be mailed before the date fixed
for redemption to each holder of Notes to be redeemed at his or her registered
address. On and after the date fixed for redemption, interest will cease to
accrue on Notes or portions thereof called for redemption.
The Notes do not, and will not, have the benefit of any sinking fund.
RANKING
The payment of principal, premium, if any, and interest on the Notes and
any claims arising out of or with respect to the Indenture is subordinated and
subject in right of payment, to the extent and in the manner provided in the
Indenture, to the prior payment in full of all Senior Debt of the Company.
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities, upon any
dissolution or winding up or total or partial liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due with respect
to Senior Debt of the Company (including any interest accruing on or after, or
which would accrue but for, an event of bankruptcy, regardless of whether such
interest is an allowed claim enforceable against the debtor under the Bankruptcy
Code) shall first be paid in full, or payment provided for, in either case in
cash or cash equivalents or otherwise in a form satisfactory to the holders of
Senior Debt, before the Holders of the Notes or the Trustee on behalf of such
Holders shall be entitled to receive any payment by the Company of the principal
of, premium, if any, or interest on the Notes, or any payment to acquire any of
the Notes for cash, property or securities, or any distribution with respect to
the Notes of any kind or character, whether in cash, property or securities, by
set-off or otherwise (all such payments and distributions referred to
individually and collectively, as a "Securities Payment"). Before any payment
may be made by, or on behalf of, the Company of the principal of, premium, if
any, or interest on the Notes upon any such dissolution or winding up or
liquidation or reorganization, any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash, property or
securities, to which the Holders of the Notes or the Trustee on their behalf
would be entitled, but for the subordination provisions of the Indenture, shall
be made by the Company or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or distribution, directly to
the holders of Senior Debt of the Company (pro rata to such holders on the basis
of the respective amounts of Senior Debt held by such holders) or their
representatives or to the trustee or trustees under any indenture pursuant to
which any such Senior Debt may have been issued as their respective interests
may appear, to the extent necessary to pay all such Senior Debt in full in cash
or cash equivalents or otherwise in a form satisfactory to the holders of such
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Senior Debt after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of such Senior Debt.
No Securities Payment by or on behalf of the Company, whether pursuant to
the terms of the Notes or upon acceleration or otherwise, will be made if, at
the time of such payment, there exists a default in the payment of all or any
portion of the obligations on any Designated Senior Debt, whether at maturity,
on account of mandatory redemption or prepayment, acceleration or otherwise (but
if the Trustee is otherwise able to make such Securities Payment, only insofar
as the Trustee is concerned, if the Trustee has received written notice of such
default), and such default shall not have been cured or waived or the benefits
of this sentence waived by or on behalf of the holders of such Designated Senior
Debt. In addition, during the continuance of any non-payment default or
non-payment event of default with respect to any Designated Senior Debt pursuant
to which the maturity thereof may be accelerated, and upon receipt by the
Trustee of notice (a "Payment Blockage Notice") from a holder or holders of such
Designated Senior Debt or the trustee or agent acting on behalf of such
Designated Senior Debt, then, unless and until such default or event of default
has been cured or waived or has ceased to exist or such Designated Senior Debt
has been discharged or repaid in full in cash or cash equivalents or otherwise
in a form satisfactory to the holders of such Designated Senior Debt, no
Securities Payment will be made by or on behalf of the Company, except from
those funds held in trust for purposes of defeasance for the benefit of the
Holders of any Notes to such Holders, during a period (a "Payment Blockage
Period") commencing on the date of receipt of such Payment Blockage Notice by
the Trustee and ending 179 days thereafter. Notwithstanding anything herein to
the contrary, (x) in no event will a Payment Blockage Period extend beyond 179
days from the date of the Payment Blockage Notice in respect thereof was given
and (y) there must be 180 days in any 365 day period during which no Payment
Blockage Period is in effect. Not more than one Payment Blockage Period may be
commenced with respect to the Notes during any period of 365 consecutive days.
No default or event of default that existed or was continuing on the date of
commencement of any Payment Blockage Period with respect to the Designated
Senior Debt initiating such Payment Blockage Period may be, or be made, the
basis for the commencement of any other Payment Blockage Period by the holder or
holders of such Designated Senior Debt or the trustee or agent acting on behalf
of such Designated Senior Debt, whether or not within a period of 365
consecutive days, unless such default or event of default has been cured or
waived for a period of not less than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this section
will not be construed as preventing the occurrence of an Event of Default
described in clause (a), (b) or (c) of the first paragraph under "-- Events of
Default."
By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds which would otherwise be payable to Holders of
the Notes will be paid to the holders of Senior Debt of the Company to the
extent necessary to repay such Senior Debt in full, and the Company may be
unable to fully meet its obligations with respect to the Notes. Subject to the
restrictions set forth in the Indenture, in the future the Company may incur
additional Senior Debt.
At June 27, 1997, there was no Senior Debt outstanding. However, the
Company could have borrowed up to $75.0 million of Indebtedness under the Credit
Agreement, all of which would have constituted Senior Debt.
THE GUARANTEE
The Indenture provides that the Guarantors (if any) will fully and
unconditionally guarantee, jointly and severally, on a senior subordinated basis
all of the obligations of the Company under the Indenture, including its
obligation to pay principal, premium, if any, and interest with respect to the
Notes. Currently, there are no Guarantors since Dolco has been merged into
Tekni-Plex. The obligation of each Guarantor is limited to the maximum amount
which, after giving effect to all other contingent and fixed liabilities of such
Guarantor, will result in the obligations of such Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Except as provided in "-- Covenants" below, the Company is not
restricted from selling or otherwise disposing of a Guarantor.
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The Indenture provides that if the Notes are defeased in accordance with
the terms of the Indenture, or if all or substantially all of the assets of a
Guarantor or all of the Capital Stock of a Guarantor is sold (including by
issuance or otherwise) by the Company or any of its Restricted Subsidiaries in a
transaction constituting an Asset Disposition, and if (x) the Net Available
Proceeds from such Asset Dispositions are used in accordance with the covenant
described under "-- Covenants -- Limitation on Certain Asset Dispositions" or
(y) the Company delivers to the Trustee an Officers' Certificate to the effect
that the Net Available Proceeds from such Asset Disposition shall be used in
accordance with the covenant described under "-- Covenants -- Limitation on
Certain Asset Dispositions" and within the time limits specified by such
covenant, then such Guarantor (in the event of a sale or other disposition of
all or substantially all of its assets) shall be released and discharged from
its Guarantee obligations.
The obligations of each Guarantor under the Guarantee are subordinated to
the prior payment in full of all Senior Debt of such Guarantor on the same basis
as the obligations of the Company on the Notes are subordinated to Senior Debt
of the Company. The Guarantee will be pari passu in right of payment with any
other senior subordinated indebtedness of each Guarantor and senior to any
future Subordinated Indebtedness of each Guarantor.
COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness), except: (i) Indebtedness of the
Company or any of its Restricted Subsidiaries, if immediately after giving
effect to the Incurrence of such Indebtedness and the receipt and application of
the net proceeds thereof, the Consolidated Cash Flow Ratio of the Company for a
year consisting of the four full fiscal quarters for which quarterly or annual
financial statements are available next preceding the Incurrence of such
Indebtedness (calculated on a pro forma basis in accordance with Article 11 of
Regulation S-X under the Securities Act or any successor provision as if such
Indebtedness had been Incurred on the first day of such year) would be greater
than 2.0 to 1.0; (ii) Indebtedness of the Company and its Restricted
Subsidiaries Incurred under the Credit Agreement in an amount not to exceed
$100.0 million in aggregate principal amount less the amount of any such
Indebtedness that is permanently repaid or, without duplication, the amount by
which commitments thereunder are permanently reduced, in either case, from the
proceeds of Asset Dispositions (it being understood that the amount incurred
under the Credit Agreement may be increased as a result of the operation of
clause (xiii) below); (iii) Indebtedness owed by the Company to any direct or
indirect Wholly Owned Subsidiary of the Company or Indebtedness owed by a direct
or indirect Restricted Subsidiary of the Company to the Company or a direct or
indirect Wholly Owned Subsidiary of the Company; provided, however, upon either
(I) the transfer or other disposition by such direct or indirect Wholly Owned
Subsidiary or the Company of any Indebtedness so permitted under this clause
(iii) to a Person other than the Company or another direct or indirect Wholly
Owned Subsidiary of the Company or (II) the issuance (other than directors'
qualifying shares), sale, transfer or other disposition of shares of Capital
Stock or other ownership interests (including by consolidation or merger) of
such direct or indirect Wholly Owned Subsidiary to a Person other than the
Company or another such Wholly Owned Subsidiary of the Company, the provisions
of this clause (iii) shall no longer be applicable to such Indebtedness and such
Indebtedness shall be deemed to have been Incurred at the time of any such
issuance, sale, transfer or other disposition, as the case may be; (iv)
Indebtedness of the Company or any Restricted Subsidiary under any interest rate
or foreign currency hedge or exchange or other similar agreement to the extent
entered into to hedge any other Indebtedness permitted under the Indenture
(including the Notes); (v) Indebtedness Incurred to defer, renew, extend,
replace, refinance or refund, whether under any amendment, supplement or
otherwise (collectively for purposes of this clause (v) to "refund") any
Indebtedness outstanding on the Issue Date, any Indebtedness Incurred under the
prior clause (i) above or the Notes and the Guarantee; provided, however, that
(I) such Indebtedness does not exceed the principal amount (or accrual amount,
if less) of Indebtedness so refunded plus the amount of any premium required to
be paid in connection with such refunding pursuant to the terms
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of the Indebtedness refunded or the amount of any premium reasonably determined
by the issuer of such Indebtedness as necessary to accomplish such refunding by
means of a tender offer, exchange offer, or privately negotiated repurchase,
plus the expenses of such issuer reasonably incurred in connection therewith and
(II)(A) in the case of any refunding of Indebtedness that is pari passu with the
Notes, such refunding Indebtedness is made pari passu with or subordinate in
right of payment to the Notes, and, in the case of any refunding of Indebtedness
that is subordinate in right of payment to the Notes, such refunding
Indebtedness is subordinate in right of payment to the Notes on terms no less
favorable to the holders of the Notes than those contained in the Indebtedness
being refunded, (B) in either case, the refunding Indebtedness by its terms, or
by the terms of any agreement or instrument pursuant to which such Indebtedness
is issued, does not have an Average Life that is less than the remaining Average
Life of the Indebtedness being refunded and does not permit redemption or other
retirement (including pursuant to any required offer to purchase to be made by
the Company or a Restricted Subsidiary of the Company) of such Indebtedness at
the option of the holder thereof prior to the final stated maturity of the
Indebtedness being refunded, other than a redemption or other retirement at the
option of the holder of such Indebtedness (including pursuant to a required
offer to purchase made by the Company or a Restricted Subsidiary of the Company)
which is conditioned upon a change of control of the Company pursuant to
provisions substantially similar to those contained in the Indenture described
under "-- Change of Control" below and (C) any Indebtedness Incurred to refund
any Indebtedness is Incurred by the obligor on the Indebtedness being refunded
or by the Company; (vi) commodity agreements of the Company or any of its
Restricted Subsidiaries to the extent entered into to protect the Company and
its Restricted Subsidiaries from fluctuations in the prices of raw materials
used in their businesses; (vii) Indebtedness of the Company under the Notes and
Indebtedness of the Guarantors, under the Guarantee incurred in accordance with
the Indenture; (viii) Indebtedness outstanding on the Issue Date; (ix)
guarantees by the Company or its Restricted Subsidiaries of Indebtedness
otherwise permitted to be incurred hereunder; (x) Indebtedness the net proceeds
of which are applied to defease the Notes in their entirety; (xi) Indebtedness
of the Company or any of its Subsidiaries that is an endorsement of bank drafts
and similar negotiable instruments for collection or deposit in the ordinary
course of business; (xii) Indebtedness incurred by the Company or any of its
Restricted Subsidiaries constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims or self-insurance and
obligations in respect of performance and surety bonds and completion guarantees
provided by the Company or any Restricted Subsidiary of the Company in the
ordinary course of business not in excess of $2.0 million; and (xiii)
Indebtedness of the Company or its Restricted Subsidiaries not otherwise
permitted to be Incurred pursuant to clauses (i) through (xii) above which,
together with any other outstanding Indebtedness Incurred pursuant to this
clause (xiii), has an aggregate principal amount not in excess of $20.0 million
at any time outstanding, which Indebtedness may be incurred under the Credit
Agreement or otherwise.
Limitation on Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, (i) declare or pay
any dividend, or make any distribution of any kind or character (whether in
cash, property or securities), on or in respect of any class of the Capital
Stock of the Company or any of its Restricted Subsidiaries excluding any (x)
dividends or distributions payable solely in shares of Capital Stock of the
Company (other than Disqualified Stock) or in options, warrants or other rights
to acquire Capital Stock of the Company (other than Disqualified Stock), or (y)
in the case of any Restricted Subsidiary of the Company, dividends or
distributions payable to the Company or a Restricted Subsidiary of the Company,
(ii) purchase, redeem, or otherwise acquire or retire for value shares of
Capital Stock of the Company or any of its Restricted Subsidiaries, any options,
warrants or rights to purchase or acquire shares of Capital Stock of the Company
or any of its Restricted Subsidiaries or any securities convertible or
exchangeable into shares of Capital Stock of the Company or any of its
Restricted Subsidiaries, excluding any such shares of Capital Stock, options,
warrants, rights or securities which are owned by the Company or a Restricted
Subsidiary of the Company, (iii) make any Investment in (other than a Permitted
Investment), or make any payment on a guarantee of any obligation of, any
Person, other than the Company or a direct or indirect Wholly Owned Subsidiary
of the Company, or (iv) redeem, defease, repurchase, retire or otherwise acquire
or retire for value, prior to any scheduled maturity,
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repayment or sinking fund payment, Subordinated Indebtedness (each of the
transactions described in clauses (i) through (iv) (other than any exception to
any such clause) being a "Restricted Payment"), if at the time thereof: (1) a
Default or an Event of Default shall have occurred and be continuing, or (2)
upon giving effect to such Restricted Payment, the Company could not Incur at
least $1.00 of additional Indebtedness pursuant to the terms of the Indenture
described in clause (i) of "-- Limitation on Indebtedness" above, or (3) upon
giving effect to such Restricted Payment, the aggregate of all Restricted
Payments made on or after the Issue Date exceeds the sum of: (a) 50% of
cumulative Consolidated Net Income of the Company (or, in the case cumulative
Consolidated Net Income of the Company shall be negative, less 100% of such
deficit) since the Issue Date, plus (b) 100% of the aggregate net proceeds
received after the Issue Date, including the fair market value of property other
than cash (determined in good faith by the Board of Directors of the Company as
evidenced by a resolution of such Board of Directors filed with the Trustee)
from the issuance of, or equity contribution with respect to, Capital Stock
(other than Disqualified Stock) of the Company and warrants, rights or options
on Capital Stock (other than Disqualified Stock) of the Company (other than in
respect of any such issuance to a Restricted Subsidiary of the Company) and the
principal amount of Indebtedness of the Company or any of its Restricted
Subsidiaries that has been converted into or exchanged for Capital Stock of the
Company which Indebtedness was Incurred after the Issue Date; plus (c) the
excess of (x) 100% of the aggregate net cash proceeds received on the Issue Date
from the issuance of, or the equity contribution with respect to, Capital Stock
of the Company over (y) $10,875,000; plus (d) 100% of the aggregate after-tax
net cash proceeds, of the sale or other disposition of any Investment
constituting a Restricted Payment made after the Issue Date; provided that any
gain on the sale or disposition to the extent included in this clause (d) shall
not be included in determining Consolidated Net Income for purposes of clause
(a) above; provided, further, that amounts included in this clause (d) shall not
exceed the Net Investment by the Company in the asset so sold or disposed.
The foregoing provision will not be violated by (i) any dividend on any
class of Capital Stock of the Company or any of its Restricted Subsidiaries paid
within 60 days after the declaration thereof if, on the date when the dividend
was declared, the Company or such Restricted Subsidiary, as the case may be,
could have paid such dividend in accordance with the provisions of the
Indenture, (ii) the renewal, extension, refunding or refinancing of any
Indebtedness otherwise permitted pursuant to the terms of the Indenture
described in clause (v) of "-- Limitation on Indebtedness" above, (iii) the
exchange or conversion of any Indebtedness of the Company or any of its
Restricted Subsidiaries for or into Capital Stock of the Company (other than
Disqualified Stock), (iv) so long as no Default or Event of Default has occurred
and is continuing, any Investment made with the proceeds of a substantially
concurrent sale (other than in respect of any issuance to a Restricted
Subsidiary of the Company) for cash of Capital Stock of the Company (other than
Disqualified Stock); provided, however, that the proceeds of such sale of
Capital Stock, to the extent used in any such Investment, shall not be (and have
not been) included in subclause (b) of clause (3) of the preceding paragraph,
(v) the redemption, repurchase, retirement or other acquisition of any Capital
Stock of the Company in exchange for or out of the net cash proceeds of a
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of Capital Stock of the Company (other than Disqualified Stock);
provided, however, that the proceeds of such sale of Capital Stock, to the
extent used for such redemption, repurchase, retirement or other acquisition or
retirement, shall not be (and have not been) included in subclause (b) of clause
(3) of the preceding paragraph (vi) payments made to purchase, redeem or
otherwise acquire or retire for value shares of Capital Stock of the Company or
any of its Restricted Subsidiaries at no more than fair market value (determined
in good faith by the Board of Directors of the Company as evidenced by a
resolution of such Board of Directors filed with the Trustee) from present and
former officers and directors of the Company or any such Restricted Subsidiary
(other than F. Patrick Smith, J. Andrew McWethy, Barry A. Solomon and Stephen A.
