As filed with the Securities and Exchange Commission on August 15, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TEKNI-PLEX, INC.*
(Exact name of Registrant as specified in its charter)
Delaware 3086, 3052 22-3286312
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
201 Industrial Parkway
Somerville, New Jersey 08876
Telephone: (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
Telephone: (908) 722-4800
Facsimile: (908) 722-4736
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Winthrop B. Conrad, Jr.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telephone: (212) 450-4890
Facsimile: (212) 450-3890
Approximate date of commencement of proposed sale 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. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
Proposed Maximum
Title of Each Class of Amount to Be Proposed Maximum Offering Aggregate Offering Amount of
Securities to Be Registered Registered(1) Price Per Unit(1) Price(1) Registration Fee
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12 3/4% Series B Senior Subordinated
Notes due 2010.............................. $275,000,000 100% $275,000,000 $72,600
Guarantees of 12 3/4% Series B Senior
Subordinated Notes due 2010 (2)............. -- -- -- None(3)
=================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the Registration Fee as
provided in Rule 457(F).
(2) The 12 3/4% Series B Senior Subordinated Notes due 2010 are guaranteed
by each of the entities listed in the Table of Additional Registrants.
(3) Pursuant to Rule 457(n), no Registration Fee is required with respect to
the guarantees of the notes registered hereby.
The Registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrants shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(A) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(A), may determine.
================================================================================
<PAGE>
*TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
State or Other
Jurisdiction of I.R.S. Employer
Incorporation or Identification
Name, Address and Telephone Number Organization Number
--------------------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
PureTec Corporation(1)............................................... Delaware 22-3376449
Plastic Specialties and Technologies, Inc.(1)........................ Delaware 22-2743384
Plastic Specialties and Technologies Investments, Inc.(1)............ Delaware 22-2663552
Burlington Resins, Inc.(1)........................................... Delaware 22-3334106
Pure Tech APR, Inc.(1)............................................... New York 11-3065942
Multi Container Recycler, Inc.(1).................................... Michigan 38-2959009
Coast Recycling North, Inc.(1)....................................... California 68-0200870
Distributors Recycling, Inc.(1)...................................... New Jersey 22-2466975
REI Distributors, Inc.(1)............................................ New Jersey 22-2418824
Pure Tech Recycling of California(1)................................. California 77-0356589
Alumet Smelting Corp.(1)............................................. New Jersey 22-2054447
Tri-Seal Holdings, Inc............................................... Delaware 52-2141575
Natvar Holdings, Inc................................................. Delaware 22-3703725
</TABLE>
----------
(1) The address of each of these additional registrants is: 201 Industrial
Parkway, Somerville, New Jersey 08876. The telephone number of each is
(908) 722-4800.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion, dated August 15, 2000
PROSPECTUS
TEKNI-PLEX, INC.
Offer to Exchange
12 3/4% Series B Senior Subordinated Notes Due 2010
which have been registered under the Securities Act of 1933
for any and all of our outstanding
12 3/4% Senior Subordinated Notes Due 2010
We are offering to exchange up to $275,000,000 of our 12 3/4% Series B Senior
Subordinated Notes due 2010, which will be registered under the Securities Act
of 1933, as amended, for up to $275,000,000 of our existing 12 3/4% Senior
Subordinated Notes due 2010. We are offering to issue the new notes to
satisfy our obligations contained in the registration rights agreement entered
into when the old notes were sold in transactions permitted by Rule 144A and
Regulation S under the Securities Act.
The terms of the new notes are identical in all material respects to the terms
of the old notes, except that the transfer restrictions, registration rights
and additional interest provisions relating to the old notes do not apply to
the new notes.
To exchange your old notes for new notes:
o You must complete and send the letter of transmittal that accompanies this
prospectus to the exchange agent by 5:00 p.m., New York time, on o, 2000.
o If your old notes are held in book-entry form at The Depository Trust
Company, you must instruct DTC, through your signed letter of transmittal,
that you wish to exchange your old notes for new notes. When the exchange
offer closes, your DTC account will be changed to reflect your exchange of
old notes for new notes.
o You should read the section called "The Exchange Offer" for additional
information on how to exchange your old notes for new notes.
See "Risk Factors" beginning on page 16 for a description of risk factors that
you should consider before tendering your old notes in the exchange offer.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is o, 2000.
<PAGE>
You should rely only on the information contained in this document or that we
have referred you to. We have not authorized anyone to provide you with
information that is different. We are not making an offer of these securities
in any state where the offer is not permitted. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the date on the front of those documents.
<PAGE>
Table Of Contents
Page
----
Prospectus Summary............................................. 4
The Exchange Offer............................................. 9
Risk Factors................................................... 16
The Recapitalization........................................... 24
Capitalization................................................. 27
Pro Forma Unaudited Condensed Financial Information............ 28
Selected Historical Financial Information...................... 32
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 34
Business....................................................... 39
Management..................................................... 49
Security Ownership............................................. 52
Governance of Tekni-Plex....................................... 53
Certain Transactions........................................... 55
Description of Certain Indebtedness............................ 57
The Exchange Offer............................................ 59
Description of the New Notes.................................. 68
Certain United States Federal Income Tax Considerations....... 100
Plan of Distribution.......................................... 103
Legal Matters................................................. 104
Experts....................................................... 104
Where You Can Find More Information........................... 104
Index to Financial Statements................................. F-1
Notice To New Hampshire Residents
Neither the fact that a registration statement or an application for a license
has been filed under Chapter 421-B of the New Hampshire Uniform Securities Act
with the State of New Hampshire nor the fact that a security is effectively
registered or a person is licensed in the State of New Hampshire constitutes a
finding by the Secretary of State that any document filed under RSA 421-B is
true, complete and not misleading. Neither any such fact nor the fact that an
exemption or exception is available for a security or a transaction means that
the Secretary of State has passed in any way upon the merits or qualifications
of, or recommended or given approval to, any person, security, or transaction.
It is unlawful to make, or cause to be made, to any prospective purchaser,
customer, or client any representation inconsistent with the provisions of
this paragraph.
Disclosure Regarding Forward-Looking Statements
This prospectus includes "forward-looking statements" including, in
particular, the statements about our plans, strategies and prospects under the
headings "Prospectus Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," and in the Pro
Forma Unaudited Condensed Financial Information and the related notes thereto.
Although we believe that our plans, intentions and expectations reflected in
or suggested by such forward-looking statements are reasonable, we cannot
assure you that such plans, intentions or expectations will be achieved.
Important factors that could cause actual results to differ materially from
the forward-looking statements we make in this prospectus are set forth in
this prospectus, including under the headings "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." All forward-looking statements attributable to Tekni-Plex or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements and risk factors contained throughout this prospectus.
<PAGE>
Prospectus Summary
The following summary contains information about Tekni-Plex and the exchange
offer. It does not contain all the information that may be important to you in
deciding whether to exchange your old notes. For a more complete understanding
of Tekni-Plex and the exchange offer, we urge you to read this entire
prospectus carefully, including the "Risk Factors" section and our financial
statements and the notes to those statements. Our fiscal year ends on the
Friday closest to June 30 of each calendar year. For example, fiscal year 1999
refers to the year ended July 2, 1999.
Company Overview
We are a global, diversified manufacturer of packaging products and materials
for the healthcare, consumer and food packaging industries. We have built a
leadership position in our core markets and focus on vertically integrated
production of highly specialized products. Our operations are aligned under
four primary business groups: Healthcare Packaging, Products and Materials;
Consumer Packaging and Products; Food Packaging; and Specialty Resins and
Compounds. This end market and product line diversity has the effect of
reducing our overall risk related to any single product or customer. Since our
founding in 1967, we have grown substantially through internal expansion and
the acquisition of related businesses.
Competitive Strengths
We believe that our competitive strengths include:
o Strong customer relationships. We have long-standing relationships with
many of our customers. We estimate the average tenure among our ten
largest customers at more than 16 years. We attribute our long-term
customer relationships to our ability consistently to manufacture high
quality products and to provide a superior level of customer service. We
routinely win customer awards for our superior products and customer
service and have recently been recognized for supplier excellence by 3M
Pharmaceuticals, Pfizer, Eli Lilly, Boston Scientific, Kraft Foods and
Perdue Farms, among others.
o Strong market positions in core businesses. We have a strong market
presence in our core product lines. The following table shows what we
believe to be our market position in the U.S. in each core product line:
Product Market Position
------- ---------------
Medical device materials......................... 1
Vinyl medical tubing............................. 1
Clear, high-barrier blister packaging............ 1
Closure liners................................... 1
Garden and irrigation hose....................... 1
Precision tubing and gaskets..................... 1
Foam egg cartons................................. 1
Foam processor trays............................. 2
o Experienced management team. Our management team has been successful in
selecting and integrating strategic acquisitions as well as improving
underlying business fundamentals. After significantly improving the
business of Tekni-Plex following our 1994 acquisition, management
successfully integrated both the Flemington and Dolco operations during
1996, the latter being a public company then nearly twice our size. During
the same period, the Brooklyn and Flemington operations were also
successfully merged. In 1997, we acquired and integrated the PurePlast
operations. In 1998 we acquired PureTec, a public company then more than
twice our size. In 1999 we acquired and integrated the assets and business
of Tri-Seal and Natvar. Management has substantially improved the
operating margins of each of these acquisitions. Members of our management
team 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.
<PAGE>
o Cost efficient producer. We continually focus on improving underlying
operations and reducing costs. Since the 1994 acquisition, current
management has improved our cost structure from an EBITDA margin of 8.5%
with EBITDA of $3.8 million on sales of $44.9 million for the 12 months
ended December 31, 1993 to an EBITDA margin of 21.2% with EBITDA of $107.7
million on sales of $508.6 million for the trailing 12 months ended March
31, 2000. Our six acquisitions in the last four years have provided
significant opportunities to realize cost savings and synergies in the
combined businesses through the sharing of complementary technologies and
manufacturing techniques, as well as economies of scale including the
purchase of raw materials.
o Producer of high quality, technically sophisticated products. We believe,
based upon our knowledge and experience in the industry, that we have a
long-standing reputation as a manufacturer of high quality, high
performance products, materials and primary packaging (where the packaging
material comes into direct contact with the end product). Our emphasis on
quality is evidenced by our product lines which address the more
technically sophisticated areas of their respective markets.
o Strong equity sponsorship. As a result of our recent recapitalization, we
have obtained a strong equity commitment from our investors. As part of the
recapitalization, new investors agreed to contribute $269.6 million in the
aggregate to Tekni-Plex Partners LLC, of which $167 million has been
contributed and used to redeem the interests of certain previous
Tekni-Plex investors. The remainder ($102.6 million) will remain available
for at least five years after the recapitalization to be used for our
general corporate purposes, including acquisitions. We believe that these
equity commitments will provide us with significant flexibility to take
advantage of business opportunities as they arise. In connection with the
recapitalization, all members of our current management maintained their
entire equity investment, which had an implied aggregate value of
approximately $96 million.
Business Strategy
We seek to maximize our profitability and growth and take advantage of our
competitive strengths by pursuing the following business strategy:
o Ongoing cost reduction through technical process improvement. We have
an ongoing program to improve manufacturing and other processes in
order to drive down costs. Examples of cost improvement programs
include:
o material and energy conservation through enhanced process
controls and advanced product design;
o reduction in machine set-up time through the use of proprietary
technology;
o continual product line rationalization; and
o development of backward and forward integration opportunities.
o Internal growth through product line extension and improvement. We
continually seek to improve and extend our product lines and leverage
our existing technological capabilities in order to increase market
share in existing markets, effectively penetrate new markets and
improve profitability. Our strategy is to emphasize our expertise in
providing packaging, products and materials with specific high
performance characteristics through the development of various unique
proprietary materials and proprietary manufacturing process
techniques.
o Growth through international expansion. We believe that there is
significant opportunity to expand our international sales, which
currently represent approximately 9% of our total revenues. At
present, we have manufacturing operations in Canada, the United
Kingdom, Belgium and Italy. We have recently added regional sales
offices in Belgium, Germany and Singapore to our existing offices in
<PAGE>
Canada, Italy and the United Kingdom, and plan to open a South
American sales and distribution facility in Argentina in the fourth
quarter of this year. We have also recently entered into manufacturing
liaisons in Italy and Germany which supplement our existing liaisons
in Switzerland and the Philippines. In addition, we have recently
added sales representatives in Peru and throughout Central America to
our existing representatives in Australia, China (including Hong
Kong), Italy, Malaysia, Singapore, Thailand, Taiwan, South Africa,
Argentina, Chile, Brazil and Mexico. We also have a licensee in Japan.
We believe that our growing international presence will generate an
increase in our sales.
o Growth through acquisitions. We will continue to pursue acquisitions
selectively when the opportunity arises. Our objective is to pursue
acquisitions that provide us with the opportunity to gain economies of
scale and reduce costs through, among other things, technology sharing
and synergistic cost reduction.
<PAGE>
The Recapitalization
On April 12, 2000, we entered into a recapitalization agreement with our
shareholders at that time and other relevant parties. Prior to the
recapitalization, Tekni-Plex Partners LLC held approximately 45.1% and MST/TP
Partners L.P. held approximately 54.9% of the outstanding common stock of
Tekni-Plex. The interests in Tekni-Plex Partners and MST/TP Partners were owned
by various investment funds, members of management and other individuals. The
purpose of the recapitalization was to provide liquidity to the limited
partners of two funds holding substantial interests in Tekni-Plex through
MST/TP Partners. These funds were scheduled to terminate in May 1999.
The recapitalization involved:
o MST/TP Partners terminating substantially all of its investment in
Tekni-Plex;
o all members of our management at the time maintaining their equity
investment in Tekni-Plex Partners, with a post-recapitalization
implied aggregate value of approximately $96 million; and
o equity investments in Tekni-Plex Partners by new investors who
replaced certain existing investors.
The new equity investors committed in the aggregate $269.6 million to
Tekni-Plex Partners. Of this amount, $167 million has been contributed and used
to purchase the interests of certain previous Tekni-Plex investors. Tekni-Plex
Management LLC, the managing member of Tekni-Plex Partners, may for at least
five years from the date of the recapitalization, call upon the remainder of
the commitment ($102.6 million) for our future use for general corporate
purposes, including acquisitions. These additional commitments will initially
be funded to Tekni-Plex Partners, which will contribute the funds to us in
exchange for Tekni-Plex common equity.
As part of the recapitalization, we entered into a new credit facility,
the proceeds of which, together with the proceeds from the offering of the old
notes and the equity contribution from Tekni-Plex Partners to us were used to:
o repay all of the amounts outstanding under our then-existing $205
million credit facility dated as of March 3, 1998;
o purchase 99.97% of our $75 million aggregate principal amount
outstanding 11 1/4% senior subordinated notes due 2007 and 100% of our
$200 million aggregate principal amount outstanding 9 1/4% senior
subordinated notes due 2008; and
o purchase approximately 95.2% of the shares of our common stock held by
MST/TP Partners at the time of the recapitalization.
Tekni-Plex Partners currently owns approximately 95.6% and MST/TP Partners
currently owns approximately 4.4% of the outstanding common stock of
Tekni-Plex. Tekni-Plex Management, which is controlled by Dr. F. Patrick Smith,
our Chairman of the Board and Chief Executive Officer, is the sole managing
member of both Tekni-Plex Partners and MST/TP Partners and as a result controls
both Tekni-Plex Partners and MST/TP Partners. Therefore Tekni-Plex Management
also controls Tekni-Plex. Dr. Smith also owns approximately 30% of Tekni-Plex
Partners (not including the priority allocation discussed in the section
entitled "Security Ownership").
<PAGE>
The following chart shows the current capital structure of Tekni-Plex:
[GRAPHIC OMITTED--GRAPHIC OF CAPITAL STRUCTURE]
<PAGE>
The Exchange Offer
All capitalized terms used without definition within this section shall
have the respective meanings set forth under "Description of the New Notes"
below.
New Notes........................... $275,000,000 principal amount of 12 3/4%
Series B Senior Subordinated Notes
due 2010. The terms of the new notes
are identical in all material respects
to the terms of the old notes, except
that the transfer restrictions,
registration rights and additional
interest provisions relating to the old
notes do not apply to the new notes.
Old Notes........................... The old notes were sold on June 21, 2000
to J.P. Morgan Securities Inc. (the
initial purchaser) pursuant to a Purchase
Agreement dated June 15, 2000 between
Tekni-Plex 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 outside the United
States in reliance on Regulation S under
the Securities Act.
The Exchange Offer.................. We are offering to exchange $1,000
principal amount of new notes for each
$1,000 principal amount of old notes.
As of the date hereof, $275,000,000
aggregate principal amount of old notes
are outstanding. We are offering to
issue the new notes to satisfy our
obligations contained in the
registration rights agreement we
entered into when we sold the old notes
in transactions pursuant to Rule 144A,
Rule 501 and Regulation S under the
Securities Act.
Based on interpretations by the SEC's
staff in no-action letters issued to
third parties, we believe that new notes
issued in exchange for old notes in the
exchange offer may be offered for resale,
resold or otherwise transferred by you
without registering the new notes under
the Securities Act or delivering a
prospectus, unless you are a broker-
dealer receiving notes for your own
account, so long as:
o you are not one of our "affiliates,"
which is defined in Rule 405 of the
Securities Act;
o you acquire the new notes in the
ordinary course of your business;
o you do not have any arrangement or
understanding with any person to
participate in the distribution of
the new notes; and
o you are not engaged in, and do not
intend to engage in, a distribution
of the new notes.
If you are an affiliate of Tekni-Plex,
or you are engaged in, intend to engage
in or have any arrangement or
understanding with respect to, the
distribution of new notes acquired in
the exchange offer, you (1) should not
rely on our interpretations of the
position of the SEC's staff and (2)
<PAGE>
must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any
resale transaction.
If you are a broker-dealer and receive
new notes for your own account in the
exchange offer:
o you must represent that you do not
have any arrangement with us or any
of our affiliates to distribute the
new notes;
o you must acknowledge that you will
deliver a prospectus in connection
with any resale of the new notes you
receive from us in the exchange
offer. The letter of transmittal
states that by so acknowledging and
by delivering a prospectus, you will
not be deemed to admit that you are
an "underwriter" within the meaning
of the Securities Act; and
o you may use this prospectus, as it
may be amended or supplemented from
time to time, in connection with the
resale of new notes received in
exchange for old notes acquired by
you as a result of market-making or
other trading activities.
For a period of 180 days after the
expiration of the exchange offer, we
will make this prospectus available to
any broker-dealer for use in connection
with any resale described above.
Expiration Date, Tenders,
Withdrawal........................ 5:00 p.m., New York City time, on
o, 2000 unless we choose to extend
the exchange offer in our sole
discretion, in which case the term
"expiration date" means the latest date
and time to which we extend the
exchange offer.
To tender your old notes you must follow
the detailed procedures described under
the heading "The Exchange
Offer--Procedures for Tendering"
including special procedures for certain
beneficial owners and broker- dealers. If
you decide to exchange your old notes for
new notes, you must acknowledge that you
do not intend to engage in and have no
arrangement with any person to
participate in a distribution of the new
notes. If you decide to tender your old
notes pursuant to the exchange offer, you
may withdraw them at any time prior to
5:00 p.m., New York City time, on the
expiration date.
Maturity Date....................... June 15, 2010.
Interest............................ Interest on new notes will accrue from
the last interest payment date on which
interest was paid on the old notes
surrendered for them, or, if no
interest has been paid on such old
notes, from June 21, 2000. We will not
pay interest on the old notes accepted
for exchange. Interest will be paid on
June 15 and December 15 of each year.
<PAGE>
Denominations and Issuance
of New Notes ..................... The new notes will be issued only in
registered form without coupons, in
minimum denominations of $1,000 and
multiples of $1,000.
Consequences of Failure to Exchange. If you fail to exchange your old notes
for new notes in the exchange offer,
your old notes will continue to be
subject to transfer restrictions and
you will not have any further rights
under the registration rights
agreement, including any right to
require us to register your old notes
or to pay any additional interest.
Trading Market...................... To the extent that old notes are
tendered and accepted in the exchange
offer, your ability to sell untendered,
and tendered but unaccepted, old notes
could be adversely affected. There may
be no trading market for the old notes.
We cannot assure you that an active
public market for the new notes will
develop or as to the liquidity of any
market that may develop for the new
notes, your ability to sell the new
notes, or the price at which you would
be able to sell the new notes.
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 us for use
therein, we have agreed to register the
old notes on a shelf registration
statement and to use our best efforts to
cause it to be declared effective by the
SEC as promptly as reasonably practical
on or after the consummation of the
exchange offer. We have 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).
Use of Proceeds..................... We will not receive any cash proceeds
from the issuance of the new notes in
the exchange offer.
Exchange Agent...................... HSBC Bank USA is the exchange agent for
the exchange offer.
Federal Income Tax Consequences..... Your exchange of old notes for new
notes pursuant to the exchange offer
will not result in a gain or loss to
you.
Ranking............................. The new notes will be our unsecured
obligations and will rank subordinate
in right of payment to all of our
existing and future senior debt,
including any indebtedness under the
new term loan facilities and the new
revolving credit facility. At March
31, 2000, after giving pro forma effect
<PAGE>
to the recapitalization, there was
$384.6 million of outstanding
indebtedness to which the notes would
have been subordinated. Included in
this amount is $7.0 million of
indebtedness of foreign subsidiaries,
which will not be guarantors. In
addition, at that date on a pro forma
basis, we could have borrowed up to
$66.4 million of indebtedness under the
new revolving credit facility, all of
which would have constituted senior
debt.
Exchange Guarantee.................. The new notes will be fully and
unconditionally guaranteed on a senior
subordinated basis by our domestic
subsidiaries. The form and terms of
the new guarantees will be
substantially identical to the form and
terms of the old guarantees. The
guarantees will be general unsecured
obligations of the guarantors and will
rank subordinate in right of payment to
all existing and future senior debt of
such guarantors, including the
guarantors' guarantee of indebtedness
under the new credit facility. The
guarantees will rank equal in right of
payment with any other senior
subordinated indebtedness of the
guarantors. Our foreign subsidiaries
will not be guarantors.
Optional Redemption................. We may redeem the new notes in whole or
in part, at any time on or after June
15, 2005 at the redemption prices set
forth in the "Description of the New
Notes" section under the heading
"Optional Redemption" (plus accrued and
unpaid interest to the redemption
date). Prior to June 15, 2003 we may
redeem up to 35% of the principal amount
of the new notes with the cash proceeds
we have received from one or more
public offerings of our capital stock
(other than disqualified stock) at a
redemption price of 112.75 % of the
principal amount thereof, plus accrued
and unpaid interest to the redemption
date; provided, however, that at least
65% of the aggregate principal amount
of the old notes originally issued
pursuant to the initial private
placement (including any new notes
exchanged therefor) remains outstanding
immediately after any such redemption.
Change of Control................... Upon a change of control of Tekni-Plex,
you may require us to repurchase your
new 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 New
Notes--Change of Control." Our new
credit facility prohibits us from
purchasing outstanding new notes prior
to repaying borrowings under the new
credit facility. We cannot assure you
that upon a change of control we will
have sufficient funds to repurchase any
of the new notes. See "Description of
Certain Indebtedness."
Certain Covenants................... The indenture governing the new notes
contains covenants, which are the same
as the covenants applicable to the old
<PAGE>
notes, that, among other things, limit
our and certain of our subsidiaries'
ability to:
o incur liens upon properties or
assets;
o incur additional indebtedness;
o merge or consolidate with another
company;
o transfer substantially all of our
assets;
o enter into transactions with
affiliates;
o make certain restricted payments or
investments; or
o permit dividend or other payment
restrictions to apply to
subsidiaries.
For more details, see the section under
the heading "Description of the New
Notes--Covenants" in the prospectus. In
addition, in certain circumstances, we
will be required to offer to purchase
new 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.
For additional information regarding the new notes, see "Description of
the New Notes."
Risk Factors
You 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 deciding whether to exchange your old
notes.
<PAGE>
Summary Historical and Pro Forma
Financial Information
The following table sets forth our summary historical consolidated
financial information and summary pro forma unaudited financial information for
the periods indicated. The pro forma unaudited financial data is based upon the
historical consolidated financial statements of Tekni-Plex, Tri-Seal
International ("Tri-Seal") and High Voltage Engineering Corp.--Natvar Division
("Natvar"). We acquired Tri-Seal and Natvar on January 25, 1999 and April 24,
1999, respectively. The pro forma unaudited financial data is adjusted to give
effect to these acquisitions (which were accounted for as a purchases) and the
recapitalization, as if the acquisitions and the recapitalization had occurred
at the beginning of the fiscal year ended July 2, 1999. The pro forma financial
data is not necessarily indicative of the results that would have been obtained
if the acquisitions and the recapitalization had occurred on the date indicated
or for any future period or date. The pro forma adjustments give effect to
available information and assumptions that we believe to be reasonable.
The information contained in this table should be read in conjunction with
the audited and unaudited consolidated financial statements and notes thereto
and the pro forma unaudited condensed financial information and notes thereto.
See our financial statements, "Pro Forma Unaudited Condensed Financial
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
-------------------------------------------- ----------------------------
June 27, July 3, July 2, April 2, March 31,
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Statement of Operations Data:
Net sales....................... $144,736 $309,597 $489,237 $331,827 $351,179
Gross profit.................... 37,729 77,098 130,944 89,649 94,497
Income from operations.......... 21,843 37,878 68,410 44,724 51,503
Interest expense, net........... 8,094 19,682 38,977 28,866 29,723
Other expense................... 646 415 286 661 707
Pre-tax income before
extraordinary item............. 13,103 17,781 29,147 15,197 21,073
Income tax provision............ 4,675 9,112 14,150 7,300 10,300
Income before extraordinary item 8,428 8,669 14,997 7,897 10,773
Net income (loss)............... $(12,238) $8,669 $14,997 $7,897 $10,773
Other Financial Data:
EBITDA.......................... $30,221 $54,479 $101,681 $67,535 $74,306
EBITDA margin................... 20.9% 17.6% 20.8% 20.3% 21.2%
Depreciation and amortization... $9,551 $17,249 $35,343 $24,966 $24,535
Capital expenditures............ 3,934 7,283 12,950 9,976 11,176
Ratios:
Ratio of earnings to fixed charges 2.6x 1.9x 1.7x 1.5x 1.7x
Ratio of EBITDA to interest
expense........................ 3.7x 2.8x 2.6x 2.3x 2.4x
Balance Sheet Data (End of Period):
Working capital................. $25,950 $84,897 $101,445 $114,796 $148,802
Total assets.................... 129,029 539,279 559,436 545,289 579,153
Total debt (including current
portion)....................... 75,000 401,905 416,394 421,422 444,736
Stockholders' equity............ 30,397 38,673 52,297 46,137 60,014
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
9 Months
Year Ended Ended
------------ ---------
March 31,
July 2, 1999 2000
------------ ---------
(Dollars in thousands)
<S> <C> <C>
Dollars in thousands
Pro Forma Financial Data:
Pro forma total debt................................................... $655,869
Pro forma total interest expense....................................... $76,720 57,184
Pro forma EBITDA....................................................... 114,318 75,229
Ratio of pro forma EBITDA to pro forma interest expense................ 1.5 1.3
</TABLE>
Net loss for the year ended June 27, 1997 includes an extraordinary loss
comprised of (i) a prepayment penalty of $1.2 million and the write-off of
deferred financing costs and debt discounts of $3.4 million, net of the
combined tax benefit of $1.8 million, in connection with the early repayment of
debt and (ii) a loss of $17.8 million on the repurchase of redeemable warrants.
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 our 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 purposes of the ratio of earnings to fixed charges, (i) earnings were
calculated as our earnings before income taxes, extraordinary items and fixed
charges and (ii) fixed charges included interest on all indebtedness and
amortization of deferred financing costs.
<PAGE>
Risk Factors
You should carefully consider the following risk factors as well as the
other information and data included in this prospectus before deciding whether
to exchange your old notes.
Risks Relating to Our Debt
We have a significant amount of indebtedness. Our indebtedness could restrict
our operations and make us more vulnerable to adverse economic conditions.
Our total debt and stockholder's equity were $444.7 million and $60.0
million, respectively, as of March 31, 2000. On a pro forma basis after the
issuance of the notes, our total debt would have been $655.9 million at March
31, 2000, our annual debt service would have been $83.8 million and the ratio
of earnings to fixed charges would have been 1.1 to 1 for the 12 months ended
March 31, 2000.
Our substantial debt may have important consequences to us and to you. For
example, it could:
o impair our ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate or other
purposes;
o limit our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds
to make principal and interest payments on our indebtedness;
o put us at a competitive disadvantage to less leveraged competitors;
o hinder our ability to adjust rapidly to changing market conditions;
o increase our vulnerability in the event of a business or general
economic downturn;
o increase our vulnerability to interest rate increases to the extent
our variable-rate debt is not effectively hedged; and
o limit, along with the financial and other restrictive covenants in our
indebtedness, our ability to make investments or take other actions or
borrow additional funds.
Despite our high leverage, we may be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not prohibit us or
our subsidiaries from incurring indebtedness, although the indenture does
contain limitations on additional indebtedness. If, in the future, we cannot
generate enough cash from operations to make scheduled payments on our
indebtedness, we may be required to reduce or delay capital expenditures,
refinance our indebtedness, obtain additional financing or sell assets. Our
business may not be able to generate cash flow, and we may not be able to
obtain funding sufficient to satisfy our debt service requirements.
The operating and financial restrictions imposed by our debt agreements,
including the new credit facility and the indenture relating to the notes,
could negatively affect our ability to finance operations and capital needs or
to engage in other business activities.
Covenants contained in the indenture and the new credit facility will
limit our operating flexibility with respect to certain business matters. Among
other things, these covenants will limit our ability and our subsidiaries'
ability to:
o incur additional indebtedness;
o incur liens upon properties or assets;
<PAGE>
o make acquisitions;
o merge or consolidate with third parties;
o make investments;
o pay dividends and make distributions;
o repurchase or redeem capital stock;
o dispose of assets; and
o engage in certain transactions with subsidiaries and
affiliates and otherwise restrict corporate activities.
In addition, the new credit facility contains financial covenants,
including:
o a minimum consolidated EBITDA test;
o a minimum fixed coverage ratio; and
o a maximum leverage ratio.
These covenants may adversely affect our ability to finance our future
operations or capital needs or to engage in other business activities that may
be in our interest. Our ability to meet these covenants and requirements in the
future may be affected by events beyond our control, including prevailing
economic, financial and industry conditions. Our breach of or failure to comply
with any of these covenants could result in a default under the new credit
facility or the indenture even if we are able to make the required payments
thereunder. If we default under the new credit facility, our lenders could
cease to make further extensions of credit, cause all of our outstanding debt
obligations under the new credit facility to become due and payable, require us
to apply all of our available cash to repay the indebtedness under the new
credit facility or prevent us from making debt service payments on any other
indebtedness we owe. If a default under the indenture occurs, the holders of
the notes could elect to declare the notes due and payable. If the indebtedness
under the new credit facility or the notes is accelerated, we may not have
sufficient assets to repay amounts due under these existing debt agreements or
on other debt securities then outstanding. We may amend the provisions and
limitations of the new credit facility from time to time without the consent of
the holders of the notes. For a more complete description of the terms of our
outstanding debt and the covenants contained in the notes, see "Description of
Certain Indebtedness" and "Description of the New Notes--Covenants."
We will require a significant amount of cash to service our indebtedness. Our
ability to generate cash depends on many factors beyond our control.
Our ability to repay or refinance our indebtedness will depend on our
financial and operating performance, which, in turn, is subject to prevailing
economic and competitive conditions and to financial, business and other
factors, many of which are beyond our control. These factors could include
operating difficulties, increased operating costs or raw material or product
prices, the response of competitors, regulatory developments and delays in
implementing strategic projects. Our ability to meet our debt service and other
obligations may depend in significant part on the extent to which we can
successfully implement our business strategy. We may not be able to implement
our business strategy or the anticipated results of our strategy may not be
realized.
On a pro forma basis as of March 31, 2000 after giving effect to the new
credit facility, and subject to certain restrictions, we could have borrowed up
to $66.4 million of additional senior indebtedness under the new revolving
credit facility without requiring the consent of the holders of the notes. If
the entire $100.0 million under the new revolving credit facility had been
outstanding from the beginning of fiscal year 1999, our annual debt service
(all interest) for fiscal 1999 would have increased by approximately an
additional $6.5 million based on an assumed fixed interest rate of 9.78%.
<PAGE>
The notes will be junior to our senior debt and the guarantees will be junior
to guarantor senior debt, and these obligations will be effectively junior to
the liabilities of our nonguarantor subsidiaries, which may be significant.
The notes will be unsecured senior subordinated obligations and will be
junior to all our existing and future senior indebtedness, including our credit
facility. Each of our currently existing domestic subsidiaries will guarantee
the notes. These guarantees will be unsecured senior subordinated obligations
and will be junior to all existing and future senior debt of the guarantors.
The notes will be effectively junior to all existing and future debt and other
liabilities of our subsidiaries that are not guarantors, which include our
foreign subsidiaries. As of March 31, 2000, after giving effect to the purchase
of $275.0 million aggregate principal amount of our 11 1/4% notes and our
9 1/4% notes, the repayment of our existing credit facility with borrowings
under our new credit facility, this offering and the recapitalization, in
addition to the notes, we would have had outstanding $377.6 million of senior
debt, the guarantors would have had no senior debt outstanding (other than their
guarantees of our debt) and the nonguarantor subsidiaries would have had
outstanding $7.0 million of total debt to third parties including trade
payables.
