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Filed pursuant to Rule 424(b)(3)
Registration No. 333-40067
PROSPECTUS
[LOGO-HUNTSMAN PACKAGING]
OFFER FOR ALL OUTSTANDING 9 1/8% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR 9 1/8% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OF
HUNTSMAN PACKAGING CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON APRIL 1, 1998, 30 DAYS FROM THE DATE OF THIS PROSPECTUS, UNLESS EXTENDED
Huntsman Packaging Corporation, a Utah corporation ("Huntsman Packaging"
or the "Company"), hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus (as the same may be amended or
supplemented from time to time, the "Prospectus") and the accompanying Letter
of Transmittal (which together constitute the "Exchange Offer"), to exchange
an aggregate principal amount of up to $125,000,000 of its 9 1/8% Senior
Subordinated Notes due 2007 (the "New Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), for a
like principal amount of its issued and outstanding 9 1/8% Senior
Subordinated Notes due 2007 (the "Old Notes" and, together with the New
Notes, the "Notes") from the holders (the "Holders") thereof. The terms of
the New Notes are identical in all material respects to the terms of the Old
Notes, except for certain transfer restrictions and registration rights
relating to the Old Notes. The Old Notes are, and the New Notes will be,
redeemable, in whole or in part, at the option of Huntsman Packaging, on or
after October 1, 2002, at the redemption price set forth herein plus accrued
interest to the date of redemption. In addition, at any time on or prior to
October 1, 2000, Huntsman Packaging may, at its option, redeem up to 35% of
the aggregate principal amount of the Notes originally issued with the net
cash proceeds of one or more Equity Offerings (as defined), at a redemption
price equal to 109 1/8% of the principal amount thereof plus accrued interest
to the date of redemption; provided, however, that after giving effect to any
such redemption, at least 65% of the aggregate principal amount of the Notes
originally issued remain outstanding. Upon a Change of Control (as defined),
each Holder of the Notes will have the right to require Huntsman Packaging to
repurchase such Holder's Notes at a price equal to 101% of the principal
amount thereof plus accrued interest to the date of repurchase. In addition,
Huntsman Packaging will be obligated to offer to repurchase the Notes at 100%
of the principal amount thereof plus accrued interest to the date of
repurchase in the event of certain Asset Sales (as defined). See "Description
of the Notes and Guarantees."
The Old Notes are, and the New Notes will be, unsecured senior
subordinated obligations of Huntsman Packaging and will be subordinated in
right of payment to all existing and future Senior Debt (as defined) of
Huntsman Packaging, will be pari passu in right of payment to all senior
subordinated Indebtedness (as defined) of Huntsman Packaging and will be
senior in right of payment to all existing and future subordinated
obligations of Huntsman Packaging. The Old Notes are fully and
unconditionally guaranteed (the "Old Guarantees"), and the New Notes will be
fully and unconditionally guaranteed (the "New Guarantees" and, together with
the Old Guarantees, the "Guarantees") on an unsecured senior subordinated
basis by certain of Huntsman Packaging's subsidiaries (each, a "Guarantor"
and collectively, the "Guarantors"). The Guarantees will be unsecured senior
subordinated obligations of the Guarantors and will be subordinated in right
of payment to all existing and future Guarantor Senior Debt (as defined),
will be pari passu in right of payments to all senior subordinated
Indebtedness of the Guarantors and will be senior in right of payment to all
existing and future subordinated obligations of the Guarantors. The Notes
will be effectively subordinated to all obligations of any subsidiary of
Huntsman Packaging that is not a Guarantor. As of December 31, 1997, Huntsman
Packaging had approximately $125.5 million of Senior Debt outstanding, all of
which ranks senior to the Notes, and approximately $250.5 million of total
Indebtedness outstanding (in each case, excluding unused commitments and
outstanding letters of credit totalling $93.6 million under the Credit
Facilities (as defined)), and Restricted Subsidiaries that are not Guarantors
would have had no Indebtedness outstanding (excluding intercompany loans and
guarantees of Huntsman Packaging Indebtedness). See "Risk Factors --
Substantial Leverage," "--Ability to Service Indebtedness" and "Description
of the Notes and Guarantees -- Ranking."
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Interest on each New Note will accrue (A) from the later of (i) the
last interest payment date on which interest was paid on the Old Note
surrendered in exchange therefor, or (ii) if the Old Note is surrendered for
exchange on a date in a period which includes the record date for an interest
payment date to occur on or after the date of such exchange and as to which
interest will be paid, the date of such interest payment date or (B) if no
interest has been paid on the Old Notes, from September 30, 1997.