Tuttle) in an amount not in excess of up to $2.0 million for each fiscal year
and $5.0 million in the aggregate, (vii) all payments, not exceeding $600,000 in
the aggregate, for each fiscal year, required to be made to Tekni-Plex
Partnership, MST/TP Partners, L.P., MST Management, L.P., MST Partners L.P. or
their respective Affiliates or partners under the terms of existing agreements
and notes, (viii) so long as no Default or Event of Default has occurred and is
continuing, the redemption, repurchase or retirement of Subordinated
Indebtedness of the Company in exchange for, by conversion into, or out of the
net proceeds of, a substantially concurrent sale or incurrence of Subordinated
Indebtedness (other than any Indebtedness owed to a Subsidiary) of the Company
that is contractually subordinated in right of
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payment to the Notes to at least the same extent, and which has an Average Life
at least as long, in each case, as the subordinated Indebtedness being redeemed,
repurchased or retired; (ix) so long as no Default or Event of Default has
occurred and is continuing, Investments not otherwise permitted pursuant to the
clauses above up to $10.0 million in the aggregate; and (x) so long as no
Default or Event of Default has occurred and is continuing, Restricted Payments
not otherwise permitted pursuant to the clauses above up to $2.0 million in the
aggregate. Each Restricted Payment described in clauses (i) (to the extent not
already taken into account for purposes of computing the aggregate amount of all
Restricted Payments pursuant to clause 3 above), (iv), (vi), (vii), (ix) and (x)
of the previous sentence shall be taken into account for purposes of computing
the aggregate amount of all Restricted Payments pursuant to clause (3) of the
preceding paragraph.
The Indenture provides that for purposes of this covenant, (i) an
"Investment" shall be deemed to have been made at the time any Restricted
Subsidiary is designated as an Unrestricted Subsidiary in an amount
(proportionate to the Company's equity interest in such Subsidiary) equal to the
net worth of such Restricted Subsidiary at the time that such Restricted
Subsidiary is designated as an Unrestricted Subsidiary; (ii) at any date the
aggregate of all Restricted Payments made as Investments since the Issue Date
shall exclude and be reduced by an amount (proportionate to the Company's equity
interest in such Subsidiary) equal to the net worth of an Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary, not to exceed, in the case of any such redesignation of
an Unrestricted Subsidiary as a Restricted Subsidiary, the amount of Investments
previously made by the Company and the Restricted Subsidiaries in such
Unrestricted Subsidiary (in each case (i) and (ii) "net worth" to be calculated
based upon the fair market value of the assets of such Subsidiary as of any such
date of designation); and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
Limitations Concerning Distributions and Transfers by Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (i) pay, directly or
indirectly, dividends or make any other distributions in respect of its Capital
Stock or pay any Indebtedness or other obligation owed to the Company or any
Restricted Subsidiary of the Company, (ii) make loans or advances to the Company
or any Restricted Subsidiary of the Company or (iii) transfer any of its
property or assets to the Company or any Restricted Subsidiary of the Company,
except for such encumbrances or restrictions existing under or by reason of (a)
any agreement in effect on the Issue Date as any such agreement is in effect on
such date, (b) the Credit Agreement, (c) any agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary prior to the date on which
such Restricted Subsidiary was acquired by the Company and outstanding on such
date and not Incurred in anticipation or contemplation of becoming a Restricted
Subsidiary and provided such encumbrance or restriction shall not apply to any
assets of the Company or its Restricted Subsidiaries other than such Restricted
Subsidiary, (d) customary provisions contained in an agreement which has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of a Restricted Subsidiary; provided, however, that such
encumbrance or restriction is applicable only to such Restricted Subsidiary or
assets, (e) an agreement effecting a renewal, exchange, refunding, amendment or
extension of Indebtedness Incurred pursuant to an agreement referred to in
clause (a) above; provided, however, that the provisions contained in such
renewal, exchange, refunding, amendment or extension agreement relating to such
encumbrance or restriction are no more restrictive in any material respect than
the provisions contained in the agreement that is the subject thereof in the
reasonable judgment of the Board of Directors of the Company as evidenced by a
resolution of such Board of Directors filed with the Trustee, (f) the Indenture,
(g) applicable law, (h) customary provisions restricting subletting or
assignment of any lease governing any leasehold interest of any Restricted
Subsidiary of the Company, (i) restrictions contained in Indebtedness permitted
to be incurred subsequent to the Issue Date pursuant to the provisions of the
covenant described under "-- Limitation on Indebtedness"; provided that any such
restrictions are ordinary and customary with respect to the type of Indebtedness
incurred, (j) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the type referred to in clause
(iii) of this covenant or (k) restrictions of the type referred to in clause
(iii) of this covenant contained in security agreements securing Indebtedness of
a Restricted Subsidiary of the Company to the
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extent that such Liens were otherwise incurred in accordance with "-- Limitation
on Liens" below and restrict the transfer of property subject to such
agreements.
Limitation on Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, incur any Lien on or with respect to any
property or assets of the Company or such Restricted Subsidiary owned on the
Issue Date or thereafter acquired or on the income or profits thereof to secure
Indebtedness, without making, or causing any such Restricted Subsidiary to make,
effective provision for securing the Notes and all other amounts due under the
Indenture (and, if the Company shall so determine, any other Indebtedness of the
Company or such Restricted Subsidiary, including Subordinated Indebtedness;
provided, however, that Liens securing the Notes and any Indebtedness pari passu
with the Notes are senior to such Liens securing such Subordinated Indebtedness)
equally and ratably with such Indebtedness or, in the event such Indebtedness is
subordinate in right of payment to the Notes or the Guarantee, prior to such
Indebtedness, as to such property or assets for so long as such Indebtedness
shall be so secured.
The foregoing restrictions shall not apply to (i) Liens existing on the
Issue Date securing Indebtedness existing on the Issue Date; (ii) Liens securing
Senior Debt (including Liens securing Indebtedness outstanding under the Credit
Agreement) and any guarantees thereof to the extent that the Indebtedness
secured thereby is permitted to be incurred under the covenant described under
"-- Limitation on Indebtedness" above; provided, however, that Indebtedness
under the Credit Agreement shall be deemed not to have been Incurred in
violation of such provisions for purposes of this clause (ii) if the holder(s)
of such Indebtedness or their agent or representative shall have received a
representation from the Company to the effect that the Incurrence of such
Indebtedness does not violate such provision; (iii) Liens securing only the
Notes and the Guarantees; (iv) Liens in favor of the Company or a Guarantor; (v)
Liens to secure Indebtedness Incurred for the purpose of financing all or any
part of the purchase price or the cost of construction or improvement of the
property (or any other capital expenditure financing) subject to such Liens;
provided, however, that (a) the aggregate principal amount of any Indebtedness
secured by such a Lien does not exceed 100% of such purchase price or cost, (b)
such Lien does not extend to or cover any other property other than such item of
property and any improvements on such item, (c) the Indebtedness secured by such
Lien is Incurred by the Company within 180 days of the acquisition, construction
or improvement of such property and (d) the Incurrence of such Indebtedness is
permitted by the provisions of the Indenture described under "-- Limitation on
Indebtedness" above; (vi) Liens on property existing immediately prior to the
time of acquisition thereof (and not created in anticipation or contemplation of
the financing of such acquisition); (vii) Liens on property of a Person existing
at the time such Person is acquired or merged with or into or consolidated with
the Company or any such Restricted Subsidiary (and not created in anticipation
or contemplation thereof); (viii) Liens to secure Indebtedness Incurred to
extend, renew, refinance or refund (or successive extensions, renewals,
refinancings or refundings), in whole or in part, any Indebtedness secured by
Liens referred to in clauses (i)-(vii) and (ix)-(xii) of this paragraph so long
as such Liens do not extend to any other property and the principal amount of
Indebtedness so secured is not increased except for the amount of any premium
required to be paid in connection with such renewal, refinancing or refunding
pursuant to the terms of the Indebtedness renewed, refinanced or refunded or the
amount of any premium reasonably determined by the Company as necessary to
accomplish such renewal, refinancing or refunding by means of a tender offer,
exchange offer or privately negotiated repurchase, plus the expenses of the
issuer of such Indebtedness reasonably incurred in connection with such renewal,
refinancing or refunding; (ix) Liens in favor of the Trustee as provided for in
the Indenture on money or property held or collected by the Trustee in its
capacity as Trustee (x) Liens securing a tax, assessment or other governmental
charge or levy or the claim of a materialman, mechanic, carrier, warehouseman or
landlord for labor, materials, supplies or rentals incurred in the ordinary
course or business; (xi) Liens consisting of a deposit or pledge made in the
ordinary course of business in connection with, or to secure payment of,
obligations under worker's compensation, unemployment insurance or similar
legislation; (xii) Liens arising pursuant to an order of attachment, distraint
or similar legal process arising in connection with legal proceedings; and
(xiii) Liens incurred in the ordinary course of business securing assets not
having a fair market value in excess of $500,000.
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Limitation on Certain Asset Dispositions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, make one or more
Asset Dispositions unless: (i) the Company or such Restricted Subsidiary, as the
case may be, receives consideration for such Asset Disposition at least equal to
the fair market value of the assets sold or disposed of as determined by the
Board of Directors of the Company in good faith and evidenced by a resolution of
such Board of Directors filed with the Trustee; (ii) not less than 75% of the
consideration for the disposition consists of cash or readily marketable cash
equivalents or the assumption of Indebtedness (other than non-recourse
Indebtedness or any Subordinated Indebtedness) of the Company or such Restricted
Subsidiary or other obligations relating to such assets (and release of the
Company or such Restricted Subsidiary from all liability on the Indebtedness or
other obligations assumed); and (iii) all Net Available Proceeds, less any
amounts invested within 360 days of such Asset Disposition in assets related to
the business of the Company or its Restricted Subsidiaries (including in the
Capital Stock of another Person (other than any Person that is a Restricted
Subsidiary of the Company immediately prior to such investment); provided,
however, that immediately after giving effect to any such investment in Capital
Stock (and not prior thereto) such Person shall be a Restricted Subsidiary of
the Company), are applied, on or prior to the 360th day after such Asset
Disposition, unless and to the extent that the Company shall determine to make
an Offer to Purchase, to the permanent reduction and prepayment of any Senior
Debt of the Company then outstanding (including a permanent reduction of
commitments in respect thereof). Any Net Available Proceeds from any Asset
Disposition which is subject to the immediately preceding sentence that are not
applied as provided in the immediately preceding sentence shall be used promptly
after the expiration of the 360th day after such Asset Disposition, or promptly
after the Company shall have earlier determined to not apply any Net Available
Proceeds therefrom as provided in clause (iii) of the immediately preceding
sentence, to make an Offer to Purchase outstanding Notes at a purchase price in
cash equal to 100% of their principal amount plus accrued interest to the
Purchase Date. Notwithstanding the foregoing, the Company may defer making any
Offer to Purchase outstanding Notes until there are aggregate unutilized Net
Available Proceeds from Asset Dispositions otherwise subject to the two
immediately preceding sentences equal to or in excess of $5.0 million (at which
time, the entire unutilized Net Available Proceeds from Asset Dispositions
otherwise subject to the two immediately preceding sentences, and not just the
amount in excess of $5.0 million, shall be applied as required pursuant to this
paragraph). Any remaining Net Available Proceeds following the completion of the
required Offer to Purchase may be used by the Company for any other purpose
(subject to the other provisions of the Indenture) and the amount of Net
Available Proceeds then required to be otherwise applied in accordance with this
covenant shall be reset to zero, subject to any subsequent Asset Disposition.
These provisions will not apply to a transaction consummated in compliance with
the provisions of the Indenture described under "-- Mergers, Consolidations and
Certain Sales of Assets" below.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act.
Limitation on Senior Subordinated Indebtedness
The Indenture provides that the Company will not (i) directly or indirectly
Incur any Indebtedness that by its terms would expressly rank senior in right of
payment to the Notes and expressly rank subordinate in right of payment to any
Senior Debt and (ii) permit a Guarantor to, and no Guarantor will, directly or
indirectly Incur any Indebtedness that by its terms would expressly rank senior
in right of payment to the Guarantee of such Guarantor and expressly rank
subordinate in right of payment to any Senior Debt of such Guarantor.
Limitation on Issuance and Sale of Capital Stock of Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, (a) transfer, convey, sell or otherwise
dispose of any shares of Capital Stock of any Restricted Subsidiary of the
Company (other than to the Company or a Wholly Owned Subsidiary of the Company),
except that the Company and any such Restricted Subsidiary may, in any single
transaction, sell all, but not less than all, of the issued and outstanding
Capital Stock of any such Restricted Subsidiary to any Person, subject to
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complying with the provisions of the Indenture described under "-- Limitation on
Certain Asset Dispositions" above and (b) issue shares of Capital Stock of a
Restricted Subsidiary of the Company (other than directors' qualifying shares),
or securities convertible into, or warrants, rights or options to subscribe for
or purchase shares of, Capital Stock of a Restricted Subsidiary of the Company
to any Person other than to the Company or a Wholly Owned Subsidiary of the
Company and other than to the holders of the Capital Stock of such Restricted
Subsidiary made pro rata to the relative amounts of such Capital Stock held by
such holders.
Limitation on Transactions with Affiliates and Related Persons
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into directly or indirectly any
transaction with any of their respective Affiliates or Related Persons (other
than the Company or a Restricted Subsidiary of the Company), including, without
limitation, the purchase, sale, lease or exchange of property, the rendering of
any service, or the making of any guarantee, loan, advance or Investment, either
directly or indirectly, involving aggregate consideration in excess of $1.0
million unless a majority of the disinterested directors of the Board of
Directors of the Company determines, in its good faith judgment evidenced by a
resolution of such Board of Directors filed with the Trustee, that the terms of
such transaction are at least as favorable as the terms that could be obtained
by the Company or such Restricted Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis between unaffiliated
parties; provided, however, that if the aggregate consideration is in excess of
$5.0 million the Company shall also obtain, prior to the consummation of the
transaction, the favorable opinion as to the fairness of the transaction to the
Company or such Restricted Subsidiary, from a financial point of view from an
independent financial advisor. The provisions of this covenant shall not apply
to (i) transactions permitted by the provisions of the Indenture described above
under the caption "-- Limitation on Restricted Payments" above and (ii)
reasonable fees and compensation paid to, and indemnity provided on behalf of,
officers, directors and employees of the Company and its Restricted Subsidiaries
as determined in good faith by the Board of Directors or authorized executive
officers, as the case may be, of the Company.
Change of Control
Within 30 days following the date of the consummation of a transaction
resulting in a Change of Control, the Company will commence an Offer to Purchase
all outstanding Notes at a purchase price in cash equal to 101% of their
principal amount plus accrued interest to the Purchase Date. Such Offer to
Purchase will be consummated not earlier than 30 days and not later than 60 days
after the commencement thereof. Each holder shall be entitled to tender all or
any portion of the Notes owned by such holder pursuant to the Offer to Purchase,
subject to the requirement that any portion of a Note tendered must bear an
integral multiple of $1,000 principal amount. A "Change of Control" will be
deemed to have occurred in the event that (whether or not otherwise permitted by
the Indenture), after the Issue Date (a) any Person or any Persons acting
together that would constitute a group (for purposes of Section 13(d) of the
Exchange Act, or any successor provision thereto) (a "Group"), together with any
Affiliates or Related Persons thereof, other than any such Person, Persons,
Affiliates or Related Person who are Permitted Holders, shall "beneficially own"
(as defined in Rule 13d-3 under the Exchange Act, or any successor provision
thereto), directly or indirectly, at least (i) 50% of the voting power of the
outstanding Voting Stock of the Company or (ii) 40% of the voting power of the
outstanding Voting Stock of the Company, and the Permitted Holders own less than
such Person or Group (in doing the "own less than" comparison in this clause
(ii), the holdings of the Permitted Holders who are members of the new Group
shall not be counted in the shares held in the aggregate by Permitted Holders);
(b) any sale, lease or other transfer (in one transaction or a series of related
transactions) is made by the Company or any of its Restricted Subsidiaries of
all or substantially all of the consolidated assets of the Company and its
Restricted Subsidiaries to any Person; (c) the Company consolidates with or
merges with or into another Person or any Person consolidates with, or merges
with or into, the Company, in any such event pursuant to a transaction in which
immediately after the consummation thereof Persons owning a majority of the
Voting Stock of the Company immediately prior to such consummation shall cease
to own a majority of the Voting Stock of the Company or the surviving entity if
other than the Company; (d) Continuing Directors cease to constitute at least a
majority of the Board of Directors of the Company; or (e) the stockholders of
the Company approve any plan or proposal for the liquidation or dissolution of
the Company. In no event would the sale of common stock of the Company to an
underwriter or a group of underwriters in privity of contract with the
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Company (or anybody in privity of contract with such underwriters) be deemed to
be a Change of Control or be deemed the acquisition of more than 40% of the
voting power of the outstanding Voting Stock of the Company by a Person or any
Group unless such common stock is not held in an investment account in which
case the investment account would be treated without giving effect to the
foregoing part of this sentence.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act.
With respect to the sale of assets referred to in the definition of "Change
of Control," the phrase "all or substantially all" of the assets of the Company
will likely be interpreted under applicable law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred. In addition, no assurances can
be given that the Company will be able to acquire Notes tendered upon the
occurrence of a Change of Control. The ability of the Company to pay cash to the
holders of Notes upon a Change of Control may be limited by its then existing
financial resources. The Credit Agreement will contain certain covenants
prohibiting, or requiring waiver or consent of the lenders thereunder prior to,
the repurchase of the Notes upon a Change of Control and future debt agreements
of the Company may provide the same. If the Company does not obtain such waiver
or consent to repay such Indebtedness, the Company will remain prohibited from
repurchasing the Notes. In such event, the Company's failure to purchase
tendered Notes would constitute an Event of Default under the Indenture (without
any further grace period) which would in turn constitute a default under the
Credit Agreement and possibly other Indebtedness. If such a cross-default leads
to an acceleration of the obligations under the Credit Agreement or any other
Senior Debt, the payment on the Notes would be effectively subordinated to any
such Senior Debt. None of the provisions relating to a repurchase upon a Change
of Control are waivable by the Board of Directors of the Company or the Trustee.
The foregoing provisions will not prevent the Company from entering into
transactions of the types described above with management or their affiliates.
In addition, such provisions may not necessarily afford
the holders of the Notes protection in the event of a highly leveraged
transaction, including a reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect the holders because
such transactions may not involve a shift in voting power or beneficial
ownership, or even if they do, may not involve a shift of the magnitude required
under the definition of Change of Control to trigger the provisions.