We also may incur significant additional senior indebtedness under the
terms of the new credit facility. For example, upon completion of the offering
of the old notes and after giving effect to the transactions described above,
as of March 31, 2000, we would have had $66.4 million available under the new
credit facility which, if borrowed, would be senior indebtedness. If we become
bankrupt, liquidate or dissolve, our assets would be available to pay
obligations on the notes only after our senior indebtedness has been paid.
Similarly, if one of our guarantor subsidiaries becomes bankrupt, liquidates or
dissolves, that subsidiary's assets would be available to pay obligations on
its guarantee only after payments have been made on its senior indebtedness.
If we fail to pay any of our senior indebtedness, we may make payments on
the notes only if either we first pay our senior debt or the holders of our
senior indebtedness waive the payment default. Moreover, if any non-payment
default exists under our senior indebtedness, we may not make any cash payments
on the notes for a period of up to 179 days in any 365-day period, unless we
cure the non-payment default, the holders of the senior indebtedness waive the
default or rescind acceleration of the indebtedness or we repay the
indebtedness in full. In the event of a non-payment default we may not have
sufficient assets to pay amounts due on the notes. In addition, various events
of default under the new credit facility would prohibit us from making any
payments on the notes.
The notes will not be secured by any of our assets. However, the new credit
facility is secured by substantially all of our assets.
In addition to being subordinated to all our senior indebtedness, the
notes will not be secured by any of our assets. However, the new credit
facility is secured by substantially all of our assets and the assets of our
domestic subsidiaries. Additionally, the terms of the indenture and the new
credit facility permit us to incur additional secured debt. If we become
insolvent or are liquidated, or if payment under any of the instruments
governing our secured debt is accelerated, the lenders under these instruments
will be entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to instruments governing such debt. Accordingly,
the lenders will have a prior claim on our assets. In that event, because the
notes will not be secured by any of our assets, it is possible that there will
be no assets remaining from which claims of the holders of the notes can be
satisfied or, if any assets remain, the remaining assets might be insufficient
to satisfy those claims in full.
We may not be permitted to purchase the notes as required by the indenture
upon a change of control or we may be unable to raise the funds necessary to
pay for the notes.
Upon the occurrence of a change of control, you will have the right to
require us to purchase all or a portion of your notes. Nevertheless, if a
change of control were to occur, we might not have sufficient financial
resources, or might not be able to arrange financing, to pay the purchase price
for all notes that you tender.
<PAGE>
In addition, the terms of the new credit facility limit our ability to
purchase any notes and to identify certain events that would constitute a
change of control or an event of default under the new credit facility. Any
future credit agreements or other agreements relating to other indebtedness to
which we become a party may contain similar restrictions and provisions. In the
event a change of control occurs at a time when we are prohibited from
purchasing notes, we could seek the consent of our lenders to purchase notes or
could attempt to refinance the borrowings that contain such prohibition. If we
do not obtain this consent or repay the borrowing, however, we would remain
prohibited from purchasing the notes. Our failure to purchase tendered notes
would constitute an event of default under the indenture, that would, in turn,
constitute a further default under certain of our existing debt agreements and
may constitute a default under the terms of other indebtedness that we may
enter into from time to time.
Further, the provisions of the indenture may not protect you in the event
of a highly leveraged transaction, reorganization, restructuring, merger or
similar transaction that might adversely affect holders of notes, if the
transaction did not result in a change of control. For a more complete
description of the change of control provisions contained in the notes, see
"Description of the New Notes--Change of Control."
No public market for the notes currently exists and the notes contain
restrictions on transfer. You may be unable to sell your notes if a trading
market for the notes does not develop.
The notes will constitute a new issue of securities with no established
trading market, and we cannot estimate the liquidity of any market that may
develop, nor do we know whether you will be able to sell your notes or at what
price you would be able to sell them. If such a market were to exist, the notes
could trade at prices that might 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 our financial performance.
Consequences of the exchange offer on non-tendering holders of the outstanding
notes
In the event the exchange offer is completed, we will not be required to
register any old notes not tendered and accepted in the exchange offer. In that
event, holders of old notes seeking liquidity in their investment would have to
rely on exemptions to the registration requirements under the securities laws,
including the Securities Act, since the old notes will continue to be subject
to restrictions on transfer. Consequently, holders of old notes who do not
participate in the exchange offer could experience significant diminution in
the value of their old notes, compared to the value of the new notes. Following
the exchange offer, none of the new notes will be entitled to the contingent
increase in interest rate provided for (in the event of a failure to complete
the exchange offer in accordance with the terms of the registration rights
agreement) pursuant to the registration rights agreement.
Federal and state fraudulent conveyance statutes allow courts, under specific
circumstances, to limit your rights as a noteholder or void guarantees and
require noteholders to return payments received from guarantors.
Federal and state fraudulent transfer laws permit a court, if it makes
certain findings, to
o avoid all or a portion of our obligations to you;
o subordinate our obligations to you to our other existing and
future indebtedness, entitling other creditors to be paid in
full before any payment is made on the notes; and
o take other action detrimental to you, including invalidating
the notes.
In that event, we cannot assure you that you would ever be repaid.
Under federal and state fraudulent transfer laws, in order to take any of
those actions, a court typically would need to find that, at the time the notes
were issued, we:
o issued the notes with the intent of hindering, delaying or defrauding
current or future creditors; or
<PAGE>
o received less than fair consideration or reasonably equivalent value
for incurring the indebtedness represented by the notes; and
(a) were insolvent or were rendered insolvent by reason of the
issuance of the notes;
(b) were engaged, or about to engage, in a business or transaction
for which our assets were unreasonably small; or
(c) intended to incur, or believed or should have believed we would
incur, debts beyond our ability to pay as such debts mature.
Many of the foregoing terms are defined in or interpreted under those
fraudulent transfer statutes.
We cannot assure you as to what standard a court would apply in order to
determine whether we were "insolvent" as of the date the notes were issued, and
we cannot assure you that, regardless of the method of valuation, a court would
not determine that we were insolvent on that date. Nor can we assure you that a
court would not determine, regardless of whether we were insolvent on the date
the notes were issued, that the payments constituted fraudulent transfers on
another ground.
Different jurisdictions define "insolvency" differently. However, we
generally would be considered insolvent at the time we incurred the
indebtedness constituting the notes if our liabilities exceeded our assets (at
a fair valuation) or if the present saleable value of our assets is less than
amount required to pay our total existing debts and liabilities (including the
probable liability related to contingent liabilities) as they become absolute
or matured.
Our obligations under the notes are guaranteed on a senior subordinated
basis by our domestic subsidiaries, and the guarantees may also be subject to
review under various laws for the protection of creditors. It is possible that
creditors of the guarantors may challenge the guarantees as a fraudulent
transfer or conveyance. The analysis set forth above would generally apply,
except that the guarantees could also be subject to the claim that, since the
guarantees were incurred for our benefit, and only indirectly for the benefit
of the guarantors, the obligations of the guarantors thereunder were incurred
for less than reasonably equivalent value or fair consideration. A court could
void a guarantor's obligation under its guarantee, subordinate the guarantee to
the other indebtedness of a guarantor, direct that holders of the notes return
any amounts paid under a guarantee to the relevant guarantor or to a fund for
the benefit of its creditors, or take other action detrimental to the holders
of the notes. In addition, the liability of each guarantor under the indenture
will be limited to the amount that will result in its guarantee not
constituting a fraudulent conveyance or improper corporate distribution, and we
cannot assure you as to what standard a court would apply in making a
determination as to what would be the maximum liability of each guarantor.
Risks Relating to our Business
Our profits may be adversely affected by price volatility and availability of
raw materials if we are unable to pass price increases on to customers or to
obtain necessary raw materials.
Our profitability may be adversely affected if raw material prices
increase and we are unable to pass these price increases on to our customers,
employ successful hedging strategies, enter into supply contracts at favorable
prices or buy on the spot market at favorable prices. Our products are
manufactured from commodity petrochemicals that are readily available in bulk
quantities from numerous large, vertically integrated chemical companies.
Except for Aclar(R), we currently purchase each principal raw material
from several of the top suppliers. Prices for our raw materials have fluctuated
in the past and likely will continue to do so in the future. Historically, we
have been able to pass on substantially all of the price increases in raw
materials to our customers on a timely basis, although in the case of our
garden hose products we are usually not able to do so until the following
season because prices are set annually. We cannot be sure, however, that we
will be able to pass on price increases in the future.
<PAGE>
Aclar(R), a proprietary material produced by Honeywell (as a
successor by merger to Allied Signal), is a key raw material used in
manufacturing our clear, laminated blister packaging materials. If the supply
of Aclar(R) is significantly interrupted, we would begin substituting
alternative blister packaging materials. Depending on the extent of the
disruption, our profitability may be adversely affected. Honeywell is currently
the sole manufacturer and supplier of Aclar.(R)
We operate in discrete market segments of our industry, some of which are
highly competitive and include participants with greater resources than ours.
We compete with a wide variety of manufacturers because we operate in
discrete market segments. Some of our competitors are larger, have greater
financial resources and are less leveraged than we are. As a result, these
competitors may be better able to withstand a change in market conditions
within the industry and throughout the economy as a whole. These competitors
may also be able to maintain significantly greater operating and financial
flexibility than we can. Additionally, a number of our niche product
applications are customized or sold for highly specialized uses. Competitors
with greater financial, technological, manufacturing and marketing resources
than ours and that do not currently market similar applications for these uses
could choose to do so in the future. Increased competition could have a
material adverse effect on our business, financial condition or results of
operations.
The success of our acquisition strategy could be adversely affected by the
unavailability of suitable acquisition candidates or our inability to finance
future acquisitions or successfully integrate acquired businesses.
Acquiring suitable businesses is a key component of our business strategy.
Nonetheless, we may not identify suitable acquisitions or acquisitions that can
be made at an acceptable price. In the event we are able to acquire additional
businesses, we may require substantial capital to do so. Although we will be
able to borrow under the new revolving credit facility under certain
circumstances to fund acquisitions, we cannot be sure that such borrowings will
be available in sufficient amounts or that other financing will be available in
amounts and on terms that we deem acceptable. In addition, growth by
acquisition involves risks such as
o diversion of our management's attention from ongoing business
concerns;
o difficulties in integrating the operations and personnel of acquired
companies;
o difficulty in assessing the value, strengths and weaknesses of
acquisition candidates;
o failure to discover liabilities of the acquired company for which we
will be responsible following the acquisition;
o the potential loss of key employees and customers of acquired
companies;
o diversion of other corporate resources from our existing operations;
and
o failure to achieve the expected benefits of the acquisition.
If the execution of our acquisition strategy is unsuccessful, our ability
to compete successfully or repay our indebtedness may be reduced.
Risks relating to foreign investment and operations may harm our results.
We have operations and other investments in a number of countries outside
of the United States. Our foreign operations and investments are subject to the
risks normally associated with conducting business in foreign countries,
including:
o limitations on ownership and on repatriation of earnings;
<PAGE>
o import and export restrictions and tariffs;
o additional expenses relating to the difficulties and costs of
staffing and managing international operations;
o labor disputes and uncertain political and economic environments,
including risks of war and civil disturbances and the impact of
foreign business cycles;
o change in laws or policies of a foreign country;
o delays in obtaining or the inability to obtain necessary governmental
permits;
o potentially adverse consequences resulting from the applicability of
foreign tax laws;
o cultural differences; and
o increased expenses due to inflation.
Our foreign operations and investments may also be adversely affected by
laws and policies of the United States and the other countries in which we
operate affecting foreign trade, investment and taxation.
The garden and irrigation hose products business is highly seasonal, which
results in significant fluctuation of our financial results over the course of
the fiscal year.
The market for our garden and irrigation hose products is highly seasonal,
with approximately 75% of sales typically occurring in spring and early summer.
As a result of the need to build up inventories in anticipation of such sales,
our working capital requirements peak in the spring. In addition, this
seasonality has a significant impact on our net income from quarter to quarter.
To the extent such sales peak later in any fiscal year compared to other fiscal
years, as a result of weather or other factors, cash flows may not be
comparable on an interim period basis.
We are dependent on certain key personnel and could be adversely affected by
loss of their services.
We are dependent on the management experience and continued services of
our executive officers, including Dr. F. Patrick Smith and Mr. Kenneth W.R.
Baker. We maintain a key person life insurance policy on Dr. Smith. The loss of
the services of these officers could have a material adverse effect on our
business. In addition, our continued growth depends on our ability to attract
and retain experienced key employees.
We may be adversely affected by environmental and safety laws and regulations.
Significant fines, penalties, capital costs, or other liabilities
associated with noncompliance, remediation or natural resource damage
liability, or future events, such as changes in laws or the interpretation
thereof, the development of new facts, or the failure of third parties to
perform remediation at current or former facilities, may cause us to incur
additional costs that could have a material adverse effect on our businesses,
financial condition or results of operations.
Our facilities, operations, and properties are subject to foreign,
federal, state, provincial and local environmental laws and regulations. As a
result, we are involved from time to time in administrative or legal
proceedings relating to environmental matters and have in the past and will
continue to incur capital costs and other expenditures relating to
environmental matters. Current and prior owners and operators of property or
businesses may be liable under environmental laws without regard to fault or to
knowledge about the condition or action causing the liability. We may be
required to incur costs relating to the remediation of property, including
property where we dispose of our waste, and environmental conditions could lead
to claims for personal injury, property damage or damages to natural resources.
We are aware of environmental conditions at certain properties that we now or
previously owned or leased that are undergoing remediation by third parties
and, at certain properties, by us. Although based on current information we
have no reason to believe otherwise, these third parties may not complete the
required remediation.
<PAGE>
Unexpected costs we may incur relating to environmental matters may have a
material adverse effect on our businesses, financial condition or results of
operations.
We are controlled by shareholders who will be able to make important decisions
about our business and capital structure; the controlling shareholders'
interests may differ from your interests as a noteholder.
Circumstances may occur in which the interests of the controlling
shareholders of Tekni-Plex could be in conflict with your interests as a
noteholder. The common shareholders may have an interest in pursuing
acquisitions, divestitures or other transactions that, in their judgment, could
enhance the value of their individual equity investments, even though these
transactions might involve risks to the holders of the notes. Tekni-Plex
Partners holds approximately 95.6% of our outstanding common stock
(approximately 93.0% on a fully diluted basis) and MST/TP Partners holds the
remaining common stock. Tekni-Plex Management, as sole managing member of
Tekni-Plex Partners and MST/TP Partners, controls both these entities.
Tekni-Plex Management is controlled by Dr. Smith, our Chairman of the Board and
Chief Executive Officer.
<PAGE>
The Recapitalization
On April 12, 2000, we entered into a recapitalization agreement with our
shareholders at that time and other relevant parties. Prior to the
recapitalization, Tekni-Plex Partners held approximately 45.1% and MST/TP
Partners held approximately 54.9% of the outstanding common stock of
Tekni-Plex. MST/TP Partners, as sole manager, controlled Tekni-Plex Partners
and therefore controlled Tekni-Plex. The interests in Tekni-Plex Partners and
MST/TP Partners were owned by various investment funds, members of management
and other individuals. The purpose of the recapitalization was to provide
liquidity to the limited partners of two shareholder funds that own interests
in MST/TP Partners. These two funds were scheduled to terminate in May 1999.
The recapitalization involved:
o MST/TP Partners terminating substantially all of its investment in
Tekni-Plex;
o all members of our management at the time maintaining their equity
investment in Tekni-Plex Partners, with an implied aggregate value of
approximately $96 million; and
o equity investments in Tekni-Plex Partners by new investors who
replaced certain existing investors at the time.
The new equity investors committed in the aggregate $269.6 million to
Tekni-Plex Partners. Of this amount, $167 million has been contributed and used
to purchase the interests of certain previous Tekni-Plex investors. Tekni-Plex
Management LLC, the managing member of Tekni-Plex Partners, may for at least
five years from the date of the recapitalization, call upon the remainder of
the commitment ($102.6 million) for our future use for general corporate
purposes, including acquisitions. These additional commitments will initially
be funded to Tekni-Plex Partners, which will contribute the funds to us in
exchange for Tekni-Plex common equity.
As part of the recapitalization, we entered into a new credit facility,
the proceeds of which, together with the proceeds from the offering of the old
notes and the equity contribution from Tekni-Plex Partners to us were used to:
o repay all of the amounts outstanding under our then-existing $205
million credit facility dated as of March 3, 1998;
o purchase 99.97% of our $75 million aggregate principal amount
outstanding 11 1/4% senior subordinated notes due 2007 and 100% of
our $200 million aggregate principal amount outstanding 9 1/4% senior
subordinated notes due 2008; and
o purchase approximately 95.2% of the shares of our common stock held
by MST/TP Partners at the time of the recapitalization.
Tekni-Plex Partners currently owns approximately 95.6% and MST/TP Partners
currently owns approximately 4.4% of the outstanding common stock of
Tekni-Plex. Tekni-Plex Management, which is controlled by Dr. F. Patrick Smith,
our Chairman of the Board and Chief Executive Officer, is the sole managing
member of both Tekni-Plex Partners and MST/TP Partners and as a result controls
both Tekni-Plex Partners and MST/TP Partners. Therefore Tekni-Plex Management
also controls Tekni-Plex. Dr. Smith also owns approximately 30% of Tekni-Plex
Partners (not including the priority allocation discussed in the section
entitled "Security Ownership").
<PAGE>
The following chart shows the current capital structure of Tekni-Plex:
[GRAPHIC OMITTED--GRAPHIC OF CAPITAL STRUCTURE]
<PAGE>
Recapitalization Sources and Uses of Funds
The following table reflects our sources of funds from the offering of the
old notes, borrowings under our new credit facility consisting of a $100.0
million revolving credit facility and an aggregate of $344.0 million in term
loans and our receipt of an equity contribution from Tekni-Plex Partners, and
our uses of those funds in connection with the recapitalization:
Amount
------
(Dollars in
millions)
Sources of Funds:
Cash..................................................... $ 5.1
New credit facility
Revolving credit facility.............................. 18.0
Term loans............................................. 344.0
Old notes(a)............................................. 271.2
Equity contribution by Tekni-Plex Partners............... 46.4
--------
Total sources of funds............................... $684.7
========
Uses of Funds:
Purchase of Tekni-Plex common stock from investors holding
through MST/TP Partners................................ $219.3
Purchase outstanding senior subordinated notes........... 275.0
Refinance existing credit facility....................... 135.7
Recapitalization and financing fees and expenses......... 54.7
--------
Total uses of funds.................................. $684.7
========
----------
(a) Reflects unamortized offering discount of approximately $3.8 million.
<PAGE>
Capitalization
The following table sets forth our actual capitalization as of March 31, 2000
and our pro forma capitalization as of March 31, 2000 after giving effect to
the recapitalization and related financing (including the exchange offer):
As of March 31, 2000
------------------------
Actual Pro Forma
-------- ---------
(Dollars in millions)
Cash and cash equivalents.................... $17,960 $1,450
======== =========
Debt:
Bank financing:
New credit facility:
Revolving credit facility............ -- $33,600
Term loans........................... -- 344,000
Old credit facility:
Revolving credit facility............ 54,000 --
Term loans........................... 108,700 --
11 1/4% senior subordinated notes............ 75,000 --
9 1/4% senior subordinated notes............. 200,000 --
12 3/4% senior subordinated notes(a)......... -- 271,200
Other........................................ 7,036 7,036
-------- ---------
Total debt........................... 444,736 655,836
-------- ---------
Stockholders' equity:
Common stock and additional paid-in capital 41,075 88,098
Foreign currency translation............. (4,424) (4,424)
Retained earnings........................ 23,363 (14,690)
Treasury stock........................... -- (219,923)
-------- ---------
Total stockholders' equity........... 60,014 (150,939)
-------- ---------
Total capitalization................. $504,750 $504,897
======== =========
----------
(a) Reflects unamortized offering discount of approximately $3.8 million.
In connection with the recapitalization, our equity investors agreed to
contribute to Tekni-Plex Partners $269.6 million in the aggregate, of which
$167 million has been contributed and used to purchase the interests of certain
previous Tekni-Plex investors. Tekni-Plex Management, the managing member of
Tekni-Plex Partners, may for at least five years after the recapitalization
call upon the remainder of the commitment ($102.6 million) for our future use
for general corporate purposes, including acquisitions. If these additional
funds are called upon, Tekni-Plex Partners will contribute them to us in
exchange for common equity.
<PAGE>
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,
Tri-Seal and Natvar (the latter two we refer to as the acquisitions). We
acquired Tri-Seal and Natvar on January 25, 1999 and April 24, 1999,
respectively. The accompanying pro forma unaudited condensed statements of
operations were adjusted to give effect to the acquisitions (which were
accounted for as purchases) and the recapitalization, as if the acquisitions
and the recapitalization had occurred at the beginning of the periods
presented. The accompanying pro forma unaudited condensed balance sheet is
adjusted to give effect to the recapitalization as if it had occurred on March
31, 2000. The pro forma condensed statements of operations are not necessarily
indicative of the results that would have been obtained if the acquisitions and
the recapitalization 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 we believe to be reasonable. You should read the pro forma
condensed financial information in conjunction with our historical consolidated
financial statements and notes thereto.
<TABLE>
Pro Forma Unaudited Condensed Statements of Operations
Year Ended Nine Months Ended
--------------------------------------------------------------------- --------------------------------------
Adjusted
Adjusted Pro Forma
July 2, Acquisitions Acquisition Recapitalization Pro Forma March 31, Recapitalization March 31,
1999 (a) Adjustments Adjsutments July 2, 1999 2000 Adjustments 2000
--------- ------------ ----------- ---------------- ------------ --------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Income Statement Data:
Net sales........... $489,237 $ 20,813 $ -- $ -- $510,050 $351,179 $ -- $351,179
Cost of sales....... 358,293 13,153 -- -- 371,446 256,682 -- 256,682
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit........ 130,944 7,660 -- -- 138,604 94,497 -- 94,497
Selling, general and
administrative
expenses......... 62,534 3,904 1,475 (b) (8,171)(d) 59,742 42,994 (923)(d) 42,071
-------- -------- -------- -------- -------- -------- -------- --------
Income from
operations....... 68,410 3,756 (1,475) 8,171 78,862 51,503 923 52,426
Other expenses
(income):
Interest......... 38,977 -- 217 (c) 35,768 (e) 74,962 29,723 26,667 (e) 56,390
Other............ 286 -- -- -- 286 707 -- 707
-------- -------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before
provision for
income taxes..... 29,147 3,756 (1,692) (27,597) 3,614 21,073 (25,744) (4,671)
Provision for
income taxes..... 14,150 1,502 (626) (9,383)(f) 5,643 10,300 (8,702)(f) 1,598
-------- -------- -------- -------- -------- -------- -------- --------
Income from
continuing
operations....... $ 14,997 $ 2,254 $ (1,066) $(18,214) $ (2,029) $ 10,773 $(17,042) $ (6,269)
======== ======== ======== ========= ======== ======== ======== ========
Other Financial Data:
EBITDA.............. $101,681 $ 4,466 $ 0 $ 8,171 $114,318 $ 74,306 $ 923 $ 75,229
EBITDA margin....... 20.8% -- -- -- 22.4% 21.2% -- 21.4%
Depreciation and
amortization....... $ 35,343 $ 710 $1,475 $(458) $37,070 $24,535 $ (343) $ 24,192
Capital expenditures 12,950 -- -- -- 12,950 11,176 -- 11,176
Ratio of earnings to
fixed charges...... 1.7x -- -- -- 1.5x 1.7x -- --(g)
</TABLE>
<PAGE>
Adjustments to reflect the acquisitions of Tri-Seal and Natvar:
Dollars in thousands
(a) To reflect the operations of Tri-Seal for the period July 3, 1998 through
January 24, 1999 and Natvar for the period July 3, 1998 through April 23,
1999 in the year ended July 2, 1999.
(b) To reflect the amortization of goodwill of $17,100 for Natvar and $13,500
for Tri-Seal over a 15-year period.
(c) To reflect additional interest as a result of increased debt to acquire
Tri-Seal and Natvar.
Adjustments to reflect the recapitalization and related financings as if they
occurred as of the beginning of the periods presented:
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
July 2, 1999 March 31, 2000
------------ --------------
(Dollars in thousands)
<S> <C> <C>
(d) Adjust executive compensation to reflect new employment contracts
Eliminated historical compensation..................................... $(15,271) $(6,248)
New contractual compensation........................................... 7,500 5,625
Eliminate management fee to MST........................................ (400) (300)
---------- ----------
$(8,171) $(923)
========== ==========
(e) Adjustments to interest to reflect new debt
Elimination of historical interest related to outstanding notes and
existing term loans.................................................... $(37,317) $(28,147)
Elimination of amortization of deferred financing costs related to
outstanding notes and existing term loans.............................. (2,726) (2,045)
Interest on new debt as follows:
Notes ($275 million at 12.75%)......................................... 35,063 26,297
New credit facility ($133.6 million at 9.78% and 244.0
million at 10.28%)................................................... 38,481 28,861
Amortization of financing fees and expenses.................................. 2,267 1,701
---------- ----------
$35,768 $26,667
========== ==========
</TABLE>
(f) Tax benefit at our incremental tax rate of 36%.
Other:
(g) For the nine month period ended March 31, 2000, pro forma fixed charges
exceeded earnings before fixed charges by $2,549.
<PAGE>
Pro Forma Unaudited Condensed Balance Sheet
<TABLE>
<CAPTION>
Adjusted
Tekni-Plex Pro Forma at
at March 31, Other March 31,
2000 Proceeds(a) Adjustments 2000
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Assets
Current:
Cash................................. $17,960 $631,833 $(648,343) (b)(d)(e) 1,450
Accounts Receivable.................. 90,740 90,740
Inventories.......................... 102,019 102,019
Deferred income taxes................ 5,700 5,700
Prepaid expenses and other current
assets........................... 8,866 12,647 (b)(c)(d) 21,513
---------- ---------- ---------- ----------
Total Current Assets............. 225,285 631,833 (635,696) 221,422
---------- ---------- ---------- ----------
Property, plant and equipment.............. 134,245 134,245
Intangible assets.......................... 197,044 197,044
Deferred financing costs................... 17,495 17,000 (17,125) (c) 17,370
Deferred income taxes...................... 1,139 1,139
Other assets............................... 3,945 3,945
---------- ---------- ---------- ----------
Total assets..................... $579,153 $648,833 $(652,821) $575,165
========== ========== ========== ==========
Liabilities and Stockholder's Equity
Current Liabilities:
Current portion of long term debt.... $6,549 $7,400 $(5,181) (b) $8,768
Line of Credit....................... 375 375
Accounts payable..................... 29,085 29,085
Accrued payroll and benefits......... 12,495 12,495
Accrued interest..................... 6,557 6,557
Accrued liabilities.................. 17,254 17,254
Income taxes payable................. 4,168 (4,168) (b) --
---------- ---------- ---------- ----------
Total Current Liabilities........ 76,483 7,400 (9,349) 74,534
---------- ---------- ---------- ----------
Long-term debt............................. 437,812 641,433 (432,519) (b) 646,726
Other liabilities.......................... 4,844 4,844
---------- ---------- ---------- ----------
Total Liabilities................ 519,139 648,833 (441,868) 726,104
---------- ---------- ---------- ----------
Stockholder's equity:
Capital stock and additional
paid-in capital.................... 41,075 47,023 (e) 88,098
Cumulative currency translation
adjustment......................... (4,424) (4,424)
Retained earnings.................... 23,363 (38,053) (b)(c)(d) (14,690)
Treasury Stock....................... (219,923) (f) (219,923)
---------- ---------- ---------- ----------
Total stockholder's equity....... 60,014 -- (210,953) (150,939)
---------- ---------- ---------- ----------
Total Liabilities and Stockholders Equity.. $579,153 $648,833 $(652,821) $575,165
========== ========== ========== ==========
</TABLE>
<PAGE>
----------
Adjustments to reflect the recapitalization as if it occurred on March 31,
2000 are as follows:
(Dollars in thousands)
(a) issuance of $271,233 of old notes net of discount of $3,767, $344,000 of
new term loans and $33,600 of the new revolver drawn, net of debt issue
costs of $17,000;
(b) repayment of the existing credit facility and the outstanding senior
subordinated notes, including prepayment penalties of $29,243 net of tax
benefit of $10,820;
(c) write-off of existing deferred debt issue costs of $17,125, net of tax
benefit of $5,995;
(d) other costs of the recapitalization of $8,500;
(e) equity contribution to us by Tekni-Plex Partners; and
(f) purchase of Tekni-Plex common stock held by MST/TP Partners (or its
investors) for $219,923.
<PAGE>
Selected Historical Financial Information
The following table sets forth our selected historical consolidated
financial information, and has been derived from and should be read in
conjunction with our audited and unaudited consolidated financial statements,
including the notes thereto, which appear elsewhere herein. In our opinion,
unaudited interim data reflect all adjustments (consisting solely of normal
recurring adjustments) considered necessary for a fair presentation of results
for such interim periods. Results of operations for the unaudited interim
periods are not necessarily indicative of the results that may be expected for
any other interim or annual period.
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
------------------------------------------------------------------ ------------------------
June 30, June 28, June 27, July 3, July 2, April 2, March 31,
1995 1996 1997 1998 1999 1999 2000
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Income Statement Data:
Net sales................ $44,688 $80,917 $144,736 $309,597 $489,237 $331,827 $351,179
Cost of goods sold....... 34,941 62,335 107,007 232,499 358,293 242,178 256,682
Gross profit............. 9,747 18,582 37,729 77,098 130,944 89,649 94,497
Selling, general and
administrative
expense................ 4,814 10,339 15,886 39,220 62,534 44,925 42,994
Income from operations... 4,933 8,243 21,843 37,878 68,410 44,724 51,503
Interest expense, net.... 4,322 5,816 8,094 19,682 38,977 28,866 29,723
Other expense............ 234 469 646 415 286 661 707
Pre-tax income before
extraordinary item..... 377 1,958 13,103 17,781 29,147 15,197 21,073
Income tax provision..... 211 982 4,675 9,112 14,150 7,300 10,300
Income before
extraordinary item..... 166 976 8,428 8,669 14,997 7,897 10,773
Net income (loss)........ $166 $976 $(12,238) $8,669 $14,997 $7,987 $10,773
Other Financial Data:
EBITDA................... $7,922 $14,157 $30,221 $54,479 $101,681 $67,535 $74,306
EBITDA margin............ 17.7% 17.5% 20.9% 17.6% 20.8% 20.3% 21.2%
Depreciation and
amortization........... $3,462 $6,821 $9,551 $17,249 $35,343 $24,966 $24,535
Capital expenditures..... 614 2,275 3,934 7,283 12,950 9,976 11,176
Ratios:
Ratio of earnings to
fixed charges.......... 1.1x 1.3x 2.6x 1.9x 1.7x 1.5x 1.7x
Ratio of EBITDA to
interest expense....... 1.8x 2.4x 3.7x 2.8x 2.6x 2.3x 2.4x
Total debt to EBITDA..... 4.4x 5.0x 2.5x 7.4x 4.1x -- --
Balance Sheet Data (End of
Period):
Working capital.......... $3,173 $11,660 $25,950 $84,897 $101,445 $114,796 $148,802
Total assets 53,415 121,770 129,029 539,279 559,436 545,289 579,153
Total debt (including
current portion)....... 35,004 70,436 75,000 401,905 416,394 421,422 444,736
Stockholders' equity..... 11,687 24,162 30,397 38,673 52,297 46,137 60,014
</TABLE>
The foregoing results of operations reflects results of PureTec
Corporation from March 3, 1998, the date we acquired it.
Net loss for the year ended June 27, 1997 includes an extraordinary loss
comprised of (i) a prepayment penalty of $1.2 million and the write-off of
deferred financing costs and debt discounts of $3.4 million, net of the
combined tax benefit of $1.8 million, in connection with the early repayment of
debt and (ii) a loss of $17.8 million on the repurchase of redeemable warrants.
<PAGE>
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 our 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 the purposes of the ratio of earnings to fixed charges, (i) earnings
are calculated as our earnings before income taxes, extraordinary item and
fixed charges and (ii) fixed charges include interest on all indebtedness and
amortization of deferred financing costs.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
You should read the following discussion and analysis in conjunction with
the "Selected Historical Financial Information" and the Financial Statements
included elsewhere in this prospectus. The table below 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 Nine Months Ended
------------------------------------------------- ---------------------------------
June 27, 1997 July 3, 1998 July 2, 1999 April 2, 1999 March 31, 2000
------------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................... 73.9 75.1 73.2 73.0 73.1
Gross profit..................... 26.1 24.9 26.8 27.0 26.9
Selling, general and
administrative expenses.... 11.0 12.7 12.8 13.5 12.2
Income from operations........... 15.1 12.2 14.0 13.5 14.7
Interest expense................. 5.6 6.4 8.0 8.7 8.5
Provision for income taxes....... 3.2 2.9 2.9 2.2 2.9
Income before extraordinary item. 5.8 2.8 3.1 2.4 3.1
Extraordinary item (loss)........ (14.3) -- -- -- --
Net income (loss)................ (8.5) 2.8 3.1 2.4 3.1
Depreciation and amortization.... 6.6 5.6 7.2 7.5 7.0
EBITDA........................... 20.9 17.6 20.8 20.3 21.2
</TABLE>
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 our 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.