Accordingly, registered Holders of New Notes on the relevant record date for
the first interest payment date following the consummation of the Exchange
Offer will receive interest accruing from the most recent date to which
interest has been paid or, if no interest has been paid, from September 30,
1997. Old Notes accepted for exchange will cease to accrue interest from and
after the date of consummation of the Exchange Offer. Holders of Old Notes
whose Old Notes are accepted for exchange will not receive any payment in
respect of accrued interest on such Old Notes.
(Continued on following page)
SEE "RISK FACTORS," BEGINNING ON PAGE 13 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD
NOTES IN CONNECTION WITH THIS EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is March 2, 1998
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(Continued from previous page)
The New Notes are being offered hereunder in order to satisfy certain
obligations of Huntsman Packaging contained in the Registration Rights
Agreement, dated as of September 19, 1997 (the "Registration Rights
Agreement"), among Huntsman Packaging and the other signatories thereto.
Under existing interpretations by the staff of the Securities and Exchange
Commission (the "Commission") contained in several no-action letters issued
to third parties, Huntsman Packaging believes that the New Notes issued
pursuant to the Exchange Offer in exchange for the Old Notes may be freely
transferable by holders thereof (other than any such holder which is an
"affiliate" of Huntsman Packaging within the meaning of Rule 405 under the
Securities Act) without further registration under the Securities Act;
provided, however, that each Holder that wishes to exchange its Old Notes for
New Notes will be required to represent (i) that any New Notes to be received
by it will be acquired in the ordinary course of its business, (ii) that at
the time of the commencement of the Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the New Notes in violation of the
Securities Act, (iii) that it is not an "affiliate" (as defined in Rule 405
promulgated under the Securities Act) of Huntsman Packaging, (iv) if such
Holder is not a broker-dealer, that it is not engaged in, and does not intend to
engage in, the distribution of New Notes and (v) if such Holder is a
broker-dealer (a "Participating Broker-Dealer") that will receive New
Notes for its own account in exchange for Old Notes that were acquired
as a result of market-making or other trading activities, that it will
deliver a prospectus in connection with any resale of such New Notes and
that it acquired such Old Notes as a result of market-making activities
or other trading activities. However, Huntsman Packaging does not
intend to request the Commission to consider, and the Commission
has not considered, the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Huntsman Packaging will agree to make
available, during the period required by the Securities Act, a prospectus
meeting the requirements of the Securities Act for use by Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements for use in connection with any resale of New Notes. If any
Holder is an affiliate of Huntsman Packaging or is engaged in or intends to
engage in or has any arrangement with any person to participate in the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not rely on the applicable interpretations of the staff
of the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction, including the delivery of a prospectus which contains the
information with respect to any selling holder required by the Securities
Act. Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must represent to Huntsman Packaging that it will
deliver a prospectus in connection with any resale of such New Notes. The
Letter of Transmittal states that by so representing 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 New Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. Huntsman
Packaging has agreed that, starting on the Expiration Date (as defined
herein) and ending on the close of business on the 90th day following the
Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
Huntsman Packaging will not receive any proceeds from this Exchange Offer.
Huntsman Packaging has agreed to bear the expenses of this Exchange Offer.
Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date. This Exchange Offer will remain open for
thirty (30) days from the date of this Prospectus (unless otherwise extended
by Huntsman Packaging). The Registration Statement of which this Prospectus
constitutes a part will remain in effect until the consummation of the
Exchange Offer which will occur promptly after the Expiration Date. In the
event Huntsman Packaging terminates the Exchange Offer and does not accept
for exchange any Old Notes, Huntsman Packaging will promptly return the Old
Notes to the Holders thereof. See "The Exchange Offer."
Prior to the Exchange Offer there has been no established trading market
for the Old Notes or the New Notes. Although BT Alex. Brown Incorporated and
Chase Securities Inc. (the "Initial Purchasers") have advised Huntsman
Packaging that they currently intend to make a market in the New Notes, they
are not obligated to do so and may discontinue such market-making at any time
without notice. Accordingly, no assurance can be given as to the future
development of an active market for the New Notes, or the ability of the
Holders of New Notes to sell their New Notes or the price that such Holders
may obtain for their New Notes upon any sale. Huntsman Packaging does not
intend to apply for listing of the New Notes on any securities exchange or
for quotation through any automated quotation system. To the extent that a
market for the New Notes does develop, the New Notes could trade at a
discount from their principal amount. See "Risk Factors -- Lack of
Established Market for the Notes."