Nonetheless, such provisions may have the effect of deterring certain mergers,
tender offers, takeover attempts or similar transactions by increasing the cost
of such a transaction and may limit the Company's ability to obtain additional
equity financing in the future.
Future Guarantors
The Indenture provides that the Company shall not create or acquire, nor
permit any of its Domestic Restricted Subsidiaries to create or acquire, any
Domestic Restricted Subsidiary after the Issue Date unless, at the time such
Domestic Restricted Subsidiary has either assets or stockholder's equity in
excess of $25,000, such Domestic Restricted Subsidiary (a) executes and delivers
to the Trustee a supplemental indenture in form reasonably satisfactory to the
Trustee pursuant to which such Domestic Restricted Subsidiary shall
unconditionally guarantee all of the Company's obligations under the Notes and
the Indenture on the terms set forth in the Indenture and (b) delivers to the
Trustee an opinion of counsel that such supplemental indenture has been duly
authorized, executed and delivered by such Domestic Restricted Subsidiary and
constitutes a legal, valid, binding and enforceable obligation of such Domestic
Restricted Subsidiary.
Provision of Financial Information
Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, the Company shall file with
the Commission the annual reports, quarterly reports and other documents which
the Company would have been required to file with the Commission pursuant to
such Section 13(a) or 15(d) or any successor provision thereto if the Company
were so required, such documents to be filed with the Commission on or prior to
the respective dates (the "Required Filing Dates") by which the Company would
have been required so to file such documents if the Company were so required.
The Company shall also in any event (a) within 15 days of each Required Filing
Date (i) transmit by mail to all
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holders of Notes, as their names and addresses appear in the Note Register,
without cost to such holders, and (ii) file with the Trustee, copies of the
annual reports, quarterly reports and other documents which the Company is
required to file with the Commission pursuant to the preceding sentence, and (b)
if, notwithstanding the preceding sentence, filing such documents by the Company
with the Commission is not permitted under the Exchange Act, promptly upon
written request supply copies of such documents to any prospective holder of
Notes. This Prospectus is being delivered to holders of Notes in lieu of the
Form 10-K of the Company for the fiscal year ended June 27, 1997.
Mergers, Consolidations and Certain Sales of Assets
The Company will not consolidate or merge with or into any Person, or sell,
assign, lease, convey or otherwise dispose of (or cause or permit any Restricted
Subsidiary of the Company to consolidate or merge with or into any Person or
sell, assign, lease, convey or otherwise dispose of) all or substantially all of
the Company's assets (determined on a consolidated basis for the Company and its
Restricted Subsidiaries), whether as an entirety or substantially an entirety in
one transaction or a series of related transactions, including by way of
liquidation or dissolution, to any Person unless, in each such case: (i) the
entity formed by or surviving any such consolidation or merger (if other than
the Company or such Restricted Subsidiary, as the case may be), or to which such
sale, assignment, lease, conveyance or other disposition shall have been made
(the "Surviving Entity"), is a corporation organized and existing under the laws
of the United States, any state thereof or the District of Columbia; (ii) if
there is a Surviving Entity, the Surviving Entity assumes by supplemental
indenture all of the obligations of the Company on the Notes and under the
Indenture; (iii) immediately after giving effect to such transaction and the use
of any net proceeds therefrom on a pro forma basis, the Company or the Surviving
Entity, as the case may be, (A) shall have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Company immediately prior to such
transaction and (B) could Incur at least $1.00 of Indebtedness pursuant to
clause (i) of the provisions of the Indenture described under "-- Limitation on
Indebtedness" above; (iv) immediately before and after giving effect to such
transaction and treating any Indebtedness which becomes an obligation of the
Company or any of its such Restricted Subsidiaries as a result of such
transaction as having been incurred by the Company or such Restricted
Subsidiary, as the case may be, at the time of the transaction, no Default or
Event of Default shall have occurred and be continuing; and (v) if, as a result
of any such transaction, property or assets of the Company or a Restricted
Subsidiary would become subject to a Lien not excepted from the provisions of
the Indenture described under "-- Limitation on Liens" above, the Company,
Restricted Subsidiary or the Surviving Entity, as the case may be, shall have
secured the Notes as required by said covenant. The provisions of this paragraph
shall not apply to any merger of a Restricted Subsidiary of the Company with or
into the Company or a Wholly Owned Subsidiary of the Company or any transaction
pursuant to which a Guarantor, is to be released in accordance with the terms of
the Guarantee and the Indenture in connection with any transaction complying
with the provisions of the Indenture described under "-- Limitation on Certain
Asset Dispositions" above.
Consequences of a Highly Leveraged Transaction
The covenants in the Indenture are primarily in the nature of incurrence
tests and not maintenance tests and will only work to protect holders of the
Notes when the Company attempts to take action of a sort to which the incurrence
tests of the Indenture apply, such as the incurrence of additional indebtedness
or the making of Restricted Payments, including the making of investments. Even
in such cases, the Indenture provides for various exceptions that do not make
the protections applicable. For example, the incurrence of indebtedness under
the Credit Agreement is permitted without regard to any incurrence test up to a
$100.0 million limit and certain other indebtedness is permitted to the extent
of certain specified dollar limits and the making of Restricted Payments is
permitted in any event to the extent of certain dollar limits specified in the
Indenture. See "-- Covenants" above.
The covenants discussed above may be waived by the Trustee and the holders
of the Notes as discussed in "-- Modification and Waiver" below and may not be
waived in any way by the board of directors of the Company. In addition, the
covenants are fully applicable in the event of a leveraged buyout initiated or
supported by the Company, the Company's management or any affiliate of either
party.
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EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay principal of (or premium, if any, on) any Note when due (whether or not
prohibited by the provisions of the Indenture described under "-- Ranking"
above); (b) failure to pay any interest on any Note when due, and the default
continues for 30 days (whether or not prohibited by the provisions of the
Indenture described under "-- Ranking" above); (c) default in the payment of
principal of and interest on Notes required to be purchased pursuant to an Offer
to Purchase as described under "-- Covenants -- Change of Control" and
"-- Covenants -- Limitation on Certain Asset Dispositions" above when due and
payable (whether or not prohibited by the provisions of the Indenture described
under "-- Ranking" above); (d) failure to perform or comply with any of the
provisions described under "-- Covenants -- Mergers, Consolidations and Certain
Sales of Assets" above; (e) failure to perform any other covenant or agreement
of the Company under the Indenture or the Notes and the default continues for 30
days after written notice to the Company by the Trustee or holders of at least
25% in aggregate principal amount of outstanding Notes; (f) default under the
terms of one or more instruments evidencing or securing Indebtedness of the
Company or any of its Restricted Subsidiaries having an outstanding principal
amount of $5 million or more individually or in the aggregate that has resulted
in the acceleration of the payment of such Indebtedness or failure to pay
principal when due at the stated maturity of any such Indebtedness; (g) the
rendering of a final judgment or judgments (not subject to appeal) against the
Company or any of its Restricted Subsidiaries in an amount of $5 million or more
which remains undischarged or unstayed for a period of 60 days after the date on
which the right to appeal has expired; (h) certain events of bankruptcy,
insolvency or reorganization affecting the Company or any of its Material
Subsidiaries; and (i) any Guarantee ceases to be in full force and effect or is
declared null and void and unenforceable or is found to be invalid or a
Guarantor denies its liability under the Guarantee (other than by reason of a
release of such Guarantor from the Guarantee in accordance with the terms of the
Indenture and the Guarantee).
If an Event of Default (other than an Event of Default with respect to the
Company described in clause (h) of the preceding paragraph) shall occur and be
continuing, either the Trustee or the holders of at least 25% in aggregate
principal amount of the outstanding Notes may accelerate the maturity of all
Notes; provided, however, that after such acceleration, but before a judgment or
decree based on acceleration, the holders of a majority in aggregate principal
amount of outstanding Notes may, under certain circumstances, rescind and annul
such acceleration if all Events of Default, other than the non-payment of
accelerated principal, have been cured or waived as provided in the Indenture;
and provided, further, that so long as the Credit Agreement shall be in full
force and effect, if an Event of Default shall have occurred and be continuing
(other than as specified under clause (h) above), the Notes shall not become due
and payable until the earlier to occur of (x) five business days following
delivery of a written notice of such acceleration of the Notes to the agent
under the Credit Agreement, if such Event of Default has not been cured prior to
such fifth business day, and (y) the acceleration of any Indebtedness under the
Credit Agreement. If an Event of Default specified in clause (h) of the
preceding paragraph with respect to the Company occurs, the outstanding Notes
will ipso facto become immediately due and payable without any declaration or
other act on the part of the Trustee or any holder. For information as to waiver
of defaults, see "-- Modification and Waiver."
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes, give
the holders thereof notice of all uncured Defaults or Events of Default known to
it; provided, however, that, except in the case of an Event of Default or a
Default in payment with respect to the Notes or a Default or Event of Default in
complying with "-- Covenants -- Mergers, Consolidations and Certain Sales of
Assets," the Trustee shall be protected in withholding such notice if and so
long as the Board of Directors or responsible officers of the Trustee in good
faith determine that the withholding of such notice is in the interest of the
holders of the Notes.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee, and the
Trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request and shall have
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failed to institute such proceeding within 60 days. However, such limitations do
not apply to a suit instituted by a holder of a Note for enforcement of payment
of the principal of and premium, if any, or interest on such Note on or after
the respective due dates expressed in such Note.
The Company will be required to furnish to the Trustee annually a statement
as to its performance of certain of its obligations under the Indenture and as
to any default in such performance.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its substantive obligations and the substantive
obligations of the Guarantors in respect of the Notes and the Guarantees by
delivering all outstanding Notes to the Trustee for cancellation and paying all
sums payable by the Company on account of principal of, premium, if any, and
interest on all Notes or otherwise. In addition to the foregoing, the Company
may, provided that no Default or Event of Default has occurred and is continuing
or would arise therefrom (or, with respect to a Default or Event of Default
specified in clause (h) of "-- Events of Default" above, any time on or prior to
the 91st calendar day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until after such 91st day)) and
provided that no default under any Senior Debt would result therefrom, terminate
its substantive obligations and the substantive obligations of the Guarantors in
respect of the Notes and the Guarantees (except for the Company's obligation to
pay the principal of (and premium, if any, on) and the interest on the Notes and
such Guarantors' guarantee thereof) by (i) depositing with the Trustee, under
the terms of an irrevocable trust agreement, money or United States Government
Obligations sufficient (without reinvestment) to pay all remaining indebtedness
on the Notes, (ii) delivering to the Trustee either an Opinion of Counsel or a
ruling directed to the Trustee from the Internal Revenue Service to the effect
that the holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and termination of
obligations, (iii) delivering to the Trustee an Opinion of Counsel to the effect
that the Company's exercise of its option under this paragraph will not result
in the Company, the Trustee or the trust created by the Company's deposit of
funds pursuant to this provision becoming or being deemed to be an "investment
company" under the Investment Company Act of 1940, as amended, and (iv)
complying with certain other requirements set forth in the Indenture. In
addition, the Company may, provided that no Default or Event of Default has
occurred, and is continuing or would arise therefrom (or, with respect to a
Default or Event of Default specified in clause (h) of "-- Events of Default"
above, any time on or prior to the 91st calendar day after the date of such
deposit (it being understood that this condition shall not be deemed satisfied
until after such 91st day)) and provided that no default under any Senior Debt
would result therefrom, terminate all of its substantive obligations and all of
the substantive obligations of the Guarantors in respect of the Notes and the
Guarantees (including the Company's obligation to pay the principal of (and
premium, if any, on) and interest on the Notes and such Guarantors' guarantee
thereof by (i) depositing with the Trustee, under the terms of an irrevocable
trust agreement, money or United States Government Obligations sufficient
(without reinvestment) to pay all remaining indebtedness on the Notes, (ii)
delivering to the Trustee either a ruling directed to the Trustee from the
Internal Revenue Service to the effect that the holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and termination of obligations or an Opinion of Counsel based upon
such a ruling addressed to the Trustee or a change in the applicable Federal tax
law since the date of the Indenture, to such effect, (iii) delivering to the
Trustee an Opinion of Counsel to the effect that the Company's exercise of its
option under this paragraph will not result in the Company, the Trustee or the
trust created by the Company's deposit of funds pursuant to this provision
becoming or being deemed to be an "investment company" under the Investment
Company Act of 1940, as amended, and (iv) complying with certain other
requirements set forth in the Indenture.
The Company may make an irrevocable deposit pursuant to this provision only
if at such time it is not prohibited from doing so under the subordination
provisions of the Indenture or certain covenants in the instruments governing
Senior Debt and the Company has delivered to the Trustee and any Paying Agent an
Officers' Certificate to that effect.
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GOVERNING LAW
The Indenture, the Notes and the Guarantee (if any) will be governed by the
laws of the State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of a majority in aggregate
principal amount of the outstanding Notes; provided, however, that no such
modification or amendment may, without the consent of the holder of each Note
affected thereby, (a) change the Stated Maturity of the principal of or any
installment of interest on any Note or alter the optional redemption or
repurchase provisions of any Note or the Indenture in a manner adverse to the
holders of the Notes, (b) reduce the principal amount of (or the premium) of any
Note, (c) reduce the rate of or extend the time for payment of interest on any
Note, (d) change the place or currency of payment of principal of (or premium)
or interest on any Note, (e) modify any provisions of the Indenture relating to
the waiver of past defaults (other than to add sections of the Indenture subject
thereto) or the right of the holders to institute suit for the enforcement of
any payment on or with respect to any Note or the Guarantee, or the modification
and amendment of the Indenture and the Notes (other than to add sections of the
Indenture or the Notes which may not be amended, supplemented or waived without
the consent of each holder affected), (f) reduce the percentage of the principal
amount of outstanding Notes necessary for amendment to or waiver of compliance
with any provision of the Indenture or the Notes or for waiver of any Default,
(g) waive a default in the payment of principal of, interest on, or redemption
payment with respect to, any Note (except a recision of acceleration of the
Notes by the holders as provided in the Indenture and a waiver of the payment
default that resulted from such acceleration), (h) modify the ranking or
priority of the Notes or the Guarantee, or modify the definition of Senior Debt
or Designated Senior Debt or amend or modify the subordination provisions of the
Indenture in any manner adverse to the Holders, (i) release the Guarantors from
any of their respective obligations under the Guarantee or the Indenture
otherwise than in accordance with the Indenture, or (j) modify the provisions
relating to any Offer to Purchase required under the covenants described under
"-- Covenants -- Limitation on Certain Asset Dispositions" or "-- Covenants --
Change of Control" in a manner materially adverse to the holders of Notes with
respect to any Asset Disposition that has been consummated or Change of Control
that has occurred.
The holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all holders of Notes, may waive compliance by the Company
with certain restrictive provisions of the Indenture. Subject to certain rights
of the Trustee, as provided in the Indenture, the holders of a majority in
aggregate principal amount of the outstanding Notes, on behalf of all holders of
Notes, may waive any past default under the Indenture, except a default in the
payment of principal, premium or interest or a default arising from failure to
purchase any Note tendered pursuant to an Offer to Purchase, or a default in
respect of a provision that under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Note affected.
THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will perform only such duties as are specifically set forth in the
Indenture. During the existence of a Default, the Trustee will exercise such
rights and powers vested in it under the Indenture and use the same degree of
care and skill in their exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs. The Indenture and
provisions of the Trust Indenture Act incorporated by reference therein contain
limitations on the rights of the Trustee, should it become a creditor of the
Company, the Guarantors, or any other obligor upon the Notes, to obtain payment
of claims in certain cases or to realize on certain property received by it in
respect of any such claim as security or otherwise. The Trustee is permitted to
engage in other transactions with the Company or an Affiliate of the Company;
provided, however, that if it acquires any conflicting interest (as defined in
the Indenture or in the Trust Indenture Act), it must eliminate such conflict or
resign.
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BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes will initially be represented by one or more global
Notes in definitive, fully registered form without interest coupons
(collectively, the "Global Note") and will be deposited with the Trustee as
custodian for the Depositary and registered in the name of a nominee of the
Depository.
Upon the issuance of the Global Note, the Depositary or its custodian will
credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Note to the accounts
of persons who have accounts with such depositary. Ownership of beneficial
interests in the Global Note will be limited to persons who have accounts with
the Depositary ("participants") or persons who hold interests through
participants. Ownership of beneficial interests in the Global Note will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by the Depositary or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants).
So long as the Depositary, or its nominee, is the registered holder of the
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Exchange Notes represented by such
Global Note for all purposes under the Indenture and the Exchange Notes. No
beneficial owner of an interest in the Global Note will be able to transfer that
interest except in accordance with the Depositary's applicable procedures.
Payments of the principal of, and interest on, the Global Note will be made
to the Depositary or its nominee, as the case may be, as the registered owner
thereof. None of the Company, the Trustee or any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of the Global Note will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of the Depositary or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in such Global
Note held through such participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers registered in the name of nominees for such customers.
Such payments will be the responsibility of such participants. Transfers between
participants in the Depositary will be effected in the ordinary way in
accordance with the Depositary rules and will be settled in same-day funds.
The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Exchange Notes only at the direction of one
or more participants to whose accounts an interest in the Global Note is
credited and only in respect of such portion of the aggregate principal amount
of Exchange Notes as to which such participant or participants has or have given
such direction.
The Depositary has advised the Company as follows: the Depositary is a
limited purpose trust company organized under the laws of the State of New York,
a "banking organization" within the meaning of New York Banking Law, a member of
the Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. The Depositary was created to
hold securities for its participants and facilitate the clearance and settlement
of securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the Depositary system is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depositary, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Company nor the
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Trustee will have any responsibility for the performance by the Depositary or
its participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
CERTIFICATED EXCHANGE NOTES
If the Depositary is at any time unwilling or unable to continue as a
depositary for the Global Note and a successor depositary is not appointed by
the Company within 90 days, the Company will issue certificated notes in
exchange for the Global Note.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture or the Registration Rights Agreement. Reference is made to the
Indenture or the Registration Rights Agreement for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means, with respect to any Person, Indebtedness of
such Person (i) existing at the time such Person becomes a Restricted Subsidiary
or (ii) assumed in connection with the acquisition of assets from another
Person, including Indebtedness Incurred in connection with, or in contemplation
of, such Person becoming a Restricted Subsidiary or such acquisition, as the
case may be.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with any specified Person. For 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.