Nine Months Ended March 31, 2000 Compared to Nine Months Ended April 2, 1999
Net sales increased to $351.2 million for the nine months ended March 31,
2000 from $331.8 million for the nine months ended April 2, 1999. This
represents an increase of $19.4 million or 5.8%. The increase was due primarily
to the acquisition of Tri-Seal in January 1999 and Natvar in April 1999, and
growth in the Consumer, Healthcare and Food business segments. The increase
from these factors was partially offset by actions related to the restructuring
of acquired operations such as the elimination in fiscal 2000 of low-margin
sales in certain acquired businesses.
Cost of sales increased to $256.7 million for the nine months ended March
31, 2000 from $242.2 million for the nine months ended April 2, 1999. Expressed
as a percentage of net sales, cost of sales was stable at 73.1% for the nine
months ended March 31, 2000 versus 73.0% for the first nine months ended April
2, 1999. The primary cause of the increase was higher raw materials costs in
the nine months ended March 31, 2000 from the nine months ended April 2, 1999,
offset by improved operating efficiencies and price increases.
<PAGE>
Gross profit, as a result, increased to $94.5 million for the nine months
ended March 31, 2000 from $89.6 million for the nine months ended April 2,
1999. The ratio of gross profit to net sales remained stable at 26.9% of net
sales for the nine months ended March 31, 2000 compared with 27.0% for the nine
months ended April 2, 1999.
Selling, general and administrative expenses declined to $43.0 million for
the nine months ended March 31, 2000 from $44.9 million for the nine months
ended April 2, 1999. As a ratio to net sales, selling, general and
administrative expense declined to 12.2% for the nine months ended March 31,
2000 from 13.5% for the nine months ended April 2, 1999 due to higher sales for
the current period and efficiencies realized from integration of the Tri-Seal
and Natvar operations.
Operating profit increased to $51.5 million or 14.7% of net sales for the
nine months ended March 31, 2000 from $44.7 million or 13.5% of net sales for
the nine months ended April 2, 1999 for the reasons discussed above.
Interest expense increased to $29.7 million or 8.5% of net sales for the
nine months ended March 31, 2000 from $28.9 million or 8.7% of net sales for
the same period in the prior year due primarily to an increase in the revolving
line of credit incurred to acquire Tri-Seal and Natvar and to higher interest
rates.
Provision for income taxes increased to $10.3 million or 2.9% of net sales
for the nine months ended March 31, 2000 from $7.3 million or 2.2% of net sales
for the same period in the prior year. Our effective tax rate was 48.9% for the
nine months ended March 31, 2000 compared to 48.0% for the same period in the
prior year.
Net income increased to $10.8 million or 3.1% of net sales for the nine
months ended March 31, 2000 from $7.9 million or 2.4% of net sales for the same
period in the prior year for the reasons discussed above.
Depreciation and amortization remained relatively constant at $24.5
million for the nine months ended March 31, 2000 versus $25.0 million for the
nine months ended April 2, 1999. Expressed as a percentage of net sales,
depreciation and amortization decreased to 7.0% for the nine months ended March
31, 2000 from 7.5% for the same period in 1999. The decrease in depreciation
and amortization as a percentage of net sales was due to the increase in sales.
EBITDA increased to $74.3 million or 21.2% of net sales for the nine
months ended March 31, 2000 from $67.5 million or 20.3% of net sales for the
same period in 1999 for the same reasons discussed above.
Year Ended July 2, 1999 Compared to Year Ended July 3, 1998
Net sales for the year ended July 2, 1999 were $489.2 million, a 58.0%
increase over net sales of $309.6 million for the year ended July 3, 1998. The
increase was due primarily to our acquisition of PureTec in March 1998, and, to
a lesser extent, our acquisition of Tri-Seal in January 1999 and Natvar in
April 1999. The year-over-year change related to the impact of these
acquisitions amounted to $184.4 million. This increase was partially offset by
the elimination in fiscal 1999 of certain low-margin sales related to the
restructuring of acquired operations.
Cost of sales increased to $358.3 million for the year ended July 2, 1999,
of which the acquired operations discussed above accounted for $121.3 million
of such increase, from $232.5 million for the same period in 1998. Expressed as
a percentage of net sales, cost of sales improved to 73.2% for the year ended
July 2, 1999 from 75.1% for the same period in 1998. The decline in cost of
sales as a percentage of net sales was due primarily to increased operating
efficiencies with our purchase of PureTec and lower raw materials costs.
Gross profit, as a result, increased to $130.9 million or 26.8% of net
sales for the year ended July 2, 1999, from $77.1 million or 24.9% of net sales
for the same period in 1998.
Selling, general and administrative expenses increased to $62.5 million or
12.8% of net sales for the year ended July 2, 1999, from $39.2 million or 12.7%
of net sales for the same period in 1998. Selling, general and administrative
expenses increased in proportion to net sales because of acquired operations
and related compensation increases.
<PAGE>
Income from operations increased to $68.4 million or 14.0% of net sales
for the year ended July 2, 1999, from $37.9 million or 12.2% of net sales for
the same period in 1998, for the reasons stated above.
Interest expense increased to $39.0 million or 8.0% of net sales for the
year ended July 2, 1999, from $19.7 million or 6.4% of net sales for the same
period in 1998 due primarily to an issuance of new bonds and additional
borrowings under our amended credit facilities to acquire PureTec. We also
borrowed under our revolving line of credit in fiscal 1999 to fund the
purchases of Tri-Seal and Natvar.
Provision for income taxes increased to $14.2 million or 2.9% of net sales
for the year ended July 2, 1999, from $9.1 million or 2.9% of net sales for the
same period in 1998. Our effective tax rate was 48.5% for the year ended July
2, 1999 compared to 51.2% for the same period in 1998. The decrease was
primarily the result of the use of tax carryover credits.
Net income increased to $15.0 million or 3.1% of net sales for the year
ended July 2, 1999 from $8.7 million or 2.8% of net sales for the same period
in 1998, for the reasons discussed above.
Depreciation and Amortization increased to $35.3 million for the year
ended July 2, 1999 from $17.2 million for the year ended July 3, 1998.
Expressed as a percentage of net sales, depreciation and amortization increased
to 7.2% for the year ended July 2, 1999 from 5.6% for the same period in 1998.
The increase in depreciation and amortization as a percentage of net sales was
due to the effect of the full year of the PureTec acquisition and the
acquisitions of Natvar and Tri-Seal during 1999.
EBITDA increased to $101.7 million or 20.8% of net sales for the year
ended July 2, 1999 from $54.5 million or 17.6% of net sales or the same period
in 1998, for the same reasons discussed above.
Year Ended July 3, 1998 Compared to Year Ended June 27, 1997
Net sales increased to $309.6 million for the year ended July 3, 1998,
representing an increase of $164.9 million or 114.0% over net sales of $144.7
million for the year ended June 27, 1997. The increase in net sales was
primarily attributable to our acquisition of PureTec in March 1998, which
amounted to $154.1 million, and to a lesser extent the increased demand for our
healthcare packaging products.
Cost of sales increased to $232.5 million for the fiscal year 1998, of
which PureTec operations accounted for $118.4 million of the increase, from
$107.0 million for the fiscal year 1997. Expressed as a percentage of net
sales, cost of goods sold increased to 75.1% for the fiscal year 1998 from
73.9% for the fiscal year 1997. The increase in cost of goods sold as a
percentage of net sales was due primarily to the different sales mix associated
with the purchase of PureTec.
Gross profit, as a result, increased to $77.1 million or 24.9% of net
sales in fiscal year 1998 from $37.7 million or 26.1% of net sales in fiscal
year 1997.
Selling, general and administrative expenses increased to $39.2 million or
12.7% of net sales for the fiscal year 1998 from $15.9 million or 11.0% of net
sales for the fiscal year 1997. Selling, general and administrative expenses
increased as a percentage of net sales due primarily to our acquisition of
PureTec and related compensation increases, as well as increased administrative
costs and higher selling expenses associated with the global expansion of our
healthcare packaging products.
Income from operations increased to $37.9 million or 12.2% of net sales in
fiscal year 1998 from $21.8 million or 15.1% of net sales for the same period
in 1997, for the reasons stated above.
Interest expense increased to $19.7 million or 6.4% of net sales in fiscal
year 1998, from $8.1 million or 5.6% of net sales in fiscal year 1997 due
primarily to an issuance of new bonds and notes to acquire PureTec.
<PAGE>
Provision for income taxes increased to $9.1 million or 2.9% of net sales
for the fiscal year 1998, from $4.7 million or 3.2% for the same period in
1997. Our effective tax rate was 51% for the fiscal year 1998 compared to 36%
for the same period in 1997. The increase between periods is due primarily to
non-deductible amortization.
Net income increased to $8.7 million or 2.8% of net sales in fiscal year
1998 from $8.4 million or 5.8% of net sales in fiscal year 1997, for the
reasons discussed above.
Depreciation and Amortization increased to $17.2 million for the year
ended July 3, 1998 from $9.6 million for the year ended June 27, 1997.
Expressed as a percentage of net sales, depreciation and amortization decreased
to 5.6% for the year ended July 3, 1998 from 6.6% for the same period in 1997.
The decrease in depreciation and amortization as a percentage of net sales was
due to the acquisition of PureTec offset by the increase in net sales.
EBITDA increased to $54.5 million or 17.6% of net sales for the year ended
July 3, 1998, from $30.2 million or 20.9% of net sales for the same period in
1997 for the same reasons discussed above.
Liquidity and Capital Resources
For the nine months ended March 31, 2000, net cash used by operating
activities was $20.6 million compared to $11.1 million for the same period in
the prior year for an increased usage of $9.4 million. The increase was due to
higher inventories in Consumer Packaging and Products to accommodate a higher
sales level in that business segment, and a reduction in accrued expenses and
liabilities. Various year-over-year changes in operating assets, accrued
expenses, and liabilities are generally due to offsetting timing differences.
Working capital at March 31, 2000 was $148.8 million compared to $101.4
million at July 2, 1999. The increase was due primarily to normal seasonal
inventory requirements in Consumer Packaging and Products and to support an
increased level of sales in that business segment. Approximately 75% of the
annual sales in garden hose, is the largest business unit in that segment,
normally occur in the spring and early summer months.
As of March 31, 2000, we had an outstanding balance of $54.0 million under
the $90.0 million revolving credit line of the existing credit facility. This
was an increase of $32.0 million from the outstanding balance as of July 2,
1999, and was due primarily to normal seasonal requirements of our Consumer
Packaging and Products business segment.
The aggregate amount of funds required to be paid by us for the
recapitalization was $684.7 million. The financing for the recapitalization was
provided by the offering of the old notes, the new credit facility and the
equity contribution to us by Tekni-Plex Partners. See "Recapitalization--
Recapitalization Sources and Use of Funds" for a more detailed description of
the sources and uses for funds in connection with the recapitalization.
In April 1997, we issued $75.0 million aggregate principal amount of
11 1/4% notes, and in February 1998, we issued $200.0 million aggregate
principal amount of 9 1/4% notes. As part of the recapitalization, we purchased
all of the outstanding 9 1/4% notes and 99.97% of the outstanding principal
amount of the 11 1/4% notes.
In addition, as part of the recapitalization, we entered into a new credit
facility consisting of a $100.0 million A term loan maturing in 2006, a $244.0
million B term loan maturing in 2008 and a $100.0 million revolving credit
facility maturing in 2006. The new revolving credit facility replaced our $90.0
million existing revolving credit facility. As of March 31, 2000 and July 2,
1999, there were outstanding balances of $54.0 million and $22.0 million,
respectively, under the existing credit facility. Borrowings under the term
loan will be subject to annual amortization, payable in quarterly installments.
As of June 16, 2000, there was $82 million undrawn and available under the
new revolving credit facility to fund ongoing general corporate and working
capital requirements. In addition, as part of the recapitalization, our new
equity investors agreed to contribute to Tekni-Plex Partners $269.6 million in
the aggregate, of which $167 million has been contributed and used to purchase
the interests of certain previous Tekni-Plex investors. Tekni-Plex Management,
the managing member of Tekni-Plex Partners, may for at least five years call
upon the remainder of the commitment, $102.6 million, for our future use for
general corporate purposes, including acquisitions.
<PAGE>
Apart from acquisitions, our principal uses of cash will be debt service,
capital expenditures and working capital requirements. Our capital expenditures
for the nine months ended March 31, 2000 and April 2, 1999 were $11.2 million
and $10.0 million, respectively. We expect that annual capital expenditures
will increase somewhat from historical levels during the next few years as we
make improvements in the recently acquired operations.
Management believes that cash generated from operations plus funds from
the new credit facility will be sufficient to meet our expected debt service
requirements, planned capital expenditures and operating needs. However, we
cannot assure you that sufficient funds will be available from operations or
borrowings under the new credit facility to meet our anticipated cash needs. To
the extent we pursue future acquisitions, we may be required to obtain
additional financing. We cannot assure you that we will be able to obtain such
financing in amounts and on terms acceptable to us. The terms of the notes and
the new credit facility each include various covenants that limit our ability
to incur additional debt.
New Accounting Pronouncements
In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued. SFAS 133, as amended by SFAS 137, is effective for our
2001 fiscal year. SFAS 133 does not apply to us since we do not currently have
hedging activities.
Effects of Inflation
During fiscal year 2000, we have contended with rising raw material
prices. We believe we have generally been able to offset the effects thereof
through continuing improvements in operating efficiencies and by increasing
prices to our customers to the extent permitted by competitive factors.
However, we cannot assure you that such cost increases can be passed through to
our customers in the future or that the effects can be offset by further
improvements in operating efficiencies.
<PAGE>
Business
Overview
We are a global, diversified manufacturer of packaging products and
materials for the healthcare, consumer and food packaging industries. We have
built a leadership position in our core markets and focus on vertically
integrated production of highly specialized products. Our operations are
aligned under four primary business groups: Healthcare Packaging, Products and
Materials; Consumer Packaging and Products; Food Packaging; and Specialty
Resins and Compounds. Our end market and product line diversity has the effect
of reducing our overall risk related to any single product or customer.
Company History
We were founded as a Delaware corporation in 1967 to acquire the General
Felt Products division of Standard Packaging Corporation. At that time, we were
located in Brooklyn, New York, where we produced laminated closure (cap) liners
primarily for the pharmaceutical and food industries. Over the years, we have
built a reputation for solving difficult packaging problems and providing
customers with high quality, advanced packaging materials. In 1970, we 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 our current headquarters.
In March 1994, Tekni-Plex was acquired by Dr. F. Patrick Smith and MST/TP
Partners, our controlling shareholder before the recapitalization. Dr. Smith
was elected Chief Executive Officer. In April 1994, Kenneth W.R. Baker was
appointed Chief Operating Officer. At that time, our principal product lines
consisted of clear, high-barrier laminations for pharmaceutical blister
packaging (which we refer to as clear blister packaging); closure liners,
primarily for pharmaceutical end-uses; and foam processor trays primarily for
the poultry industry.
In December 1995, Tekni-Plex acquired the Flemington, New Jersey, plant
and business of Hargro Flexible Packaging Corporation. The Flemington plant
utilizes lamination and coating technology to produce packaging materials
primarily for pharmaceutical products such as transdermal patches, sutures,
iodine and alcohol swabs, aspirin and other physician samples. We relocated the
Brooklyn equipment, personnel and business into the Flemington facility during
1996. The synergistic result of having complementary technologies in one
location created a combined operation with considerably higher efficiencies and
lower costs than the sum of the stand-alone operations.
In February 1996, we expanded our food packaging business by completing
our acquisition of Dolco Packaging Corp., a publicly-traded $81 million foam
products company that was nearly twice the size of Tekni-Plex at the time.
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. The Dolco acquisition also solidified our position as a leading
supplier of foam processor trays. In August 1997, Dolco, which was then a
wholly owned subsidiary of Tekni-Plex, was merged into Tekni-Plex.
In July 1997, we acquired the business and operating facility of PurePlast
Inc. of Cambridge, Ontario, Canada. PurePlast produced calendered polyvinyl
chloride (vinyl) sheet primarily for food and electronics packaging
applications. Following the acquisition, we developed proprietary formulations
of vinyl sheet for vertical integration into our clear blister packaging
business and for sale directly to our global pharmaceutical customers.
In March 1998, we acquired PureTec Corporation, a publicly-traded company
with annual sales of $315 million. PureTec is a leading manufacturer of plastic
packaging, products and materials primarily for the healthcare and consumer
markets. PureTec enjoys leading market positions in its core products,
including garden and irrigation hose, precision tubing and gaskets primarily
for the packaging industry, vinyl medical tubing, and vinyl compounds for the
production of medical devices. PureTec is a wholly-owned subsidiary of
Tekni-Plex.
<PAGE>
In January 1999, we acquired substantially all the assets of Tri-Seal, a
leader in sophisticated extruded and co-extruded capliners and seals. The
Tri-Seal operations have been integrated with our closure liner business.
In April 1999, we acquired substantially all the assets of Natvar, a
producer of disposable medical tubing. As with Tri-Seal, the Natvar acquisition
was intended to strengthen our existing core business lines and expand product
offerings. The Natvar operation has been integrated into our medical tubing
business.
Competitive Strengths
We believe that our competitive strengths include:
o Strong customer relationships. We have long-standing relationships
with many of our customers. We estimate the average tenure among our
ten largest customers at more than 16 years. We attribute our
long-term customer relationships to our ability consistently to
manufacture high quality products and to provide a superior level of
customer service. We routinely win customer awards for our superior
products and customer service and have recently been recognized for
supplier excellence by 3M Pharmaceuticals, Pfizer, Eli Lilly, Boston
Scientific, Kraft Foods and Perdue Farms, among others.
o Strong market positions in core businesses. We have a strong market
presence in our core product lines. The following table shows what we
believe to be our market position in the U.S. in each core product
line:
Product Market Position
------- ---------------
Medical device materials................... 1
Vinyl medical tubing....................... 1
Clear, high barrier blister packaging...... 1
Closure liners............................. 1
Garden and irrigation hose................. 1
Precision tubing and gaskets............... 1
Foam egg cartons........................... 1
Foam processor trays....................... 2
o Experienced management team. Our management team has been successful
in selecting and integrating strategic acquisitions as well as
improving underlying business fundamentals. After significantly
improving the business of Tekni-Plex following our 1994 acquisition,
management successfully integrated both the Flemington and Dolco
operations during 1996, the latter being a public company then nearly
twice our size. During the same period, the Brooklyn and Flemington
operations were also successfully merged. In 1997, we acquired and
integrated the PurePlast operations. In 1998 we acquired PureTec, a
public company then more than twice our size. In 1999, we acquired
and integrated the assets and business of Tri-Seal and Natvar.
Management has substantially improved the operating margins of each
of these acquisitions. Members of our management team 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.
o Cost efficient producer. We continually focus on improving underlying
operations and reducing costs. Since the 1994 acquisition, current
management has improved our cost structure from an EBITDA margin of
8.5% with EBITDA of $3.8 million on sales of $44.9 million for the 12
months ended December 31, 1993 to an EBITDA margin of 21.2% with
EBITDA of $107.7 million on sales of $508.6 million for the trailing
12 months ended March 31, 2000. Our six acquisitions in the last four
years have provided significant opportunities to realize cost savings
and synergies in the combined businesses through the sharing of
complementary technologies and manufacturing techniques, as well as
economies of scale including the purchase of raw materials.
<PAGE>
o Producer of high quality, technically sophisticated products. We
believe, based upon our knowledge and experience in the industry,
that we have a long-standing reputation as a manufacturer of high
quality, high performance products, materials and primary packaging
(where the packaging material comes into direct contact with the end
product). Our emphasis on quality is evidenced by our product lines
which address the more technically sophisticated areas of their
respective markets.
o Strong equity sponsorship. As a result of the recapitalization, we
have obtained a strong equity commitment from investors. As part of
the recapitalization, new investors agreed to contribute $269.6
million in the aggregate to Tekni-Plex Partners, of which $167
million has been contributed and used to redeem the interests of
certain previous Tekni-Plex investors. The remainder ($102.6 million)
will remain available for at least five years after the
recapitalization to be used for our general corporate purposes,
including acquisitions. We believe that these equity commitments will
provide us with significant flexibility to take advantage of business
opportunities as they arise. In connection with the recapitalization,
all members of our current management maintained their entire equity
investment, which had an implied aggregate value of approximately $96
million.
Business Strategy
We seek to maximize our profitability and growth and take advantage of our
competitive strengths by pursuing the following business strategy:
o Ongoing cost reduction through technical process improvement. We have
an ongoing program to improve manufacturing and other processes in
order to drive down costs. Examples of cost improvement programs
include:
o material and energy conservation through enhanced process
controls and advanced product design;
o reduction in machine set-up time through the use of proprietary
technology;
o continual product line rationalization; and
o development of backward and forward integration opportunities.
o Internal growth through product line extension and improvement. We
continually seek to improve and extend our product lines and leverage
our existing technological capabilities in order to increase market
share in existing markets, effectively penetrate new markets and
improve profitability. Our strategy is to emphasize our expertise in
providing packaging, products and materials with specific high
performance characteristics through the development of various unique
proprietary materials and proprietary manufacturing process
techniques.
o Growth through international expansion. We believe that there is
significant opportunity to expand our international sales, which
currently represent approximately 9% of our total revenues. At
present, we have manufacturing operations in Canada, the United
Kingdom, Belgium and Italy. We have recently added regional sales
offices in Belgium, Germany and Singapore to our existing offices in
Canada, Italy and the United Kingdom, and plan to open a South
American sales and distribution facility in Argentina in the fourth
quarter of this year. We have also recently entered into
manufacturing liaisons in Italy and Germany which supplement our
existing liaisons in Switzerland and the Philippines. In addition, we
have recently added sales representatives in Peru and throughout
Central America to our existing representatives in Australia, China
(including Hong Kong), Italy, Malaysia, Singapore, Thailand, Taiwan,
South Africa, Argentina, Chile, Brazil and Mexico. We also have a
licensee in Japan. We believe that our growing international presence
will generate an increase in our sales.
<PAGE>
o Growth through acquisitions. We will continue to pursue acquisitions
selectively when the opportunity arises. Our objective is to pursue
acquisitions that provide us with the opportunity to gain economies
of scale and reduce costs through, among other things, technology
sharing and synergistic cost reduction.
Products
Healthcare Packaging, Products and Materials
The Healthcare Packaging, Products and Materials segment of our business
had revenues of $154 million (30% of total revenues) for the 12 months ended
March 31, 2000.
Pharmaceutical Packaging
Our pharmaceutical packaging product line includes flexible, semi-rigid,
and rigid packaging films, coated films, co-extrusions, and laminations.
We believe that we are the market leader in the U.S. for clear,
high-barrier blister packaging. These packaging materials are used for
fast-acting pharmaceuticals that are generally highly reactive to moisture.
High-barrier blister packaging is primarily used to protect 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 clear blisters, as opposed to opaque foil-based
materials manufactured by various competitors, include the ability to inspect
visually the contents of the blister and to present the product with maximum
confidence.
We believe the flexible and semi-rigid packaging segment of the
pharmaceutical packaging industry is growing at a faster rate than the
non-plastics segments because of the generally lower package cost and broader
range of functional characteristics of plastic packaging. As a result, 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 products.
Our clear blister packaging is sold to major pharmaceutical companies (or
their designated contract packagers). We market our full pharmaceutical product
line directly on a worldwide basis and have assembled a global network of sales
and marketing personnel on six continents.
In the clear blister packaging market, we have two principal competitors
worldwide with resources equal to or greater than ours. However, we believe
that neither of these competitors has the breadth of product offering to match
ours and that this differentiation is significant as viewed by the
pharmaceutical industry. Also, the high manufacturing and audit compliance
standards imposed by the pharmaceutical companies on their suppliers provide a
significant barrier to the entry of new competitors. Entry barriers also arise
due to the stringent approval process required by pharmaceutical companies.
Since approval requires that the drug be tested while packaged in the same
packaging materials intended for commercial use, changing materials after
approval risks renewed scrutiny by the FDA. The packaging materials for
pharmaceutical applications also require special documentation of material
sources and uses within the manufacturing process as well as heightened quality
assurance measures.
Closure Liners
Tekni-Plex is also the leading producer of sophisticated extruded,
co-extruded and laminated cap-liners and seals, known as closure liners, for
glass and plastic bottles. 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 product
efficacy.
We sell these products through our direct sales force primarily to
packagers of pharmaceutical, healthcare and food products. We have two
principal competitors in North America but also compete with several smaller
companies having substantially smaller market shares. However, as a result of
the Tri-Seal acquisition, we believe that we offer the widest range of liner
materials in the industry. We remain competitive by focusing on product quality
and performance and prompt delivery.
<PAGE>
Medical Tubing
We are the leading non-captive supplier of vinyl medical tubing in North
America and Europe. We specialize in high-quality, close tolerance tubing for
various surgical procedures and related medical applications. These
applications include intravenous ("IV") therapy, hemodialysis therapy,
cardio-vascular procedures such as coronary bypass surgery, suction and
aspiration products, and urinary drainage and catheter products. New medical
tubing products we have developed include microbore tubing and silicone
substitute formulations. Microbore tubing can be used to regulate the delivery
of critical intravenous fluids without the need for more expensive drip control
devices. Medical professionals can precisely control the drug delivery speed
simply by selecting the proper (color-coded) diameter tube, thereby improving
accuracy and reducing cost. More importantly, as home healthcare trends
continue, the use of microbore tubing will help eliminate critical dosage
errors on the part of the non-professional caregiver or the patient.
Medical tubing is sold primarily to manufacturers of medical devices that
are packaged specifically for such procedures and applications. These products
are sold through direct salespeople. We remain competitive by focusing on
product quality and performance and prompt delivery.
We manufacture medical tubing using proprietary plastic extrusion
processes. The primary raw materials are proprietary compounds, which we
produce. As a result of the Natvar acquisition, we believe that we are the
largest third-party supplier of disposable medical tubing in North America.
Medical Device Materials
We believe that we are the leading non-captive producer of high quality
vinyl compounds for use in the medical industry. Our chemists work closely with
customers to develop compounds that address their specific requirements.
Through this custom work, we have introduced a number of breakthroughs to the
medical device industry by developing formulations with unique physical
characteristics. For example, we have recently developed a new family of
flexible vinyl compounds designed to replace silicone rubber in a variety of
medical tubing and commercial applications.
These medical-grade materials are sold to leading manufacturers of medical
devices and equipment. They are also sold to producers of tubing and, to some
extent, to producers of closures for the food and beverage industry. We sell
these compounds in worldwide markets directly through our salespeople.
The market for medical-grade vinyl compounds is highly specialized, and we
have two smaller, but significant competitors. For more than 30 years, we have
been supplying these specialized vinyl compounds for FDA-regulated
applications. We believe that we compete effectively based on product quality,
performance and prompt delivery.
Consumer Packaging and Products
The Consumer Packaging and Products segment of our business had revenues
of $192 million (38% of total revenues) for the 12 months ended March 31, 2000.
Precision Tubing and Gaskets
Our precision tubing and gaskets product lines consist of products we sell
primarily to manufacturers of aerosol valves, dispenser pumps and writing
instruments. Sales to the aerosol valve and dispenser pump industries consist
primarily of dip tubes, which transmit the contents of a dispenser can to the
nozzle, and specialized molded or punched rubber-based valve gaskets that serve
to control the release of the product from the container. Writing instrument
products include pen barrels and ink tubing as well as ink reservoirs for
felt-tip pens.
<PAGE>
The precision tubing products are manufactured at extremely high speeds
while holding to precise tolerances. The process enhancements that allow
simultaneous high speed and precision are proprietary to us. The precision
gasket products, which we have manufactured for over 50 years, are produced
using proprietary formulations. These formulations are designed to provide
consistent functional performance throughout the entire shelf life of the
product by incorporating chemical resistance characteristics appropriate to the
fluid being packaged. For example, we have developed unique formulations that
virtually eliminate contamination of the products packaged in spray dispensers.
This has greatly expanded the use of these dispensers for personal hygiene
products, foods and fragrances. We have also developed proprietary methods for
achieving extremely accurate thickness control, superior surface finish and the
elimination of internal imperfections prevalent in other processing methods.
Precision tubing products are sold throughout the United States and
Europe, as well as selected worldwide markets. Sales are made through our
direct sales force. We believe that we are the leading precision tubing
extruder in North America and the leading supplier of aerosol valve and
dispenser pump gaskets worldwide.
We are the single-source supplier to much of the industry. The principal
competitive pressure in the precision tubing product line is the possibility of
customers switching to internal production, or vertical integration. To
counteract this possibility, we focus on product quality, cost reduction,
prompt delivery, technical service and innovation.
Garden and Irrigation Hose Products
We believe that we are the leading producer of garden hose in the United
States. We have produced garden hose products for 50 years, and produce its
primary components internally, including proprietary material formulations and
brass couplings. Innovations have included the patented Colorite(R) Evenflow(R)
design and ultra high quality product lines that utilize medical-grade
plastics. We also manufacture specialty hose products such as air hose and
irrigator "soaker hose."
We sell these products primarily through our direct salespeople and also
through independent representatives. Both private label and brand-name products
are sold to the retail market, primarily to home centers, hardware
cooperatives, food, automotive, drug and mass merchandising chains and catalog
companies throughout the United States and Canada. Our customers include some
of the fastest growing and the most widely respected retail chains in North
America. Our market strategy is to provide a complete line of innovative,
high-quality products along with superior customer service.
The garden hose business is highly seasonal, with approximately 75% of
sales occurring in the spring and early summer months. This seasonality tends
to have an impact on our financial results from quarter to quarter.
Food Packaging
The Food Packaging segment of our business had revenues of $104 million
(21% of total revenues) for the 12 months ended March 31, 2000.
The Food Packaging group produces primarily thermoformed foam polystyrene
packaging products such as egg cartons and processor trays for the poultry and
meat industries. We believe that we are the leading manufacturer of foam egg
cartons in the United States. We are also a leading supplier of processor trays
to the poultry industry.
Thermoformed foam 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. We sell these products through
our direct sales force.
Within the polystyrene foam processor tray market, we compete principally
with two large competitors, both of which have significantly greater financial
resources than ours and who, together, control the largest share of this
market. In the egg packaging market, our primary competitor manufactures
pulp-based egg cartons. We believe that we compete effectively based on product
quality and performance and prompt delivery. Our customer base includes most of
the domestic egg packagers (including those owned by egg retailers) and many
prominent poultry processors.
<PAGE>
Speciality Resins and Compounds
The Specialty Resins and Compounds segment of our business had revenues of
$58 million (11% of total revenues) for the 12 months ended March 31, 2000.
Tekni-Plex manufactures specialty vinyl resins, with an annual production
capacity of approximately 100 million pounds. We employ specialized technology
to produce dispersion, blending, and copolymer suspension resins for use by
suppliers to a variety of industries, including floor covering, automotive
sealants, medical products and adhesives, coil coatings, plastisol compounding
and vinyl packaging.
We sell these products through our direct sales force as well as through
independent sales representatives. We compete with a number of large chemical
companies offering a greater breadth of products. However, we believe that we
are building a relatively unique position in the specialty resins market by
offering customized products for niche markets that the larger commodity
producers do not serve. We provide individual customer service and the highest
standards of quality.
Sales, Marketing and Customers
Excluding customer service representatives, as of March 31, 2000, we had a
total of 56 direct sales and marketing personnel covering both our domestic and
international businesses. There were also 153 commissioned independent sales
representatives (not direct employees of Tekni-Plex) providing additional
coverage.
We estimate the average tenure among our ten largest customers at more
than 16 years. Overall customer concentration is low with the largest single
customer, Wal-Mart, accounting for less than 11% of total sales and the top ten
customers generating less than 33% of sales for the 12 months ended March 31,
2000.
Manufacturing
As of March 31, 2000 we had 32 strategically located manufacturing
facilities throughout North America and Europe, totaling over 3,000,000 square
feet of floor space. In addition, we are in the process of expanding several of
our facilities for a total addition of over 60,000 square feet.
We utilize many proprietary material formulations throughout our
operations. These formulations provide superior processing and end-product
performance characteristics, giving us a competitive edge across many of our
businesses. Typically, these proprietary material formulations are protected by
trade secret, as opposed to patents which, we believe would be a less effective
approach to maintaining our competitive edge.
We utilize many proprietary, highly efficient manufacturing processes,
developed by our own process engineering staffs throughout our operations.
These processes allow us to make products with superior dimensional tolerances
at higher speeds with lower waste factors than our competitors.
Our various business units share technological information regarding
process and material formulation improvements routinely, and actively seek new
synergistic applications for newly developed technologies throughout our
company.
<PAGE>
Raw Materials
We purchase raw materials from several sources that differ for each
product line. We use commodity petrochemicals, primarily polyvinyl chloride,
polystyrene, vinyl chloride monomer, polypropylene and polyethylene. All of
these materials are widely available from numerous sources and we currently
purchase them from multiple suppliers. This diversity of raw material
suppliers, as well as the availability of alternative suppliers, has the effect
of reducing our overall risk related to any one supplier. The single exception
is Aclar(R), a key raw material used in manufacturing our clear blister
packaging materials. We currently have a long-term supply contract for Aclar(R)
with Honeywell, the sole manufacturer and supplier of Aclar(R). To the extent
that our supply of this raw material is hindered, we would substitute
alternative materials. There has never been a significant disruption of the
supply of this material in our 32 years of manufacturing this product line.
In the past we have generally been able to pass on raw materials cost
increases to customers on a relatively timely basis. The exception has been
garden hose products, the prices for which are typically set annually in
advance of each season. To the extent that raw material costs increase more
than anticipated, these additional costs generally cannot be passed on during
that season.
Intellectual Property
We primarily rely on confidentiality agreements contained in our
employment applications and the restriction of access to our plants and
confidential information to safeguard our proprietary technology. Although we
also file and register patents and trademarks, we do not believe that any of
our patents or trademarks is material to our operations.
Facilities
We believe that our facilities are suitable and have sufficient productive
capacity for our current and foreseeable operational and administrative needs.
Set forth below is a list and brief description of our manufacturing
facilities, all of which are owned unless otherwise indicated. We are currently
expanding several of our facilities. This expansion will increase the size of
our existing facilities by an aggregate of over 60,000 square feet.
<TABLE>
<CAPTION>
Size
(Approx.
Location Function Square Feet)
-------------------------------------------- --------------------------------------------- -------------
<S> <C> <C>
Somerville, New Jersey...................... Corporate Headquarters; Manufactures food
and healthcare packaging 123,000
Auburn, Maine(6)............................ Speciality resins 24,000
Belfast, Northern Ireland................... Healthcare materials 55,000
Blauvelt, New York(9)....................... Healthcare packaging 56,400
Burlington, New Jersey...................... Specialty resins 107,000
Cambridge, Ontario.......................... Healthcare packaging 25,000
City of Industry, California(6)............. Healthcare products 110,000
Clayton, North Carolina..................... Healthcare products 76,000
Clinton, Illinois........................... Consumer packaging 62,500
Dallas, Texas(8)............................ Food packaging 139,000
Dalton, Georgia............................. Healthcare products 40,000
Decatur, Indiana............................ Food packaging 187,000
Decatur, Indiana(1)......................... Warehouse 3,750
East Farmingdale, New York(3)............... Specialty resins 50,000
Erembodegem (Aalst), Belgium................ Consumer packaging and healthcare products 88,200
Flemington, New Jersey...................... Healthcare packaging 145,000
Lakewood, Colorado(2)....................... Healthcare products 17,300
Lawrenceville, Georgia...................... Food packaging 150,000
Lawrenceville, Georgia(1)................... Warehouse 31,700
Livonia, Michigan(2)........................ Specialty resins 60,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Size
(Approx.
Location Function Square Feet)
-------------------------------------------- --------------------------------------------- -------------
<S> <C> <C>
McKenzie, Tennessee......................... Consumer products 40,200
Milan (Gaggiano), Italy(8).................. Consumer packaging 14,100
Milan (Gaggiano), Italy..................... Consumer packaging 25,800
Milan (Rosate), Italy(4).................... Consumer packaging 24,000
Mississauga, Ontario(7)..................... Consumer products 100,000
Piscataway, New Jersey(4)................... Compounds 178,000
Ridgefield, New Jersey...................... Consumer products and healthcare materials 328,000
Ridgefield, New Jersey(4)................... Warehouse 70,000
Rockaway, New Jersey........................ Consumer packaging 98,600
Schaumburg, Illinois(10).................... Consumer packaging 58,000
Schiller Park, Illinois..................... Consumer packaging 20,000
Sparks, Nevada(4)........................... Consumer products and healthcare materials 248,000
Tonawanda, New York(5)...................... Consumer products 32,000
Waco, Texas................................. Consumer products 104,600
Wenatchee, Washington....................... Food packaging 97,000
Wenatchee, Washington(5).................... Warehouse 26,200
</TABLE>
----------
(Years relate to calendar years)
(1) Leased on a month-to-month basis.
(2) Lease expires in 2000.
(3) Lease expires in 2001.
(4) Lease expires in 2002.
(5) Lease expires in 2003.
(6) Lease expires in 2004.
(7) Lease expires in 2005.
(8) Lease expires in 2006.
(9) Lease expires in 2008.
(10) Lease expires in 2019.
Employees
As of March 31, 2000, we employed approximately 2,900 full-time employees.
Approximately 29% are represented by various collective bargaining agreements
that expire between July 31, 2000 and September 30, 2002. Of these, 311
employees at one of our facilities are represented by an agreement that expires
July 31, 2000. We have commenced renegotiation of this agreement and do not
anticipate any difficulties with extending it.
Legal Proceedings and Environmental Matters
We are regularly involved in legal proceedings arising in the ordinary
course of business, none of which are currently expected to have a material
adverse effect on our businesses, financial condition or results of operations.
Like similar companies, our facilities, operations and properties are
subject to foreign, federal, state, provincial 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. We
maintain a primary commitment to employee health and safety, and environmental
responsibility. Our intention and policy are to be at all times a responsible
corporate citizen.
<PAGE>
Our management includes a Director of Environmental Affairs who is
responsible for compliance with all foreign, federal, state and local laws and
regulations relating to the environment, and health and safety. This director
performs internal auditing procedures and provides direction to all local
facility managers in the compliance areas. The Director of Environmental
Affairs and our President direct outside environmental counsel and outside
environmental consulting firms to ensure that regulations are properly
interpreted and reporting requirements are met.
We are also subject to environmental laws requiring the investigation and
cleanup of environmental contamination. Currently we are remediating
contamination resulting from past industrial activity at three of our New
Jersey facilities which we acquired from PureTec in 1998. This remediation is
being conducted pursuant to the requirements of New Jersey's Industrial Site
Recovery Act which were triggered by the 1998 PureTec transaction. We believe
that any costs ultimately borne by us in connection with this remediation would
not be material.
Although we believe 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 our business, financial
condition or results of operations, it is possible that we could incur
significant fines, penalties, capital costs or other liabilities associated
with any confirmed noncompliance or remediation of contamination or natural
resource damage liability at or related to any of our current or former
facilities, the precise nature of which we cannot now predict. Furthermore, we
cannot assure you that future environmental laws or regulations will not
require substantial expenditures by us or significant modifications of our
operations.
General
Our executive offices are located at 201 Industrial Parkway, Somerville,
New Jersey 08876 and our telephone number is (908) 722-4800.
<PAGE>
Management
Our current directors and executive officers are listed in the table
below. Each director is elected at the annual meeting of our stockholders 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 our by-laws, we indemnify our officers and
directors to the fullest extent permitted by the General Corporation Law of the
State of Delaware and our certificate of incorporation.
The board of directors is composed of six directors. A nominating
committee composed of Dr. Smith and Mr. Cronin designated two directors, Dr.
Smith designated three members of management as directors (Dr. Smith, Mr. Baker
and Mr. Witt and the last director was designated by Mr. Cronin. Directors may
only be removed for cause or at the request of the person entitled to designate
that director.
<TABLE>
Name Age Position
---- --- ----------------------------------------------------------------
<S> <C> <C>
Dr. F. Patrick Smith............ 52 Chairman of the Board and Chief Executive Officer
Kenneth W.R. Baker.............. 55 President, Chief Operating Officer and Principal Accounting and
Financial Officer
Arthur P. Witt.................. 71 Corporate Secretary and Director
John S. Geer.................... 55 Director
J. Andrew McWethy............... 59 Director
Michael F. Cronin............... 46 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
the managing member of Tekni-Plex Management, which is the controlling member
of both Tekni-Plex Partners and MST/TP Partners.
Kenneth W.R. Baker has served as Tekni-Plex's Chief Operating Officer
since April 1994 and as President since July 1995. Mr. Baker served in various
management roles including systems development, finance, industrial
engineering, research and development, and manufacturing operations at
Owens-Illinois, Inc. and Lily-Tulip, Inc. from 1965 to 1985. From 1986 to 1987,
he served as Vice President, Operations at Fort Howard Cup Corporation. 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 Tekni-Plex. Mr. Baker is a member of Tekni-Plex
Partners and Tekni-Plex Management.
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
member of Tekni-Plex Partners.
<PAGE>
John S. Geer has served as a director of Tekni-Plex since June 2000. He is
a partner of Mellon Ventures, Inc., having joined Mellon in 1997. Previously,
Mr. Geer was senior vice president of Security Pacific Capital Corp. He has
served on 20 boards of directors of emerging growth and middle market companies.
J. Andrew McWethy has served as a director of Tekni-Plex since March 1994.
He is a co-founder of MST Partners and MST Offshore Partners, C.V., 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 12 years.
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. Mr. Cronin is a general partner of Weston Presidio
Capital, which is a member of Tekni-Plex Partners.
Compensation of Directors
We reimburse directors for any reasonable out-of-pocket expenses incurred
by them in connection with services provided in such capacity. In addition,
each director is paid an annual fee of $50,000.
Compensation of Executive Officers
The following table sets forth the remuneration paid by us to the Chief
Executive Officer and our next most highly compensated executive officer whose
salary and bonus exceeded $100,000 for the years indicated in connection with
his position with us.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Stock Options
Fiscal ---------------------- (in Common Other Annual
Name & Principal Position Year Salary Bonus Shares) Compensation(a)
------------------------------------- ------ ---------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Dr. F. Patrick Smith................. 1999 $1,200,000 $8,981,000 -- 42,000
Chairman of the Board and 1998 770,577 5,072,134 9.15041 150,283
Chief Executive Officer 1997 490,385 1,921,291 -- 15,417
Mr. Kenneth W.R. Baker............... 1999 $600,000 $4,490,000 -- 9,000
President, Chief Operating Officer 1998 385,289 2,536,062 13.72562 6,315
and Principal Accounting and 1997 260,096 960,643 -- 32,136
Financial Officer
</TABLE>
----------
(a) Amount reimbursed during the fiscal year for payment of taxes and certain
perquisites.
In connection with the recapitalization, the employment agreements of Dr.
Smith and Mr. Baker were amended and restated as described below.
Employment Agreements
As part of the recapitalization, Dr. Smith and Mr. Baker entered into
amended and restated employment agreements that expire June 28, 2002 and
contain renewal provisions.
Each employment agreement provides that the executive may be terminated by
us for cause or upon the death or disability of the executive. Each of Dr.
Smith and Mr. Baker is entitled to severance benefits if he is terminated due
to death or disability. The employment agreements also contain certain
non-compete provisions.
<PAGE>
The annual salaries of Dr. Smith and Mr. Baker are $5 million and $2.5
million, respectively, and each of these salaries will be increased by 10%
annually. Neither Dr. Smith's nor Mr. Baker's amended and restated employment
agreement provides for any mandatory bonus compensation. No other provisions of
Dr. Smith's and Mr. Baker's employment agreements changed materially.
Compensation Committee
The board of directors maintains a three-member compensation committee
comprised of Dr. Smith, Mr. Witt and Mr. Cronin. The compensation committee's
duties include the annual review and approval of the compensation for each of
our Chief Executive Officer and President, as well as the administration of our
stock incentive plan. No member of the compensation committee is allowed to
vote on issues pertaining to that member's compensation (including option
grants). The board may also delegate additional duties to the compensation
committee in the future.
Compensation Committee Interlocks and Insider Participation
Mr. Witt, who is also our corporate secretary, serves as a member of the
compensation committee of our board of directors. In addition, as our Chief
Executive Officer, Dr. Smith participates in deliberations concerning the
compensation of the Chief Operating Officer (but not the compensation for
himself or Mr. Witt).
<PAGE>
Security Ownership
Tekni-Plex Partners holds approximately 95.6% (approximately 93.0% on a
fully diluted basis) and MST/TP Partners holds approximately 4.4%
(approximately 4.2% on a fully diluted basis) of Tekni-Plex's outstanding
common stock.
Tekni-Plex Management, controlled by Dr. Smith, is the sole managing
member of both Tekni-Plex Partners and MST/TP Partners, and is entitled to
receive the first 20% of profits from each of these companies regardless of its
capital contribution to each. Dr. Smith and Messrs. Baker and Witt are members
of Tekni-Plex Partners and MST/TP Partners.
In connection with the recapitalization, Dr. Smith and Messrs. Baker and
Witt acquired a class of membership interest in Tekni-Plex Partners entitling
them to receive a priority capital account allocation in the aggregate equal to
the first $20.4 million of profits of Tekni-Plex Partners.
<PAGE>
Governance of Tekni-Plex
Tekni-Plex Management is the sole managing member of Tekni-Plex Partners.
As the sole managing member, Tekni-Plex Management has the power and authority
to conduct the affairs of Tekni-Plex Partners without requiring the consent or
vote of any other member (except as described below). Tekni-Plex Management is
the only member with the power and authority to act on behalf of or to bind
Tekni-Plex Partners, unless Tekni-Plex Management expressly grants another
member the authority to do so. Tekni-Plex Management, as sole managing member,
has the authority to approve any merger or consolidation of Tekni-Plex Partners
without the approval or consent of any other member. Tekni-Plex Management will
delegate the right to approve or disapprove any transaction between Tekni-Plex
(or any of its subsidiaries) and Tekni-Plex Management (or any of its
affiliates) to the disinterested directors on the Tekni-Plex board.
Substantially similar arrangements exist with respect to Tekni-Plex
Management's control of MST/TP Partners.
Tekni-Plex Partners owns approximately 95.6% and MST/TP Partners owns
approximately 4.4% of the outstanding common stock of Tekni-Plex. Tekni-Plex
Management, which is controlled by Dr. F. Patrick Smith, our Chairman of the
Board and Chief Executive Officer, is the sole managing member of both
Tekni-Plex Partners and MST/TP Partners and as a result controls both
Tekni-Plex Partners and MST/TP Partners. Therefore Tekni-Plex Management also
controls Tekni-Plex. Dr. Smith also owns approximately 30% of Tekni-Plex
Partners (not including the priority allocation discussed in the section
entitled "Security Ownership").
Pursuant to the amended and restated Tekni-Plex Partners limited liability
company agreement and the MST/TP Partners limited liability company agreement,
if there is a change of governance of Tekni-Plex (as described below), then
Tekni-Plex Management must obtain the prior written approval of the members
holding a majority interest in Tekni-Plex Partners or MST/TP Partners, as the
case may be, in order to:
o cause Tekni-Plex Partners or MST/TP Partners, as the case may be, to
vote for the directors proposed for election to our board;
o issue or enter into an agreement to issue any Tekni-Plex common
stock, other than that permitted by the employee stock incentive
plan;
o declare or pay dividends or other distributions on Tekni-Plex common
stock or repurchase Tekni-Plex common or preferred stock, other than
redemptions under the employee stock incentive plan;
o permit us or any of our subsidiaries to make any loans except to
Tekni-Plex or a subsidiary;
o permit us or any of our subsidiaries to make any loans to any
employee, except in the ordinary course of business;
o make any guarantees for the benefit of any person except in the
ordinary course of business;
o mortgage, pledge or create a security interest in all or
substantially all of our or any of our subsidiaries' property;
o merge or consolidate with, or sell or dispose of all or substantially
all of our assets to, any entity; or
o make any amendment to our Certificate of Incorporation or bylaws or
file any resolution of our or Tekni-Plex Partners' or MST/TP
Partners', as the case may be, board of directors with the Secretary
of State of the State of Delaware.
The amended and restated Tekni-Plex Partners limited liability company
agreement and the MST/TP Partners limited liability company agreement provide
that the following events are considered changes of governance:
<PAGE>
o if we default in the performance or breach of any material covenant
in the investors agreement, any of the credit facilities or the
indenture relating to the notes and the default or breach continues
for 60 consecutive days after the members holding a majority interest
in Tekni-Plex Partners or MST/TP Partners, as the case may be, give
us written notice of the default or breach;
o an involuntary bankruptcy case or other insolvency proceeding is
commenced against us and remains undismissed for a period of 60 days
or an order for relief is entered against us under federal bankruptcy
laws;
o a voluntary bankruptcy case or other insolvency proceeding is
commenced by us, we consent to the appointment of a receiver or
liquidator for all or substantially all of our assets or we effect
any general assignment for the benefit of our creditors;
o Dr. Smith is not employed as our Chief Executive Officer because of
death, disability or voluntary resignation, unless within six months
we appoint a replacement Chief Executive Officer acceptable to the
members holding a majority interest in Tekni-Plex Partners; or
o We have cumulative negative cash flow (adjusted for positive cash
flow) from operating activities (and not redemptions or other
extraordinary activities) in excess of 25% of the value of our equity
today.
<PAGE>
Certain Transactions
Investors' Agreement
MST/TP Partners and Tekni-Plex Partners are parties to an investors'
agreement that provides as follows:
o Board of Directors. The board of directors is composed of six
directors. A nominating committee composed of Dr. Smith and Mr.
Cronin has the right to designate two directors, Dr. Smith has the
right to designate three members of management as directors and the
last director is designated by Mr. Cronin. Each stockholder of
Tekni-Plex has agreed to vote its shares of common stock for these
designees. Each director is paid an annual fee of $50,000. Directors
may only be removed for cause or at the request of the person
entitled to designate that director. The board of directors must
maintain a compensation committee and an audit committee. All actions
of the board require the affirmative vote of at least a majority of
the directors present; a quorum of the board consists of four
directors. If either Dr. Smith or Mr. Cronin ceases to own at least
20% of the outstanding Tekni-Plex common stock and to be actively
involved in the management of Tekni-Plex, he will lose his right to
designate directors and to participate on the nominating committee.
o Employment Agreements. We may not further amend the employment
agreements with Dr. Smith or Mr. Baker unless a majority of the board
of directors (including at least one director not designated by Dr.
Smith) determines that the amendment is desirable for Tekni-Plex.
This restriction shall terminate at any time Dr. Smith is entitled to
designate two-thirds or more of the directors pursuant to the
investors' agreement.
o Capital Contributions. In connection with any capital contribution by
Tekni-Plex Partners to Tekni-Plex, Tekni-Plex Partners will receive a
number of shares of Tekni-Plex common stock equal to the amount of
its capital contribution divided by an amount equal to:
o the enterprise value of Tekni-Plex on the date the shares are
issued to Tekni-Plex Partners; minus
o Tekni-Plex's funded debt as of such date; plus
o cash held by Tekni-Plex, outstanding loans to Tekni-Plex
shareholders and aggregate option exercise prices for all
options on Tekni-Plex stock outstanding on such date; divided by
o the aggregate number of shares (on a fully diluted basis) issued
by Tekni-Plex before such date.
o Transfer Restrictions. A stockholder may only transfer its common
stock to third parties with the approval of Tekni-Plex Management or,
after an initial public offering, to its members as a distribution in
kind with the approval of Tekni-Plex Management.
o Registration Rights. Beginning nine months after an initial public
offering of our stock, stockholders holding 51% of our common stock
may require us to file a registration statement registering at least
51% of their common stock with the SEC. We refer to this as a demand
registration. We are only required to file two completed demand
registration statements and only one in any 12-month period.
Stockholders also have rights to be included in three other
registrations of our common stock. We may delay or withdraw a
registration if we determine that the registration would be
significantly disadvantageous to us. In the event of a withdrawal, we
must file a new registration statement within 120 days of the
withdrawal. Stockholders will also agree not to sell their common
stock during a period of seven days prior to and up to 180 days in
the case of the initial public offering and 90 days in the event of
any other public offering after the effectiveness of a registration
statement. The registration rights provisions of the investors'
agreement will terminate when we have satisfied our demand
registration and incidental registration obligations.
<PAGE>
o Purchase Right. Stockholders will have the right of first offer on
all newly issued common stock or securities convertible into common
stock (other than stock issued pursuant to an employee benefit plan,
an acquisition by Tekni-Plex, a capital contribution by Tekni-Plex
Partners or the conversion of securities for which the right of first
offer has already been extended). If the stockholders do not purchase
100% of the securities to be issued, however, we may sell the entire
new issuance to one or more third parties.
o Termination. Except for the registration rights provisions, the
transfer restrictions on the common stock, certain miscellaneous
provisions and as otherwise noted above, the provisions of the
investors' agreement will terminate upon an initial public offering
of our common stock.
Consulting Arrangements
We have a management consulting agreement with MST Management Company.
Pursuant to this agreement, MST Management Company provides us with regular and
customary management consulting services. The terms of the agreement require us
to pay a monthly management fee to MST Management Company for a period of ten
years from March 18, 1994 with certain renewal provisions. In connection with
the recapitalization, we purchased the common stock of MST Management Company,
which is now our subsidiary. Accordingly, we will evaluate whether to terminate
or maintain this agreement in the future.
We also have an arrangement with Arthur P. Witt, one of our directors and
our corporate secretary, under which Mr. Witt provides us with customary
management consulting services. Mr. Witt's compensation for consulting services
rendered on our behalf was approximately $95,000 for fiscal year 1999.
Our policy is not to enter into any significant transaction with one of
our affiliates unless a majority of the disinterested directors of the board of
directors determines that the terms of the transaction are at least as
favorable as those we could obtain in a comparable transaction made on an
arm's-length basis with unaffiliated parties. This determination is made in the
board's sole discretion.
<PAGE>
Description of Certain Indebtedness
New Credit Facility
In connection with the recapitalization, we entered into a new credit
facility pursuant to a credit agreement which consists of a $100 million A term
loan, a $244 million B term loan and $100 million revolving credit facility
(which includes a sublimit for letters of credit). Amounts borrowed under the
term loans may be used solely to finance the recapitalization and amounts
borrowed under the revolving credit facility may be used for general corporate
and working capital purposes.
Loans under the credit facility will be secured by substantially all of
our and our domestic subsidiaries' assets and will be guaranteed by each of our
domestic subsidiaries.
Loans under the new credit facility bear interest by reference to a base
rate or a reserve adjusted Eurodollar rate, at our option, in each case plus an
applicable margin, as each such term is defined in the credit agreement. The
actual interest rates applicable to borrowings under the term loans and the
revolving credit facility, as well as fees imposed for issuance of letters of
credit, are determined based upon our then existing leverage ratio as defined
in the credit agreement.
Borrowings under the A term loan will be annually amortized, payable in
quarterly installments, beginning in September 2000 and ending in June 2006,
with payments totaling $70.0 million due in the final two years. Borrowings
under the B term loan will be annually amortized, payable in quarterly
installments, beginning in September 2000 and ending in June 2008, with
approximately $229.4 million due in the final two years. The full amount
outstanding under the revolving credit facility must be paid in June 2006. In
addition, under certain circumstances, borrowings under the term loans are
subject to mandatory prepayment from the proceeds of asset sales, issuances of
debt or equity securities, out of our excess cash flow and out of proceeds of
certain insurance events.
The credit agreement imposes certain affirmative and negative duties on us
and our subsidiaries. As part of these covenants, we are required to meet
certain financial tests, including a minimum consolidated EBITDA test, a
minimum fixed charge coverage ratio and a maximum leverage ratio. We are also
restricted or limited in our ability to, among other things:
o incur and voluntarily prepay certain of our and our subsidiaries'
debt;
o grant liens on our and our subsidiaries' assets;
o undertake certain mergers, consolidations and sales/purchases of
assets;
o pay certain dividends or distributions and redeem, purchase, retire
or make other acquisition of our equity interests;
o make certain investments and acquisitions; and
o transact with our affiliates.
The credit agreement provides that certain events will constitute events
of default under the credit agreement. These events include, among other
things:
o our failure to pay when due amounts owed under the credit agreement;
o our or our subsidiaries' failure to observe or perform the covenants
set forth in the credit agreement;
<PAGE>
o the inaccuracy of the representations and warranties set forth in the
credit agreement;
o the imposition of certain judgments against us or our subsidiaries;
o our or our subsidiaries' failure to pay certain other of our or our
subsidiaries' debt;
o the acceleration of the maturity of material debt;
o the occurrence of certain bankruptcy or insolvency proceedings or
events;
o the invalidity or unenforceability of any lien or guarantee securing
our obligations under the credit agreement; and
o the occurrence of a change of control.
<PAGE>
The Exchange Offer
Purpose of the Exchange Offer
The old notes were sold by us to the initial purchaser on June 21, 2000
pursuant to a purchase agreement, dated June 15, 2000, between us and the
initial purchaser. The initial purchaser subsequently sold the old notes to
"qualified institutional buyers," as defined in Rule 144A under the Securities
Act in reliance on Rule 144A, to a limited number of institutional "accredited
investors," as defined in Rule 501 under the Securities Act, and outside the
United States in accordance with Regulation S under the Securities Act. As a
condition to the initial sale of the old notes, we and the initial purchaser
entered into the registration rights agreement. Pursuant to the registration
rights agreement, we agreed that we would:
o use our reasonable best efforts to file with the SEC within 90 days
after the closing date, which is the date we delivered the old notes
to the initial purchaser, a registration statement under the
Securities Act with respect to the new notes; and
o cause such registration statement to become effective under the
Securities Act within 180 days after the closing date and to remain
open for at least 20 business days.
We agreed to issue and exchange new notes for all old notes validly
tendered and not withdrawn before the expiration of the exchange offer. A copy
of the registration rights agreement has been filed as an exhibit to the
registration statement of which this prospectus is a part. The registration
statement is intended to satisfy certain of our obligations under the
registration rights agreement and the purchase agreement. In the event that due
to a change in current interpretations by the SEC, we are not permitted to
effect such exchange offer, or if for any other reason the exchange offer is
not consummated within 290 days after the original issue date of the old notes,
or if any holder of the old notes (other than an "affiliate" of Tekni-Plex or
the initial purchaser) is not eligible to participate in the exchange offer, or
upon the request of the initial purchaser under certain circumstances, it is
contemplated that we will instead file a shelf registration statement covering
resales by the holders of the old notes and will use our reasonable best
efforts to cause such shelf registration statement to become effective and to
keep such shelf registration statement effective for a maximum of two years
from the closing date.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all old notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time on the
expiration date.
We will issue $1,000 principal amount of new notes in exchange for each
respective $1,000 principal amount of outstanding old notes validly tendered
and not withdrawn pursuant to the exchange offer. Old notes may be tendered in
the principal amount of $1,000 and integral multiples of $1,000 in excess
thereof, provided that if fewer than all of the old notes of a holder are
tendered for exchange, the untendered principal amount of the holder's
remaining old notes must be $100,000 or any integral multiple of $1,000 in
excess thereof.
The form and terms of the new notes are substantially the same as the form
and terms of the old notes except that:
o the new notes bear a Series B designation and a different CUSIP
number from the old notes;
o the exchange will be registered under the Securities Act and,
therefore, the new notes will not bear legends restricting the
transfer thereof; and
<PAGE>
o holders of the new notes will not be entitled to any of the
registration rights of holders of old notes under the registration
rights agreement, which rights will terminate upon the consummation
of the exchange offer.
The new notes will evidence the same indebtedness as the old notes (which they
replace) and will be issued under, and be entitled to the benefits of, the
indenture, which also authorized the issuance of the old notes, such that the
new notes and the old notes will be treated as a single class of securities
under the indenture. The new notes will be fully and unconditionally
guaranteed on a senior subordinated basis by the guarantors. The form and
terms of the exchange guarantees will be substantially identical to the form
and terms of the old guarantees.
As of the date of this prospectus, $275,000,000 principal amount of old
notes are outstanding, all of which are registered in the name of Cede & Co.,
as nominee for DTC. Solely for reasons of administration, we have fixed the
close of business on o, 2000 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. There will be no fixed record date for
determining holders of the old notes entitled to participate in the exchange
offer.
Holders of the old notes do not have any appraisal or dissenters' rights
under the General Corporation Law of the State of Delaware or the indenture in
connection with the exchange offer. We intend to conduct the exchange offer in
accordance with the provisions of the registration rights agreement and the
applicable requirements of the Securities Act and the rules and regulations of
the SEC thereunder.
We shall be deemed to have accepted validly tendered old notes when, and
if, we have given oral or written notice thereof to HSBC Bank USA, the exchange
agent. The exchange agent will act as agent for the tendering holders of old
notes for the purpose of receiving the new notes from us.
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. We will pay all charges and expenses, other
than certain applicable taxes described below, in connection with the exchange
offer. See "The Exchange Offer--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "expiration date" shall mean 5:00 p.m., New York City time, on o,
2000, unless we, in our sole discretion, extend the exchange offer, in which
case the term "expiration date" shall mean the latest date and time to which
the exchange offer is extended.
If we determine to extend the exchange offer, we will, prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date:
o notify the exchange agent of any extension by oral or written notice;
and
o mail to registered holders an announcement of the extension.
We reserve the right, in our sole discretion:
o to delay accepting any old notes;
o to extend the exchange offer; or
o if, in the opinion of our counsel, the consummation of the exchange
offer would violate any applicable law, rule or regulation or any
applicable interpretation of the staff of the SEC, to terminate or
amend the exchange offer by giving oral or written notice of such
delay, extension, termination or amendment to the exchange agent. Any
such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by a press release or other
public announcement thereof.
<PAGE>
Interest on the New Notes
Interest on new notes will accrue from the last interest payment date on
which interest was paid on the old notes surrendered for them, or, if no
interest has been paid on such old notes, from June 21, 2000. We will not pay
interest on the old notes accepted for exchange. Interest will be paid on June
15 and December 15 of each year commencing December 15, 2000.
Resale of the New Notes
With respect to the new notes, based upon interpretations by the staff of
the SEC set forth in certain no-action letters issued to third parties, we
believe that a holder who exchanges old notes for new notes in the ordinary
course of business, who is not participating, does not intend to participate,
and has no arrangement or understanding with any person to participate in a
distribution of the new notes, and who is not an "affiliate" of ours within the
meaning of Rule 405 of the Securities Act, will be allowed to resell new notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the new notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act.
If any holder is an affiliate of ours or acquires new notes in the
exchange offer for the purpose of distributing or participating in the
distribution of the new notes, such holder:
o cannot rely on the position of the staff of the SEC enumerated in such
no-action letters issued to third parties; and
o 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.
Each broker-dealer that receives new notes for its own account in exchange
for old notes acquired by such broker-dealer as a result of market-making or
other trading activities must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. The letter of transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of any new
notes received in exchange for old notes acquired by such broker-dealer as a
result of market-making or other trading activities. We will make this
prospectus, as it may be amended or supplemented from time to time, available
to any such broker-dealer that requests copies of such prospectus in the letter
of transmittal for use in connection with any such resale for a period of up to
180 days after the expiration date. See "Plan of Distribution."
Procedures for Tendering
To tender in the exchange offer, a holder of old notes must either:
o complete, sign and date the letter of transmittal or facsimile
thereof, have the signatures thereon guaranteed if required by the
letter of transmittal, and mail or otherwise deliver such letter of
transmittal or such facsimile to the exchange agent; or
o if such old notes are tendered pursuant to the procedures for
book-entry transfer set forth below, a holder tendering old notes may
transmit an agent's message (as defined below) to the exchange agent
in lieu of the letter of transmittal,
in either case for receipt on or prior to the expiration date.
In addition, either:
o certificates for such old notes must be received by the exchange
agent along with the letter of transmittal;
<PAGE>
o a timely confirmation of a book-entry transfer of such old notes into
the exchange agent's account at DTC pursuant to the procedure for
book-entry transfer described below, along with the letter of
transmittal or an agent's message, as the case may be, must be
received by the exchange agent prior to the expiration date; or
o the holder must comply with the guaranteed delivery procedures
described below.
The term "agent's message" means a message, transmitted to the exchange
agent's account at DTC and received by the exchange agent and forming a part of
the book-entry confirmation, which states that such account has received an
express acknowledgment from the tendering participant that such participant has
received and agrees to be bound by the letter of transmittal and that we may
enforce the letter of transmittal against such participant. To be tendered
effectively, the letter of transmittal and other required documents, or an
agent's message in lieu thereof, 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.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between such holder and us in accordance with the
terms and subject to the conditions set forth herein and in the letter of
transmittal.
The method of delivery of old notes, the letter of transmittal and all
other required documents to the exchange agent is at the election and risk of
the holder. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service, properly insured. In all cases, sufficient
time should be allowed to assure delivery to the exchange agent before the
expiration date. Do not send the letter of transmittal or any old notes to us.
Holders may request their respective brokers, dealers, commercial banks, trust
companies or nominees to effect the above transactions for such holders.
Any beneficial owner(s) of the old notes whose old notes are held through
a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such intermediary promptly and instruct such
intermediary to tender on such beneficial owner's behalf. If such beneficial
owner wishes to tender on its own behalf, such owner must, prior to completing
and executing the letter of transmittal and delivering such owner's old notes:
o make appropriate arrangements to register ownership of the old notes
in such owner's name; or
o obtain a properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
by an eligible institution unless the old notes tendered pursuant thereto are
tendered:
o by a registered holder who has not completed the box titled "Special
Delivery Instruction" on the letter of transmittal; or
o 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 made by an "eligible guarantor institution" (within the meaning of Rule
17Ad-15 under the Exchange Act) which is a member of one of the recognized
signature guarantee programs identified in the letter of transmittal.
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
<PAGE>
registered holder exactly as such registered holder's name appears on such old
notes with the signature thereon guaranteed by an eligible guarantor
institution.
In connection with any tender of old notes in definitive certified form,
if the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may utilize DTC's Automated Tender Offer
Program to tender old notes. 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 and withdrawal of tendered old notes will be determined by
us in our sole discretion, which determination will be final and binding. We
reserve the absolute right:
o to reject any and all old notes not properly tendered and any old
notes our acceptance of which would, in the opinion of our counsel,
be unlawful; and
o to waive any defects, irregularities or conditions of tender as to
particular old notes.
Our interpretation of the terms and conditions of the exchange offer
(including the instructions in the letter of transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes must be cured within such time as we shall
determine. Although we intend to notify holders of defects or irregularities in
connection with tenders of old notes, neither we, 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.
While we have no present plan to acquire any old notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any old notes that are not tendered pursuant to the exchange offer,
we reserve the right in our sole discretion to purchase or make offers for any
old notes that remain outstanding subsequent to the expiration date and, to the
extent permitted by applicable law, purchase old notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such purchases
or offers could differ from the terms of the exchange offer.