"Asset Disposition" means any sale, transfer or other disposition
(including, without limitation, by merger, consolidation or sale-and-leaseback
transaction) of (i) shares of Capital Stock of a Subsidiary of the Company
(other than directors' qualifying shares) or (ii) property or assets of the
Company or any Restricted Subsidiary of the Company other than in the ordinary
course of business; provided, however, that an Asset Disposition shall not
include (a) any sale, transfer or other disposition of shares of Capital Stock,
property or assets by a Restricted Subsidiary of the Company to the Company or
to any Wholly Owned Subsidiary of the Company, (b) any sale, transfer or other
disposition of defaulted receivables for collection or any sale, transfer or
other disposition of property or assets in the ordinary course of business, (c)
any isolated sale, transfer or other disposition that does not involve aggregate
consideration in excess of $1 million individually, (d) the grant in the
ordinary course of business of any non-exclusive license of patents, trademarks,
registrations therefor and other similar intellectual property, (e) any Lien (or
foreclosure thereon) securing Indebtedness to the extent that such Lien is
granted in compliance with "-- Covenants -- Limitation on Liens" above, (f) any
Restricted Payment permitted by "-- Covenants -- Limitation on Restricted
Payments" above, (g) any disposition of assets or property in the ordinary
course of business to the extent such property or assets are obsolete, worn-out
or no longer useful in the Company's or any of its Restricted Subsidiaries'
business, (h) the sale, lease, conveyance or disposition or other transfer of
all or substantially all of the assets of the Company as permitted under
"-- Covenants -- Mergers, Consolidations and Certain Sales of Assets" above;
provided, that the assets not so sold, leased, conveyed, disposed of or
otherwise transferred shall be deemed an Asset Disposition, or (i) any
disposition that constitutes a Change of Control.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness for borrowed money or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the dates of each successive scheduled principal or liquidation
value payments of such Indebtedness or Preferred Stock, respectively, and the
amount of such principal or liquidation value payments, by (ii) the sum of all
such principal or liquidation value payments.
"Capital Lease Obligations" of any Person means the obligations to pay rent
or other amounts under a lease of (or other Indebtedness arrangements conveying
the right to use) real or personal property of such Person which are required to
be classified and accounted for as a capital lease or liability on the face of a
balance sheet of such Person in accordance with GAAP. The amount of such
obligations shall be the capitalized amount thereof in accordance with GAAP and
the stated maturity thereof shall be the date of the
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last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Cash Flow Available for Fixed Charges" of any Person means
for any period the Consolidated Net Income of such Person for such period
increased (to the extent Consolidated Net Income for such period has been
reduced thereby) by the sum of (without duplication) (i) Consolidated Interest
Expense of such Person for such period, plus (ii) Consolidated Income Tax
Expense of such Person for such period, plus (iii) the consolidated depreciation
and amortization expense included in the income statement of such Person
prepared in accordance with GAAP for such period, plus (iv) any other non-cash
charges to the extent deducted from or reflected in Consolidated Net Income
except for any non-cash charges that represent accruals of, or reserves for,
cash disbursements to be made in any future accounting period.
"Consolidated Cash Flow Ratio" of any Person means for any period the ratio
of (i) Consolidated Cash Flow Available for Fixed Charges of such Person for
such period to (ii) the sum of (A) Consolidated Interest Expense of such Person
for such period, plus (B) the annual interest expense with respect to any
Indebtedness proposed to be Incurred by such Person or its Restricted
Subsidiaries, minus (C) Consolidated Interest Expense of such Person to the
extent included in clause (ii)(A) with respect to any Indebtedness that will no
longer be outstanding as a result of the Incurrence of the Indebtedness proposed
to be Incurred, plus (D) the annual interest expense with respect to any other
Indebtedness Incurred by such Person or its Restricted Subsidiaries since the
end of such period to the extent not included in clause (ii)(A), minus (E)
Consolidated Interest Expense of such Person to the extent included in clause
(ii)(A) with respect to any Indebtedness that no longer is outstanding as a
result of the Incurrence of the Indebtedness referred to in clause (ii)(D);
provided, however, that in making such computation, the Consolidated Interest
Expense of such Person attributable to interest on any Indebtedness bearing a
floating interest rate shall be computed on a pro forma basis as if the rate in
effect on the date of computation (after giving effect to any hedge in respect
of such Indebtedness that will, by its terms, remain in effect until the earlier
of the maturity of such Indebtedness or the date one year after the date of such
determination) had been the applicable rate for the entire period; provided,
further, however, that, in the event such Person or any of its Restricted
Subsidiaries has made any Asset Dispositions or acquisitions of assets not in
the ordinary course of business (including acquisitions of other Persons by
merger, consolidation or purchase of Capital Stock) during or after such period
and on or prior to the date of measurement, such computation shall be made on a
pro forma basis as if the Asset Dispositions or acquisitions had taken place on
the first day of such period. Calculations of pro forma amounts in accordance
with this definition shall be done in accordance with Article 11 of Regulation
S-X under the Securities Act or any successor provision and may include
reasonably ascertainable cost savings.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" for any Person means for any period,
without duplication, (a) the consolidated interest expense included in a
consolidated income statement (without deduction of interest or finance charge
income) of such Person and its Restricted Subsidiaries for such period
calculated on a consolidated basis in accordance with GAAP and (b) dividend
requirements of such Person and its Restricted Subsidiaries with respect to
Disqualified Stock and with respect to all other Preferred Stock of Restricted
Subsidiaries of such Person (in each case whether in cash or otherwise (except
dividends payable solely in shares of Capital Stock of such Person or such
Restricted Subsidiary)) paid, accrued or accumulated during such period times a
fraction the numerator of which is one and the denominator of which is one minus
the then effective consolidated Federal, state and local tax rate of such
Person, expressed as a decimal.
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"Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person and its Restricted Subsidiaries
for such period determined on a consolidated basis in accordance with GAAP;
provided, however, that there shall be excluded therefrom (a) the net income (or
loss) of any Person acquired by such Person or a Restricted Subsidiary of such
Person in a pooling-of-interests transaction for any period prior to the date of
such transaction, (b) the net income (but not net loss) of any Restricted
Subsidiary of such Person which is subject to restrictions which prevent or
limit the payment of dividends or the making of distributions to such Person to
the extent of such restrictions (regardless of any waiver thereof), (c) non-cash
gains and losses due solely to fluctuations in currency values, (d) the net
income of any Person that is not a Restricted Subsidiary of such Person, except
to the extent of the amount of dividends or other distributions representing
such Person's proportionate share of such other Person's net income for such
period actually paid in cash to such Person by such other Person during such
period, (e) gains but not losses on Asset Dispositions by such Person or its
Restricted Subsidiaries, (f) all extraordinary gains and losses determined in
accordance with GAAP and (g) in the case of a successor to the referent Person
by consolidation or merger or as a transferee of the referent Person's assets,
any earnings (or losses) of the successor corporation prior to such
consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Continuing Director" means a director who either was a member of the Board
of Directors of the Company on the Issue Date or who became a director of the
Company subsequent to the Issue Date and whose election, or nomination for
election by the Company's stockholders, was duly approved by a majority of the
Continuing Directors then on the Board of Directors of the Company, either by a
specific vote or by approval of the proxy statement issued by the Company on
behalf of the entire Board of Directors of the Company in which such individual
is named as nominee for director.
"Credit Agreement" means the Credit Agreement among the Company as borrower
thereunder, and Morgan Guaranty Trust Company of New York, as agent on behalf of
itself and the others named therein, and any deferrals, renewals, extensions,
replacements, refinancings or refundings thereof, or amendments, modifications
or supplements thereto or replacements thereof (including, without limitation,
any amendment increasing the amount borrowed thereunder) and any agreement
providing therefor whether by or with the same or any other lender, creditors,
or group of creditors and including related notes, guarantee agreements,
security agreements and other instruments and agreements executed in connection
therewith.
"Default" means any event that is, or after notice or lapse of time or both
would become, an Event of Default.
"Designated Senior Debt" means (i) so long as the Credit Agreement is in
effect, the Senior Debt incurred thereunder and (ii) thereafter, any other
Senior Debt which has at the time of initial issuance an aggregate outstanding
principal amount in excess of $25.0 million which has been so designated as
Designated Senior Debt by the Board of Directors of the Company at the time of
initial issuance in a resolution delivered to the Trustee.
"Disqualified Stock" of any Person means 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 upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final maturity of the Notes.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of the
Company organized and existing under the laws of the United States, any state
thereof or the District of Columbia.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect on the Issue Date in the United States of America, as set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronounce-
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ments of the Financial Accounting Standards Board or in such other statements by
such other entity as is approved by a significant segment of the accounting
profession in the United States.
"Guarantee" means the guarantee of the Senior Subordinated Notes by each
Guarantor under the Indenture.
"Guarantor" means (i) each Restricted Subsidiary on the Issue Date and (ii)
each Restricted Subsidiary, if any, of the Company formed or acquired after the
Issue Date, which pursuant to the terms of the Indenture executes a supplement
to the Indenture as a Guarantor. Note that Dolco, which was a Restricted
Subsidiary on the Issue Date, is no longer a Guarantor since it has been merged
into Tekni-Plex.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Person or any of its
Restricted Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of the Company (or is merged into or consolidates with the Company or
any of its Restricted Subsidiaries), whether or not such Indebtedness was
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary of the Company (or being merged into or consolidated with
the Company or any of its Restricted Subsidiaries), shall be deemed Incurred at
the time any such Person becomes a Restricted Subsidiary of the Company or
merges into or consolidates with the Company or any of its Restricted
Subsidiaries.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business which are not overdue or
which are being contested in good faith), (v) every Capital Lease Obligation of
such Person, (vi) every net obligation under interest rate swap or similar
agreements or foreign currency hedge, exchange or similar agreements of such
Person and (vii) every obligation of the type referred to in clauses (i) through
(vi) of another Person and all dividends of another Person the payment of which,
in either case, such Person has guaranteed or is responsible or liable for,
directly or indirectly, as obligor, guarantor or otherwise. Indebtedness shall
include the liquidation preference and any mandatory redemption payment
obligations in respect of any Disqualified Stock of the Company owned by any
Person other than the Company or a Restricted Subsidiary of the Company, and any
Preferred Stock of a Restricted Subsidiary of the Company. Indebtedness shall
never be calculated taking into account any cash and cash equivalents held by
such Person. Indebtedness shall not include obligations arising from agreements
of the Company or a Restricted Subsidiary of the Company to provide for
indemnification, adjustment of purchase price, earn-out, or other similar
obligations, in each case, incurred or assumed in connection with the
disposition of any business or assets of a Restricted Subsidiary of the Company.
"Investment" by any Person means any direct or indirect loan, advance,
guarantee or other extension of credit (excluding credit balances in bank
accounts or similar accounts with other financial institutions) or capital
contribution to (by means of transfers of cash or other property to others or
payments for property or services for the account or use of others, or
otherwise), or purchase or acquisition of Capital Stock, bonds, notes,
debentures or other securities or evidence of Indebtedness issued by any other
Person.
"Issue Date" means the original issue date of the Notes.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, security interest, lien, charge,
easement (other than any easement not materially impairing usefulness or
marketability), encumbrance, preference, priority or other security agreement
with respect to such property or assets (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
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"Material Subsidiary" means, at any date of determination, any Subsidiary
that, together with its Subsidiaries, (i) for the most recent fiscal year of the
Company accounted for more than 5% of the consolidated revenues of the Company
or (ii) as of the end of such fiscal year, was the owner of more than 5% of the
consolidated assets of the Company, all as set forth on the most recently
available consolidated financial statements of the Company for such fiscal year
prepared in conformity with GAAP.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or readily marketable cash equivalents received (including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Indebtedness or other obligations relating to such properties or
assets or received in any other non-cash form) therefrom by such Person,
including any cash received by way of deferred payment or upon the monetization
or other disposition of any non-cash consideration (including notes or other
securities) received in connection with such Asset Disposition, net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred and all federal, state, foreign and local taxes required to be accrued
as a liability as a consequence of such Asset Disposition, (ii) all payments
made by such Person or its Restricted Subsidiaries on any Indebtedness which is
secured by such assets in accordance with the terms of any Lien upon or with
respect to such assets or which must by the terms of such Lien, 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, (iii) all payments made
with respect to liabilities associated with the assets which are the subject of
the Asset Disposition, including, without limitation, trade payables and other
accrued liabilities, (iv) appropriate amounts to be provided by such Person or
any Restricted Subsidiary thereof, as the case may be, as a reserve in
accordance with GAAP against any liabilities associated with such assets and
retained by such Person or any Restricted Subsidiary thereof, as the case may
be, after such Asset Disposition, including, without limitation, liabilities
under any indemnification obligations and severance and other employee
termination costs associated with such Asset Disposition, until such time as
such amounts are no longer reserved or such reserve is no longer necessary (at
which time any remaining amounts will become Net Available Proceeds to be
allocated in accordance with the provisions of clause (iii) of the covenant of
the Indenture described under "-- Covenants -- Limitation on Certain Asset
Dispositions") and (v) all distributions and other payments made to minority
interest holders in Restricted Subsidiaries of such Person or joint ventures as
a result of such Asset Disposition.
"Net Investment" means the excess of (i) the aggregate amount of all
Investments in Unrestricted Subsidiaries or joint ventures made by the Company
or any Restricted Subsidiary on or after the Issue Date (in the case of an
Investment made other than in cash, the amount shall be the fair market value of
such Investment as determined in good faith by the Board of Directors of the
Company or such Restricted Subsidiary) over (ii) the aggregate amount returned
in cash on or with respect to such Investments whether through interest
payments, principal payments, dividends or other distributions or payments;
provided, however that such payments or distributions shall not be (and have not
been) included in subclause (b) of clause (3) of the first paragraph described
under "-- Covenants -- Limitation on Restricted Payments;" provided, further
that with respect to all Investments made in any Unrestricted Subsidiary or
joint venture the amounts referred to in clause (ii) above with respect to such
Investments shall not exceed the aggregate amount of all such Investments made
in such Unrestricted Subsidiary or joint venture.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first class mail, postage prepaid, to each holder at his address appearing in
the register for the Notes on the date of the Offer offering to purchase up to
the principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be not less than 30
days nor more than 60 days after the date of such Offer and a settlement date
(the "Purchase Date") for purchase of Notes within five Business Days after the
Expiration Date. The Company shall notify the Trustee at least 15 Business Days
(or such shorter period as is acceptable to the Trustee) prior to the mailing of
the Offer of the Company's obligation to make an Offer to Purchase, and the
Offer shall be mailed by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. The Offer shall contain
all the information required by applicable law to be included therein. The Offer
shall
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contain all instructions and materials necessary to enable such holders to
tender Notes pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to Purchase is
being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to be
purchased by the Company pursuant to the Offer to Purchase (including, if
less than 100%, the manner by which such amount has been determined
pursuant to the Section of the Indenture requiring the Offer to Purchase)
(the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000 aggregate
principal amount of Notes accepted for payment (as specified pursuant to
the Indenture) (the "Purchase Price");
(5) that the holder may tender all or any portion of the Notes registered in
the name of such holder and that any portion of a Note tendered must be
tendered in an integral multiple of $1,000 principal amount;
(6) the place or places where Notes are to be surrendered for tender pursuant
to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not purchased by the
Company pursuant to the Offer to Purchase will continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due and payable
upon each Note being accepted for payment pursuant to the Offer to Purchase
and that interest thereon shall cease to accrue on and after the Purchase
Date;
(9) that each holder electing to tender all or any portion of a Note pursuant
to the Offer to Purchase will be required to surrender such Note at the
place or places specified in the Offer prior to the close of business on
the Expiration Date (such Note being, if the Company or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed
by, the holder thereof or his attorney duly authorized in writing);
(10) that holders will be entitled to withdraw all or any portion of Notes
tendered if the Company (or its Paying Agent) receives, not later than the
close of business on the fifth Business Day next preceding the Expiration
Date, a telegram, telex, facsimile transmission or letter setting forth the
name of the holder, the principal amount of the Note the holder tendered,
the certificate number of the Note the holder tendered and a statement that
such holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or equal to
the Purchase Amount are duly tendered and not withdrawn pursuant to the
Offer to Purchase, the Company shall purchase all such Notes and (b) if
Notes in an aggregate principal amount in excess of the Purchase Amount are
tendered and not withdrawn pursuant to the Offer to Purchase, the Company
shall purchase Notes having an aggregate principal amount equal to the
Purchase Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only Notes in denominations of $1,000 or integral
multiples thereof shall be purchased); and
(12) that in the case of any holder whose Note is purchased only in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of
the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Permitted Holder" means any of any member of the Board of Directors of the
Company as of the Issue Date, Tekni-Plex Partnership, MST/TP Partners, L.P., MST
Management, L.P., MST Partners L.P., any Affiliate of or partner in any of the
foregoing (including any Person receiving common stock of the Company upon a
distribution by any of the foregoing partnerships, whether a partner or
designated by a partner for purposes of estate or similar personal planning), or
any group if the majority of the shares of Common Stock of the Company owned by
such group are beneficially owned by any or all of the foregoing and their
Related Persons and Affiliates.