By tendering old notes pursuant to the exchange offer, each holder of old
notes will represent to us that, among other things, that:
o the new notes to be acquired by such holder of old notes in
connection with the exchange offer are being acquired by such holder
in the ordinary course of business of such holder;
o such holder is not participating, does not intend to participate, and
has no arrangement or understanding with any person to participate in
the distribution (within the meaning of the Securities Act) of the
new notes;
o such holder acknowledges and agrees that any person who is
participating in the exchange offer for the purpose of distributing
the new notes must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a
secondary resale of the new notes acquired by such person and cannot
rely on the position of the staff of the SEC set forth in
certain no-action letters;
<PAGE>
o such holder understands that a secondary resale transaction,
described above, and any resales of new notes obtained by such holder
in exchange for old notes acquired by such holder directly from us
should be covered by an effective registration statement containing
the selling security holder information required by Item 507 or Item
508, as applicable, of Regulation S-K of the SEC; and
o such holder is not an "affiliate", as defined in Rule 405 under the
Securities Act, of ours.
If the holder is a broker-dealer that will receive new notes for such
holder's own account in exchange for old notes that were acquired as a result
of market-making activities or other trading activities, such holder will be
required to acknowledge in the letter of transmittal that such holder will
deliver a prospectus in connection with any resale of such new notes; however,
by so acknowledging and by delivering a prospectus, such holder will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
Return of Old Notes
In all cases, issuance of new notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of:
o old notes or a timely book-entry confirmation of such old notes into
the exchange agent's account at DTC; and
o a properly completed and duly executed letter of transmittal and all
other required documents, or an agent's message in lieu thereof.
If any tendered old notes are not accepted for any reason set forth in the
terms and conditions of the exchange offer or if old notes are withdrawn or are
submitted for a greater principal amount than the holders desire to exchange,
such unaccepted, withdrawn or otherwise non-exchanged old notes will be
returned without expense to the tendering holder thereof (or, in the case of
old notes tendered by book-entry transfer into the exchange agent's account at
DTC pursuant to the book-entry transfer procedures described below, such old
notes will be credited to an account maintained with DTC) as promptly as
practicable.
Book-Entry Transfer
The exchange agent will make a request to establish an account with
respect to the old notes at DTC for purposes of the exchange offer promptly
after the date of this prospectus, and any financial institution that is a
participant in DTC's systems may make book-entry delivery of old notes by
causing DTC to transfer such old notes into the exchange agent's account at DTC
in accordance with DTC's procedures for transfer. However, although delivery of
old notes may be effected through book-entry transfer at DTC, the letter of
transmittal or facsimile thereof, with any required signature guarantees and
any other required documents, or an agent's message in lieu of a letter of
transmittal, must, in any case, be transmitted to and received by the exchange
agent at the address set forth below under "--Exchange Agent" on or prior to
the expiration date or pursuant to the guaranteed delivery procedures described
below. Delivery of documents to the book-entry transfer facility does not
constitute delivery to the exchange agent.
Guaranteed Delivery Procedures
If a holder of the old notes desires to tender such old notes and the old
notes are not immediately available or the holder cannot deliver its old notes
(or complete the procedures for book-entry transfer), the letter of transmittal
or any other required documents to the exchange agent prior to the expiration
date, a holder may effect a tender if:
o the tender is made through an eligible institution;
o prior to the expiration date, the exchange agent receives from such
eligible institution (by facsimile transmission, mail or hand
delivery) a properly completed and duly executed Notice of Guaranteed
<PAGE>
Delivery substantially in the form provided by us setting forth the
name and address of the holder, the certificate number(s) of such old
notes (if applicable) 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:
(i) the letter of transmittal (or a facsimile thereof), or an
agent's message in lieu thereof,
(ii) the certificate(s) representing the old notes in proper form for
transfer or a book-entry confirmation, as the case may be, and
(iii) any other documents required by the letter of transmittal,
will be deposited by the eligible institution with the exchange
agent; and
o such properly executed letter of transmittal (or facsimile thereof),
or an agent's message in lieu thereof, as well as the certificate(s)
representing all tendered old notes in proper form for transfer or a
book-entry confirmation, as the case may be, and all other documents
required by the letter of transmittal, are received by the exchange
agent within three New York Stock Exchange trading days after the
expiration date.
Upon request to the exchange agent, a form of 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 written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to the expiration date. Any such
notice of withdrawal must:
o specify the name of the person having deposited the old notes to be
withdrawn;
o identify the old notes to be withdrawn (including the certificate
number or numbers, if applicable, and principal amount of such old
notes); and
o 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).
If old notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of DTC. All questions as to the validity,
form and eligibility (including time of receipt) of such notices will be
determined by us, in our sole discretion, which 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 new notes will be issued
with respect thereto, unless the old notes so withdrawn are validly
re-tendered. Properly withdrawn old notes may be re-tendered by following one
of the procedures described above under "--Procedures for Tendering" at any
time prior to the expiration date.
<PAGE>
Termination of Certain Rights
All registration rights under the registration rights agreement accorded
to holders of the old notes (and all rights to receive additional interest in
the event of a Registration Default as defined therein) will terminate upon
consummation of the exchange offer. However, for a period of up to 180 days
after the registration statement is declared effective, we will keep the
registration statement effective and provide copies of the latest version of
the prospectus to any broker-dealer that requests copies of such prospectus in
the letter of transmittal for use in connection with any resale by such
broker-dealer of new notes received for its own account pursuant to the
exchange offer in exchange for old notes acquired for its own account as a
result of market-making or other trading activities.
Exchange Agent
HSBC Bank USA 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:
By Registered or Certified Mail,
Overnight Courier or Hand: By Facsimile:
-------------------------------- ------------------------
HSBC Bank USA HSBC Bank USA
140 Broadway--A Level Attention: Paulette Shaw
New York, New York 10005-1180 (212) 658-6425
Attention: Paulette Shaw
Tel: (212) 658-5931
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.
HSBC Bank USA also serves as trustee under the indenture.
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, additional solicitation may be
made by telegraph, facsimile transmission, telephone or in person by our
officers and regular employees or those of our affiliates.
We have 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. We, 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 expenses to be incurred in connection with the exchange offer,
including registration fees, fees and expenses of the exchange agent and the
trustee, accounting and legal fees, and printing costs, will be paid by us.
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. If, however, a transfer tax is imposed
for any reason other than the exchange of the old notes pursuant to the
exchange offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
<PAGE>
Consequence of Failure to Exchange
Participation in the exchange offer is voluntary. Holders of the old notes
are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
Old notes that are not exchanged for the new notes pursuant to the
exchange offer will remain "restricted securities" within the meaning of Rule
144(a)(3)(iv) under the Securities Act. Accordingly, such old notes may not be
offered, sold, pledged or otherwise transferred except:
o to us (upon redemption thereof or otherwise);
o to a person whom the seller reasonably believes is a "qualified
institutional buyer" within the meaning of Rule 144A purchasing for
its own account or for the account of a qualified institutional buyer
in a transaction meeting the requirements of Rule 144A;
o in an offshore transaction complying with Rule 903 or Rule 904 of
Regulation S under the Securities Act;
o pursuant to an exemption from registration under the Securities Act
provided by Rule 144 thereunder (if available);
o pursuant to an effective registration statement under the Securities
Act; or
o pursuant to another available exemption from the registration
requirements of the Securities Act, and, in each case, in accordance
with all other applicable securities laws.
Accounting Treatment
For accounting purposes, we will recognize no gain or loss as a result of
the exchange offer. The expenses of the exchange offer will be amortized over
the term of the new notes.
Conditions
Notwithstanding any other term of the exchange offer, we shall not be
required to accept for exchange, or new 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 our sole judgment, might
materially impair our ability to proceed with the exchange offer or any
material adverse development has occurred in any existing action or
proceeding with respect to us or any of our subsidiaries;
(b) any law, statute, rule, regulation or interpretation by the staff
of the SEC is proposed, adopted or enacted, which, in our reasonable
judgment, might materially impair our ability to proceed with the exchange
offer or materially impair the contemplated benefits of the exchange offer
to us; or
(c) any governmental approval has not been obtained, which approval
we shall, in our reasonable discretion, deem necessary for the
consummation of the exchange offer as contemplated hereby.
If we determine in our reasonable discretion that any of the conditions is
not satisfied, we 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 condition(s) with
respect to the exchange offer and accept all properly tendered old notes that
have not been withdrawn.
<PAGE>
Description of the New Notes
As used below in this "Description of the New Notes" section, "we," "us,"
"our" and "ours" means Tekni-Plex, Inc. but not any of its subsidiaries. We
issued the old notes, and the new notes will be issued, under an indenture,
dated as of June 21, 2000, among the us, the guarantors and HSBC Bank USA, as
trustee. The terms of the 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 notes are subject to all such terms, and holders of the 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
are attached as exhibits to this registration statement. The statements made
under this caption relating to the notes, the indenture and the registration
rights agreement are intended to be summaries of all material elements of such
documents and, as such, do not purport to be complete and where reference is
made to particular provisions of the indenture and the registration rights
agreement, such provisions, including the definitions of certain terms
appearing at the end of this section, are qualified in their entirety by such
reference.
The terms of the new notes are identical in all material respects to the
terms of the old notes, except that the transfer restrictions, registration
rights and additional interest provisions relating to the old notes do not
apply to the new notes. The old notes and the new notes will be considered
collectively to be a single class for all purposes under the indenture,
including, without limitation, waivers and amendments.
The notes will be our general unsecured obligations. We issued $275.0
million aggregate principal amount of old notes in the initial private
placement. The indenture is not limited in amount, and additional amounts may
be issued in one or more series from time to time under the indenture subject
to the limitations on the incurrence of additional indebtedness set forth under
"Covenants--Limitation on Indebtedness" and restrictions contained in the
credit agreement. The notes are our senior subordinated obligations,
subordinated in right of payment to all our Senior Debt. The notes are 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 notes, but we 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 notes.
Principal, Maturity and Interest
The notes will mature on June 15, 2010 and will bear interest at the rate
per annum shown on the cover page hereof, except as noted under "--Registration
Rights," from the Issue Date or from the most recent interest payment date to
which interest has been paid or provided for. Interest will be payable
semiannually on June 15 and December 15 of each year, commencing December 15,
2000, to the Person in whose name a Note is registered at the close of business
on the preceding June 1 or December 1 (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. We 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 our option, in whole or in
part, at any time on or after June 15, 2005 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 prior to the date fixed for redemption), if redeemed
during the 12-month period beginning June 15 of the years indicated:
<PAGE>
Year Percentage
---------------------------------------- ----------
2005.................................... 106.375%
2006.................................... 104.250%
2007.................................... 102.125%
2008 and thereafter..................... 100.000%
In addition, prior to June 15, 2003, we may redeem up to 35% of the
principal amount of the notes with the net cash proceeds received by us from
one or more public offerings of our Capital Stock (other than Disqualified
Stock), at a redemption price (expressed as a percentage of the principal
amount) of 112.75% of the principal amount thereof, plus accrued and unpaid
interest to the date fixed for redemption; provided, however, that at least 65%
of the aggregate principal amount of the old notes originally issued pursuant
to the initial private placement remains outstanding immediately after any such
redemption (including any new notes exchanged therefor and excluding any notes
owned by us or any of our 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 benefit from 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 our Senior Debt.
Upon any payment or distribution of our assets or securities 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 Tekni-Plex,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due or to become due with respect to our Senior
Debt (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 us 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 (we refer to all such payments and distributions individually and
collectively, as a "securities payment"). Before any payment may be made by us,
or on our behalf, 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 our assets or securities 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 us or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, directly to the holders of our Senior Debt
(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 Senior Debt after giving effect to any
concurrent payment, distribution or provision therefor to or for the holders of
such Senior Debt.
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No securities payment by us or on our behalf, 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,
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 (which we refer to as 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 us or on our behalf, 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 (which we refer to as 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, (1) 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 (2) 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 (it being acknowledged that any subsequent action or any breach of any
financial covenants for a period commencing after the date of commencement of
such payment blockage period that, in either case, would give rise to an event
of default pursuant to any provision under which an event of default previously
existed or was continuing, shall constitute a new event of default for this
purpose).
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 (1), (2) or (3) of the first paragraph under "--Events of
Default."
By reason of the subordination provisions described above, in the event we
become insolvent, funds which would otherwise be payable to Holders of the
notes will be paid to the holders of our Senior Debt to the extent necessary to
repay such Senior Debt in full, and we may be unable to fully meet our
obligations with respect to the notes. Subject to the restrictions set forth in
the indenture, in the future we may incur additional Senior Debt.
At March 31, 2000, after giving pro forma effect to the Transactions,
there would have been $384.6 million of Senior Debt outstanding. However, we
could also have borrowed up to $66.4 million of Indebtedness under the credit
agreement, all of which would have constituted Senior Debt.
The Guarantees
The indenture provides that the guarantors fully and unconditionally
guarantee, jointly and severally, on a senior subordinated basis all of our
obligations under the indenture, including our obligation to pay principal,
premium, if any, and interest with respect to the notes. 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, including, without
limitation, such guarantor's guarantee of outstanding obligations under the
Credit Agreement, 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, we are not
restricted from selling or otherwise disposing of a guarantor.
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
<PAGE>
issuance or otherwise) by us or any of our Restricted Subsidiaries in a
transaction constituting an Asset Disposition, and if (1) the Net Available
Proceeds from such Asset Dispositions are used in accordance with the covenant
described under "--Covenants--Limitation on Certain Asset Dispositions" or (2)
we deliver 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 our obligations on the notes are subordinated to our Senior Debt. 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 we will not, and will not permit any of our
Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness
(including Acquired Indebtedness), except:
(1) Indebtedness of ours or of any of our Restricted Subsidiaries, if
immediately after giving effect to the Incurrence of such
Indebtedness and the receipt and application of the net proceeds
thereof, our Consolidated Cash Flow Ratio 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;
(2) Indebtedness of ours and of our Restricted Subsidiaries Incurred
under the Credit Agreement in an amount not to exceed $125.0 million
in aggregate principal amount at any time outstanding 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;
(3) Indebtedness owed by us to any of our direct or indirect Wholly Owned
Subsidiaries or Indebtedness owed by any of our direct or indirect
Restricted Subsidiaries to us or any other of our direct or indirect
Wholly Owned Subsidiaries; provided, however, upon either (a) the
transfer or other disposition by such direct or indirect Wholly Owned
Subsidiary of any Indebtedness so permitted under this clause (3) to
a Person other than us or another of our direct or indirect Wholly
Owned Subsidiaries or (b) 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 us or another such Wholly Owned
Subsidiary, the provisions of this clause (3) 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;
(4) Indebtedness of ours or of any of our Restricted Subsidiaries 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);
(5) Indebtedness Incurred to defer, renew, extend, replace, refinance or
refund, whether under any amendment, supplement or otherwise
(collectively for purposes of this clause (5) to "refund"), any
<PAGE>
Indebtedness described in clause (8) below, any Indebtedness Incurred
under clause (1) above, the notes issued on the Issue Date and the
guarantee of the notes; provided, however, that
(a) such Indebtedness does not exceed the principal amount (or
accrued 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 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
(b) (i) 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, (ii) 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 us or
any of our Restricted Subsidiaries) 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 us or any of our Restricted Subsidiaries) which is
conditioned upon a change of control of us pursuant to
provisions substantially similar to those contained in the
indenture described under "--Change of Control" below and (iii)
any Indebtedness Incurred to refund any Indebtedness is Incurred
by the obligor on the Indebtedness being refunded or by us;
provided, further, that clause (b) of the immediately preceding
proviso shall not apply to any Indebtedness incurred to refinance
term loans under the Credit Agreement outstanding on the Issue Date
or to subsequent refinancings of any such refinancing Indebtedness;
(6) commodity agreements of ours or of any of our Restricted Subsidiaries
to the extent entered into to protect us and our Restricted
Subsidiaries from fluctuations in the prices of raw materials used in
their businesses;
(7) Indebtedness of ours under the new notes and Indebtedness of the
guarantors under the guarantees incurred in accordance with the
indenture;
(8) Indebtedness issued or outstanding on the Issue Date (including (a)
Indebtedness under clause (13) below and (b) Indebtedness consisting
of term loans under the Credit Agreement outstanding on the Issue
Date and excluding (i) Indebtedness consisting of revolving loans
under the Credit Agreement outstanding on the Issue Date, (ii)
Indebtedness under the Existing Credit Agreement repaid on the Issue
Date as part of the Recapitalization and (iii) Indebtedness
represented by any 11 1/4% Notes and 9 1/4% Notes which are tendered
and accepted for payment pursuant to the Tender Offers);
(9) guarantees by us or our Restricted Subsidiaries of Indebtedness
otherwise permitted to be incurred hereunder;
(10) Indebtedness the net proceeds of which are applied to defease the
notes in their entirety;
(11) Indebtedness of ours or of any of our Subsidiaries that is an
endorsement of bank drafts and similar negotiable instruments for
collection or deposit in the ordinary course of business;
<PAGE>
(12) Indebtedness incurred by us or by any of our 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 us or any of our
Restricted Subsidiaries in the ordinary course of business not in
excess of $10.0 million at any time outstanding;
(13) Indebtedness under any 11 1/4% Notes and 9 1/4% Notes which are not
tendered pursuant to and remain outstanding following the Tender
Offers; and
(14) Indebtedness of ours or of our Restricted Subsidiaries not otherwise
permitted to be Incurred pursuant to clauses (1) through (13) above
which, together with any other outstanding Indebtedness Incurred
pursuant to this clause (14), has an aggregate principal amount not
in excess of $40.0 million at any time outstanding, which
Indebtedness may be incurred under the Credit Agreement or otherwise.
For purposes of determining compliance with this covenant, in the event
than an item of Indebtedness meets the criteria of more than one of the
categories of Indebtedness described in clauses (1) through (14) above, we
shall, in our sole discretion, classify such item of Indebtedness in any manner
that complies with this covenant and such item of Indebtedness will be treated
as having been Incurred pursuant to only one of such clauses. In addition, we
may, at any time, change the classification of an item of Indebtedness (or any
portion thereof) to any other clause; provided that we would be permitted to
Incur such item of Indebtedness (or such portion thereof) pursuant to such
other clause at such time of reclassification. Accrual of interest, accretion
or amortization of original issue discount will not be deemed to be an
Incurrence of Indebtedness for purposes of this covenant.
Limitation on Restricted Payments
The indenture provides that we will not, and will not permit any of our
Restricted Subsidiaries to, directly or indirectly,
(1) 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 our Capital Stock or that of any of our Restricted
Subsidiaries excluding any (a) dividends or distributions payable
solely in shares of our Capital Stock (other than Disqualified Stock)
or in options, warrants or other rights to acquire our Capital Stock
(other than Disqualified Stock), or (b) in the case of any of our
Restricted Subsidiaries, dividends or distributions payable to us or
to any of our Restricted Subsidiaries or to the extent payable on a
pro rata basis to all holders of Capital Stock of such Restricted
Subsidiary,
(2) purchase, redeem, or otherwise acquire or retire for value shares of
our Capital Stock or that of any of our Restricted Subsidiaries, any
options, warrants or rights to purchase or acquire shares of our
Capital Stock or that of any of our Restricted Subsidiaries or any
securities convertible or exchangeable into shares of our Capital
Stock or that of any of our Restricted Subsidiaries, excluding any
such shares of Capital Stock, options, warrants, rights or securities
which are owned by us or any of our Restricted Subsidiaries,
(3) make any Investment in (other than a Permitted Investment), or make
any payment on a guarantee of any obligation of, any Person, other
than us or any of our direct or indirect Wholly Owned Subsidiaries,
or
(4) redeem, defease, repurchase, retire or otherwise acquire or retire
for value, prior to any scheduled maturity, repayment or sinking fund
payment, Subordinated Indebtedness (each of the transactions
described in clauses (1) through (4) (other than any exception to any
such clause) being a "Restricted Payment"),
if at the time thereof:
<PAGE>
(1) a Default or an Event of Default shall have occurred and be
continuing, or
(2) upon giving effect to such Restricted Payment, we could not Incur at
least $1.00 of additional Indebtedness pursuant to the terms of the
indenture described in clause (1) 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 our cumulative Consolidated Net Income (or, in the case
our cumulative Consolidated Net Income 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 our board of directors as
evidenced by a resolution of such board of directors filed with
the trustee) from the issuance of, or equity contribution with
respect to, our Capital Stock (other than Disqualified Stock)
and warrants, rights or options on our Capital Stock (other than
Disqualified Stock) (other than in respect of any such issuance
to any of our Restricted Subsidiaries) and the principal amount
of Indebtedness of ours or of any of our Restricted Subsidiaries
that has been converted into or exchanged for our Capital Stock
which Indebtedness was Incurred after the Issue Date, plus
(c) 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 (c)
shall not be included in determining Consolidated Net Income for
purposes of clause (a) above; provided, further, that amounts
included in this clause (c) shall not exceed the Net Investment
by us in the asset so sold or disposed.
The foregoing provision will not be violated by:
(1) any dividend on any class of our Capital Stock or that of any of our
Restricted Subsidiaries paid within 60 days after the declaration
thereof if, on the date when the dividend was declared, we or such
Restricted Subsidiary, as the case may be, could have paid such
dividend in accordance with the provisions of the indenture;
(2) the renewal, extension, refunding or refinancing of any Indebtedness
otherwise permitted pursuant to the terms of the indenture described
in clause (5) of "--Limitation on Indebtedness" above;
(3) the exchange or conversion of any Indebtedness of ours or of any of
our Restricted Subsidiaries for or into our Capital Stock (other than
Disqualified Stock);
(4) 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 any of our
Restricted Subsidiaries) for cash of our Capital Stock (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;
(5) the redemption, repurchase, retirement or other acquisition of any
our Capital Stock in exchange for or out of the net cash proceeds of
a substantially concurrent sale (other than to any of our Restricted
Subsidiaries) of our Capital Stock (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;
<PAGE>
(6) payments made by us in an aggregate amount not to exceed $237.0
million to acquire shares of our Capital Stock as part of the
Recapitalization;
(7) payments made to purchase, redeem or otherwise acquire or retire for
value shares of our Capital Stock or that of any of our Restricted
Subsidiaries at no more than fair market value (determined in good
faith by our board of directors as evidenced by a resolution of such
board of directors filed with the trustee) from our present and
former employees and directors or those of any such Restricted
Subsidiary in an amount not in excess of up to $5.0 million for each
fiscal year and $15.0 million in the aggregate, in each case net of
the aggregate net cash proceeds received from such Persons after the
Issue Date from the issuance of, or equity contributions with respect
to, our Capital Stock (other than Disqualified Stock) and warrants,
rights or options on our Capital Stock (other than Disqualified
Stock);
(8) so long as no Default or Event of Default has occurred and is
continuing, the redemption, repurchase or retirement of our
Subordinated Indebtedness 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 ours that is contractually subordinated in right of
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;
(9) so long as no Default or Event of Default has occurred and is
continuing, Investments not otherwise permitted pursuant to this
covenant up to $15.0 million in the aggregate;
(10) so long as no Default or Event of Default has occurred and is
continuing, Restricted Payments not otherwise permitted pursuant to
this covenant up to $10.0 million in the aggregate;
(11) any Permitted Investment; and
(12) so long as no Default or Event of Default has occurred and is
continuing, Investments in any Person the primary business of which
is located outside the United States and is related, ancillary or
complementary to our business or that of our Restricted Subsidiaries,
provided that the aggregate amount of Investments pursuant to this
clause does not exceed $25.0 million.
Each Restricted Payment described in clauses (1) (to the extent not
already taken into account for purposes of computing the aggregate amount of
all Restricted Payments pursuant to clause (3) of the preceding paragraph),
(4), (7), (9), (10) and (12) of this paragraph 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:
(1) 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 our 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 ("net worth" to be calculated based upon the fair market
value of the assets of such Subsidiary as of any such date of
designation);
(2) 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 our 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 us and the Restricted Subsidiaries in
such Unrestricted Subsidiary ("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
<PAGE>
(3) 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 we will not, and will not permit any of our
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist any consensual encumbrance or restriction on the ability of
any of our Restricted Subsidiaries to:
(a) 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 us or any of our Restricted Subsidiaries;
(b) make loans or advances to us or any of our Restricted Subsidiaries;
or
(c) transfer any of its property or assets to us or any of our Restricted
Subsidiaries,
except for such encumbrances or restrictions existing under or
by reason of:
(1) any agreement in effect on the Issue Date as any such agreement is in
effect on such date;
(2) the Credit Agreement;
(3) any agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary prior to the date on which such Restricted
Subsidiary was acquired by us 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 of our assets or assets of our Restricted Subsidiaries
other than such Restricted Subsidiary;
(4) 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;
(5) an agreement effecting a renewal, exchange, refunding, amendment or
extension of Indebtedness Incurred pursuant to an agreement referred
to in clause (1) or (3) 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 our Board of Directors as evidenced by a
resolution of such Board of Directors filed with the trustee;
(6) the indenture;
(7) applicable law;
(8) customary provisions restricting subletting or assignment of any
lease governing any leasehold interest of any of our Restricted
Subsidiaries;
(9) 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;
(10) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the type referred to
in clause (c) of this covenant; or
<PAGE>
(11) restrictions of the type referred to in clause (c) of this covenant
contained in security agreements securing Indebtedness of any of our
Restricted Subsidiaries to the 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 we will not, and will not permit any of our
Restricted Subsidiaries to, incur any Lien on or with respect to any property
or assets of ours 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 we shall so determine, any other Indebtedness of ours 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:
(1) Liens existing on the Issue Date securing Indebtedness existing on
the Issue Date;
(2) Liens securing Senior Debt (including Liens securing Indebtedness
outstanding under the Credit Agreement) and any guarantees thereof or
Indebtedness under any interest rate hedge or exchange or other
similar agreement to the extent entered into to hedge any floating
rate Indebtedness permitted under the indenture, in each case 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 (2) if the
holder(s) of such Indebtedness or their agent or representative shall
have received a representation from us to the effect that the
Incurrence of such Indebtedness does not violate such provision;
(3) Liens securing only the notes and the guarantees;
(4) Liens in favor of us or a guarantor;
(5) 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 us 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;
(6) 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);
(7) Liens on property of a Person existing at the time such Person is
acquired or merged with or into or consolidated with us or any such
Restricted Subsidiary (and not created in anticipation or
contemplation thereof);
(8) 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 (1) through (7), (9) through (12) and (14) of
this paragraph so long as such Liens do not extend to any other
<PAGE>
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 us 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;
(9) 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;
(10) 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;
(11) 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;
(12) Liens arising pursuant to an order of attachment, distraint or
similar legal process arising in connection with legal proceedings;
(13) Liens incurred in the ordinary course of business securing assets not
having a fair market value in excess of $5.0 million; and
(14) Liens in favor of the trustee under the 11 1/4% Notes Indenture as
provided for in the 11 1/4% Notes Indenture on money or property held
or collected by such trustee in its capacity as trustee under the
11 1/4% Notes Indenture in connection with the defeasance or discharge
of the 11 1/4% notes and Liens in favor of the trustee under the
9 1/4% Notes Indenture as provided for in the 9 1/4% Notes Indenture
on money or property held or collected by such trustee in its capacity
as trustee under the 9 1/4% Notes Indenture in connection with the
defeasance or discharge of the 9 1/4% notes.
Limitation on Certain Asset Dispositions
The indenture provides that we will not, and will not permit any of our
Restricted Subsidiaries to, directly or indirectly, make one or more Asset
Dispositions unless:
(1) we or such Restricted Subsidiary, as the case may be, receive
consideration for such Asset Disposition at least equal to the fair
market value of the assets sold or disposed of as determined by our
board of directors in good faith and evidenced by a resolution of
such board of directors filed with the trustee;
(2) not less than 75% of the consideration for the disposition consists
of (a) cash or readily marketable securities or the assumption of
Indebtedness (other than non-recourse Indebtedness or any
Subordinated Indebtedness) of ours or such Restricted Subsidiary or
other obligations relating to such assets (and release of us or of
such Restricted Subsidiary from all liability on the Indebtedness or
other obligations assumed) or (b) assets which constitute or are part
of businesses which are related to our business or that of our
Restricted Subsidiaries as of the Issue Date or which assets consist
of the issued and outstanding Capital Stock of a person (which
becomes a Restricted Subsidiary as a result of the transaction) the
assets of which are principally comprised of such assets; and
(3) all Net Available Proceeds, less any amounts invested within 360 days
of such Asset Disposition in assets related to our business or that
of our Restricted Subsidiaries (including in the Capital Stock of
another Person (other than any Person that is our Restricted
Subsidiary 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 our
Restricted Subsidiary), (a) are applied, on or prior to the 360th day
<PAGE>
after such Asset Disposition, unless and to the extent that we shall
determine to make an Offer to Purchase, to the permanent reduction
and prepayment of any Senior Debt of ours or of any of our
Subsidiaries then outstanding (including a permanent reduction of
commitments in respect thereof) or (b) are committed to the
repayment, on a date no later than substantially concurrently with
the consummation of an Offer to Purchase, of any Indebtedness which
is pari passu in right of payment with the notes on a pro rata basis
with the notes.
Any Net Available Proceeds from any Asset Disposition which is subject to
the preceding paragraph that are not applied or committed as provided in the
preceding paragraph shall be used promptly after the expiration of the 360th
day after such Asset Disposition, or promptly after we shall have earlier
determined to not apply any Net Available Proceeds therefrom as provided in
clause (3) of the preceding paragraph, 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, we 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 $15.0 million (at which time, the entire
unutilized Net Available Proceeds from Asset Dispositions otherwise subject to
the two preceding paragraphs, and not just the amount in excess of $15.0
million, shall be applied as required pursuant to this covenant).
Any remaining Net Available Proceeds following the completion of the
required Offer to Purchase (and any concurrent offer to repurchase pari passu
Indebtedness) may be used by us 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 we make an Offer to Purchase the notes, we 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 we will not:
(1) 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
(2) 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 we will not, and will not permit any of our
Restricted Subsidiaries to transfer, convey, sell or otherwise dispose of any
shares of Capital Stock of any of our Restricted Subsidiaries, except:
(1) to us or to a Wholly Owned Subsidiary;
(2) issuances of director's qualifying shares or sales to foreign
nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law;
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving
<PAGE>
effect to such issuance or sale would have been permitted to be made
under the "Limitation on Restricted Payments" covenant if made on the
date of such issuance or sale; or
(4) issuances or sales of Common Stock of a Restricted Subsidiary,
provided that we apply or such Restricted Subsidiary applies the Net
Available Proceeds, if any, of any such sale in accordance with the
provisions of the "Limitation on Certain Asset Dispositions" covenant
described above.
Limitation on Transactions with Affiliates and Related Persons
The indenture provides that we will not, and will not permit any of our
Restricted Subsidiaries to, enter into directly or indirectly any transaction
with any of our respective Affiliates or Related Persons (other than us or any
of our Restricted Subsidiaries), 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 $2.0 million unless
a majority of the disinterested directors of our board of directors 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 us 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 $20.0 million we shall also obtain,
prior to the consummation of the transaction, the favorable opinion as to the
fairness of the transaction to us or such Restricted Subsidiary, from a
financial point of view from an independent financial advisor.
The provisions of this covenant shall not apply to:
(1) transactions permitted by the provisions of the indenture described
above under the caption "--Limitation on Restricted Payments" above
and
(2) reasonable fees and compensation paid to, and indemnity provided on
behalf of, our officers, directors and employees and those of our
Restricted Subsidiaries as determined in good faith by our board of
directors or our authorized executive officers, as the case may be.
Change of Control
Within 30 days following the date of the consummation of a transaction
resulting in a Change of Control, we 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:
(1) 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 (a) 50% of the voting power of our outstanding Voting Stock or
(b) 40% of the voting power of our outstanding Voting Stock and in
the case of clause (b) the Permitted Holders own less than such
Person or Group (in doing the "own less than" comparison in this
clause (b), 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); provided that in no event shall a
"Governance Change", within the meaning of the amended and restated
limited liability company agreement of Tekni-Plex Partners and the
limited liability company agreement of MST/TP Partners, in each case
<PAGE>
as in effect on the Issue Date (as described above under "Governance
of Tekni-Plex"), be deemed to be a Change of Control under the
indenture;
(2) any sale, lease or other transfer (in one transaction or a series of
related transactions) is made by us or any of our Restricted
Subsidiaries of all or substantially all of the consolidated assets
of us and our Restricted Subsidiaries to any Person;
(3) we consolidate with or merge with or into another Person or any
Person consolidates with, or merges with or into, us, in any such
event pursuant to a transaction in which immediately after the
consummation thereof Persons owning a majority of our Voting Stock
immediately prior to such consummation shall cease to own a majority
of our Voting Stock, or, if we are not the surviving entity, a
majority of the Voting Stock of such surviving entity;
(4) Continuing Directors cease to constitute at least a majority of our
board of directors; or
(5) our stockholders approve any plan or proposal for our liquidation or
dissolution.
In no event would the sale of our common stock to an underwriter or a
group of underwriters in privity of contract with us (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 our outstanding
Voting Stock 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.
The indenture acknowledges that, prior to the mailing of a notice to each
holder regarding the Offer to Purchase, but in any event within 30 days
following the date on which a Change of Control occurs, we will be obligated
under the Credit Agreement as in effect on the Issue Date to:
(1) repay in full all Indebtedness under the credit agreement (and
terminate all such commitments) or offer to repay in full all such
Indebtedness (and terminate all such commitments) and to repay the
Indebtedness owed to (and terminate the commitments of) each lender
which has accepted such offer or
(2) obtain the requisite consents under the Credit Agreement to permit
the repurchase of the notes as provided below.
We will first comply with our obligations described in the preceding
sentence before it will be required to offer to repurchase notes pursuant to
the provisions described below, provided that nothing in the preceding
paragraph or this paragraph shall eliminate our obligation to consummate an
Offer to Purchase the notes within 90 days of the consummation of a transaction
resulting in a Change of Control.
In the event that we make an Offer to Purchase the notes, we 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 our assets 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 our assets has occurred. In addition, no assurances can be given that
we will be able to acquire notes tendered upon the occurrence of a Change of
Control. Our ability 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 our future debt agreements may provide the same. If we do
not obtain such waiver or consent to repay such Indebtedness, we will remain
prohibited from repurchasing the notes. In such event, our 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
<PAGE>
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 our board of
directors or the trustee.
The foregoing provisions will not prevent us 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 us 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
our ability to obtain additional equity financing in the future.
Future guarantors
The indenture provides that we 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:
(1) 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
our obligations under the notes and the indenture on the terms set
forth in the indenture and
(2) 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 we are subject to Section 13(a) or 15(d) of the Exchange
Act, or any successor provision thereto, we shall file with the SEC the annual
reports, quarterly reports and other documents which we would have been
required to file with the SEC pursuant to such Section 13(a) or 15(d) or any
successor provision thereto if we were so required, such documents to be filed
with the SEC on or prior to the respective dates (the "Required Filing Dates")
by which we would have been required so to file such documents if we were so
required.
We shall also in any event:
(1) within 15 days of each Required Filing Date (a) transmit or cause to
be transmitted by mail to all holders of notes, as their names and
addresses appear in the Note Register, without cost to such holders,
and (b) file with the trustee, copies of the annual reports,
quarterly reports and other documents which we are required to file
with the SEC pursuant to the preceding sentence, and
(2) if, notwithstanding the preceding sentence, filing such documents by
us with the SEC is not permitted under the Exchange Act, promptly upon
written request supply copies of such documents to any prospective
holder of notes.
Mergers, Consolidations and Certain Sales of Assets
We will not consolidate or merge with or into any Person, or
sell, assign, lease, convey or otherwise dispose of (or cause or permit any of
our Restricted Subsidiaries to consolidate or merge with or into any Person or
sell, assign, lease, convey or otherwise dispose of) all or substantially all
of our assets (determined on a consolidated basis for us and our 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:
<PAGE>
(1) the entity formed by or surviving any such consolidation or merger
(if other than us or such Restricted Subsidiary, as the case may be),
or to which such sale, assignment, lease, conveyance or other
disposition shall have been made, is a corporation organized and
existing under the laws of the United States, any state thereof or
the District of Columbia;
(2) if there is a surviving entity, the surviving entity assumes by
supplemental indenture all of our obligations (or in the case a
Restricted Subsidiary is the surviving entity, the obligations of
such Restricted Subsidiary) on the notes and under the indenture;
(3) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, we or the surviving
entity, as the case may be:
(a) shall have a Consolidated Net Worth equal to or greater than our
Consolidated Net Worth immediately prior to such transaction and
(b) could Incur at least $1.00 of Indebtedness pursuant to clause
(1) of the provisions of the indenture described under
"--Limitation on Indebtedness" above;
(4) immediately before and after giving effect to such transaction and
treating any Indebtedness which becomes an obligation of ours or of
any of such Restricted Subsidiaries as a result of such transaction
as having been incurred by us 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
(5) if, as a result of any such transaction, our property or assets or
those of any of our Restricted Subsidiaries would become subject to a
Lien not excepted from the provisions of the indenture described
under "--Limitation on Liens" above, we, such Restricted Subsidiary
or the surviving entity, as the case may be, shall have secured the
notes as required by said covenant.
The provisions of the foregoing paragraph shall not apply to any merger of
any of our Restricted Subsidiaries with or into us or any of our Wholly Owned
Subsidiaries 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.
Events of Default
The following are Events of Default under the indenture:
(1) 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);
(2) 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);
(3) 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);
(4) failure to perform or comply with any of the provisions described
under "--Covenants--Mergers, Consolidations and Certain Sales of
Assets" above;
(5) failure to perform any other covenant or agreement of ours under the
indenture or the notes and the default continues for 60 days after
written notice to us by the trustee or holders of at least 25% in
aggregate principal amount of outstanding notes;
<PAGE>
(6) default under the terms of one or more instruments evidencing or
securing Indebtedness of ours or of any of our Restricted
Subsidiaries having an outstanding principal amount of $20 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;
(7) the rendering of a final judgment or judgments (not subject to
appeal) against us or any of our Restricted Subsidiaries in an amount
of $10 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;
(8) certain events of bankruptcy, insolvency or reorganization affecting
us or any of our Material Subsidiaries; and
(9) 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 us
described in clause (8) 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 (8) 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 (8) of the preceding paragraph with respect to us 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 will provide 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 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.
We 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.
<PAGE>
Satisfaction and Discharge of Indenture; Defeasance
We may terminate our 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 us on account of principal of, premium, if any, and interest on
all notes or otherwise. In addition to the foregoing, we 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 (8) 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 our substantive obligations and the substantive obligations of the
guarantors in respect of the notes and the guarantees (except for our
obligation to pay the principal of (and premium, if any, on) and the interest
on the notes and such guarantors' guarantee thereof) by:
(1) 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;
(2) 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;
(3) delivering to the trustee an Opinion of Counsel to the effect that
our exercise of our option under this paragraph will not result in
us, the trustee or the trust created by our 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
(4) complying with certain other requirements set forth in the indenture.
In addition, we 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 (8) 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 our substantive obligations and all of
the substantive obligations of the guarantors in respect of the notes and the
guarantees (including our obligation to pay the principal of (and premium, if
any, on) and interest on the notes and such guarantors' guarantee thereof by:
(1) 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;
(2) 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;
(3) delivering to the trustee an Officers' Certificate and an Opinion of
Counsel to the effect that our exercise of our option under this
paragraph will not result in us, the trustee or the trust created by
our 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
(4) complying with certain other requirements set forth in the indenture.
We 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 we have delivered to the trustee and any Paying Agent an Officers'
Certificate to that effect.
<PAGE>
Governing Law
The indenture, the notes and the guarantees are 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 us 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:
(1) 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;
(2) reduce the principal amount of (or the premium) of any Note;
(3) reduce the rate of or extend the time for payment of interest on any
Note;
(4) change the place or currency of payment of principal of (or premium)
or interest on any Note;
(5) 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);
(6) 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;
(7) waive a default in the payment of principal of, interest on, or
redemption payment with respect to, any Note (except a rescission 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);
(8) 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;
(9) release the guarantors from any of their respective obligations under
the guarantee or the indenture otherwise than in accordance with the
indenture; or
(10) 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 us 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.
<PAGE>
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 our creditor, 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 us or an Affiliate of ours; 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.
Book-Entry; Delivery and Form
The new notes will be issued in fully registered form.
The new notes will be represented by one or more fully registered global
notes and will be deposited on behalf of DTC and registered in the name of Cede
& Co., as DTC's nominee.
Upon the issuance of a global note, DTC 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 a
global note will be limited to persons who have accounts with DTC
("participants") or persons or organizations (including Euroclear and
Clearstream) who hold interests indirectly through participants. Ownership of
beneficial interests in a global note will be shown on, and the transfer of
that ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Qualified institutional buyers may hold their interests in a global note
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
Investors may hold their interests in the Regulation S global note
directly through Clearstream or Euroclear, if they are participants in such
systems, or indirectly through organizations that are participants in such
system. Investors may also hold such interests through organizations other than
Clearstream or Euroclear that are participants in DTC's system. Euroclear and
Clearstream will hold interests in the Regulation S global note on behalf of
their participants through customers' securities accounts in their respective
names on the books of their respective depositaries, which are Morgan Guaranty
Trust Company of New York, Brussels office, as operator of Euroclear, and
Citibank, N.A. as operator of Clearstream. The depositaries, in turn, will hold
interests in the Regulation S global note in customers' securities accounts in
the depositaries' names on the books of DTC.
So long as DTC, or its nominee, is the registered holder of a global note,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by such global note for all purposes under the
Indenture and the Notes. No beneficial owner of an interest in a global note
will be able to transfer that interest except in accordance with DTC's
applicable procedures and, if applicable, those of Euroclear and Clearstream
Banking.
Payments of the principal of, and interest on, the global notes will be
made to DTC or its nominee, as the case may be, as the registered owner
thereof. Neither we nor 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 notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a 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 DTC or its nominee. We also expect 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 DTC will be effected in
the ordinary way in accordance with DTC rules.
<PAGE>
Except for trades involving only Euroclear and Clearstream participants,
interests in the global notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds.
Transfers between participants will be effected in accordance with DTC's
procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Clearstream will be affected in the ordinary way
in accordance with their respective rules and operating procedures.
Cross-market transfers between the participants in DTC, on the one hand,
and Euroclear or Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear and
Clearstream, as the came may be, by their depositaries. Cross-market
transactions will require delivery of instructions to Euroclear or Clearstream,
as the case may be, by the counterparty in that system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
that system. Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositaries to take action to effect final settlement on its behalf
by delivering or receiving interests in the relevant global note, in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear and Clearstream participants may
not deliver instructions directly to the depositaries for Euroclear or
Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a global note from a
participant in DTC will be credited and reported to the relevant Euroclear or
Clearstream participant, during the securities settlement processing day (which
must be a business day for Euroclear and Clearstream) immediately following the
settlement date of DTC.
DTC has advised us that cash received in Euroclear or Clearstream as a
result of sales of interests in a global note by or through a Euroclear or
Clearstream participant to a participant in DTC will be received with value on
the settlement date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day of Euroclear or
Clearstream following DTC's settlement date. DTC has advised us that it will
take any action permitted to be taken by a holder of Notes (including the
presentation of Notes for exchange as described below) only at the direction of
one or more participants to whose accounts an interest in the global notes is
credited and only in respect of such portion of the aggregate principal amount
of Notes as to which such participant or participants has or have given such
direction. DTC has advised us as follows: DTC 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. DTC 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 DTC 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").
<PAGE>
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures in order to facilitate transfers of interests in the global notes
among participants of DTC, Euroclear and Clearstream, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither we nor the Trustee will
have any responsibility for the performance by DTC, Euroclear or Clearstream or
their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Notes
If DTC is at any time unwilling or unable to continue as a depositary for
the global notes and a successor depositary is not appointed by us within 90
days, we will issue certificated notes in exchange for the global notes which
will bear the legend referred to under the heading "Notice to Investors."
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 (1) existing at the time such Person becomes a Restricted
Subsidiary; (2) assumed in connection with the acquisition of assets from
another Person; or (3) 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.
<PAGE>
"Asset Disposition" means any sale, transfer or other disposition
(including, without limitation, by merger, consolidation or sale-and-leaseback
transaction) of:
(1) shares of Capital Stock of any of our Restricted Subsidiaries (other
than directors' qualifying shares) or
(2) our property or assets or the property or assets of any of our
Restricted Subsidiaries 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 any of our Restricted Subsidiaries
to us or to any of our Wholly Owned Subsidiaries;
(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 $5 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 our business or that of any of
our Restricted Subsidiaries;
(h) the sale, lease, conveyance or disposition or other transfer of
all or substantially all of our assets 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 (1) 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 (2) the sum of all such principal or liquidation value payments.
"Bankruptcy Code" means Title 11 of United States Code.
"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 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.
<PAGE>
"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):
(1) Consolidated Interest Expense of such Person for such period, plus
(2) Consolidated Income Tax Expense of such Person for such period, plus
(3) the consolidated depreciation and amortization expense included in
the income statement of such Person prepared in accordance with GAAP
for such period, plus
(4) 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:
(1) Consolidated Cash Flow Available for Fixed Charges of such Person for
such period, to
(2) 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 our Restricted
Subsidiaries, minus
(c) Consolidated Interest Expense of such Person to the extent
included in clause (2)(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 our Restricted
Subsidiaries since the end of such period to the extent not
included in clause (2)(a), minus
(e) Consolidated Interest Expense of such Person to the extent
included in clause (2)(a) with respect to any Indebtedness that
no longer is outstanding as a result of the Incurrence of the
Indebtedness referred to in clause (2)(d).
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.
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
<PAGE>
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:
(1) 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
(2) 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.
"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:
(1) 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;
(2) 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);
(3) non-cash gains and losses due solely to fluctuations in currency
values;
(4) 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;
(5) gains but not losses on Asset Dispositions by such Person or its
Restricted Subsidiaries;
(6) all extraordinary gains and losses determined in accordance with
GAAP; and
(7) 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.
<PAGE>
"Continuing Director" means a director who either was a member of our
Board of Directors on the Issue Date or who became one of our directors
subsequent to the Issue Date and whose election, or nomination for election by
our stockholders, was duly approved by a majority of the Continuing Directors
then on our board of directors in accordance with the Investors' Agreement or
otherwise, either by a specific vote or by approval of the proxy statement
issued by us on behalf of our entire board of directors in which such
individual is named as nominee for director.
"Credit Agreement" means the Amended and Restated Credit Agreement, dated
as of June 21, 2000, among us, 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 (1) so long as the Credit Agreement is in
effect, the Senior Debt incurred thereunder and (2) 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 our Board of Directors 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 (other than
pursuant to change of control provisions similar to those applicable to the
notes, provided that such provisions expressly provide that no payment can be
made on such stock until any Offer to Purchase required pursuant to the
provisions described under "--Change of Control" above shall have been
consummated and paid in full).
"Domestic Restricted Subsidiary" means any of our Restricted Subsidiaries
organized and existing under the laws of the United States, any state thereof
or the District of Columbia.
"11 1/4% Notes" means our 11 1/4% Senior Subordinated notes due 2007
issued pursuant to the 11 1/4% Notes Indenture.
"11 1/4% Notes Indenture" means the indenture dated as of April 1, 1997,
among us, our subsidiaries from time to time party thereto as guarantors
thereunder and Marine Midland Bank, as trustee as supplemented from time to
time.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Existing Credit Agreement" means the credit agreement, dated as of March
3, 1998, among us, as borrower thereunder, and Morgan Guaranty Trust Company of
New York, as agent on behalf of itself and the others named therein, which was
repaid and refinanced as part of the Recapitalization.
"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
pronouncements 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.
<PAGE>
"Guarantor" means (1) each Domestic Restricted Subsidiary on the Issue
Date with assets or stockholder's equity in excess of $25,000 and (2) each
Domestic Restricted Subsidiary, if any, of ours formed or acquired after the
Issue Date, which pursuant to the terms of the indenture executes a supplement
to the indenture as a guarantor.
"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 our
Restricted Subsidiary (or is merged into or consolidates with us or any of our
Restricted Subsidiaries), whether or not such Indebtedness was incurred in
connection with, or in contemplation of, such Person becoming our Restricted
Subsidiary (or being merged into or consolidated with us or any of our
Restricted Subsidiaries), shall be deemed Incurred at the time any such Person
becomes our Restricted Subsidiary or merges into or consolidates with us or any
of our 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:
(1) every obligation of such Person for money borrowed;
(2) 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;
(3) every reimbursement obligation of such Person with respect to letters
of credit, bankers' acceptances or similar facilities issued for the
account of such Person outstanding for more than 15 days;
(4) every obligation of such Person issued or assumed as the deferred
purchase price of property or services outstanding for more than 15
days (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);
(5) every Capital Lease Obligation of such Person;
(6) every net obligation under interest rate swap or similar agreements
or foreign currency hedge, exchange or similar agreements of such
Person; and
(7) every obligation of the type referred to in clauses (1) through (6)
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 of our Disqualified Stock
owned by any Person other than us or any of our Restricted Subsidiaries, and
any Preferred Stock of any of our Restricted Subsidiaries. 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 ours or of any of our Restricted Subsidiaries 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 any of our Restricted Subsidiaries.
The amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in accordance with GAAP.
"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.
<PAGE>
"Investors' Agreement" means the Investors' Agreement dated as of June 21,
2000 among Tekni-Plex, Tekni-Plex Partners, MST/TP Partners, Dr. Smith, Michael
F. Cronin and Tekni-Plex Management as in effect on the Issue Date.
"Issue Date" means the original issue date of the old 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).
"Material Subsidiary" means, at any date of determination, any Subsidiary
that, together with its Subsidiaries, (1) for our most recent fiscal year
accounted for more than 5% of our consolidated revenues or (2) as of the end of
such fiscal year, was the owner of more than 5% of our consolidated assets, all
as set forth on our most recently available consolidated financial statements
for such fiscal year prepared in conformity with GAAP.
"Moody's" means Moody's Investors Service, Inc. or any successor to its
debt rating business.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or readily marketable securities 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:
(1) 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;
(2) 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;
(3) 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;
(4) 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 (3) of the covenant of
the indenture described under "--Covenants--Limitation on Certain
Asset Dispositions"); and
(5) 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:
<PAGE>
(1) the aggregate amount of all Investments in Unrestricted Subsidiaries
or joint ventures made by us 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 our Board of Directors or such Restricted
Subsidiary) over
(2) 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 (2) above with
respect to such Investments shall not exceed the aggregate amount of all such
Investments made in such Unrestricted Subsidiary or joint venture.
"9 1/4% Notes" means our 9 1/4% Senior Subordinated notes due 2008 issued
pursuant to the 9 1/4% Notes Indenture.
"9 1/4% Notes Indenture" means the indenture dated as of March 1, 1998,
among us, our subsidiaries from time to time party thereto as guarantors
thereunder and Marine Midland Bank, as trustee as supplemented from time to
time.
"Offer to Purchase" means a written offer (the "Offer") sent by us 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. We 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 our obligation to make an Offer to Purchase, and
the Offer shall be mailed by us or, at our request, by the trustee in the name
and at our expense. The Offer shall contain all the information required by
applicable law to be included therein. The Offer shall 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 us 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 us 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 us pursuant to the Offer to Purchase will continue to accrue;
<PAGE>
(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 we or the
trustee so require, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to us 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 we (or our Paying Agent) receive, 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, we 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, we 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,
we 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:
(1) Dr. F. Patrick Smith, Kenneth W.R. Baker and (a) entities controlled
by such Persons, (b) trusts for the benefit of such individual
Persons or the spouses, issue, parents or other relatives of such
individual Persons and (c) in the event of the death of any such
individual Person, heirs or testamentary legatees of such Person; and
(2) Tekni-Plex Partners and entities controlled by such Person.
For purposes of this definition, "control," as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Permitted Investments" means:
(1) 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;
(2) 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 or "A-1" or better
by S & P or an equivalent rating or better by any other nationally
recognized securities rating agency;
<PAGE>
(3) 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 totaling more than
$500,000,000, maturing within one year of the date of purchase;
(4) Investments representing Capital Stock or obligations issued or
otherwise transferred to us or any of our 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 of our debtors or those of any of our
Restricted Subsidiaries;
(5) deposits, including interest-bearing deposits, maintained in the
ordinary course of business in banks;
(6) any Investment in any Person; provided, however, that (a) after
giving effect to any such Investment such Person shall become our
Restricted Subsidiary or (b) such Person is merged with or into, or
substantially all of such Person's assets are transferred to, us or
any of our Restricted Subsidiaries;
(7) 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;
(8) 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;
(9) any interest swap or hedging obligation with an unaffiliated Person
otherwise permitted by the indenture;
(10) 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;
(11) Investments in Restricted Subsidiaries or by virtue of which a person
becomes a Restricted Subsidiary (including under circumstances in
which equity interests in a Restricted Subsidiary are acquired from
third parties subsequent to such Person becoming a Restricted
Subsidiary pursuant to the terms of any merger or acquisition or
similar agreement in existence at the time such Person became a
Restricted Subsidiary); and
(12) loans and advances to our employees or those of any of our 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.
"Recapitalization" means the transactions contemplated to occur prior to,
on and immediately after the Issue Date by the Recapitalization Agreement dated
as of April 12, 2000 among us, Tekni-Plex Partners LLC, MST/TP Partners, L.P.
and the other parties thereto (including the exhibits thereto).
<PAGE>
"Related Person" of any Person means any other Person directly or
indirectly owning (1) 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 (2) 5% or more of the combined voting power
of the Voting Stock of such Person.
"Restricted Subsidiary" means any of our Subsidiaries other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group or any successor to its debt
rating business.
"Senior Debt" means, with respect to any Person at any date:
(1) in the case of us or a 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;
(2) 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 (3),
(4) (not including obligations issued or assumed as the deferred
purchase price of services) and (6) of the definition of
Indebtedness; and
(3) all interest on any Indebtedness referred to in clauses (1) and (2)
accruing during, or which would accrue but for, the pendency of any
bankruptcy or insolvency proceeding, whether or not allowed
thereunder.
Notwithstanding the foregoing, Senior Debt shall not include:
(1) 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;
(2) the notes;
(3) any Indebtedness of such Person to any of its Subsidiaries;
(4) 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 (4) if the holder(s) of such Indebtedness or
their agent or representative shall have received a representation
from us to the effect that the Incurrence of such Indebtedness does
not violate such provision; and
(5) any Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of the Bankruptcy Code, is without
recourse to us.
"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:
(1) 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
<PAGE>
(2) 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.
"Tender Offers" means the tender offers and consent solicitations relating
to the 11 1/4% Notes and the 9 1/4% Notes commenced May 19, 2000.
"Transactions" means the Tender Offers, the refinancing of the Existing
Credit Agreement and the execution and delivery of the Credit Agreement, the
initial private placement of the notes and the Recapitalization.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of ours 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
(2) 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.
Our board of directors may not designate any Subsidiary of ours to be an
Unrestricted Subsidiary if, after such designation:
(1) we or any other Restricted Subsidiary (a) provides credit support
for, or a guarantee of, any Indebtedness of such Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness) or (b) is directly or indirectly liable for any
Indebtedness of such Subsidiary;
(2) 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 ours or of 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
(3) 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.
<PAGE>
Certain United States Federal Income Tax Considerations
The following is a discussion of certain material United States federal
income tax considerations applicable to initial U.S. holders (as defined
below), who purchased the notes at their "issue price," that is, the first
price at which a substantial amount of the notes were sold for money to the
public (not including bond houses, brokers or similar persons or organizations
acting in the capacity of underwriters, placement agents or wholesalers). This
discussion addresses only notes held as capital assets within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (which we refer
to as the "Code"). This discussion also does not address the tax consequences
to holders who did not purchase their notes at the issue price. This discussion
does not address all of the tax consequences that may be relevant to a holder
in light of his or her particular circumstances or to holders subject to
special rules, such as certain financial institutions, broker-dealers,
insurance companies, tax-exempt organizations, U.S. expatriates, persons who
are not U.S. holders and persons who hold 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 Code, the
Treasury regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as of the date of this prospectus and all of which
are subject to change, possibly on a retroactive basis.
We use the term "U.S. holder" to mean a beneficial owner of a note that
for United States federal income tax purposes is a citizen or resident of the
United States, a corporation created or organized in or under the laws of the
United States (or any political subdivision thereof or therein), an estate the
income of which is subject to United States federal income tax regardless of
its source, and a trust if a United States court can exercise primary
supervision over the administration of the trust and one or more U.S. persons
can control all substantial decisions of the trust, or if the trust was in
existence on August 20, 1996 and has properly elected to continue to be treated
as a U.S. person. The term also includes certain former citizens or residents
of the United States.
We use the term "non-U.S. holder" to mean a beneficial owner of a note
that is, for United States federal income tax purposes, a nonresident alien
individual, a foreign corporation or a nonresident alien fiduciary of a foreign
estate or trust.
If a partnership holds notes, the tax treatment of a partner will
generally depend on the status of the partner and on the activities of the
partnership. Partners of partnerships holding notes should consult their tax
advisors.
Noteholders considering this exchange offer are urged to consult their tax
advisors with regard to the application of the United States federal income tax
laws to their particular situations as well as any tax consequences arising
under the laws of any state, local or foreign taxing jurisdiction.
Tax Consequences of the Exchange Offer
The exchange of old notes for new notes pursuant to the exchange offer
will not result in any United States federal income tax consequences to
holders. When a holder exchanges an old note for an exchange note pursuant to
the exchange offer, the holder will have the same adjusted basis and holding
period in the exchange note as in the old note immediately before the exchange.
U.S. Holders
Interest Income
The notes were not issued with "original issue discount" within the
meaning of Section 1273 of the Code (which we refer to as "OID") for federal
income tax purposes. Accordingly, a U.S. holder will recognize ordinary income
when it receives or accrues interest on the notes in accordance with such U.S.
holder's method of tax accounting.
<PAGE>
Disposition of Notes
Upon the sale, exchange or retirement of a note, the U.S. holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the disposition of the note (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
note. A U.S. holder's adjusted tax basis in a note will generally equal the
amount it paid to purchase the note, decreased by any principal it received.
Gain or loss realized on the sale, exchange or retirement of a note will be
capital gain or loss and will be long-term capital gain or loss if the notes
are held for more than one year. Prospective investors should consult their tax
advisors regarding the treatment of capital gains and losses.
Non-U.S. Holders
Interest Income
Payment on a note by us or any paying agent of ours to a non-U.S. holder
will not be subject to withholding of U.S. federal income tax, provided that,
with respect to payments of interest:
o the non-U.S. holder does not actually or constructively own 10% or
more of the combined voting power of all classes of our capital
stock;
o the non-U.S. holder is not a controlled foreign corporation related
to us through stock ownership;
o the non-U.S. holder is not a bank receiving interest on an extension
of credit pursuant to a loan agreement entered into the ordinary
course of its trade or business; and
o either the beneficial owner of the note certifies to the applicable
payer or its agent, under penalties of perjury, that is not a U.S.
person and provides its name and address on IRS Form W-8BEN (or a
suitable substitute form), or a financial institution that holds
customers' securities in the ordinary course of its trade or business
certifies under penalties of perjury that it (or a financial
institution between it and the beneficial owner) has received an IRS
Form W-8BEN from the beneficial owner and furnishes a copy of the
form to the payer.
If these requirements are not satisfied, a 30 percent withholding tax will
apply to interest payments on the notes, unless the interest is effectively
connected with a U.S. trade or business, or an applicable treaty provides for a
lower rate of, or exemption from, withholding tax and certain information is
provided on IRS Forms W-8ECI or W-8BEN (or suitable substitute forms).
Disposition of Notes
In general, a non-U.S. holder will not be subject to U.S. federal income
tax on gain realized on the sale, exchange or redemption of notes received in
exchange therefor, unless:
o the gain is effectively connected with the conduct by the non-U.S.
holder of a trade or business in the United States; or
o in the case of gain realized by an individual holder, the non-U.S.
holder is present in the United States for 183 days or more in the
taxable year of the sale and certain conditions are met.
<PAGE>
Information Reporting and Backup Withholding
U.S. Holders
Certain noncorporate U.S. holders may be subject to backup withholding at
a rate of 31% on payments of principal and interest on, and the proceeds of a
disposition of, a note. Backup withholding will apply only if the U.S. holder
(i) fails to furnish its "taxpayer identification number" which, in the case of
an individual, would be his or her Social Security Number, (ii) furnishes an
incorrect TIN, (iii) is notified by the IRS that it has failed to properly
report payments of interest or dividends or (iv) under certain circumstances,
fails to certify, under penalty of perjury, that it has furnished a correct TIN
and has not been notified by the IRS that it is subject to backup withholding.
In the case of interest paid after December 31, 2000, a U.S. holder generally
will be subject to backup withholding at a 31% rate unless certain IRS
certification procedures are complied with, directly or through an
intermediary. U.S. holders should consult their tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a U.S. holder will
be allowed as a credit against such U.S. holder's United States federal income
tax liability and may entitle such U.S. holder to a refund, provided that the
required information is furnished to the IRS.
We will be required to report annually to the IRS, and to each U.S. holder
of record (other than certain exempt holders), the amount of interest paid on
the notes (and the amount, if any, withheld) for each calendar year.
Non-U.S. Holders
In general, information reporting will apply to payments of interest
and/or premium (if any) on the notes, and backup withholding at a rate of 31
percent may apply unless the payee certifies that it is not a U.S. person or
otherwise establishes an exemption. In addition, information reporting and
backup withholding will apply to payments of principal on the notes unless the
payee certifies that it is not a U.S. person or otherwise establishes an
exemption.
Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of a note effected outside the
United States by a foreign office of a foreign "broker" (as defined in
applicable Treasury regulations), provided that such broker:
o derives less than 50 percent of its gross income for certain periods
from the conduct of a trade or business in the United States;
o is not a controlled foreign corporation for U.S. federal income tax
purposes; and
o with respect to sales effected after December 31, 2000, is not a
foreign partnership with certain connections to the United States.
Payment of the proceeds of the sale of a note effected outside the United
States by a foreign office of any other broker will not be subject to backup
withholding tax, but will be subject to information reporting requirements
unless such broker has documentary evidence in its records that the beneficial
owner is a non-U.S. holder and certain other conditions are met, or the
beneficial owner otherwise establishes an exemption. Payment of the proceeds of
a sale or other disposition of a note by the United States office of a broker
will be subject to information reporting requirements and backup withholding
tax unless the beneficial owner certifies its non-U.S. status under penalties
of perjury or otherwise establishes an exemption.
The amount of any backup withholding from a payment to a non-U.S. holder
will be allowed as a credit against such holder's U.S. federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the IRS.
<PAGE>
Plan of Distribution
Prior to the exchange offer, there has been no market for any of the new
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 old notes or the new notes.
Each participating broker-dealer that receives new notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such new notes. This prospectus, as
it may be amended or supplemented from time to time, may be used by a
participating broker-dealer in connection with resales of new notes received in
exchange for old notes where such old notes were acquired as a result of
market-making activities or other trading activities. We have agreed that for a
period of 180 days after the expiration date, we will make this prospectus, as
amended or supplemented, available to any participating broker-dealer for use
in connection with any such resale.
We will not receive any proceeds from any sales of the new notes by
participating broker-dealers. New 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 new 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 new notes. Any participating broker-dealer that resells
the new notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a participating broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
<PAGE>
Legal Matters
The validity of the notes offered hereby will be passed upon for
Tekni-Plex by Davis Polk & Wardwell, 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.
Where You Can Find More Information
We are subject to the informational requirements of the Exchange Act, and
we file periodic reports and other information with the SEC. Our obligation to
file periodic reports and other information with the SEC will be suspended if
the notes are held of record by fewer than 300 holders as of the beginning of
any fiscal year of Tekni-Plex. We have also agreed that, whether or not we are
required to do so by the rules and regulations of the SEC, for so long as any
of the notes remain outstanding, we will furnish to the noteholders and
following the consummation of the exchange offer file with the SEC (unless the
SEC will not accept such a filing):
o all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and
10-K if we were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information
only, a report thereon by our certified independent accountants and
o all reports that would be required to be filed with the SEC on
Form 8-K if we were required to file such reports.
In addition, for so long as any of the notes remain outstanding, we will
make available to any prospective purchaser of the notes or beneficial owner of
the notes in connection with any sale thereof the information required by Rule
144(d)(4) under the Securities Act. Under the indenture, we will file with the
trustee annual, quarterly and other reports within 15 days after we file such
reports with the SEC. Further, to the extent that we furnish annual,
quarterly or other financial reports to stockholders generally, we will mail
such reports to holders of notes. We will furnish annual and quarterly
financial reports to our stockholders and will mail such reports to holders of
notes pursuant to the indenture. Annual reports delivered to the trustee and
the noteholders will contain financial information that has been examined and
reported upon, with an opinion expressed by an independent public or certified
public accountant. We will also furnish such other reports as may be required
by law.
Our SEC filings are available over the Internet at the SEC's web
site at http://www.sec.gov. You may also read and copy any document we file
with the SEC at its public reference facilities:
<TABLE>
<S> <C> <C>
Public Reference Room Office New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
<PAGE>
You may also obtain copies of the documents at prescribed rates by writing
to the Public Reference section of the SEC at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549. Please call 1-800-SEC-0330 for further
information on the operations of the public reference facilities.
<PAGE>
Index to Financial Statements
Page
Tekni-Plex, Inc.
Report of Independent Certified Public Accountants F-2
Consolidated balance sheets as of July 3, 1998 and July 2, 1999 and
March 31, 2000 (unaudited) F-3
Consolidated statements of operations for the years ended June 27,
1997, July 3, 1998 and July 2, 1999 and the nine months ended
April 2, 1999 (unaudited) and March 31, 2000 (unaudited) F-4
Statements of consolidated stockholders' equity for the years ended
June 27, 1997, July 3, 1998 and July 2, 1999 and the nine months
ended March 31, 2000 (unaudited) F-6
Consolidated statements of cash flows for the years ended June 27,
1997, July 3, 1998 and July 2, 1999 and the six months ended
April 2, 1999 (unaudited) and March 31, 2000 (unaudited) F-7
Notes to consolidated financial statements F-8
F-1
<PAGE>
Independent Auditors' Report
on Supplemental Schedule
Board of Directors
Tekni-Plex, Inc.
Somerville, New Jersey
The audits referred to in our report dated July 30, 1999 relating to the
consolidated financial statements of Tekni-Plex, Inc. and its wholly owned
subsidiaries (the "Company"), which are contained in this Form 10-K, included
the audits of the financial statement schedule for the years ended July 2,
1999, July 3, 1998 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
July 30, 1999
F-2
<PAGE>
Tekni-Plex, Inc.