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"Permitted Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or any
governmental entity or agency or political subdivision thereof (provided, that
the full faith and credit of the United States of America is pledged in support
thereof), maturing within one year of the date of purchase; (ii) Investments in
commercial paper issued by corporations or financial institutions maturing
within 180 days from the date of the original issue thereof, and rated "P-1" or
better by Moody's Investors Service or "A-1" or better by Standard & Poor's
Corporation or an equivalent rating or better by any other nationally recognized
securities rating agency; (iii) Investments in certificates of deposit issued or
acceptances accepted by or guaranteed by any bank or trust company organized
under the laws of the United States of America, any state thereof, the District
of Columbia, Canada or any province thereof, in each case having a combined
capital, surplus and undivided profits totalling more than $500,000,000,
maturing within one year of the date of purchase; (iv) Investments representing
Capital Stock or obligations issued or otherwise transferred to the Company or
any of its Restricted Subsidiaries in the course of the good faith settlement of
claims against any other Person or by reason of a composition or readjustment of
debt or a reorganization of any debtor of the Company or any of its Restricted
Subsidiaries; (v) deposits, including interest-bearing deposits, maintained in
the ordinary course of business in banks; (vi) any acquisition of the Capital
Stock of any Person; provided, however, that after giving effect to any such
acquisition such Person shall become a Restricted Subsidiary of the Company;
(vii) receivables and prepaid expenses, in each case arising in the ordinary
course of business; provided, however, that such receivables and prepaid
expenses would be recorded as assets of such Person in accordance with GAAP;
(viii) endorsements for collection or deposit in the ordinary course of business
by such Person of bank drafts and similar negotiable instruments of such other
Person received as payment for ordinary course of business trade receivables;
(ix) any interest swap or hedging obligation with an unaffiliated Person
otherwise permitted by the Indenture; (x) Investments received as consideration
for an Asset Disposition in compliance with the provisions of the Indenture
described under "-- Covenants -- Limitation on Certain Asset Dispositions"
above, (xi) Investments in Restricted Subsidiaries or by virtue of which a
person becomes a Restricted Subsidiary; and (xii) loans and advances to
employees of the Company or any of its Restricted Subsidiaries in the ordinary
course of business.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding Common Stock of such Person
(or, in the case of a Person that is not a corporation, 5% or more of the equity
interest in such Person) or (b) 5% or more of the combined voting power of the
Voting Stock of such Person.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Senior Debt" means, with respect to any Person at any date, (i) in the
case of the Company or the Guarantor, all Indebtedness and other obligations
under the Credit Agreement, including, without limitation, principal, premium,
if any, and interest on such Indebtedness and all other amounts due on or in
connection with such Indebtedness including all charges, fees and expenses, (ii)
all other Indebtedness of such Person for money borrowed, including principal,
premium, if any, and interest on such Indebtedness, unless the instrument under
which such Indebtedness for money borrowed is created, incurred, assumed or
guaranteed expressly provides that such Indebtedness for money borrowed is not
senior or superior in right of payment to the Notes, and all renewals,
extensions, modifications, amendments, refinancing or replacements thereof and
all other Indebtedness of such Person of the types referred to in clauses (iii),
(iv) (not including obligations issued or assumed as the deferred purchase price
of services) and (vi) of the definition of Indebtedness and (iii) all interest
on any Indebtedness referred to in clauses (i) and (ii) accruing during, or
which would accrue but for, the pendency of any bankruptcy or insolvency
proceeding, whether or not allowed thereunder.
70
<PAGE> 73
Notwithstanding the foregoing, Senior Debt shall not include (a) Indebtedness
which is pursuant to its terms or any agreement relating thereto or by operation
of law subordinated or junior in right of payment or otherwise to any other
Indebtedness of such Person; provided, however, that no Indebtedness shall be
deemed to be subordinate or junior in right of payment or otherwise to any other
Indebtedness of a Person solely by reason of such other Indebtedness being
secured and such Indebtedness not being secured, (b) the Notes, (c) any
Indebtedness of such Person to any of its Subsidiaries, (d) Indebtedness
Incurred in violation of the provisions of the Indenture described under
"-- Covenants -- Limitation on Indebtedness"; provided, however, that
Indebtedness under the Credit Agreement shall be deemed not to have been
Incurred in violation of such provisions for purposes of this clause (d) if the
holder(s) of such Indebtedness or their agent or representative shall have
received a representation from the Company to the effect that the Incurrence of
such Indebtedness does not violate such provision and (e) any Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of the Bankruptcy Code, is without recourse to the Company.
"Subordinated Indebtedness" means any Indebtedness (whether outstanding on
the date hereof or hereafter incurred) which is by its terms expressly
subordinate or junior in right of payment to the Notes.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person and
one or more other Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, have at least a majority ownership and voting power relating to the
policies, management and affairs thereof.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company formed or
acquired after the Issue Date that at the time of determination is designated an
Unrestricted Subsidiary by the Board of Directors in the manner provided below
and (ii) any Subsidiary of an Unrestricted Subsidiary. Any such designation by
the Board of Directors will be evidenced to the Trustee by promptly filing with
the Trustee a copy of the board resolution giving effect to such designation and
an officers' certificate certifying that such designation complied with the
foregoing provisions. The Board of Directors of the Company may not designate
any Subsidiary of the Company to be an Unrestricted Subsidiary if, after such
designation, (a) the Company or any other Restricted Subsidiary (i) provides
credit support for, or a guarantee of, any Indebtedness of such Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness) or (ii) is directly or indirectly liable for any Indebtedness of
such Subsidiary, (b) a default with respect to any Indebtedness of such
Subsidiary (including any right which the holders thereof may have to take
enforcement action against such Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its final scheduled
maturity or (c) such Subsidiary owns any Capital Stock of, or owns or holds any
Lien on any property of, any Restricted Subsidiary which is not a Subsidiary of
the Subsidiary to be so designated.
"Voting Stock" of any Person means the Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Subsidiary" of any Person means a Restricted Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
71
<PAGE> 74
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain material United States federal
income tax consequences of the Exchange Offer to holders of Old Notes. Unless
otherwise stated, this discussion addresses the United States federal income tax
consequences to persons that hold Old Notes as capital assets, and that are (i)
citizens or residents of the United States, (ii) corporations, partnerships or
other entities created or organized in or under the laws of the United States or
any political subdivision thereof or therein, (iii) estates the income of which
is subject to United States federal income tax regardless of its source, or (iv)
trusts the administration of which is subject to the primary supervision of a
court within the United States and for which one or more United States
fiduciaries have the authority to control all substantial decisions ("U.S.
Holders"). This discussion does not purport to address specific tax consequences
that may be relevant to particular persons (including, for example, financial
institutions, broker-dealers, insurance companies, tax-exempt organizations, and
persons in special situations, such as those who hold Old Notes or Exchange
Notes as part of a straddle, hedge, conversion transaction, or other integrated
investment). This discussion does not address the tax consequences to persons
that have a "functional currency" other than the U.S. dollar. In addition, this
discussion does not address United States federal alternative minimum tax
consequences or any aspect of state, local or foreign taxation. This discussion
is based upon the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Department regulations promulgated thereunder, and administrative and
judicial interpretations thereof, all as of the date hereof and all of which are
subject to change, possibly on a retroactive basis.
HOLDERS OF NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND
DISPOSING OF THE EXCHANGE NOTES, AS WELL AS THE APPLICATION OF STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS.
THE EXCHANGE
The exchange of an Old Note for an Exchange Note pursuant to the Exchange
Offer should not be treated as an exchange or otherwise as a taxable event for
U.S. federal income tax purposes. Accordingly, the Exchange Notes should have
the same issue price as the Old Notes and each holder should have the same
adjusted basis and holding period in the Exchange Notes as it had in the Old
Notes immediately before the Exchange Offer. It is assumed, for purposes of the
following discussion, that the consummation of the Exchange Offer will not be
treated as a taxable event and that the Exchange Notes and the Old Notes will be
treated as the same instruments for U.S. federal income tax purposes.
DISPOSITION OF EXCHANGE NOTES
If a U.S. Holder sells an Exchange Note between interest payment dates, the
U.S. Holder will recognize gain or loss equal to the difference between the
amount realized on the sale (except to the extent such amount is attributable to
accrued but previously unrecognized interest, which is taxable as ordinary
interest income) and the U.S. Holder's adjusted tax basis in the Exchange Note.
A U.S. Holder's adjusted tax basis in an Exchange Note will be equal to the
amount the U.S. Holder paid to purchase the Old Note, (i) increased by any
interest that has accrued since the last interest payment date, any "original
issue discount" within the meaning of Section 1273 of the Code, and any market
discount, in each case that has previously been included by such U.S. Holder in
taxable income with respect to such Note, and (ii) decreased by any bond premium
previously amortized and any principal payments previously received by such U.S.
Holder with respect to such Note. Subject to the market discount rules, any such
gain or loss will be capital gain or loss, long-term or short-term depending
upon whether the Holder has held such Note for more than one year. Subject to
certain limited exceptions, capital losses cannot be used to offset ordinary
income.
FOREIGN HOLDERS
For purposes of this discussion, a "Foreign Holder" is any noteholder other
than a U.S. Holder.
A Foreign Holder generally will not be subject to United States federal
withholding tax on interest paid on the Exchange Notes so long as the Foreign
Holder (i) is not actually or constructively a "10 percent
72
<PAGE> 75
shareholder" of the Company or a "controlled foreign corporation" with respect
to which the Company is a "related person" within the meaning of the Code, and
(ii) provides an appropriate statement, signed under penalties of perjury,
certifying that the beneficial owner of the Exchange Note is a foreign person
and providing that foreign person's name and address. If the information
provided in this statement changes, the foreign person must so inform the
Company within 30 days of such change. The statement generally must be provided
in the year a payment occurs or in either of the two preceding years. If the
foregoing conditions are not satisfied, then interest paid on the Exchange Notes
will be subject to United States withholding tax at a rate of 30%, unless such
rate is reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain a Foreign Holder realizes on the sale, redemption,
retirement or other taxable disposition of an Exchange Note will be exempt from
United States federal income and withholding tax, provided that (i) the gain is
not effectively connected with the Foreign Holder's conduct of a trade or
business in the United States, (ii) in the case of a Foreign Holder that is an
individual, the Foreign Holder is not present in the United States for 183 days
or more in the taxable year of the disposition and (iii) the Foreign Holder is
not subject to tax pursuant to the provisions of U.S. tax law applicable to
certain U.S. expatriates.
If the interest, gain or other income a Foreign Holder recognizes on an
Exchange Note is effectively connected with the Foreign Holder's conduct of a
trade or business in the United States, the Foreign Holder (although exempt from
the withholding tax previously discussed if an appropriate statement is
furnished) generally will be subject to United States federal income tax on the
interest, gain or other income at regular federal income tax rates. In addition,
if the Foreign Holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its "effectively connected earnings and profits," as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will be required to report annually to the IRS, and to each
U.S. Holder of record, the amount of interest paid on the Exchange Notes (and
the amount, if any, withheld) for each calendar year, except as to exempt
holders (generally, corporations, tax-exempt organizations, qualified pension
and profit-sharing trusts, individual retirement accounts, or non-resident
aliens that provide certification as to their status). Each U.S. Holder (other
than holders, including, among others, corporations, that are not subject to the
reporting requirements) will be required to provide to the Company, under
penalties of perjury, a certificate containing the U.S. Holder's name, address,
correct federal taxpayer identification number and a statement that the U.S.
Holder is not subject to backup withholding. Should a nonexempt U.S. Holder fail
to provide the required certificate, the Company will be required to withhold
31% of the interest otherwise payable to the U.S. Holder and to remit the
withheld amount to the IRS as a credit against the U.S. Holder's federal income
tax liability.
PLAN OF DISTRIBUTION
Prior to the Exchange Offer, there has been no market for any of the
Exchange Notes. The Old Notes are eligible for trading in the Private Offerings,
Resales and Trading through Automatic Linkages ("PORTAL") market. There can be
no assurance that an active trading market will develop for, or as to the
liquidity of, any of the Notes.
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that for a period of 180 days after the Expiration Date, the Company will
make this Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale. In addition, until
, 1997, all dealers effecting transactions in the Exchange Notes may
be required to deliver a prospectus.
73
<PAGE> 76
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells the
Exchange Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
LEGAL MATTERS
Certain legal matters relating to the Exchange Notes offered hereby will be
passed upon for the Company by Winthrop, Stimson, Putnam & Roberts, New York,
New York.
EXPERTS
The consolidated financial statements of Tekni-Plex included in this
Prospectus have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
The financial statements of Dolco included in this Prospectus have been
audited by Coopers & Lybrand L.L.P., independent certified public accountants,
to the extent and for the periods set forth in their report appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
Tekni-Plex has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the
securities being offered hereby. This Prospectus does not contain all the
information set forth in the Exchange Registration Statement. For further
information with respect to Tekni-Plex and the Exchange Offer, reference is made
to the Exchange Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Registration Statement, reference
is made to the exhibit for a more complete description of the document or matter
involved. The Exchange Registration Statement, including the exhibits thereto,
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at the
Regional Offices of the Commission at 75 Park Place, New York, New York 10007
and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
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<PAGE> 77
Additionally, the Commission maintains a web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
As a result of the filing of the Exchange Registration Statement with the
Commission, the Company will become subject to the informational requirements of
the Exchange Act, and in accordance therewith will be required to file periodic
reports and other information with the Commission. The obligation of the Company
to file periodic reports and other information with the Commission will be
suspended if the Exchange Notes are held of record by fewer than 300 holders as
of the beginning of any fiscal year of the Company other than the fiscal year in
which the Exchange Registration Statement is declared effective. The Company
will nevertheless be required to continue to file reports with the Commission if
the Exchange Notes are listed on a national securities exchange. In the event
the Company ceases to be subject to the informational requirements of the
Exchange Act, the Company will be required under the Indenture to continue to
file with the Commission the annual and quarterly reports, information,
documents or other reports, including, without limitation, reports on Forms
10-K, 10-Q and 8-K, which would be required pursuant to the informational
requirements of the Exchange Act. Under the Indenture, the Company shall file
with the Trustee annual, quarterly and other reports within fifteen days after
it files such reports with the Commission. Further, to the extent that annual,
quarterly or other financial reports are furnished by the Company to
stockholders generally it will mail such reports to holders of Exchange Notes.
The Company will furnish annual and quarterly financial reports to stockholders
of the Company and will mail such reports to holders of Exchange Notes pursuant
to the Indenture, thus holders of Exchange Notes will receive financial reports
every quarter. Annual reports delivered to the Trustee and the holders of
Exchange Notes will contain financial information that has been examined and
reported upon, with an opinion expressed by an independent public or certified
public accountant. The Company will also furnish such other reports as may be
required by law.
75
<PAGE> 78
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TEKNI-PLEX, INC.
Report of Independent Certified Public Accountants.................................... F-2
Financial Statements:
Consolidated balance sheets as of June 28, 1996 and June 27, 1997................... F-3
Consolidated statements of operations for the years ended June 30, 1995, June 28,
1996 and June 27, 1997........................................................... F-4
Statements of consolidated stockholders' equity for the years ended June 30, 1995,
June 28, 1996 and June 27, 1997.................................................. F-5
Consolidated statements of cash flows for the years ended June 30, 1995, June 28,
1996 and June 27, 1997........................................................... F-6
Notes to consolidated financial statements.......................................... F-7
Report of Independent Certified Public Accountants on Financial Statement Schedule.... F-16
Financial Statement Schedule II....................................................... F-17
DOLCO PACKAGING CORP.
Report of Independent Accountants..................................................... F-18
Financial Statements:
Statements of income for the years ended December 31, 1994 and 1995................. F-19
Statements of changes in stockholders' equity for the years ended December 31, 1994
and 1995......................................................................... F-20
Statements of cash flows for the years ended December 31, 1994 and 1995............. F-21
Notes to financial statements....................................................... F-22
</TABLE>
F-1
<PAGE> 79
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Tekni-Plex, Inc.
Somerville, New Jersey
We have audited the accompanying consolidated balance sheets of Tekni-Plex,
Inc. and its wholly owned subsidiary (the "Company") as of June 28, 1996 and
June 27, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended June 27, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tekni-Plex,
Inc. and its wholly owned subsidiary as of June 28, 1996 and June 27, 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended June 27, 1997 in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
August 26, 1997
Woodbridge, NJ
F-2
<PAGE> 80
TEKNI-PLEX, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 28, JUNE 27,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash.................................................... $ 1,048,287 $ 11,095,061
Accounts Receivable, net of an allowance of $565,000 and
$313,000 for possible losses......................... 12,955,647 12,688,165
Inventory............................................... 12,954,993 13,315,278
Income tax refund receivable............................ -- 1,082,800
Deferred income taxes................................... 2,900,000 1,500,000
Prepaid and other current assets........................ 1,738,009 2,029,606
----------- ------------
Total current assets............................ 31,596,936 41,710,910
----------- ------------
Property, plant and equipment, net........................ 44,506,233 42,389,315
Intangible assets, net of accumulated amortization of
$4,821,400 and $7,700,300............................... 40,751,682 36,966,687
Deferred charges, net of accumulated amortization of
$496,200 and $77,400.................................... 4,515,045 5,204,506
Other assets.............................................. 400,142 2,757,946
----------- ------------
$121,770,038 $129,029,364
=========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long term debt....................... $ 3,226,149 $ --
Accounts payable-trade.................................. 5,480,514 6,138,694
Accrued payroll and benefits............................ 3,917,404 5,189,683
Accrued interest........................................ 1,068,690 --
Accrued liabilities-other............................... 5,448,782 4,432,916
Income taxes payable.................................... 795,000 --
----------- ------------
Total current liabilities....................... 19,936,539 15,761,293
----------- ------------
Long-term debt............................................ 67,209,889 75,000,000
Deferred income taxes..................................... 7,655,000 7,255,000
Other liabilities......................................... 1,135,869 615,576
Redeemable Warrants....................................... 1,670,374 --
Commitments and contingencies
Stockholder's equity:
Common Stock, $.01 par value, authorized 20,000 Shares,
issued and outstanding 1,707 shares at June 28, 1996
and June 27, 1997.................................... 17 17
Additional paid-in capital.............................. 22,999,983 41,473,251
Retained earnings....................................... 1,162,367 (11,075,773)
----------- ------------
Total stockholder's equity...................... 24,162,367 30,397,495
----------- ------------
$121,770,038 $129,029,364
=========== ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 81
TEKNI-PLEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------
JUNE 30, JUNE 28, JUNE 27,
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Net sales............................................... $44,688,453 $80,917,205 $144,735,927
Cost of Sales........................................... 34,941,442 62,335,102 107,006,755
----------- ----------- ------------
Gross Profit........................................ 9,747,011 18,582,103 37,729,172
Operating expenses:
Selling, general and administrative................... 4,813,583 10,338,632 15,886,002
----------- ----------- ------------
Income from operations.............................. 4,933,428 8,243,471 21,843,170
Other expenses:
Interest.............................................. 4,321,979 5,816,166 8,094,149
Other................................................. 234,743 469,370 646,433
----------- ----------- ------------
Income before provision for income taxes and
extraordinary item................................ 376,706 1,957,935 13,102,588
Provision for income taxes.............................. 211,000 982,200 4,675,000
----------- ----------- ------------
Income before extraordinary item........................ 165,706 975,735 8,427,588
Extraordinary loss on extinguishment of debt............ -- -- (20,665,728)
----------- ----------- ------------
Net Income (loss)....................................... $ 165,706 $ 975,735 $(12,238,140)
=========== =========== ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 82
TEKNI-PLEX, INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, July 1, 1994........................... $ 9 $ 11,499,991 $ 20,926 $ 11,520,926
Net Income...................................... 165,706 165,706
-------- ----------- --------- -----------
Balance, June 30, 1995.......................... 9 11,499,991 186,632 11,686,632
Proceeds from capital contribution.............. 8 11,499,992 11,500,000
Net Income...................................... 975,735 975,735
-------- ----------- --------- -----------
Balance, June 28, 1996.......................... 17 22,999,983 1,162,367 24,162,367
Proceeds from capital contribution.............. 18,473,268 -- 18,473,268
Net Income (loss)............................... (12,238,140) (12,238,140)
-------- ----------- --------- -----------
Balance, June 27, 1997.......................... $ 17 $ 41,473,251 $(11,075,773) $ 30,397,495
======== =========== ========= ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 83
TEKNI-PLEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------
JUNE 30, JUNE 28, JUNE 27,
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................. $ 165,706 $ 975,735 $(12,238,140)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation..................................................... 1,018,157 3,247,239 6,051,201
Amortization..................................................... 2,444,222 3,573,592 3,499,679
Deferred income taxes............................................ 210,000 63,700 1,000,000
Allowance for doubtful accounts.................................. -- 120,614 200,000
Amortization of redeemable warrants.............................. 391,100 379,274 556,400
Extraordinary loss on extinquishment of debt..................... -- -- 20,665,728
(Increase) decrease, net of the effect of acquired companies:
Accounts receivable............................................ (1,005,933) 1,160,960 67,482
Inventories.................................................... (801,591) 1,394,980 (360,285)
Prepaid and other current assets............................... (128,978) (791,519) (291,597)
Deferred charges and other assets.............................. 44,637 163,146 12,108
Increase (decrease), net of effect of acquired companies:
Accounts payable and other current liabilities................. 16,681 (4,516,499) 495,368
Income taxes payable........................................... -- 796,343 (121,100)
----------- ------------ ------------
Net cash provided by operating activities.................... 2,354,001 6,567,565 19,536,844
----------- ------------ ------------
Cash flows from investing activities:
Acquisitions of net assets including acquisition costs, net of cash
acquired......................................................... -- (47,246,686) --
Capital expenditures............................................... (614,344) (2,275,215) (3,934,283)
Increase in deposits............................................... -- -- (2,338,535)
----------- ------------ ------------
Net cash used in investing activities........................ (614,344) (49,521,901) (6,272,818)
----------- ------------ ------------
Cash flow from financing activities:
Proceeds from long-term debt....................................... -- 51,614,974 75,000,000
Repayments of long-term debt....................................... (1,500,000) (19,550,000) (64,551,149)
Borrowings/payments on line of credit, net......................... 131,969 3,459,324 (6,857,505)
Repayment of notes payable......................................... (83,380) (92,016) --
Proceeds from capital contribution................................. -- 11,500,000 18,473,268
Debt financing costs............................................... -- (3,713,039) (5,281,866)
Redemption of warrants............................................. -- -- (20,000,000)
Proceeds from issuance of warrants................................. -- 450,000 --
----------- ------------ ------------
Net cash provided by financing activities.................... (1,451,411) 43,669,243 (3,217,252)
----------- ------------ ------------
Net increase in cash................................................. 288,246 714,907 10,046,774
Cash, beginning of period............................................ 45,134 333,380 1,048,287
----------- ------------ ------------
Cash, end of period.................................................. $ 333,380 $ 1,048,287 $ 11,095,061
=========== ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 84
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Nature of Business
Tekni-Plex, Inc. is a New Jersey based manufacturer of primary packaging
materials for the pharmaceutical, food, foodservice disposables and
telecommunications industries. The Company is organized into two operating
groups. The Flexible Packaging Group produces printed and unprinted multi-layer
constructions of plastic, paper and metal films and sheets, with emphasis on
pharmaceutical and telecommunications applications. The Foam Products Group
primarily produces polystyrene foam packaging products for the food and
foodservice disposables industries.
The Company operates six manufacturing plants in New Jersey (2), Indiana,
Washington, Georgia and Texas. All facilities are owned with the exception of
the Texas plant. The Company's products are sold to both domestic and
international customers.
On March 18, 1994, T.P. Acquisition Company, Inc., acquired Tekni-Plex,
Inc. for approximately $43,775,000. The companies were merged. The acquisition
was accounted for using the purchase method of accounting and, accordingly, the
purchase price was allocated to assets acquired and liabilities assumed based on
their fair market value on the closing date. The excess of cost over the fair
value of net assets acquired amounted to $31,035,000 after providing for certain
restructuring costs. The Company also entered into a long-term consulting
agreement including a covenant not to compete with former management (the
"Consulting Agreement") totaling $2,000,000.
Consolidation Policy
The consolidated financial statements include the financial statements of
Tekni-Plex, Inc. and its wholly-owned subsidiary, Dolco Packaging Corp.
("Dolco"). All intercompany transactions and balances have been eliminated in
consolidation. In August 1997 Dolco was merged into Tekni-Plex, Inc.
Inventories
Inventories are stated at the lower of cost (weighted average) or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed over the estimated useful lives of the assets by the
straight-line method for financial reporting purposes and by accelerated methods
for income tax purposes.
Intangible Assets
The Company amortizes the excess of cost over the fair value of net assets
acquired on a straight-line basis over 15 years, and the cost of acquiring
certain patents and trademarks, over seventeen and ten years, respectively.
Recoverability is evaluated periodically based on the expected undiscounted net
cash flows of the related businesses.
Deferred Charges
The Company amortizes the deferred financing costs incurred in connection
with the Company's borrowings over the life of the related indebtedness (5-10
years). The covenant not to compete portion of the Consulting Agreement with
former management is amortized over its related term of 10 years. (See Note 10).
F-7
<PAGE> 85
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Deferred income tax assets and liabilities are recognized for
differences between the financial statement and income tax basis of assets and
liabilities based upon statutory rates enacted for future periods. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents.
Fiscal Year-End
The Company utilizes a 52/53 week fiscal year ending on the Friday closest
to June 30.
Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company purchases polystyrene resin ("resin"), the raw material used in
the foam products line from two suppliers. Resin represents approximately 33% of
the Company's raw material purchases. The Company currently has contracts with
these suppliers for minimum quantities.
Aclar(R), a specialty material used in high barrier laminations, represents
approximately 17% of the Company's raw material purchases. This product is
currently manufactured by only one company. The inability to timely obtain
sufficient quantities of Aclar(R) could have a material adverse effect on the
Company's operating results.
Long-Lived Assets
Effective June 29, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets Being Disposed Of,"
which provides guidance on how and when impairment losses are recognized on
long-lived assets. This statement did not have a material impact on the
financial position or results of operations of the Company.
Stock Based Compensation
Effective June 29, 1996, the Company adopted SFAS No. 123 "Accounting for
Stock-Based Compensation." The Company chose to apply APB Opinion 25 and related
interpretations in accounting for its stock options. As a result, this statement
did not have an effect on the financial position or results of operations of the
Company.
New Accounting Pronouncements
In June 1997, SFAS 130, Reporting Comprehensive Income, and SFAS 131,
Disclosures about Segments of an Enterprise and Related Information, were
issued. SFAS 130 addresses standards for reporting and display of comprehensive
income and its components, and SFAS 131 requires disclosure of reportable
operating segments. Both statements are effective for the Company's 1999 fiscal
year. The Company will be reviewing these pronouncements to determine their
applicability to the Company, if any.
F-8
<PAGE> 86
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
On February 22, 1996, the Company purchased 100% of the common stock of
Dolco for approximately $40,000,000. Dolco is the nation's leading producer of
foamed egg cartons and various grocery store containers for meat, poultry, baked
goods and produce. The acquisition was recorded under the purchase method and
Dolco's operations have been reflected in the statement of operations since that
date. As a result of the acquisition, goodwill of approximately $14,044,000 has
been recorded, which is being amortized over 15 years.
In connection with this acquisition, a reserve of $5,000,000 was
established for the costs to integrate Dolco's operations with the Company and
to eliminate duplicate personnel. At June 28, 1996, the Company had
approximately $4,200,000 remaining in this reserve. During the nine months ended
March 28, 1997, the Company reduced its estimate of these costs and,
accordingly, reduced this reserve and goodwill by $790,000. At March 28, 1997,
the remaining balance in this reserve was approximately $1,857,000.
The following table presents the unaudited pro forma results of operations
as though the acquisition of Dolco occurred on July 2, 1994:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Net sales............................................... $ 117,920,000 $ 135,800,000
Income from operations.................................. 10,748,000 11,753,000
Net income.............................................. 1,623,000 1,848,000
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
On December 22, 1995, the Company purchased certain assets and assumed
certain liabilities of Hargro Flexible Packaging Corporation in Flemington, NJ,
for approximately $7,500,000, which approximated the fair value of the net
assets acquired. The acquisition was recorded under the purchase method. As a
result of this acquisition, the former Brooklyn, New York Closure Liners
Operation of Tekni-Plex was closed on May 31, 1996. The machinery and equipment
along with many of the employees have been relocated to the Flemington facility.
Pro forma results of operations, assuming the Hargro acquisition had been made
on July 2, 1994, would not be materially different from the unaudited pro forma
results presented above.
3. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
JUNE 28, JUNE 7,
1996 1997
------------ ------------
<S> <C> <C>
Raw materials............................................. $ 3,642,000 $ 5,943,000
Work-in-process........................................... 4,038,000 3,362,000
Finished goods............................................ 5,275,000 4,010,000
----------- -----------
$ 12,955,000 $ 13,315,000
=========== ===========
</TABLE>
F-9
<PAGE> 87
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 28, JUNE 7, ESTIMATED
1996 1997 USEFUL LIVES
------------ ------------ ------------
<S> <C> <C> <C>
Land........................................ $ 1,886,000 $ 1,901,000
Building and improvements................... 10,209,000 10,450,000 30-40 years
Machinery and equipment..................... 35,837,000 38,375,000 5-10 years
Furniture and fixtures...................... 338,000 451,000 5-10 years
Construction in progress.................... 660,000 2,138,000
------------ ------------
48,930,000 53,315,000
Less: Accumulated depreciation.............. 4,424,000 10,926,000
------------ ------------
$ 44,506,000 $ 42,389,000
============ ============
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 28, JUNE 7,
1996 1997
----------- ------------
<S> <C> <C>
Senior Subordinated Notes(a).............................. -- $ 75,000,000
Revolving line of credit(b)............................... $ 6,858,000 --
Term loans(b)............................................. 39,250,000 --
Subordinated note payable I (less unamortized discount of
$330,000)(c)............................................ 11,670,000 --
Subordinated note payable II (less unamortized discount of
$432,000)(d)............................................ 11,568,000 --
Notes payable --covenant not to compete (less unamortized
discount of $443,000)(e)................................ 1,090,000 --
----------- ------------
70,436,000 75,000,000
Less: Current maturities.................................. 3,226,000 --
----------- ------------
$67,210,000 $ 75,000,000
========== ==========
</TABLE>
The recorded value of long-term debt approximates fair value based on
current rates available to the Company for debt of the same remaining
maturities.
(a) On April 4, 1997, the Company issued $75,000,000 of 11 1/4% ten year notes.
Interest on the notes is payable semi-annually. These proceeds along with a
capital contribution of $18,373,000 were used to repay the balance of
$36,800,000 on the credit facility, repay the subordinated notes of
$25,200,000, including a prepayment penalty of $1,200,000 and repurchase the
redeemable warrants for $20,000,000. These transactions resulted in an
extraordinary loss of approximately $20,666,000. The extraordinary loss was
comprised of (i) the prepayment penalty of $1,200,000 and the write-off of
deferred financing costs and debt discount of $3,449,000, net of the
combined tax benefit of $1,757,000, and (ii) the loss of the repurchase of
the warrant of $17,773,000. The fair value of the warrants was determined
pursuant to the contractually agreed value among the relevant parties.
(b) The Company maintained a revolving line of credit and two term notes with a
bank, expiring February 21, 2002. Advances under the revolving line were
limited to the sum of eligible accounts receivable and inventory, not to
exceed $19,000,000. Outstanding borrowings under the revolving loan bore
interest, payable monthly, at the bank's prime rate plus 1 1/2% (9 1/2% at
June 28, 1996) or LIBOR plus 2 3/4% (8.2%
F-10
<PAGE> 88
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at June 28, 1996). The maximum amount outstanding was $4,525,000 and
$11,771,000 for the years ended June 30, 1995 and June 28, 1996,
respectively. The average amount outstanding and average rate of interest
were $3,664,000 at 9.8% for the year ended June 30, 1995 and $5,389,000 at
7.6% for the year ended June 28, 1996.
The term loans were payable in increasing quarterly principal installments
commencing May 31, 1996 with a final payment of $2,500,000 due on August 1,
2002. The term loans bore interest, payable monthly, at LIBOR plus 2 3/4%
and 3% (8.195% and 8.281% at June 28, 1996).
The loan agreement contained, among other things, provisions for maximum
capital expenditures, and required the Company to comply with certain
financial ratios. The loans were secured by substantially all of the
Company's assets, including a first mortgage on the Company's facilities.
(c) Subordinated note payable I in the original principal amount of $12,000,000
was amended on February 21, 1996 and was due in two annual principal
installments of $6,000,000 on February 21 in 2003 and 2004, with interest
payable quarterly at 12 1/2%. In connection with this note, the Company
issued warrants for the purchase of 150 shares of the Company's common
stock, exercisable at par value. The warrants are effective as of March 18,
1994 and would have expired on February 21, 2004.
(d) Subordinated note payable II in the original principal amount of
$12,000,000, issued on February 21, 1996 was due in two annual principal
installments of $6,000,000 in February 21 in 2003 and 2004, with interest
payable quarterly at 12 1/2%. In connection with this note, the Company
issued warrants for the purchase of 150 shares of the Company's common
stock, exercisable at par value. The warrants are effective as of February
21, 1996 and would have expired February 21, 2004.
Each of the subordinated notes were discounted by $450,000, representing the
estimated fair market value of the warrants at the time of issuance. The
discounts were being amortized on the interest method over the terms of the
notes. The note agreements contained, among other things, provisions for
maximum capital expenditures and required the Company to comply with certain
financial ratios. The notes were subordinated to the aforementioned bank
revolver and term loans.
The Company entered into a put option agreement ("agreement") with the
warrant holders that may have required the Company to acquire all or a
portion of shares of the Company's common stock issuable in connection with
the warrants at a price equal to, approximately, the greater of book value
or fair market value per share of common stock as of the end of the month
immediately preceding the date notice is given of the put option exercise.
The put options were exercisable from March 18, 2001 through February 21,
2004 or immediately after the occurrence of specific events prescribed in
the agreement. At March 28, 1997, the estimated value of the put option was
$5,438,000. The difference between the calculated value and the recorded
value was being accreted, as a charge to interest expense, over the
remaining life of the put option.
(e) The Company entered into a Consulting Agreement with former management, the
terms of which called for 120 monthly payments of $16,667 through the year
2004, the total of such payments being $2,000,000. The Company was
amortizing the covenant not to compete portion over 10 years. The net
present value was calculated using an implied interest rate of 9 1/2% (see
Note 10).
(f) On May 8, 1997, the Company entered into the New Credit Facility, and the
Company has terminated the Existing Credit Facility. The New Credit Facility
includes various covenants including, but not limited to, the maintenance of
a minimum net worth of $22 million plus 75% of net income after June 27,
1997, a minimum EBITDA of $24 million, a ratio of EBITDA to interest expense
of 2:1 (increasing over time) or greater, and a ratio of debt to EDITDA of
5:1 (decreasing over time) or less. As of June 27, 1997, there was no
outstanding balance under the $75 million revolving credit line of the New
Credit Facility.
F-11
<PAGE> 89
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
JUNE 30, JUNE 28, JUNE 27,
1995 1996 1997
-------- -------- --------
(IN 000'S)
<S> <C> <C> <C>
Current:
Federal........................................... $ -- $735 $3,425
State and local................................... 1 183 250
---- ----
1 918 3,675
Deferred............................................ 210 64 1,000
------- ------- -------
Provision for income taxes.......................... $211 $982 $4,675
======= ======= =======
</TABLE>
The provision for income taxes differs from the amounts computed by
applying the applicable Federal statutory rates due to the following:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
JUNE 30, JUNE 28, JUNE 27,
1995 1996 1997
-------- -------- --------
(IN 000'S)
<S> <C> <C> <C>
Provision for Federal income taxes at the statutory
rate.............................................. $128 $666 $4,455
State and local income taxes, net of Federal
benefit........................................... 81 305 165
Other, net.......................................... 2 11 55
------- ------- -------
Provision for income taxes.......................... $211 $982 $4,675
======= ======= =======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
JUNE 28, JUNE 27,
1996 1997
----------- -----------
<S> <C> <C>
Current deferred taxes:
Allowance for doubtful accounts....................... $ 226,000 $ 125,000
Inventory............................................. 338,000 360,000
Tax credit and net operating loss carryforwards....... 1,002,000 298,000
Accrued expenses...................................... 1,334,000 717,000
----------- -----------
Total current deferred taxes............................ 2,900,000 1,500,000
----------- -----------
Long-term deferred taxes:
Net operating loss carryforwards...................... 325,000 --
Difference in book vs tax basis of assets............. (7,980,000) (7,255,000)
----------- -----------
Total deferred tax liabilities.......................... (7,655,000) (7,255,000)
----------- -----------
$(4,755,000) $(5,755,000)
=========== ===========
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Company maintains a discretionary profit sharing plan covering all
eligible employees, excluding those employed by Dolco, with at least one year of
service. Contributions to the plan are determined annually by the Board of
Directors. There was no contribution for years ended June 30, 1995, June 28,
1996 and June 27, 1997.