Consolidated Balance Sheets
<TABLE>
March 31,
July 3, 1998 July 2, 1999 2000
------------ ------------ ---------
(unaudited)
<S> <C> <C> <C>
Assets
Current:
Cash................................................................... $ 29,363 $ 22,117 $ 17,960
Accounts receivable, net of an allowance of $1,326, $1,662 and
$1,691 for possible losses........................................... 88,778 96,835 90,740
Inventories (Note 3)................................................... 57,929 63,190 102,019
Deferred income taxes (Note 6)......................................... 5,565 5,900 5,700
Prepaid expenses and other current assets.............................. 2,089 3,664 8,866
-------- -------- --------
Total current assets................................................. 183,724 191,706 225,285
Property, plant and equipment, net (Note 4)............................. 128,234 136,953 134,245
Intangible assets, net of accumulated amortization of $15,030,
$29,581 and $41,570.................................................... 193,849 206,140 197,044
Deferred financing costs, net of accumulated amortization of $1,768,
$4,287 and $6,192...................................................... 22,791 19,358 17,495
Deferred income taxes (Note 6).......................................... 7,065 1,346 1,139
Other assets............................................................ 3,616 3,933 3,945
-------- -------- --------
$539,279 $559,436 $579,153
======== ======== ========
Liabilities and Stockholders Equity
Current liabilities:
Current portion of long term debt (Note 5)............................. $ 5,147 $ 5,207 $ 6,549
Line of credit (Note 5)................................................ 307 541 375
Accounts payable trade................................................. 32,986 27,612 29,085
Accrued payroll and benefits........................................... 12,074 21,581 12,495
28 Accrued interest..................................................... 8,884 7,965 6,557
Accrued liabilities - other (Note 2)................................... 26,986 26,613 17,254
Income taxes payable................................................... 2,443 742 4,168
-------- -------- --------
Total current liabilities............................................ 98,827 90,261 76,483
Long-term debt (Note 5)................................................. 396,451 410,646 437,812
Other liabilities....................................................... 5,328 6,232 4,844
-------- -------- --------
Total liabilities.................................................... 500,606 507,139 519,139
-------- -------- --------
Commitments and contingencies (Notes 6, 7, 8 and 10)
Stockholders' equity:
Common stock, $.01 par value, authorized 20,000 shares, issued
and outstanding 848 at July 3, 1998, July 2, 1999 and March 31,
2000................................................................. - - -
Additional paid-in capital............................................. 41,075 41,075 41,075
Cumulative currency translation adjustment............................. 5 (1,368) (4,424)
Retained earnings (deficit)............................................ (2,407) 12,590 23,363
-------- -------- --------
Total stockholders' equity........................................... 38,673 52,297 60,014
-------- -------- --------
$539,279 $559,436 $579,153
======== ======== ========
</TABLE>
F-3
<PAGE>
Tekni-Plex, Inc.
Consolidated Statements of Operations
(Dollars in Thousands, Except Share Amounts)
<TABLE>
Years ended Nine months ended
------------------------------------- ------------------------
June 27, July 3, July 2, April 2, March 31,
1997 1998 1999 1999 2000
-------- -------- -------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales.................................... $144,736 $309,597 $489,237 $331,827 $351,179
Cost of sales................................ 107,007 232,499 358,293 242,178 256,682
-------- -------- -------- -------- --------
Gross profit............................ 37,729 77,098 130,944 89,649 94,497
Operating expenses:
Selling, general and administrative......... 15,886 39,220 62,534 44,925 42,994
-------- -------- -------- -------- --------
Income from operations 21,843 37,878 68,410 44,724 51,503
Other expenses:
Interest, net............................... 8,094 19,682 38,977 28,866 29,723
Other....................................... 646 415 286 661 707
-------- -------- -------- -------- --------
Income before provision for
income taxes and
extraordinary item.................... 13,103 17,781 29,147 15,197 21,073
Provision for income taxes (Note 6):
Current..................................... 3,675 7,232 7,004 7,123 9,914
Deferred.................................... 1,000 1,880 7,146 177 386
-------- -------- -------- -------- --------
Income before extraordinary
item.................................. 8,428 8,669 14,997 7,897 10,773
Extraordinary item, net of income taxes...... (20,666) - - - -
-------- -------- -------- -------- --------
Net income (loss)............................ $(12,238) $ 8,669 $ 14,997 $ 7,897 $ 10,773
======== ======== ======== ======== ========
</TABLE>
F-4
<PAGE>
Tekni-Plex, Inc.
Consolidated Statements of Comprehensive Income
(Dollars in Thousands, Except Share Amounts)
<TABLE>
Years ended Nine months ended
------------------------------------ ------------------------
June 27, July 3, July 2, April 2, March 31,
1997 1998 1999 1999 2000
-------- ------- ------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net income................................... $(12,238) $ 8,669 $14,997 $7,897 $10,773
Other comprehensive income (loss), net of
taxes:
Foreign currency.......................... - 5 (1,373) (433) (3,056)
-------- ------- ------- ------ -------
Net income (loss)............................ $(12,238) $(8,674) $13,624 $7,464 $ 7,717
======== ======= ======= ====== =======
</TABLE>
F-5
<PAGE>
Tekni-Plex, Inc.
Consolidated Statements of Stockholders' Equity
(Dollars in Thousands, Except Share Amounts)
<TABLE>
Cumulative
Additional Currency
Common Paid-In Translation Retained
Stock Capital Adjustment Earnings Total
-------- ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, June 28, 1996....................... $ - $23,000 $ - $ 1,162 $24,162
Issuance of common stock..................... - 18,473 - - 18,473
Net loss..................................... - - - (12,238) (12,238)
-------- ------- -------- -------- -------
Balance, June 27, 1997....................... - 41,473 - (11,076) 30,397
Repurchase and cancellation of shares........ - (398) - - (398)
Foreign currency translation................. - - 5 - 5
Net income................................... - - - 8,669 8,669
-------- ------- -------- -------- -------
Balance, July 3, 1998........................ - 41,075 5 (2,407) 38,673
Foreign currency translation................. - - (1,373) - (1,373)
Net income................................... - - - 14,997 14,997
-------- ------- -------- -------- -------
Balance, July 2, 1999........................ - 41,075 (1,368) 12,590 52,297
-------- ------- -------- -------- -------
Foreign currency translation - (unaudited) - - (3,056) - (3,056)
Net income (unaudited)....................... - - - 10,773 10,773
-------- ------- -------- -------- -------
Balance, March 31, 2000 (unaudited).......... $ - $41,075 $ (4,424) $ 23,363 $60,014
======== ======= ======== ======== =======
</TABLE>
F-6
<PAGE>
Tekni-Plex, Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands, Except Share Amounts)
<TABLE>
Years ended Nine months ended
----------------------------------- ------------------------
June 27, July 3, July 2, April 2, March 31,
1997 1998 1999 1999 2000
-------- --------- -------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $(12,238) $ 8,669 $ 14,997 $ 7,897 $10,773
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation..................................... 6,051 8,856 16,930 10,608 10,841
Amortization..................................... 3,500 8,393 18,413 14,358 13,694
Provision for bad debts.......................... 200 705 370 - -
Deferred income taxes............................ 1,000 1,880 7,146 177 386
Amortization of redeemable warrants.............. 556 - - - -
Extraordinary loss on extinguishment of debt..... 20,666 - - - -
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable............................ 67 (22,269) (5,709) 5,948 5,742
Inventories.................................... (360) 24,730 (4,778) (23,208) (39,403)
Prepaid expenses and other current assets...... (292) 1,918 (1,483) 2,413 (5,266)
Other assets................................... 12 534 (532) (400) (12)
Accounts payable and other current
liabilities.................................. 496 (4,335) (4,859) (27,208) (19,549)
Income taxes................................... (121) 4,262 (1,701) (1,729) 3,426
Other liabilities.............................. - (4,334) - - (1,388)
------- --------- -------- ------- -------
Net cash provided by (used in)
operating activities....................... 19,537 29,009 38,794 (11,144) (20,556)
------- --------- -------- ------- -------
Cash flows from investing activities:
Acquisitions of net assets including acquisition
costs, net of cash acquired...................... - (303,389) (45,139) (17,571) (193)
Capital expenditures............................... (3,934) (7,283) (12,950) (9,976) (11,176)
Increase in deposits............................... (2,339) - - 1,746 (336)
------- --------- -------- ------- -------
Net cash used in investing activities........ (6,273) (310,672) (58,089) (25,801) (11,705)
------- --------- -------- ------- -------
Cash flows from financing activities:
Net borrowings (repayments) under line of credit... (6,857) 7 22,234 27,440 32,000
Proceeds from long-term debt....................... 75,000 319,156 - - -
Repayments of long-term debt....................... (64,551) (787) (10,177) (7,633) (3,854)
Proceeds from capital contribution................. 18,473 - - - -
Debt financing costs............................... (5,282) (18,052) - - (42)
Redemption of capital.............................. - (398) - - -
Redemption of warrants............................. (20,000) - - - -
------- --------- -------- ------- -------
Net cash provided by (used in)
financing activities....................... (3,217) 299,926 12,057 19,807 28,104
------- --------- -------- ------- -------
Effect of exchange rate changes on cash - 5 (8) - -
------- --------- -------- ------- -------
Net (decrease) increase in cash..................... 10,047 18,268 (7,246) (17,138) (4,157)
Cash, beginning of period........................... 1,048 11,095 29,363 29,363 22,117
------- --------- -------- ------- -------
Cash, end of period................................. $11,095 $ 29,363 $ 22,117 $12,225 $17,960
======= ========= ======== ======= =======
</TABLE>
F-7
<PAGE>
Tekni-Plex, Inc.
Notes to Consolidated Financial Statements
(Information for the six months ended
April 1, 1999 and March 31, 2000 is unaudited)
(Dollars in Thousands, Except Share Amounts)
1. Summary of Accounting Policies
Nature of Business
Tekni-Plex, Inc. is a global, diversified manufacturer of packaging,
products, and materials for the healthcare, consumer, and food packaging
industries. The Company has built a leadership position in its core markets,
and focuses on vertically integrated production of highly specialized products.
The Company's operations are aligned under four primary business groups:
Healthcare Packaging, Products, and Materials; Consumer Packaging and Products;
Food Packaging; and Specialty Resins and Compounds.
Consolidation Policy
The consolidated financial statements include the financial statements of
Tekni-Plex, Inc. and its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
Interim Financial Information Note
The unaudited balance sheet as of March 31, 2000, the unaudited
consolidated statements of earnings and cash flows for the six month periods
ended March 31, 2000, and the unaudited statement of stockholders' equity for
the six month period ended March 31, 2000 have been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, all adjustments (which include normal recurring
accruals) necessary to present fairly the financial position, results of
operations and cash flows at March 31, 2000 and March 31, 2000 and for the six
month periods presented, have been included.
The results of operations for the six months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the entire fiscal
year.
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. Repairs and maintenance are charged to expense
as incurred.
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.
F-8
<PAGE>
Deferred Financing Costs
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).
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.
Revenue Recognition
The Company recognizes revenue when goods are shipped to customers. The
Company provides for returned goods and volume rebates on an estimated basis.
Cash Equivalents
The Company considers all highly liquid debt instruments with an original
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. The year ended July 3, 1998 contained 53 weeks, the years ended
July 2, 1999 and June 27, 1997 contained 52 weeks each.
Reclassifications
Certain items in the prior year financial statements have been
reclassified to conform to the current year presentation.
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.
Foreign Currency Translation
Assets and liabilities of international subsidiaries are translated at
current exchange rates and related translation adjustments are reported as a
component of stockholders' equity. Income statement accounts are translated at
the average rates during the period.
F-9
<PAGE>
Long-Lived Assets
Long-lived assets, such as goodwill and property and equipment, are
evaluated for impairment when events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When such
impairments exist, the related assets will be written down to fair value. No
impairment losses have been recorded through July 2, 1999.
Stock Based Compensation
The Company applies the provisions of SFAS No. 123, "Accounting for
Stock--Based Compensation," which allows the Company to apply APB Opinion 25
and related interpretations in accounting for its stock options and present pro
forma effects of the fair value of such options.
New Accounting Pronouncements
In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS 133, as amended by SFAS 137, is effective for the
Company's 2001 fiscal year. SFAS 133 is not applicable to the Company since the
client does not currently have hedging activities.
2. Acquisitions
On April 24, 1999, the Company purchased certain assets and assumed
certain liabilities of High Voltage Engineering Corp. - Natvar Division
("Natvar"), for approximately $26,000. The acquisition was recorded under the
purchase method and Natvar's operations have been reflected in the statement of
operations since that date. As a result of the acquisition, goodwill of
approximately $17,100 has been recorded, which is being amortized over 15
years.
On January 25, 1999, the Company purchased certain assets and assumed
certain liabilities of Tri-Seal International, Inc. ("Tri-Seal") for
approximately $21,000. The acquisition was recorded under the purchase method
and Tri-Seal's operations have been reflected in the statement of operations
since that date. As a result of the acquisition, goodwill of approximately
$13,600 has been recorded, which is being amortized over 15 years.
The following table presents the unaudited pro forma results of operations
as though the acquisition of Tri-Seal and Natvar occurred on June 28, 1997:
July 3, July 2,
Year ended 1998 1999
---------- -------- ---------
Net sales.................................... $342,910 $510,050
Income from operations....................... 38,477 70,691
Income before provision for income taxes..... 18,731 31,211
On March 3, 1998, Tekni-Plex acquired PureTec Corporation ("PureTec"), a
publicly traded company with annual sales of $315,000, for $312,000. PureTec is
a leading manufacturer of plastic packaging, products, and materials primarily
for the healthcare and consumer markets. PureTec is a wholly-owned subsidiary
of Tekni-Plex. This acquisition was financed by the issuance of $200,000 of
Senior Subordinated Debt (Note 5(a)) and $115,000 of Senior Term Debt (Note
5(c)).
F-10
<PAGE>
The acquisition was recorded under the purchase method, whereby PureTec's
net assets were recorded at their fair value and its operations have been
reflected in the statement of operations since the acquisition date. As a
result of the acquisition, goodwill of approximately $162,000 has been
recorded, which is being amortized over 15 years.
In connection with the acquisition of PureTec, a reserve of $24,000 was
established. The reserve was comprised of the costs to close or sell
incompatible and duplicate facilities, terminate employees and provide for
existing litigation. At July 2, 1999, approximately $8,400 was remaining in
this reserve, which is included in accrued expenses. The remaining reserve is
primarily to cover pre-existing litigation and lease costs of facilities to be
closed which extend for the next four years.
The following table presents the unaudited pro forma results of operations
as though the acquisition of PureTec occurred on June 28, 1997:
Year ended
July 3, 1998
------------
Net sales........................................... $507,482
Income from operations.............................. 45,858
Income before provision for income taxes............ 3,494
Pro forma adjustments were made to the related historical results to
reflect changes in interest expense and goodwill amortization.
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.
3. Inventories
Inventories are summarized as follows:
July 3, July 2, March 31,
1998 1999 2000
------- ------- --------
Raw materials......... $24,427 $26,663 $ 33,963
Work-in-process....... 5,136 5,282 7,404
Finished goods........ 28,366 31,245 60,652
------- ------- --------
$57,929 $63,190 $102,019
======= ======= ========
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
July 3, July 2, March 31, Estimated
1998 1999 2000 useful lives
------- --------- -------- ------------
Land................................. $14,764 $ 14,611 $ 15,045
Building and improvements............ 26,411 31,043 32,232 30 - 40 years
Machinery and equipment.............. 97,256 114,927 115,685 5 - 10 years
Furniture and fixtures............... 2,256 2,691 4,929 5 - 10 years
F-11
<PAGE>
July 3, July 2, March 31, Estimated
1998 1999 2000 useful lives
------- --------- -------- ------------
Construction in progress (primarily
machinery and equipment)............. 6,885 8,768 10,027
-------- -------- --------
147,572 172,040 177,918
Less: Accumulated depreciation....... 19,338 35,087 43,673
-------- -------- --------
$128,234 $136,953 $134,245
======== ======== ========
5. Long-Term Debt
Long-term debt consists of the following:
July 3, July 2, March 31,
1998 1999 2000
-------- -------- ---------
Senior Subordinated Notes issued
March 3, 1998 at 9 1/4%, due
March 1, 2008. Interest payable
semi-annually (a)......................... $200,000 $200,000 $200,000
Senior Subordinated Notes issued
April 4, 1997 at 11 1/4%, due
April 1, 2007. Interest payable
semi-annually (b)......................... 75,000 75,000 75,000
Senior Debt (c):
Revolving line of credit................... - 22,000 54,000
Term notes................................. 114,213 111,063 108,700
Other, primarily foreign term loans,
with interest rates ranging from
4 1/4% to 8.4% and maturities from
2000 to 2004.............................. 12,692 8,331 7,036
-------- -------- --------
401,905 416,394 444,736
Less: Current liabilities.................. 5,454 5,748 6,924
-------- -------- --------
$396,451 $410,646 $437,812
======== ======== ========
---------
(a) In February 1998, the Company issued $200,000 of 9 1/4%, ten year Senior
Subordinated Notes, the net proceeds of which were used in connection with
the PureTec acquisition (Note 2). Interest is payable semi-annually. The
notes are uncollateralized and rank equally to the $75,000 Senior
Subordinated Notes discussed below and will be subordinate to all current
and future senior indebtedness of the Company. The notes are callable by
the Company after March 1, 2003 at a premium of 4 5/8%, which decreases to
par after March 2006. Upon a change in control, the Company is required to
make an offer to repurchase the Notes at 101% of the principal amount.
These notes also contain various covenants including a limitation on
future indebtedness; limitation of payments, including prohibiting the
payment of dividends; and limitations on mergers, consolidations and sale
of assets.
(b) In April 1997, the Company issued $75,000 of 11 1/4% ten year notes.
Interest on the notes is payable semi-annually. These notes are
uncollateralized and rank equally with the $200,000 Senior Subordinated
Notes discussed above and will be subordinate to all current and future
senior indebtedness of the Company. The notes are callable by the Company
after April 1, 2002 at a premium which decreases to par after April 2005.
These notes also contain various covenants and change in control similar
to those provisions discussed above.
The net proceeds of these bonds along with a capital contribution of
$18,473 were used to repay the balance of $36,800 on a prior credit
facility, repay prior subordinated notes of $25,200, including a
F-12
<PAGE>
prepayment penalty of $1,200 and repurchase all outstanding redeemable
warrants for $20,000 with the balance being used for general corporate
purposes. These transactions resulted in an extraordinary loss of
approximately $20,666. The extraordinary loss was comprised of (i) the
prepayment penalty of $1,200 and the write-off of deferred financing costs
and debt discount of $3,449 net of the combined tax benefit of $1,757, and
(ii) the loss on the repurchase of the warrants of $17,773 and has been
reflected in the 1997 statements of operations.
(c) Senior Debt
The Company has a Senior Debt agreement, which includes a $90,000
revolving credit agreement, and two term loans in the aggregate amount of
$115,000. The proceeds of the term loans were used as part of the
financing for the PureTec acquisition (Note 2). These loans are senior to
all other indebtedness and are collateralized by substantially all the
assets of the Company. The debt agreement includes various covenants
including a limitation on capital expenditures and compliance with
customary financial ratios. At July 2, 1999, the Company is in compliance
with these covenants.
Revolving Credit Agreement
Borrowings under the agreement may be used for general corporate purposes
and at July 2, 1999, $68,000 is available for borrowing. Interest, at the
Company's option, is charged at the Prime Rate, plus the Applicable Base
Rate (initially 1.25%) or the Adjusted LIBOR Rate, as defined, plus the
Applicable Euro-Dollar Margin (initially 2.25%). The Applicable Base Rate
and Applicable Euro-Dollar Margin can be reduced by up to 1.25% based on
the maintenance of certain leverage ratios. At July 2, 1999, the rate
charged is 8.75%. This agreement matures on March 31, 2004.
Term Loan A
Borrowings under this loan in the amount of $50,000, were used in
connection with the acquisition of PureTec. Interest is payable quarterly
at the same rates discussed above under the Revolving Credit Agreement,
7.125% at July 2, 1999. Principal is payable $625 quarterly, increasing to
$5,000 at June 30, 2003 through the maturity date of March 31, 2004.
Term Loan B
Borrowings under this loan in the amount of $65,000, were used solely in
connection with the acquisition of PureTec. Interest is payable quarterly
at the same rate discussed above, except the Applicable Base Rate is
initially 1.75% and the Applicable Euro-Dollar Margin is initially 2.75%.
The rate at July 2, 1999 is 7.625%. In addition, the Applicable Base Rate
and Applicable Euro-Dollar Margin was reduced .5% based on the maintenance
of certain leverage ratios. Principal is payable $162.5 quarterly,
increasing to $7,150 on June 30, 2004 and to $8,125 on June 30, 2005
through the maturity date of March 31, 2006.
(d) PureTec Senior Secured Notes
In November 1993, PST, a subsidiary of PureTec, issued $125,000 11.25%
Senior Secured Notes which were to mature in 2003. In connection with the
acquisition of PureTec by the Company, $123,450 of these notes were
redeemed. The balance of these notes were redeemed during 1999.
Principal payments on long-term debt over the next five years and thereafter
are as follows:
2000................................... $5,748
2001................................... 7,021
F-13
<PAGE>
2002................................... 8,868
2003................................... 17,319
2004................................... 45,058
Thereafter............................. 332,380
--------
$416,394
========
The Company believes the recorded value of long-term debt approximates
fair value based on current rates available to the Company for similar debt.
6. Income Taxes
The provision for income taxes is summarized as follows:
<TABLE>
Years ended Nine months ended
--------------------------------- ------------------------
June 27, July 3, July 2, April 2, March 31,
1997 1998 1999 1999 2000
-------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Current:
Federal.......................... $3,425 $4,492 $ 3,604 $4,253 $ 6,399
Foreign.......................... - 1,345 2,900 2,120 2,386
State and local.................. 250 1,395 500 750 1,129
------ ------ ------- ------ -------
3,675 7,232 7,004 7,123 9,914
------ ------ ------- ------ -------
Deferred:
Federal.......................... 932 1,656 5,918 104 225
Foreign.......................... - 182 328 55 121
State and local.................. 68 42 900 18 40
------ ------ ------- ------ -------
1,000 1,880 7,146 177 386
------ ------ ------- ------ -------
Provision for income taxes........ $4,675 $9,112 $14,150 $7,300 $10,300
====== ====== ======= ====== =======
</TABLE>
The components of income before income taxes are as follows:
<TABLE>
Years ended Nine months ended
------------------------------ ----------------------
June 27, July 3, July 2, April 2, March 31,
1997 1998 1999 1999 2000
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Domestic................................................ $13,103 $14,754 $21,198 $ 9,728 $14,634
Foreign................................................. - 3,027 7,949 5,469 6,439
------- ------- ------- ------- -------
$13,013 $17,781 $29,147 $15,197 $21,073
======= ======= ======= ======= =======
</TABLE>
The provision for income taxes differs from the amounts computed by
applying the applicable Federal statutory rates due to the following:
<TABLE>
Years ended Nine months ended
----------------------------------- -----------------------
June 27, July 3, July 2, April 2, March 31,
1997 1998 1999 1999 2000
-------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Provision for Federal income taxes at statutory rate.... $4,455 $6,046 $9,910 $5,167 $7,165
</TABLE>
F-14
<PAGE>
<TABLE>
Years ended Nine months ended
----------------------------------- -----------------------
June 27, July 3, July 2, April 2, March 31,
1997 1998 1999 1999 2000
-------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
State and local income taxes, net of Federal benefit.... 165 921 330 172 773
Non-deductible goodwill amortization.................... - 1,838 3,765 1,958 2,025
Foreign tax rates in excess of Federal tax rate......... - 328 465 273 318
Other, net.............................................. 55 (21) (320) 270 19
------ ------ ------- ------ -------
Provision for income taxes.............................. $4,675 $9,112 $14,150 $7,300 $10,300
====== ====== ======= ====== =======
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
July 3, July 2, March 31,
1998 1999 2000
-------- -------- ---------
<S> <C> <C> <C>
Current deferred taxes:
Allowance for doubtful accounts......................... $ 565 $ 533 $ 643
Inventory............................................... 818 934 934
Accrued expenses........................................ 4,182 4,433 4,123
------- ------- -------
Total current deferred tax assets..................... $ 5,565 $ 5,900 $ 5,700
======= ======= =======
Long-term deferred taxes:
Net operating loss carryforwards........................ $29,359 $28,863 $27,181
Accrued pension and post-retirement..................... 1,375 1,497 1,570
Accrued expenses........................................ 464 626 1,483
Difference in book vs. tax basis of assets.............. (6,114) (6,668) (5,909)
Accelerated tax vs. book depreciation................... (13,019) (17,972) 18,186
------- ------- -------
Total long-term net deferred tax assets............... 12,065 6,346 6,139
Valuation allowance...................................... (5,000) (5,000) (5,000)
------- ------- -------
Total long-term net deferred tax assets.................. $ 7,065 $ 1,346 $ 1,139
======= ======= =======
</TABLE>
The net long-term deferred tax assets have been subjected to a valuation
allowance since management believes it is more likely than not that this
portion of the net operating loss carryforward ("NOL") balance will not be
realized as a result of the various limitations on their usage, discussed
below.
The domestic net operating losses are subject to matters discussed below
and are subject to change due to the restructuring occurring at the subsidiary
level, as well as adjustment for the timing of inclusion of expenses and losses
in the federal returns as compared to amounts included for financial statement
purposes.
Net Operating Losses
The Company and its U.S. subsidiaries file a consolidated tax return. The
NOL carryforwards, as a result of the PureTec acquisition, involve complex
issues of federal tax law and are subject to various limitations as follows:
F-15
<PAGE>
o $35,800 - Subject to IRC Section 382 change of ownership annual
limitation of approximately $3,900; this includes $4,700 of losses
incurred prior to 1992, which are subject to additional limitations;
expire 2002-2010.
o $19,500 - Subject to IRC Section 382 change of ownership annual
limitation of approximately $3,100; expire 2001 - 2010.
o $29,500 - Subject to IRC Section 382 change of ownership annual
limitation of approximately $5,900; expires 2009.
To the extent the amounts of NOL's reserved are subsequently recognized,
they will cause changes in the goodwill arising from the transaction. In
addition to the domestic NOL balances, the Company has incurred losses relating
to a subsidiary, taxable in Northern Ireland. Fiscal 1997and 1998 losses
aggregated $1,818 which have no expiration date. The Company believes that it
is more likely than not that this deferred tax asset will not be realized and
has recorded a full valuation allowance on these amounts.
7. Employee Benefit Plans
(a) Savings Plans
(i) The Company maintains a discretionary 401(k) plan covering all
eligible employees, excluding those employed by its Dolco
Division ("Dolco") and PureTec, with at least one year of
service. Contributions to the plan are determined annually by
the Board of Directors. There were no contributions for years
ended June 27, 1997, July 3, 1998 and July 2, 1999.
(ii) The Company has a defined contribution profit sharing plan for
the benefit of all employees having completed one year of
service with Dolco. The Company contributes 3% of compensation
for each participant and a matching contribution of up to 1%
when an employee contributes 3% compensation. Contributions
totaled approximately $475, $653 and $727 for the years ended
June 27, 1997, July 3, 1998 and July 2,1999, respectively.
(iii) Additionally, the Company has a savings plan for all employees
of three wholly-owned subsidiaries who are not covered under a
collective bargaining agreement. The three subsidiaries are
Plastic Specialties & Technology, Inc. ("PST"); Burlington
Resins, Inc. ("Burlington"); and PTI Plastics, Inc. ("PTI").
Under the savings plan, the Company matches each eligible
employees' contribution up to 3% of the employees' earnings.
Such contribution amounted to approximately $215 for the period
March 3 through July 3, 1998 and $362 for the year ended July 2,
1999.
(b) Pension Plans
(i) The Company maintains a non-contributory defined benefit pension
plan that covers substantially all non-collective bargaining
unit employees of PST and Burlington, who have completed one
year of service and are not participants in any other pension
plan. The funding policy of the Company is to make contributions
to the plan based on actuarial computations of the minimum
required contribution for the plan year. On September 8, 1998,
the Company approved a plan to freeze this defined benefit
pension plan effective September 30, 1998, resulting in a
curtailment gain of $576.
F-16
<PAGE>
The components of net periodic pension costs are as follows:
Period ended Year ended
July 3, 1998 July 2, 1999
------------ ------------
Service cost.......................................... $ 290 $ 253
Interest cost on projected benefit obligations........ 202 674
Expected actual return on plan assets................. (233) (938)
Amortization of unrecognized net gain................. - (8)
Recognized curtailment gain........................... - (576)
------- -------
Net pension cost...................................... $ 259 $ (595)
======= =======
Change in Projected Benefit Obligation
Projected benefit obligation, beginning of period..... $ 9,759 $10,127
Service cost.......................................... 290 253
Interest cost......................................... 202 674
Curtailments.......................................... - (576)
Actuarial gain........................................ (24) (512)
Benefits paid......................................... (100) (411)
------- -------
Projected benefit obligation, end of period........... $10,127 $ 9,555
======= =======
Change in Plan Assets
Plan assets at fair value, beginning of period........ $ 8,852 $ 9,555
Actual return on plan assets.......................... 334 827
Company contributions................................. 172 1,142
Benefits paid......................................... (100) (411)
------- -------
Plan assets at fair value, end of period.............. $ 9,258 $11,113
======= =======
The funded status of the Plan and amounts recorded in the Company's
balance sheets are as follows:
July 3, 1998 July 2, 1999
------------ ------------
Funded status of the plan............................. $(869) $1,558
Unrecognized net gain................................. - (467)
----- ------
Prepaid (accrued) pension cost........................ $(869) $1,091
===== ======
The expected long-term rate of return on plan assets was 9% for the
periods presented and the discount rate was 7 1/2% at July 3, 1998 and July 2,
1999.
(ii) The Company's Burlington subsidiary has a non-contributory
defined benefit pension plan that covers substantially all hourly
compensated employees covered by a collective bargaining agreement, who
have completed one year of service. The funding policy of the Company is
to make contributions to this plan based on actuarial computations of the
minimum required contribution for the plan year.
F-17
<PAGE>
The components of net periodic pension costs are as follows:
Period ended Year ended
July 3, 1998 July 2, 1999
------------ ------------
Service cost......................................... $ 40 $ 133
Interest cost on projected benefit obligations....... 136 366
Expected return on plan assets....................... (140) (453)
------ ------
Net pension cost.................................... $ 36 $ 46
====== ======
Change in Projected Benefit Obligation
Projected benefit obligation, beginning of period.... $4,898 $4,974
Service cost......................................... 40 133
Interest cost........................................ 136 366
Actuarial gain....................................... (52) -
Benefits paid........................................ (48) (181)
------ ------
Projected benefit obligation, end of period.......... $4,974 $5,292
====== ======
Change in Plan Assets
Plan assets at fair value, beginning of period....... $4,708 $4,978
Actual return on plan assets......................... 206 410
Company contributions................................ 112 224
Benefits paid........................................ (48) (181)
------ ------
Plan assets at fair value, end of period............. $4,978 $5,431
====== ======
The funded status of the Plan and amounts recorded in the Company's
balance sheets are as follows:
July 3, 1998 July 2, 1999
------------ ------------
Funded status of the plan........................... $4 $139
Unrecognized net loss............................... - 43
-- ----
Prepaid pension cost................................ $4 $182
== ====
The expected long-term rate of return on plan assets was 9% for the
periods presented and the discount rate was 7 1/2% at July 3, 1998 and July 2,
1999.
(iii) 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. The Company has not been required to contribute to
the plan since 1990.
(c) Post-retirement Benefits
In addition to providing pension benefits, the Company also sponsors the
Burlington Retiree Welfare Plan, which provides certain healthcare benefits for
retired employees of the Burlington division who were employed on an hourly
basis, covered under a collective bargaining agreement and retired prior to
July 31, 1997. Those employees and their families became eligible for these
benefits after the employee completed five years of service, if retiring at age
F-18
<PAGE>
fifty-five, or at age sixty-five, the normal retirement age. Post retirement
healthcare benefits paid for the period March 3 through July 3, 1998 and for
the year ended July 2, 1999 amounted to $84 and $139, respectively.
Net periodic post-retirement benefit costs are as follows:
<TABLE>
Period ended Year ended
July 3, 1998 July 2, 1999
------------ ------------
<S> <C> <C>
Service cost..................................................... $ 10 $ 42
Interest cost.................................................... 100 146
------ ------
Net post-retirement benefit cost................................ $ 110 $ 188
====== ======
Change in Projected Benefit Obligation
Projected benefit obligation, beginning of period................ $1,936 $1,997
Service cost..................................................... 10 42
Interest cost.................................................... 42 146
Actuarial loss (gain)............................................ 37 -
Benefits paid.................................................... (28) (84)
------ ------
Projected benefit obligation, end of period...................... $1,997 $2,101
====== ======
Change in Plan Assets
Plan assets at fair value, beginning of period................... $ - $ -
Company contributions............................................ 139 84
Benefits paid (139) (84)
------ ------
Plan assets at fair value, end of period......................... $ - $ -
====== ======
</TABLE>
The funded status of the Plan and amounts recorded in the Company's
balance sheets are as follows:
July 3, 1998 July 2, 1999
------------ ------------
Funded status of the plan......... $(1,997) $(2,101)
------- -------
Accrued post-retirement cost...... $(1,997) $(2,101)
======= =======
The accumulated post-retirement benefit obligation was determined using a
7 1/2% discount rate for the periods presented. The healthcare cost trend rate
for medical benefits was assumed to be 6%, gradually declining until it reaches
a constant annual rate of 5% in 2002. The healthcare cost trend rate assumption
has a significant effect on the amounts reported. A 1% increase in healthcare
trend rate would increase the accumulated post-retirement benefit obligation by
$239 and $214 and increase the service and interest components by $5 and $6 at
July 3, 1998 and July 2, 1999.
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 per month for a period of ten years. Consulting service fees
were approximately $390, $400 and $400 for the years ending June 27, 1997, July
3, 1998 and July 2, 1999 respectively.