F-12
<PAGE> 90
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a defined contribution profit sharing plan for the benefit
of all employees having completed one year of service with Dolco Packaging Corp.
The Company contributes 3% of each participant's compensation on a weekly basis.
In 1993, the plan was amended to reintroduce the company matching contribution
of up to 1% when an employee contributes 3% of compensation. Contributions
totaled approximately $188,000 for the period February 22, 1996 to June 28, 1996
and $475,000 for the year ended June 27, 1997.
The Company also has a defined benefit pension plan for the benefit of all
employees having completed one year of service with Dolco. The Company's policy
is to fund the minimum amounts required by applicable regulations. Dolco's Board
of Directors approved a plan to freeze the pension plan on June 30, 1987, at
which time benefits ceased to accrue. Dolco has not been required to contribute
to the plan since 1990.
8. RELATED PARTY TRANSACTIONS
The Company has a management consulting agreement with an affiliate of a
stockholder. The terms of the agreement require the Company to pay a fee of
approximately $30,000 per month for a period of ten years. Consulting service
fees were approximately $203,000, $274,000 and $390,000 for the years ending
June 30, 1995, June 28, 1996 and June 27, 1997, respectively.
9. STOCK OPTIONS
In April 1994, the Company granted options to an employee to acquire 2.5%
of the outstanding common stock for $13,529 per share, with anti-dilution
provisions. The options are exercisable as to 33 1/3% of the shares on the
first, second and third anniversary dates of the original grant and expire
fifteen years from the date of the grant. No options have been exercised or
forfeited as of June 27, 1997.
The Company applies APB Opinion 25 and related Interpretations in
accounting for these options. Accordingly, no compensation cost has been
recognized. Had compensation cost been determined based on the fair value at the
grant dates for these awards consistent with the method of SFAS Statement 123,
the Company's net income (loss) would have been reduced to the pro forma amounts
indicated below. The calculations were based on a risk free interest rate of
6.24% and 6.75%.
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------
JUNE 30, JUNE 28, JUNE 27,
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Income before extraordinary item:
As reported................................... $165,700 $975,700 $8,427,600
Pro forma..................................... 127,600 904,100 8,323,500
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
Commitments
(a) The Company leases building space in Texas, California, Georgia and
Washington. At June 27, 1997, the Company's future minimum lease payments are as
follows:
<TABLE>
<S> <C>
1998..................................................................... $ 667,000
1999..................................................................... 649,000
2000..................................................................... 591,000
2001..................................................................... 122,000
2002.....................................................................
----------
$2,029,000
==========
</TABLE>
F-13
<PAGE> 91
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense including escalation charges amounted to approximately
$343,000, $614,000 and $676,000 for the years ended June 30, 1995, June 28, 1996
and June 27, 1997, respectively.
(b) The Company has employment contracts with two employees. These
contracts provide aggregate minimum annual compensation for the years ended June
30 as follows: 1998 -- $825,000; 1999 -- $825,000; 2000 -- $825,000.
Contingencies
(a) The Company filed an action under the arbitration provisions of the
Merger and Acquisition Agreement, dated March 18, 1994 (the "Merger Agreement")
demanding a reduction in the purchase price paid due to a breach of that
agreement. In the arbitration, the Company pursued claims for damages resulting
from misrepresentations and omissions in the representations and warranties made
by the former shareholder. In the above action, the Company also sought to
nullify its obligation under the Consulting Agreement. (See Note 3).
The former shareholder answered the Company's claim and asserted two
counterclaims, demanding the Company to fulfill certain tax obligations under
the Merger Agreement and specific performance under the Consulting Agreement.
On April 18, 1997, the Company and the former shareholder reached a
settlement in arbitration (the "Settlement"). All obligations of each party to
the other were nullified. This Settlement did not have a material impact on the
financial condition or results of operations of the Company.
(b) The Company is a party to various other legal proceedings arising in
the normal conduct of business. Management believes that the final outcome of
these proceedings will not have a material adverse effect on the Company's
financial position.
11. CONCENTRATIONS OF CREDIT RISKS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash deposits and trade
accounts receivable.
The Company provides credit to customers on an unsecured basis after
evaluating customer credit worthiness. Since the Company sells to a broad range
of customers concentrations of credit risk are limited. The Company provides an
allowance for bad debts where there is a possibility for loss.
The Company maintains demand deposits at several major banks throughout the
United States. As part of its cash management process, the Company periodically
reviews the credit standing of these banks.
12. SUPPLEMENTAL CASH FLOW INFORMATION
(a) Cash paid
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
JUNE 30, JUNE 28, JUNE 27,
1995 1996 1997
-------- -------- --------
(IN 000'S)
<S> <C> <C> <C>
Interest........................................ $3,502 $4,730 $5,317
Income taxes.................................... 467 188 3,747
</TABLE>
F-14
<PAGE> 92
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Acquisitions
The Company purchased certain assets and assumed certain liabilities of
Hargro Flexible Packaging Corporation, effective December 22, 1995, for
approximately $7,500,000 in cash. In conjunction with the acquisition,
liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired........................................... $10,592,000
Cash paid............................................................... (7,543,000)
-----------
Liabilities assumed..................................................... $ 3,049,000
===========
</TABLE>
The Company purchased all of the outstanding common and preferred stock of
Dolco, effective February 22, 1996, for approximately $40,000,000 in cash. In
conjunction with the acquisition, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired.......................................... $ 46,293,000
Goodwill............................................................... 14,044,000
Cash paid.............................................................. (39,434,000)
------------
Liabilities assumed.................................................... $ 20,903,000
============
</TABLE>
F-15
<PAGE> 93
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Board of Directors
Tekni-Plex, Inc.
Somerville, New Jersey
The audits referred to in our report dated August 26, 1997 relating to the
consolidated financial statements of Tekni-Plex, Inc. and Subsidiary, which is
contained in this Form S-4, included the audits of the financial statement
schedule for the years ended June 30, 1995, June 28, 1996 and June 27, 1997
listed in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO SEIDMAN, LLP
Woodbridge, New Jersey
August 26, 1997
F-16
<PAGE> 94
FINANCIAL STATEMENT SCHEDULE II
TEKNI-PLEX, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED JUNE 30, 1995, JUNE 28, 1996 AND JUNE 27, 1997
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES(1) ACCOUNTS(3) DEDUCTIONS(2) PERIOD
- -------------------------------------- ------------ ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1995
Accounts receivable allowance....... $134,000 -- -- $ 41,000 $ 93,000
======== ======== ======== ======= ========
Year ended June 28, 1996
Accounts receivable allowance....... 93,000 $ 121,000 $ 351,000 -- 565,000
======== ======== ======== ======= ========
Year ended June 27, 1997
Accounts receivable allowance....... 565,000 200,000 -- 452,000 313,000
======== ======== ======== ======= ========
</TABLE>
- ---------------
(1) To increase accounts receivable allowance.
(2) Uncollectible accounts written off, net of recoveries.
(3) Balance related to Dolco acquisition.
F-17
<PAGE> 95
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Dolco Packaging Corp.
We have audited the statements or income, charges in Stockholders' equity
and cash flows of Dolco Packaging Corp. for the years ended December 31, 1995
and 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on 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 results of operations and cash flows of Dolco
Packaging Corp. for the years ended December 31, 1995 and 1994, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Sherman Oaks, California
February 21, 1996
F-18
<PAGE> 96
DOLCO PACKAGING CORP.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net sales........................................................ $81,492,144 $66,988,257
Cost of sales.................................................... 65,205,346 52,137,665
----------- -----------
Gross profit................................................ 16,286,798 14,850,592
Selling, general and administrative expenses..................... 10,518,344 9,832,641
----------- -----------
Operating income............................................ 5,768,454 5,017,951
Other income (expense):
Interest....................................................... (342,412) (221,406)
Loss on disposition and write-off of property, plant and
equipment................................................... (75,886) (37,527)
Other, net..................................................... 247,373 158,315
----------- -----------
Income before income taxes.................................. 5,597,529 4,917,333
Provision for (benefit from) income taxes........................ (1,249,211) 150,000
----------- -----------
Net income....................................................... $ 6,846,740 $ 4,767,333
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 97
DOLCO PACKAGING CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 AND 1994
-----------------------------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK ADDITIONAL MINIMUM EARNINGS
STATED PAR PAID-IN PENSION (ACCUMULATED STOCKHOLDERS'
SHARES VALUE SHARES VALUE CAPITAL LIABILITY DEFICIT) EQUITY
--------- ----------- --------- ------- ---------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993.................. 2,324,964 9,299,856 1,431,581 14,316 6,531,875 (2,765,301) 13,080,746
Common stock issued from
exercise of stock
options............... 28,875 288 91,775 92,063
Retirement of fractional
shares................ (936) (9) (1,913) (1,922)
Redemption of preferred
stock................. (249,969) (999,876) (999,876)
Preferred stock
dividends............. (769,496) (769,496)
Net income for the
year.................. 4,767,333 4,767,333
---------- ---------- ---------- ------- ---------- --------- ---------- -----------
Balance at December 31,
1994.................. 2,074,995 8,299,980 1,459,520 14,595 6,621,737 1,232,536 16,168,848
Common stock issued from
exercise of stock
options............... 8,625 86 53,977 54,063
Redemption of preferred
stock................. (250,072) (1,000,288) (1,000,288)
Preferred stock
dividends............. (701,985) (701,985)
Minimum pension
liability, net of
deferred income tax
benefit of $222,000... $(350,000) (350,000)
Net income for the
year.................. 6,846,740 6,846,740
---------- ---------- ---------- ------- ---------- --------- ---------- -----------
Balance at December 31,
1995.................. 1,824,923 $ 7,299,692 1,468,145 $14,681 $6,675,714 $(350,000) $ 7,377,291 $ 21,017,378
========== ========== ========== ======= ========== ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 98
DOLCO PACKAGING CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Operating Activities:
Net income................................................... $ 6,846,740 $ 4,767,333
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 2,749,372 2,393,398
Provision for losses on receivables....................... 85,304 40,837
Loss on disposition and write-off of property, plant and
equipment............................................... 75,886 37,527
Change in assets and liabilities:
Accounts receivable....................................... (1,195,234) (979,977)
Inventories............................................... 501,151 (1,469,665)
Deferred tax asset........................................ (1,499,211)
Prepaid expenses and other assets......................... (42,138) (42,994)
Accounts payable.......................................... 573,188 703,937
Accrued and other long-term liabilities................... 173,062 151,267
----------- -----------
Net cash provided by operating activities............ 8,268,120 5,601,663
----------- -----------
Investing Activities:
Additions to property, plant and equipment................... (4,914,194) (3,660,460)
Proceeds from disposition of property, plant and equipment... 5,000 9,736
----------- -----------
Net cash used for investing activities............... (4,909,194) (3,650,724)
----------- -----------
Financing Activities:
Proceeds from current and long-term debt..................... 1,900,000 --
Payments of current and long-term debt....................... (1,341,147) (1,700,587)
Net increase (decrease) of short-term note payable to bank... (800,000) 800,000
Redemption of preferred stock................................ (1,000,288) (999,876)
Payment of dividends......................................... (724,491) (791,993)
Proceeds from exercise of stock options...................... 54,063 92,063
Retirement of common stock................................... -- (1,922)
----------- -----------
Net cash used for financing activities............... (1,911,863) (2,602,315)
----------- -----------
Net increase (decrease) in cash................................ 1,447,063 (651,376)
Cash and cash equivalents at beginning of year................. 811,236 1,462,612
----------- -----------
Cash and cash equivalents at end of year....................... $ 2,258,299 $ 811,236
=========== ===========
Supplemental disclosures of cash flow information:
Cash disbursed during the year for:
Interest, net of amount capitalized....................... $ 333,450 $ 253,284
Income taxes.............................................. 255,878 155,763
Noncash investing and financing activities:
Declaration of dividend................................... 164,243 186,750
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE> 99
DOLCO PACKAGING CORP.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Dolco Packaging Corp. ("Dolco") was established in 1966 and was the first
company to manufacture foam egg cartons in the United States. In addition to egg
cartons, Dolco's largest product line, Dolco also develops, manufactures and
sells high volumes of various grocery store containers for meat, poultry, baked
goods and produce as well as specialty items for food service and industrial
uses.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Fiscal Year
Dolco's fiscal year ends on the Saturday nearest December 31. The fiscal
years ended December 31, 1995 and 1994 are comprised of 52 weeks each.
Cash and Cash Equivalents
Dolco considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents.
Concentration of Risk
Dolco performs periodic credit evaluations of its customer's financial
condition and generally does not require collateral. Receivables generally are
due in 30 days. Credit losses have consistently been within management's
expectations.
Inventories
Inventories are valued at the lower of cost or market with cost determined
on the first-in first-out (FIFO) basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
on the straight-line method at rates based on estimated useful lives of
individual assets or classes of assets. Leasehold improvements are amortized
over the estimated useful life or period of lease, whichever is shorter.
Estimated useful lives include:
<TABLE>
<S> <C>
Buildings and improvements..................................... 5 to 30 years
Machinery and equipment........................................ 3 to 8 years
Furniture and fixtures......................................... 5 years
Assets under capital lease..................................... 3 to 5 years
</TABLE>
Repairs and maintenance are charged to operations in the year incurred.
Repairs and maintenance approximated $6,279,000 and $5,614,000 in 1995 and 1994,
respectively. Major renewals or betterments are capitalized and depreciated over
estimated useful lives. When assets are disposed of, any resulting gain or loss
on disposition is included in operations.
F-22
<PAGE> 100
DOLCO PACKAGING CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Capitalized Interest
Interest incurred in conjunction with property additions is capitalized as
part of the asset cost. Interest of approximately $54,000 and $60,000 was
capitalized during 1995 and 1994, respectively.
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121. "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ". SFAS No. 121
requires companies to adopt its provisions for fiscal years beginning after
December 15, 1995. SFAS No. 121 requires an entity to review long-lived assets
and certain identifiable intangibles whenever events or changes in circumstances
indicate the carrying amount of assets may not be recoverable. Impairment losses
are recognized when the carrying amount of the asset exceeds the estimated fair
value of the assets. Dolco expects to adopt the provisions of SFAS No. 121
beginning with its fiscal year ending December 31, 1996. At this time, it is not
expected that the adoption of the provisions of SFAS No. 121 will have any
significant impact on Dolco.
Revenue Recognition
Dolco recognizes revenue when product is shipped.
Research and Development
Research and development costs are expensed as incurred and are included in
selling, general and administrative expenses. Dolco incurred approximately
$1,096,000 and $1,029,100 of research and development expense for the years
ended December 31, 1995 and 1994, respectively.
Income Taxes
The liability method is used in accounting 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.
Reclassification
Certain reclassifications have been made to the 1994 financial statements
to conform to the presentation used in 1995.
2. INCOME TAXES
Components of the provision for (benefit from) income taxes are:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Currently payable:
Federal............................................... $217,662.... $ 117,395
State................................................. 32,338 32,605
---------- ----------
250,000 150,000
Deferred:
Federal............................................... (1,499,211) --
---------- ----------
$(1,249,211) $ 150,000
========== ==========
</TABLE>
F-23
<PAGE> 101
DOLCO PACKAGING CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The differences between the expected U. S. federal income taxes and the
actual taxes are:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Expected tax on pre-tax earnings........................ $ 1,903,160 $ 1,671,893
State taxes............................................. 32,338 32,605
Effect of alternative minimum tax on current
liability............................................. 250,782 104,163
Utilization of net operating loss carryforwards......... (2,027,023) (1,548,867)
Reversal of valuation allowance......................... (1,499,211) --
Other-net............................................... 90,743 (109,794)
---------- ----------
$(1,249,211) $ 150,000
========== ==========
</TABLE>
At December 31, 1995, Dolco had net operating loss carryforwards for
federal income tax purposes of approximately $930,000 which expire in 2005; and
for California state purposes of approximately $940,000, of which $160,000
expires in 1997 and $780,000 in 2000. In 1995 and 1994, Dolco utilized
approximately $5,961,000 and $4,556,000, respectively, of net operating loss
carryforwards. Tax credit carryforwards of approximately $1,472,000 are
available to reduce future federal income taxes. If not used, these
carryforwards will expire in 1996 through 2002.
The Internal Revenue Code of 1986, as amended, contains provisions which
might limit Dolco's utilization of its net operating loss and credit
carryforwards in any year upon and after the occurrence of certain events,
including a substantial change in the ownership of its stock over a period of up
to three years (an "ownership change").
3. PENSION PLAN AND PROFIT SHARING PLAN
Dolco has a defined contribution profit sharing plan for the benefit of all
employees having completed one year of service. Dolco contributed 3% of each
participant's compensation on a weekly basis for 1994 and 1995. Contributions
totaled approximately $536,000 in 1995 and $410,000 in 1994.
Dolco also has a defined benefit pension plan for the benefit of all
employees having completed one year of service. Dolco's policy is to fund the
minimum amounts required by applicable regulations. Dolco's Board of Directors
approved a plan to freeze the pension plan on June 30, 1987, at which time
benefits ceased to accrue. Dolco has not been required to contribute to the plan
since 1990.
Net pension cost for the pension plan includes the following assumptions
and components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Assumptions:
Discount rate................................. 7.0% 8.5% 7.0%
Expected rate of return on assets............. 8.5% 8.5% 7.5%
Components:
Interest cost................................. $ 217,089 $ 228,780 $ 232,356
-------- -------- --------
Actual return................................. (442,861) (30,971) (183,372)
Deferred gain (loss).......................... 227,744 (176,660) (32,561)
-------- -------- --------
(215,117) (207,631) (215,933)
Amortization of transition asset................ -- -- --
-------- -------- --------
Net periodic pension cost....................... $ 1,972 $ 21,149 $ 16,423
======== ======== ========
</TABLE>
There is no service cost for 1995 or 1994 since the pension plan was frozen
on June 30, 1987.
F-24
<PAGE> 102
DOLCO PACKAGING CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Assets of the pension plan consist of an immediate participation guarantee
contract and various mutual funds.
During 1995 the Company recorded $572,000 to recognize the minimum pension
liability required by the provisions of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions." The additional minimum
liability at December 31, 1995 represents the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension liability. The
transaction, which had no effect on income, was recorded by reducing equity by
$350,000, which is net of tax of $222,000.