F-19
<PAGE>
9. Stock Options
In April 1994, the Company granted options to an employee to acquire
2 1/2% of the outstanding common stock for $13.5 per share, with anti-dilution
provisions. The options are exercisable as to 33 1/33% 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.
In January 1998, the Company adopted an incentive stock plan (the "Stock
Incentive Plan"). Under the Stock Incentive Plan, 45.75206 shares are available
for awards to employees of the Company. Options will be granted at fair market
value on the date of grant. During 1998 and 1999, options were granted to
purchase 28.37 and 7.32 shares of common stock at an exercise price of $154.5
and $222.4 per share, respectively. The options are subject to vesting
provisions, as determined by the Board of Directors, at date of grant and
expire 10 years from date of grant.
In addition, an option to purchase 2.288 shares of common stock was
granted to a member of the Board of Directors, in April 1998, at an exercise
price of $154.5 per share. The options are subject to vesting provisions, as
determined by the Board of Directors, at date of grant and expire 10 years from
date of grant.
At July 2, 1999, options for 30.12 shares are exercisable and no options
have been exercised or forfeited as of July 2, 1999.
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 would have been reduced to the pro forma amounts
indicated below. The calculations were based on a risk free interest rate of
6.75%, 5.28% and 4.75% in 1997, 1998 and 1999, respectively, expected
volatility of zero, a dividend yield of zero and expected lives of 8 years.
<TABLE>
Years ended Nine months ended
-------------------------------- ------------------------
June 27, July 3, July 2, April 2, March 31,
1997 1998 1999 1999 2000
-------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Income before extraordinary item:
As reported.......................... $8,428 $8,669 $14,997 $7,897 $10,773
====== ====== ======= ====== =======
Pro forma............................ $8,324 $8,618 $14,868 $7,800 $10,653
====== ====== ======= ====== =======
</TABLE>
10. Commitments and Contingencies
Commitments
(a) The Company leases building space and certain equipment in 20
locations throughout the United States, Canada and Europe. At July 2,
1999, the Company's future minimum lease payments are as follows:
2000................................... $ 4,141
2001................................... 3,933
2002................................... 3,710
F-20
<PAGE>
2003................................... 2,198
2004................................... 1,491
Thereafter............................. 7,852
-------
$23,325
=======
Rent expense, including escalation charges, amounted to approximately
$676, $2,802 and $3,756 for the years ended June 27, 1997, July 3, 1998 and
July 2, 1999, respectively.
(b) The Company has employment contracts with two employees, which
provide for minimum salaries of $1,800 and bonuses based on
performance and expire in June 2002. Salaries and bonuses for the
years ended July 3, 1998 and July 2, 1999 under these contracts were
$1,800 and $13,471 and $1,157 and $7,608, respectively. These
contracts provide aggregate minimum annual compensation of $1,800 for
each of the fiscal years in the period ended 2002.
Contingencies
(a) In January 1993 and 1994, the Company's Belgian subsidiary received
income tax assessments aggregating approximately $2,114 (75,247
Belgian Francs) for the disallowance of certain foreign tax credits
and investment losses claimed for the years ended July 31, 1990 and
1991. Additionally, in January 1995, the subsidiary received an
income tax assessment of approximately $902 (32,083 Belgian francs)
for the year ended July 31, 1992. By Belgian law, these assessments
are capped at the values above and do not continue to accrue
additional penalties or interest. Although the future outcome of
these matters are uncertain, the Company believes that its tax
position was appropriate and that the assessments are without merit.
Therefore, the Company has appealed the assessments. Based on advice
of legal counsel in Belgium, the Company believes that the assessment
appeals will be accepted by the tax authorities in Belgium, although
there can be no assurance whether or when such appeals will be
accepted.
(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.
F-21
<PAGE>
12. Supplemental Cash Flow Information
(a) Cash Paid
June 27, July 3, July 2, April 2, March 31,
1997 1998 1999 1999 2000
-------- ------- ------- -------- ---------
Interest..... $5,317 $15,776 $37,376 $28,191 $32,859
====== ======= ======= ======= =======
Income taxes. $3,747 $ 5,832 $10,185 $ 7,119 $ 6,624
====== ======= ======= ======= =======
(b) Non-Cash Financing and Investing Activities
The Company purchased certain assets and assumed certain liabilities of
Natvar, effective April 24, 1999, for approximately $26,169 in cash. In
conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired.................... $10,192
Goodwill......................................... 17,107
Cash paid........................................ (26,169)
-------
Liabilities assumed.............................. $ 1,130
=======
The Company purchased certain assets and assumed certain liabilities of
Tri-Seal, effective January 25, 1999, for approximately $21,272 in cash. In
conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired.................... $11,400
Goodwill......................................... 13,584
Cash paid........................................ (21,272)
-------
Liabilities assumed.............................. $ 3,712
=======
The Company purchased the outstanding stock of PureTec Corporation on
March 3, 1998 for approximately $312,047. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired................... $246,160
Goodwill........................................ 161,722
Cash paid....................................... (312,047)
--------
Liabilities assumed............................. $ 95,835
========
The Company purchased certain assets and assumed certain liabilities of
PurePlast, Inc., effective July 3, 1997, for approximately $2,292 in cash. In
conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired.................... $1,802
Goodwill......................................... 1,734
Cash paid........................................ (2,292)
------
Liabilities assumed.............................. $1,244
======
F-22
<PAGE>
13. Segment Information
The Company operates in four industry segments: healthcare packaging,
products, and materials; consumer packaging and products; food packaging; and
specialty resins and compounds. The healthcare packaging, products, and
materials segment principally produces pharmaceutical packaging, medical tubing
and medical device materials. The consumer packaging and products segment
principally produces precision tubing and gaskets, and garden and irrigation
hose products. The food packaging segment produces foamed polystyrene packaging
products for the poultry, meat and egg industries. The specialty resins and
compounds segment produces specialty PVC resins, recycled PET resins, and
general purpose PVC compounds. The healthcare packaging, products, and
materials and consumer packaging and products segments have operations in the
United States, Europe and Canada. Prior to 1998, the Company operated
principally in the food packaging segment.
<TABLE>
Healthcare
Packaging, Consumer Specialty
Products and Packaging Food Resins and
July 3, 1998 Materials and Products Packaging Compounds Totals
------------ ------------ ------------ --------- ---------- ------
<S> <C> <C> <C> <C> <C>
Revenues from external customers..... $ 90,708 $103,744 $99,336 $15,809 $309,597
Interest expense..................... 4,844 6,395 6,346 2,097 19,682
Depreciation and amortization........ 1,705 3,854 9,320 1,952 16,831
Segment income from operations....... 13,563 14,866 18,321 2,955 49,705
Segment assets....................... 134,053 224,754 73,261 87,105 519,173
Expenditures for segment assets...... 1,347 1,387 4,316 233 7,283
</TABLE>
<TABLE>
Healthcare
Packaging, Consumer Specialty
Products and Packaging Food Resins and
July 2, 1998 Materials and Products Packaging Compounds Totals
------------ ------------ ------------ --------- ---------- ------
<S> <C> <C> <C> <C> <C>
Revenues from external customers..... $137,309 $184,684 $100,258 $66,986 $489,237
Interest expense..................... 11,818 13,254 8,014 5,891 38,977
Depreciation and amortization........ 7,327 13,072 9,640 5,086 35,125
Segment income from operations....... 25,027 37,848 18,777 6,810 88,462
Segment assets....................... 173,704 216,067 73,351 83,601 546,723
Expenditures for segment assets...... 3,761 3,540 4,567 1,082 12,950
</TABLE>
July 3, 1998 July 2, 1999
------------ ------------
Profit or loss
Total operating profit for
reportable segments before
income taxes.................. $ 49,705 $ 88,462
Corporate and eliminations...... (11,827) (20,052)
-------- --------
$ 37,878 $ 68,410
======== ========
Assets
Total assets from reportable
segments...................... $519,173 $546,723
Other unallocated amounts....... 20,106 12,713
-------- --------
Consolidation total............ $539,279 $559,436
======== ========
F-23
<PAGE>
July 3, 1998 July 2, 1999
------------ ------------
Depreciation and amortization
Segment totals.................. $ 16,831 $ 35,125
Corporate....................... 418 218
-------- --------
Consolidated total............. $ 17,249 $ 35,343
======== ========
Long-lived
July 3, 1998 Revenues assets
------------ -------- ----------
Geographic information
United States................... $288,520 $325,292
Canada.......................... 5,868 2,302
Europe.......................... 15,209 27,961
-------- --------
$309,597 $355,555
======== ========
Long-lived
July 2, 1999 Revenues assets
------------ -------- ----------
Geographic information
United States................... $455,603 $339,409
Canada.......................... 4,996 2,542
Europe.......................... $ 38,638 $ 25,779
-------- --------
$489,237 $367,730
======== ========
Income from operations is total net sales less cost of goods sold and
operating expenses of each segment before deductions for general corporate
expenses not directly related to an individual segment and interest.
Identifiable assets by industry are those assets that are used in the Company's
operation in each industry segment, including assigned value of goodwill.
Corporate identifiable assets consist primarily of cash, prepaid expenses,
deferred income taxes and fixed assets.
For the year ended July 3, 1998, one customer represented 10% of sales and
two customers each represented 11% of accounts receivable at July 3, 1998.
For the year ended July 2, 1999, one customer represented 11% of sales and
two customers each represented 10% of accounts receivable at July 3, 1999.
4. Supplemental Condensed Consolidating Financial Statements
Tekni-Plex, Inc. issued 11 1/4% Senior Subordinated Notes in April 1997
and 9 1/4% Series B Senior Subordinated Notes in February 1998. These notes are
guaranteed by all domestic subsidiaries of Tekni-Plex. At June 27, 1997, there
were no non-guarantor subsidiaries. The following condensed consolidating
financial statements present separate information for Tekni-Plex (the "Issuer")
and its domestic subsidiaries (the "Guarantors") and the foreign subsidiaries
(the "Non-Guarantors").
F-24
<PAGE>
Condensed Consolidating Statement of Operations - For the year ended July
2, 1999
<TABLE>
Non-
Issuer Guarantors Guarantors Total
------ ---------- ---------- -----
<S> <C> <C> <C> <C>
Sales, net........................................... $150,564 $295,039 $43,634 $489,237
Cost of sales........................................ 110,057 218,428 29,808 358,293
-------- -------- ------- --------
Gross profit......................................... 40,507 76,611 13,826 130,944
Selling, general and administrative.................. 44,815 13,243 4,476 62,534
-------- -------- ------- --------
Income from operations............................... (4,308) 63,368 9,350 68,410
Interest expense, net................................ 39,487 (739) 229 38,977
Other expense (income)............................... 294 (1,180) 1,172 286
-------- -------- ------- --------
Income (loss) before provision for income taxes...... (44,089) 65,287 7,949 29,147
Provision for income taxes........................... (23,682) 34,604 3,228 14,150
-------- -------- ------- --------
Net income (loss).................................... $(20,407) $ 30,683 $ 4,721 $ 14,997
======== ======== ======= ========
</TABLE>
Condensed Consolidating Balance Sheet - at July 2, 1999:
<TABLE>
Non-
Issuer Guarantors Guarantors Eliminations Total
------ ---------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C>
Current assets............................... $45,967 $117,689 $28,050 $ - $191,706
Property, plant and equipment, net........... 44,507 77,132 15,314 - 136,953
Intangible assets............................ 68,073 136,639 1,428 - 206,140
Investment in subsidiaries................... 367,167 - - (367,167) -
Deferred financing costs, net................ 19,257 (128) 229 - 19,358
Deferred taxes............................... 1,346 - - - 1,346
Other long-term assets....................... 89,222 36,046 11,350 (132,685) 3,933
-------- -------- ------- --------- --------
Total assets................................ $635,539 $367,378 $56,371 $(499,852) $559,436
======== ======== ======= ========= ========
Current liabilities.......................... $ 52,551 $ 26,868 $10,842 $ - $ 90,261
Long-term debt............................... 404,288 - 6,358 - 410,646
Other long-term liabilities.................. 119,759 - 19,158 (132,685) 6,232
-------- -------- ------- --------- --------
Total liabilities........................... 576,598 26,868 36,358 (132,685) 507,139
-------- -------- ------- --------- --------
Additional paid-in capital................... 41,095 296,747 15,641 (312,408) 41,075
Retained earnings (deficit).................. 17,846 43,763 5,740 (54,759) 12,590
Cumulative currency translation adjustment... - - (1,368) - (1,368)
-------- -------- ------- --------- --------
Total equity................................ 58,941 340,510 20,013 (367,167) 52,297
-------- -------- ------- --------- --------
Total liabilities and equity................ $635,539 $367,378 $56,371 $(499,852) $559,436
======== ======== ======= ========= ========
</TABLE>
Condensed Consolidating Statement of Operations - for the year ended July
3, 1998:
<TABLE>
Non-
Issuer Guarantors Guarantors Total
------ ---------- ---------- -----
<S> <C> <C> <C> <C>
Sales, net........................................... $151,507 $137,013 $21,077 $309,597
Cost of sales........................................ 110,886 106,543 15,070 232,499
F-25
<PAGE>
Non-
Issuer Guarantors Guarantors Total
------ ---------- ---------- -----
<S> <C> <C> <C> <C>
Gross profit......................................... 40,621 30,470 6,007 77,098
Selling, general and administrative.................. 24,218 12,581 2,421 39,220
Income from operations............................... 16,403 17,889 3,586 37,878
Interest expense, net................................ 18,996 477 209 19,682
Other expense (income)............................... 346 (281) 350 415
Income (loss) before provision for income taxes...... (2,939) 17,693 3,027 17,781
Provision for income taxes........................... (1,447) 9,023 1,536 9,112
Net income (loss).................................... $ (1,492) $ 8,670 $ 1,491 $ 8,669
</TABLE>
Condensed Consolidating Balance Sheet - at July 3, 1998:
<TABLE>
Non-
Issuer Guarantors Guarantors Eliminations Total
------ ---------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C>
Current assets............................... $ 18,510 $100,147 $24,621 $ 40,446 $183,724
Property, plant and equipment, net........... 40,535 71,304 16,395 - 128,234
Goodwill..................................... 30,624 151,055 12,170 - 193,849
Investment in subsidiaries................... 333,498 - - (333,498) -
Deferred financing costs, net................ 22,277 396 118 - 22,791
Other long-term assets....................... 7,041 2,060 1,580 - 10,681
-------- -------- ------- --------- --------
Total assets................................ $452,485 $324,962 $54,844 $(293,052) $539,279
======== ======== ======= ========= ========
Current liabilities.......................... $ 28,855 $ 57,395 $12,577 $ - $ 98,827
Long-term debt............................... 386,063 6,755 3,633 - 396,451
Other long-term liabilities.................. (6,377) (48,273) 21,266 38,712 5,328
-------- -------- ------- --------- --------
Total liabilities........................... 408,541 15,877 37,476 38,712 500,606
-------- -------- ------- --------- --------
Additional paid-in capital................... 41,095 296,747 15,641 (312,408) 41,075
Retained earnings (deficit).................. 2,849 12,611 1,489 (19,356) (2,407)
Cumulative currency translation adjustment... - (273) 278 - 5
-------- -------- ------- --------- --------
Total equity................................ 43,944 309,085 17,408 (331,764) 38,673
-------- -------- ------- --------- --------
Total liabilities and equity................ $452,485 $324,962 $54,884 $(293,052) $539,279
======== ======== ======= ========= ========
</TABLE>
Condensed Consolidating Statement of Operations - for the nine months
ended March 31, 2000
<TABLE>
Non-
Issuer Guarantors Guarantors Total
------ ---------- ---------- -----
<S> <C> <C> <C> <C>
Sales, net........................................... $110,892 $205,963 $34,324 $351,179
Cost of sales........................................ 78,582 154,775 23,325 256,682
-------- -------- ------- --------
Gross profit......................................... 32,310 51,188 10,999 94,497
Selling, general and administrative.................. 28,347 11,076 3,571 42,994
-------- -------- ------- --------
Income from operations............................... 3,963 40,112 7,428 51,503
Interest expense, net................................ 29,924 44 (245) 29,723
Other expense (income)............................... 346 (868) 1,229 707
-------- -------- ------- --------
Income (loss) before provision for income taxes...... (26,307) 40,936 6,444 21,073
Provision for income taxes........................... (12,900) 20,000 3,200 10,300
-------- -------- ------- --------
Net income (loss).................................... $(13,407) $ 20,936 $ 3,244 $ 10,773
======== ======== ======= ========
</TABLE>
F-26
<PAGE>
Condensed Consolidating Balance Sheet - at March 31, 2000
<TABLE>
Non-
Issuer Guarantors Guarantors Eliminations Total
------ ---------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C>
Current assets............................... $ 48,813 $141,358 $35,114 $ - $225,285
Property, plant and equipment, net........... 41,395 78,364 14,486 - 134,245
Goodwill..................................... 41,499 154,142 1,403 - 197,044
Investment in subsidiaries................... 391,347 - - (391,347) -
Deferred financing costs, net................ 17,096 212 187 - 17,495
Other long-term assets....................... 81,748 24,828 11,327 (112,819) 5,084
-------- -------- ------- --------- --------
Total assets................................ $621,898 $398,904 $62,517 $(504,166) $579,153
======== ======== ======= ========= ========
Current liabilities.......................... $ 28,960 $ 31,753 $15,769 $ - $ 76,482
Long-term debt............................... 432,050 - 5,762 - 437,812
Other long-term liabilities.................. 92,422 4,456 20,785 (112,819) 5,084
-------- -------- ------- --------- --------
Total liabilities........................... 553,432 36,209 42,316 (112,819) 519,138
-------- -------- ------- --------- --------
Additional paid-in capital................... 41,076 296,766 15,641 (312,408) 41,075
Retained earnings (deficit).................. 27,390 65,929 8,984 (78,939) 23,364
Cumulative currency translation adjustment... - - (4,424) - (4,424)
-------- -------- ------- --------- --------
Total equity................................ 68,466 362,695 20,201 (391,347) 60,015
-------- -------- ------- --------- --------
Total liabilities and equity................ $621,898 $398,904 $62,517 $(504,166) $579,153
======== ======== ======= ========= ========
</TABLE>
15. Quarterly Results of Operations (Unaudited)
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
---- ------- ------- ------- -------
Net sales........................ $35,167 $36,428 $38,233 $ 34,908
Gross profit..................... 8,621 9,514 10,454 9,140
Income from operations........... 4,207 6,778 5,609 5,249
Income before extraordinary item. 1,277 2,884 2,266 2,001
Loss on extinguishment of debt... - - - (20,666)
Net income....................... $ 1,277 $ 2,884 $ 2,266 $(18,665)
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
---- ------- ------- ------- -------
Net sales........................ $ 37,791 $ 37,831 $ 68,388 $165,587
Gross profit..................... 9,934 10,464 17,152 39,548
Income from operations........... 5,886 6,257 7,438 18,297
Net income....................... $ 2,305 $ 2,436 $ 1,635 $ 2,293
F-27
<PAGE>
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
---- ------- ------- ------- -------
Net sales........................ $108,069 $ 94,004 $129,754 $157,410
Gross profit..................... 27,091 24,878 37,680 41,295
Income from operations........... 13,131 10,320 21,273 23,686
Net income....................... $ 1,543 $ 505 $ 5,849 $ 7,100
Fluctuations in net sales are due primarily to seasonality in a number of
product lines, particularly garden hose and irrigation hose products.
F-28
<PAGE>
Valuation and Qualifying Accounts and Reserves
(Dollars in Thousands, Except Share Amounts)
<TABLE>
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Period Expenses(1) Accounts Deductions(2) Period
---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Year ended June 27, 1997
Accounts receivable allowance... $ 565 $200 - $ 452 $ 313
Year ended July 3, 1998
Accounts receivable allowance... $ 313 $705 $1,592(3) $1,284 $1,326
Year ended July 2, 1999
Accounts receivable allowance... 1,326 370 68(3) 102 1,662
</TABLE>
---------
(1) To increase accounts receivable allowance.
(2) Uncollectible accounts written off, net of recoveries.
(3) Balances related to acquisitions.
F-29
<PAGE>
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 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.
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
3.1 Restated Certificate of Incorporation of Tekni-Plex, Inc.*
3.2 Amended and Restated By-laws of Tekni-Plex, Inc.*
3.3 Certificate of Incorporation of PureTec Corporation.*
3.4 By-laws of PureTec Corporation*
3.5 Certificate of Incorporation of Tri-Seal Holdings, Inc.*
3.6 By-laws of Tri-Seal Holding, Inc.*
3.7 Certificate of Incorporation of Natvar Holdings, Inc.*
3.8 By-laws of Natvar Holdings.*
3.9 Certificate of Incorporation of Plastic Specialities and
Technologies, Inc.*
3.10 By-laws of Plastic Specialities and Technologies, Inc.*
3.11 Certificate of Incorporation of Plastic Specialities and
Technologies Investments, Inc.*
3.12 By-laws of Plastic Specialities and Technologies Investments, Inc.*
3.13 Certificate of Incorporation of Burlington Resins, Inc.*
3.14 By-laws of Burlington Resins, Inc.*
3.15 Certificate of Incorporation of Pure Tech APR, Inc.*
3.16 By-laws of Pure Tech APR, Inc.*
3.17 Certificate of Incorporation of Multi Container Recycler, Inc.*
3.18 By-laws of Multi Container Recycler, Inc.*
3.19 Certificate of Incorporation of Coast Recycling North, Inc.*
3.20 By-laws of Coast Recycling North, Inc.*
3.21 Certificate of Incorporation of Distributors Recycling, Inc.*
3.22 By-laws of Distributors Recycling, Inc.*
3.23 Certificate of Incorporation of REI Distributors, Inc.*
3.24 By-laws of REI Distributors, Inc.*
3.25 Certificate of Incorporation of Pure Tech Recycling of California.*
3.26 By-laws of Pure Tech Recycling of California.*
3.27 Certificate of Incorporation of Alumet Smelting Corp.*
3.28 By-laws of Alumet Smelting Corp.*
4.1 Indenture, dated as of June 21, 2000 among Tekni-Plex, Inc.,
the Guarantors listed therein and HSBC Bank USA, 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 June 15, 2000 among Tekni-Plex, Inc.,
the Guarantors listed therein, and J.P. Morgan Securities Inc.*
4.4 Registration Right Agreement, dated as of June 21, 2000 among
Tekni-Plex, Inc., the Guarantors listed therein. and J.P. Morgan
Securities, Inc.*
5.1 Opinion of Davis Polk & Wardwell.*
<PAGE>
10.1 Credit Agreement, dated as of June 21, 2000, among Tekni-Plex, Inc.,
the Guarantors party thereto, the Lenders party thereto, the LC Issuing
Banks referred to therein and Morgan Guaranty Trust Company of New
York, as Agent.*
10.2 Notes (original not included; form of Notes included in Exhibit 10.1).
10.3 Security Agreement, dated as of June 21, 2000, among Tekni-Plex, Inc.,
the Guarantors listed therein and Morgan Guaranty Trust Company of New
York, as Collateral Agent (original not included; form of Security
Agreement included in Exhibit 10.1).
10.4 Pledge Agreement, dated as of June 21, 2000, 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 June 21, 2000, made by Tekni-Plex, Inc.
or the Guarantors listed therein. in favor of Morgan Guaranty Trust
Company, as Agent (originals not included; form of Mortgage included in
Exhibit 10.1).
10.6 Amended and Restated Employment Agreement, dated as of June 21, 2000,
between Dr. F. Patrick Smith and Tekni-Plex, Inc.*
10.7 Amended and Restated Employment Agreement, dated as of June 21, 2000,
between Mr. Kenneth W.R. Baker and Tekni-Plex, Inc.*
10.8 Tekni-Plex, Inc. Stock Option Plan*
12.1 Statement regarding Computation of Ratios.*
23.1 Consent of BDO Seidman LLP.*
23.2 Consent of Davis Polk & Wardwell (included in Exhibit 5.1).
25.1 Statement of Eligibility of Trustee, HSBC Bank USA, 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.*
99.5 Instruction to Registered Holders and/or Book-Entry Transfer Facility
Participants.*
99.6 Broker's Letter to Clients.*
99.7 Exchange Offer Cover Letter.*
----------
* Filed herewith.
<PAGE>
(b) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts.
Other schedules required are not applicable.
TEKNI-PLEX, INC.
AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Period Expenses (1) Accounts Deductions (2) Period
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 28, 1997
Accounts receivable allowance $ 565 $ 200 $ - $ 452 $ 313
=====================================================================================================
YEAR ENDED JULY 3, 1998
Accounts receivable allowance $ 313 $ 705 $1,592 (3) $1,284 $1,326
=====================================================================================================
YEAR ENDED JULY 2, 1999
Accounts receivable allowance $1,326 $ 370 $ 68 (3) $ 102 $1,662
=====================================================================================================
PERIOD ENDED MARCH 31, 2000 (unaudited)
Accounts receivable allowance $1,662 $ 29 $ -- $1,691
=====================================================================================================
</TABLE>
(1) To increase accounts receivable allowance.
(2) Uncollectible accounts written off, net of recoveries.
(3) Balances related to acquisitions.
<PAGE>
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(1) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(2) 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;
(3) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(ii) That, for the purpose 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.
(iii) 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 SEC such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event 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
<PAGE>
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Tekni-Plex, Inc., a Delaware corporation, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Somerville, New Jersey on August 15, 2000.
TEKNI-PLEX, INC.
By: /s/ F. Patrick Smith
------------------------------------
Name: F. Patrick Smith
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
/s/ Arthur P. Witt Director and Corporate Secretary
-------------------------
Arthur P. Witt
/s/ J. Andrew McWethy Director
-------------------------
J. Andrew McWethy
/s/ Michael F. Cronin Director
-------------------------
Michael F. Cronin
/s/ John S. Geer Director
-------------------------
John S. Geer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
PureTec Corporation, a Delaware corporation, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Somerville, New Jersey on August 15, 2000.
PURETEC CORPORATION
By: /s/ F. Patrick Smith
------------------------------------
Name: F. Patrick Smith
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Tri-Seal Holdings, Inc., a Delaware corporation, has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Somerville, New Jersey on August 15, 2000.
TRI-SEAL HOLDINGS, INC.
By: /s/ F. Patrick Smith
--------------------
Name: F. Patrick Smith
Title: Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Natvar Holdings, Inc., a Delaware corporation, has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Somerville, New Jersey on August 15, 2000.
NATVAR HOLDINGS, INC.
By: /s/ F. Patrick Smith
------------------------------------
Name: F. Patrick Smith
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Plastics Specialties and Technologies, Inc., a Delaware corporation, has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Somerville, New Jersey on August 15,
2000.
PLASTICS SPECIALTIES AND TECHNOLOGIES,
INC.
By: /s/ F. Patrick Smith
------------------------------------
Name: F. Patrick Smith
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Plastics Specialties and Technologies Investments, Inc., a Delaware
corporation, has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in Somerville, New Jersey
on August 15, 2000.
PLASTICS SPECIALTIES AND TECHNOLOGIES
INVESTMENTS, INC.
By: /s/ F. Patrick Smith
------------------------------------
Name: F. Patrick Smith
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Burlington Resins, Inc., a Delaware corporation, has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Somerville, New Jersey on August 15, 2000.
BURLINGTON RESINS, INC.
By: /s/ F. Patrick Smith
------------------------------------
Name: F. Patrick Smith
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Pure Tech APR, Inc., a New York corporation, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Somerville, New Jersey on August 15, 2000.
PURE TECH APR, INC.
By: /s/ F. Patrick Smith
------------------------------------
Name: F. Patrick Smith
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Multi Container Recycler, Inc., a Michigan corporation, has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Somerville, New Jersey on August 15, 2000.
MULTI CONTAINER RECYCLER, INC.
By: /s/ F. Patrick Smith
--------------------
Name: F. Patrick Smith
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Coast Recycling North, Inc., a California corporation, has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Somerville, New Jersey on August 15, 2000.
COAST RECYCLING NORTH, INC.
By: /s/ F. Patrick Smith
------------------------------------
Name: F. Patrick Smith
Title: Chairman of the Board and
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Distributors Recycling, Inc., a New Jersey corporation, has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Somerville, New Jersey on August 15, 2000.
DISTRIBUTORS RECYCLING, INC.
By: /s/ F. Patrick Smith
------------------------------------
Name: F. Patrick Smith
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
REI Distributors, Inc., a New Jersey corporation, has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Somerville, New Jersey on August 15, 2000.
REI DISTRIBUTORS, INC.
By: /s/ F. Patrick Smith
------------------------------------
Name: F. Patrick Smith
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
PureTech Recycling of California, a California corporation, has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in Somerville, New Jersey on August 15, 2000.
PURE TECH RECYCLING OF CALIFORNIA
By: /s/ F. Patrick Smith
------------------------------------
Name: F. Patrick Smith
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Alumet Smelting Corp., a New Jersey corporation, has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Somerville, New Jersey on August 15, 2000.
ALUMET SMELTING CORP.
By: /s/ F. Patrick Smith
------------------------------------
Name: F. Patrick Smith
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 15th day of August, 2000 by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ F. Patrick Smith
------------------------- Chairman of the Board and Chief Executive Officer
F. Patrick Smith
/s/ Kenneth W.R. Baker Director, President and Chief Operating Officer
------------------------- (principal financial and accounting officer)
Kenneth W.R. Baker
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Page
------- ----------- ----
3.1 Restated Certificate of Incorporation of Tekni-Plex, Inc.*
3.2 Amended and Restated By-laws of Tekni-Plex, Inc.*
3.3 Certificate of Incorporation of PureTec Corporation.*
3.4 By-laws of PureTec Corporation.*
3.5 Certificate of Incorporation of Tri-Seal Holdings, Inc.*
3.6 By-laws of PTI Plastics, Inc.*
3.7 Certificate of Incorporation of Natvar Holdings, Inc.*
3.8 By-laws of Natvar Holdings, Inc.*
3.9 Certificate of Incorporation of Plastic Specialities and
Technologies, Inc.*
3.10 By-laws of Plastic Specialities and Technologies, Inc.*
3.11 Certificate of Incorporation of Plastic Specialities and
Technologies Investments, Inc.*
3.12 By-laws of Plastic Specialities and Technologies Investments,
Inc.*
3.13 Certificate of Incorporation of Burlington Resins, Inc.*
3.14 By-laws of Burlington Resins, Inc.*
3.15 Certificate of Incorporation of Pure Tech APR, Inc.*
3.16 By-laws of Pure Tech APR, Inc.*
3.17 Certificate of Incorporation of Multi Container Recycler, Inc.*
3.18 By-laws of Multi Container Recycler, Inc.*
3.19 Certificate of Incorporation of Coast Recycling North, Inc.*
3.20 By-laws of Coast Recycling North, Inc.*
3.21 Certificate of Incorporation of Distributors Recycling, Inc.*
3.22 By-laws of Distributors Recycling, Inc.*
3.23 Certificate of Incorporation of REI Distributors, Inc.*
3.24 By-laws of REI Distributors, Inc.*
3.25 Certificate of Incorporation of Pure Tech Recycling of
California.*
3.26 By-laws of Pure Tech Recycling of California.*
3.27 Certificate of Incorporation of Alumet Smelting Corp.*
3.28 By-laws of Alumet Smelting Corp.*
4.1 Indenture, dated as of June 21, 2000 among Tekni-Plex, Inc., the
Guarantors listed therein and HSBC Bank USA, 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 June 15, 2000 among Tekni-Plex,
Inc., the Guarantors listed therein, and J.P. Morgan Securities
Inc.*
4.4 Registration Right Agreement, dated as of June 21, 2000 among
Tekni-Plex, Inc., the Guarantors listed therein. and J.P. Morgan
Securities, Inc.*
5.1 Opinion of Davis Polk & Wardwell.*
<PAGE>
10.1 Credit Agreement, dated as of June 21, 2000, among Tekni-Plex, Inc.,
the Guarantors party thereto, the Lenders party thereto, the LC Issuing
Banks referred to therein and Morgan Guaranty Trust Company of New
York, as Agent.*
10.2 Notes (original not included; form of Notes included in Exhibit 10.1).
10.3 Security Agreement, dated as of June 21, 2000, among Tekni-Plex, Inc.,
the Guarantors listed therein and Morgan Guaranty Trust Company of New
York, as Collateral Agent (original not included; form of Security
Agreement included in Exhibit 10.1).
10.4 Pledge Agreement, dated as of June 21, 2000, 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 June 21, 2000, made by Tekni-Plex, Inc.
or the Guarantors listed therein. in favor of Morgan Guaranty Trust
Company, as Agent (originals not included; form of Mortgage included in
Exhibit 10.1).
10.6 Amended and Restated Employment Agreement, dated as of June 21, 2000,
between Dr. F. Patrick Smith and Tekni-Plex, Inc.*
10.7 Amended and Restated Employment Agreement, dated as of June 21, 2000,
between Mr. Kenneth W.R. Baker and Tekni-Plex, Inc.*
10.8 Tekni-Plex, Inc. Stock Incentive Plan*
12.1 Statement regarding Computation of Ratios.*
23.1 Consent of BDO Seidman LLP.*
23.2 Consent of Davis Polk & Wardwell (included in Exhibit 5.1).
25.1 Statement of Eligibility of Trustee, HSBC Bank USA, 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.*
99.5 Instruction to Registered Holders and/or Book-Entry Transfer Facility
Participants.*
99.6 Broker's Letter to Clients.*
99.7 Exchange Offer Cover Letter.*
----------
* Filed herewith.