4. LEASES
Dolco's operating leases are primarily for equipment and the Dallas
manufacturing facility. Rent expense was approximately $1,734,000 in 1995 and
$1,988,000 in 1994.
5. STOCK OPTIONS
In 1992, the Board of Directors and stockholders of Dolco adopted and
approved a Stock Option Plan under which 150,000 shares of Common Stock are
reserved for issuance on exercise of options or nonstatutory options to
employees and nonstatutory options to directors who are not employees. The
exercise price of an option may not be less than the fair market value of the
shares of Common Stock on the date of grant. No option may be exercised during
the first year or more than ten years from the date of grant.
The following is a summary of the options outstanding as of December 31,
1995; the number of shares and the exercise price have been restated to reflect
the three-for-two stock split in the form of a 50% stock dividend which was paid
on September 30, 1994:
<TABLE>
<CAPTION>
NUMBER EXERCISE
OF SHARES PRICE
--------- --------------
<S> <C> <C>
Balance at December 31, 1993.............................. 91,500 $2.25 - 12.75
Canceled options.......................................... (17,250) 2.25 - 12.75
Options granted........................................... 33,000 13.00 - 13.833
Stock options exercised................................... (28,875) 2.25 - 6.50
-------
Balance at December 31, 1994.............................. 78,375 2.25 - 13.833
Options granted........................................... 6,000 13.00 - 13.60
Stock options exercised................................... (8,625) 2.25 - 13.00
-------
75,750 2.25 - 13.833
=======
</TABLE>
These options terminate five years from the date of grant and 50% may be
exercised after the first anniversary and 100% after the second anniversary. The
times at which options may be exercised can be accelerated under certain
circumstances. At December 31, 1995, 53,625 options were exercisable.
6. CAPITAL STOCK
Dolco Preferred Stock has stated, redemption and liquidation values of
$4.00 per share. Holders of Dolco's Preferred Stock are entitled to receive a
cash dividend of 9% per annum of the stated value when and if declared by Dolco.
Dividends accrue and are payable quarterly in arrears. The dividends cumulate
without interest. Preferred stock dividends of $.36 per share were declared
during 1995 and 1994.
Dolco Preferred Stock is redeemable for a cash price of $4.00 per share
plus any accrued but unpaid dividends at Dolco's discretion subject to
limitations determined by a formula set forth in Dolco's Certificate of
Incorporation. In the event of a partial redemption, the shares will be redeemed
on a pro rata basis. Preferred stockholders are entitled to one vote for each
share of Dolco Preferred Stock held.
F-25
<PAGE> 103
DOLCO PACKAGING CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Holders of Dolco Common Stock will not be entitled to receive dividends
until all shares of Dolco Preferred Stock have been redeemed in full.
Thereafter, holders of Dolco Common Stock will be entitled to receive dividends,
when and if declared by the Board of Directors, out of funds legally available.
Common stockholders are entitled to one vote for each share of Dolco Common
Stock held.
7. RELATED PARTY TRANSACTIONS
Payments to major stockholders consist of raw material purchases under
normal trade terms totaling approximately $24,799,000 for 1995 and $18,769,000
for 1994 and interest payments on a note to stockholder for equipment financing
for approximately $45,000 and $86,000 for 1995 and 1994 respectively.
8. SUBSEQUENT EVENTS
On November 7, 1995, Dolco signed an Agreement and Plan of Merger pursuant
to which Packaging Acquisition Corp., a newly-formed corporation owned by MST
Partners, L.P. and MST Offshore Partners C.V. will merge with and into Dolco,
which would remain in existence. According to the Agreement and Plan of Merger,
holders of the outstanding shares of Dolco's Common Stock and Preferred Stock
will, upon effectiveness of the merger, be entitled to receive $21 in cash for
each outstanding share of Common Stock and $4 in cash plus the amount of any
dividends accrued and unpaid as of the effective date of the merger for each
outstanding share of Preferred Stock. The merger was approved by Dolco's
stockholders during a special meeting of the stockholders held on February 20,
1996. Subsequent (unaudited) events are as follows : On February 21, 1996, MST
Partners, L.P. and MST Offshore Partners, C.V. assigned all of the stock of
Packaging Acquisition Corporation and all rights under the Agreement and Plan of
Merger to Tekni-Plex, Inc., an entity that they collectively control. On
February 21, 1996, Packaging Acquisition Corporation was merged with and into
Dolco, with Dolco the surviving entity. As a result, Dolco became a wholly owned
subsidiary of Tekni-Plex, Inc.
F-26
<PAGE> 104
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Tekni-Plex is incorporated under the laws of the State of Delaware. Section
145 of the Delaware General Corporation Law (as the same exists or may
thereafter be amended, the "DGCL") provides that a Delaware corporation may
indemnify any persons who were, are or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that such person's conduct was unlawful. A Delaware
corporation may indemnify any persons who are, were or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person is or was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or other enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if such person is
adjudged to be liable to the corporation. Where a director, officer, employee or
agent is successful on the merits or otherwise in the defense of any such
action, suit or proceeding, the corporation must indemnify such person against
the expenses which such person has actually and reasonably incurred. In
addition, Section 145 of the DGCL allows, subject to specified conditions and
exclusions, the advancement of expenses incurred in defending against such
action, suit or proceeding, and permits the corporation to purchase and maintain
insurance on behalf of such persons, whether or not the corporation would
otherwise have the power to indemnify such person under Section 145. The
indemnification and advancement of expenses provided by Section 145 are not
exclusive of any other rights to which those seeking indemnification or
advancement may be entitled under any by-laws, agreement, vote of stockholders
or otherwise.
Tekni-Plex's Restated Certificate of Incorporation (the "Certificate")
provides that a director of the Company will not be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, which concerns unlawful payments of dividends, stock
purchases or redemptions, or (iv) for any transactions from which the director
derived an improper personal benefit. While the Certificate provides directors
with protection from awards for monetary damages for breach of their fiduciary
duty, it does not eliminate such duty. Accordingly, the Certificate will have no
effect on the availability of equitable remedies such as an injunction or
rescission based on a director's breach of his or her duty of care.
The Certificate as well as Tekni-Plex's Amended and Restated By-laws (the
"By-laws") provide for the indemnification of directors and officers of the
Company on substantially similar terms and conditions as Section 145 of the
DGCL. The By-laws provide for the advancement of expenses reasonably incurred by
a director or officer in defending a civil or criminal action, suit or
proceeding on substantially similar terms and conditions as Section 145, and
that all rights to indemnification and to the advancement of expenses under the
By-laws shall be deemed to be provided by a contract between the Company and the
director or officer who serves in such capacity at any time while the By-Laws
and any other relevant provisions of the DGCL and any other applicable law, if
any, are in effect. The By-laws further provide that references to "the Company"
in the
II-1
<PAGE> 105
above described section of the By-laws shall be deemed to include any subsidiary
of the Company now or hereafter organized under the laws of the State of
Delaware.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
**3.1 Restated Certificate of Incorporation of Tekni-Plex, Inc.
**3.3 Amended and Restated By-laws of Tekni-Plex, Inc.
**4.1 Indenture dated as of April 1, 1997 among Tekni-Plex, Inc., Dolco Packaging Corp.
and Marine Midland Bank, as Trustee.
**4.2 Senior Subordinated Note and Guarantee (original not included; form of Note and
Guarantee included in Exhibit 4.1).
**4.3 Purchase Agreement dated as of April 1, 1997 among Tekni-Plex, Inc., Dolco
Packaging Corp., and J.P. Morgan Securities Inc.
**4.4 Registration Right Agreement, dated as of April 4, 1997 among Tekni-Plex, Inc.,
Dolco Packaging Corp. and J.P. Morgan Securities, Inc. as the Initial Purchaser.
**5.1 Opinion of Winthrop, Stimson, Putnam & Roberts.
**10.1 Credit Agreement, dated as of May 8, 1997, among Tekni-Plex, Inc., Dolco Packaging
Corp., the Banks party thereto, the LC Issuing Banks referred to therein and Morgan
Guaranty Trust Company of New York, as Agent.
**10.2 Note (original not included; form of Note included in Exhibit 10.1).
**10.3 Security Agreement, dated as of May 8, 1997, among Tekni-Plex, Inc., Dolco
Packaging Corp. and Morgan Guaranty Trust Company of New York, as Agent (original
not included; form of Security Agreement included in Exhibit 10.1).
**10.4 Pledge Agreement, dated as of May 8, 1997, between Tekni-Plex, Inc. and Morgan
Guaranty Trust Company of New York, as Agent (original not included; form of Pledge
Agreement included in Exhibit 10.1).
**10.5 Form of Mortgage, dated as of May 8, 1997, made by Tekni-Plex, Inc. or Dolco
Packaging Corp. in favor of Morgan Guaranty Trust Company, as Agent (originals not
included; form of Mortgage included in Exhibit 10.1).
**10.6 Employment Agreement, dated as of January 30, 1997, between Dr. F. Patrick Smith
and Tekni-Plex, Inc.
**10.7 Employment Agreement, dated as of April 4, 1997, between Mr. Kenneth W.R. Baker and
Tekni-Plex, Inc.
**10.8 Form of Amended and Restated Option Agreement, dated as of April 4, 1997, among
Tekni-Plex, Inc., Tekni-Plex Partners L.P. and F. Patrick Smith.
**10.9 Form of Amended and Restated Stock Option Agreement, dated as of April 4, 1997,
between Tekni-Plex, Inc. and Kenneth W.R. Baker.
**10.10 Management Fee Agreement, dated as of April 4, 1997, between Tekni-Plex, Inc. and
MST Management Company, Inc.
**10.11 Management Fee Agreement, dated as of April 4, 1997, between Tekni-Plex, Inc. and
MST/TP Holding, Inc.
**12.1 Statement regarding Computation of Ratios.
*23.1 Consent of BDO Seidman LLP.
*23.2 Consent of Coopers & Lybrand L.L.P.
**23.4 Consent of Winthrop, Stimson, Putnam & Roberts (included in Exhibit 5.1).
**25.1 Amended and Restated Statement of Eligibility of Trustee, Marine Midland Bank, on
Form T-1.
*27.1 Financial Data Schedule.
**99.1 Form of Letter of Transmittal.
</TABLE>
II-2
<PAGE> 106
<TABLE>
<C> <S>
**99.2 Form of Notice of Guaranteed Delivery.
**99.3 Form of Tender Instructions.
**99.4 Form of Exchange Agent Agreement.
</TABLE>
- ---------------
*Filed herewith.
**Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts.
Other schedules required are not applicable.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) 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;
(iii) 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 of 1993, 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.
(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.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, 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.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event
II-3
<PAGE> 107
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person 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 registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the 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.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not subject of and included in
the registration statement when it became effective.
II-4
<PAGE> 108
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Tekni-Plex, Inc., a Delaware corporation, has duly caused this Amendment No. 3
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in Somerville, New Jersey on September 3, 1997.
TEKNI-PLEX, INC.
By: /s/ F. PATRICK SMITH
------------------------------------
F. Patrick Smith
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed below on the 3rd day of
September, 1997 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ -----------------------------------------------
<C> <S>
/s/ F. PATRICK SMITH Chairman of the Board and Chief Executive
- ------------------------------------------ Officer
F. Patrick Smith
/s/ KENNETH W.R. BAKER President and Chief Operating Officer
- ------------------------------------------
Kenneth W.R. Baker
/s/ WILLIAM H. KAPLAN Controller (and principal financial officer)
- ------------------------------------------
William H. Kaplan
/s/ ARTHUR P. WITT Corporate Secretary and Director
- ------------------------------------------
Arthur P. Witt
/s/ J. ANDREW MCWETHY Director
- ------------------------------------------
J. Andrew McWethy
/s/ BARRY A. SOLOMON Director
- ------------------------------------------
Barry A. Solomon
/s/ STEPHEN A. TUTTLE Director
- ------------------------------------------
Stephen A. Tuttle
/s/ MICHAEL F. CRONIN Director
- ------------------------------------------
Michael F. Cronin
</TABLE>
II-5
<PAGE> 109
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- -------- ----------------------------------------------------------------------------- ----
<C> <S> <C>
**3.1 Restated Certificate of Incorporation of Tekni-Plex, Inc.....................
**3.3 Amended and Restated By-laws of Tekni-Plex, Inc..............................
**4.1 Indenture dated as of April 1, 1997 among Tekni-Plex, Inc., Dolco Packaging
Corp. and Marine Midland Bank, as Trustee....................................
**4.2 Senior Subordinated Note and Guarantee (original not included; form of Note
and Guarantee included in Exhibit 4.1).......................................
**4.3 Purchase Agreement dated as of April 1, 1997 among Tekni-Plex, Inc., Dolco
Packaging Corp., and J.P. Morgan Securities Inc..............................
**4.4 Registration Right Agreement, dated as of April 4, 1997 among Tekni-Plex,
Inc., Dolco Packaging Corp. and J.P. Morgan Securities, Inc. as the Initial
Purchaser....................................................................
**5.1 Opinion of Winthrop, Stimson, Putnam & Roberts...............................
**10.1 Credit Agreement, dated as of May 8, 1997, among Tekni-Plex, Inc., Dolco
Packaging Corp., the Banks party thereto, the LC Issuing Banks referred to
therein and Morgan Guaranty Trust Company of New York, as Agent..............
**10.2 Note (original not included; form of Note included in Exhibit 10.1)..........
**10.3 Security Agreement, dated as of May 8, 1997, among Tekni-Plex, Inc., Dolco
Packaging Corp. and Morgan Guaranty Trust Company of New York, as Agent
(original not included; form of Security Agreement included in Exhibit
10.1)........................................................................
**10.4 Pledge Agreement, dated as of May 8, 1997, between Tekni-Plex, Inc. and
Morgan Guaranty Trust Company of New York, as Agent (original not included;
form of Pledge Agreement included in Exhibit 10.1)...........................
**10.5 Form of Mortgage, dated as of May 8, 1997, made by Tekni-Plex, Inc. or Dolco
Packaging Corp. in favor of Morgan Guaranty Trust Company, as Agent
(originals not included; form of Mortgage included in Exhibit 10.1)..........
**10.6 Employment Agreement, dated as of January 30, 1997, between Dr. F. Patrick
Smith and Tekni-Plex, Inc....................................................
**10.7 Employment Agreement, dated as of April 4, 1997, between Mr. Kenneth W.R.
Baker and Tekni-Plex, Inc....................................................
**10.8 Form of Amended and Restated Option Agreement, dated as of April 4, 1997,
among Tekni-Plex, Inc., Tekni-Plex Partners L.P. and F. Patrick Smith........
**10.9 Form of Amended and Restated Stock Option Agreement, dated as of April 4,
1997, between Tekni-Plex, Inc. and Kenneth W.R. Baker........................
**10.10 Management Fee Agreement, dated as of April 4, 1997, between Tekni-Plex, Inc.
and MST Management Company, Inc..............................................
**10.11 Management Fee Agreement, dated as of April 4, 1997, between Tekni-Plex, Inc.
and MST/TP Holding, Inc......................................................
**12.1 Statement regarding Computation of Ratios....................................
*23.1 Consent of BDO Seidman LLP...................................................
*23.2 Consent of Coopers & Lybrand L.L.P...........................................
**23.4 Consent of Winthrop, Stimson, Putnam & Roberts (included in Exhibit 5.1).....
**25.1 Amended and Restated Statement of Eligibility of Trustee, Marine Midland
Bank, on Form T-1............................................................
*27.1 Financial Data Schedule......................................................
**99.1 Form of Letter of Transmittal................................................
**99.2 Form of Notice of Guaranteed Delivery........................................
**99.3 Form of Tender Instructions..................................................
**99.4 Form of Exchange Agent Agreement.............................................
</TABLE>
- ---------------
*Filed herewith.
**Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Tekni-Plex, Inc.
Somerville, New Jersey
We hereby consent to the inclusion in this Registration Statement of Tekni-Plex,
Inc. on Form S-4 of our reports dated August 26, 1997, on our audits of the
consolidated financial statements of Tekni-Plex, Inc. and subsidiary as of June
28, 1996 and June 27, 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended June 27, 1997, which reports are included in this Form S-4 and
of our report dated August 26, 1997 relating to the financial statement
schedule appearing elsewhere in this Form S-4.
We also consent to the reference to our firm under the heading "Experts" in the
Registration Statement.
/s/ BDO Seidman, LLP
Woodbridge, New Jersey
September 3, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File
No. 333-28157) of our report dated February 21, 1996, on our audits of the
financial statements of Dolco Packaging Corp. We also consent to the reference
to our Firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
Sherman Oaks, California
September 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1995 JUN-28-1996 JUN-27-1997
<PERIOD-START> JUL-02-1994 JUL-01-1995 JUN-29-1996
<PERIOD-END> JUN-30-1995 JUN-28-1996 JUN-27-1997
<CASH> 333 1,048 11,095
<SECURITIES> 0 0 0
<RECEIVABLES> 5,507 13,521 13,001
<ALLOWANCES> 93 585 313
<INVENTORY> 4,872 12,955 13,315
<CURRENT-ASSETS> 11,138 31,597 41,711
<PP&E> 12,683 48,930 53,315
<DEPRECIATION> 1,176 4,424 10,926
<TOTAL-ASSETS> 53,415 121,770 129,029
<CURRENT-LIABILITIES> 7,965 19,937 15,761
<BONDS> 32,412 67,210 75,000
0 0 0
0 0 0
<COMMON> 11,500 23,000 41,473
<OTHER-SE> 187 1,162 (11,076)
<TOTAL-LIABILITY-AND-EQUITY> 53,415 121,770 129,029
<SALES> 44,688 80,917 144,736
<TOTAL-REVENUES> 44,888 80,917 144,736
<CGS> 34,941 62,335 107,007
<TOTAL-COSTS> 34,941 62,335 107,007
<OTHER-EXPENSES> 5,048 10,687 16,301
<LOSS-PROVISION> 0 121 231
<INTEREST-EXPENSE> 4,322 5,816 8,094
<INCOME-PRETAX> 377 1,958 13,103
<INCOME-TAX> 211 982 4,675
<INCOME-CONTINUING> 166 976 8,428
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 (20,666)
<CHANGES> 0 0 0
<NET-INCOME> 166 976 (12,238)
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