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CAUTIONARY STATEMENTS
Certain statements in this Prospectus under the captions "Prospectus
Summary," "Risk Factors," "Unaudited Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere constitute "forward-looking statements." When used
in this Prospectus, the words "anticipate," "believe," "estimate," "expect"
and similar expressions are generally intended to identify forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual
results, performance or achievements of Huntsman Packaging, or industry
results, to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other important factors include, among others:
general economic and business conditions; industry trends; competition; raw
material costs and availability; the loss of any significant customer;
changes in business strategy or development plans; availability, terms and
deployment of capital; availability of qualified personnel; changes in, or
the failure or inability to comply with, government regulation, including,
without limitation, environmental regulations; and other factors referenced
in this Prospectus. See "Risk Factors."
MARKET AND INDUSTRY DATA
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM INTERNAL
COMPANY SURVEYS AND INDUSTRY SURVEYS AND PUBLICATIONS. THE SOURCES FOR THIS
DATA INCLUDE, WITHOUT LIMITATION, MASTIO & COMPANY AND THE FLEXIBLE PACKAGING
ASSOCIATION. INDUSTRY SURVEYS AND PUBLICATIONS GENERALLY STATE THAT THE
INFORMATION CONTAINED THEREIN HAS BEEN OBTAINED FROM SOURCES BELIEVED TO BE
RELIABLE, BUT THERE CAN BE NO ASSURANCE AS TO THE ACCURACY AND COMPLETENESS
OF SUCH INFORMATION. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED SUCH MARKET
DATA. SIMILARLY, INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY THE COMPANY TO
BE RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES.
AVAILABLE INFORMATION
Huntsman Packaging has filed with the Commission a Registration Statement
on Form S-4 (the "Registration Statement") under the Securities Act with
respect to the New Notes offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. For
further information with respect to Huntsman Packaging and the New Notes
offered hereby, reference is made to the Registration Statement, including
the exhibits thereto and the financial statements, notes and schedules filed
as a part thereof. Any statement contained in this Prospectus as to the
contents of any contract or document filed as an exhibit to the Registration
Statement is qualified in all respects by such reference.
Huntsman Packaging is not currently subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). However, upon the effectiveness of the Registration
Statement, Huntsman Packaging will become subject to such requirements. The
Registration Statement (and the exhibits and schedules thereto), as well as
the periodic reports and other information filed by Huntsman Packaging with
the Commission, may be inspected and copied at the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located
at 7 World Trade Center, 15th Floor, Suite 1300, New York, New York 10048 and
Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in
New York, New York and Chicago, Illinois at the prescribed rates. Such
information may also be obtained electronically by accessing the Commission's
web site on the Internet (http://www.sec.gov). In the event that at any time
in the future after the effectiveness of the Registration Statement Huntsman
Packaging is not required to be subject to the reporting requirements of the
Exchange Act, Huntsman Packaging will be required under the Indenture, dated
as of September 30, 1997
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(the "Indenture"), by and among Huntsman Packaging, the Guarantors and The
Bank of New York, as Trustee (the "Trustee"), pursuant to which the Old Notes
have been, and the New Notes will be, issued, to continue to file with the
Commission and to provide the Holders with such information, documents and
other reports specified in Sections 13 and 15(d) of the Exchange Act which it
would have been required to file had it been subject to such reporting
requirements, including any audited financial statements as would be required
by the Exchange Act and the rules promulgated thereunder, for so long as any
Notes are outstanding.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data,
including the financial statements and notes thereto, appearing elsewhere in
this Prospectus. Unless otherwise stated in this Prospectus, references to
(a) "Huntsman Packaging" or the "Company" shall mean Huntsman Packaging
Corporation and its consolidated subsidiaries, (b) "Huntsman Corporation"
shall mean Huntsman Corporation and its consolidated subsidiaries and (c) the
"CT Film Purchase" shall mean the purchase of the assets of the CT Film
division (including the stock of Rexene Corporation Limited) ("CT Film") of
Huntsman Polymers Corporation (formerly known as Rexene Corporation)
("Huntsman Polymers") by Huntsman Packaging. Unless otherwise indicated in
this Prospectus, each subsidiary of the Company is wholly-owned. Unless
otherwise stated in this Prospectus, all market share and growth data are
presented for North America and are based on 1995 and 1996 revenues. "G-Bond"
and "Winwrap" are trademarks of the Company. All other trademarks, service
marks or trade names referred to in this Prospectus are the property of their
respective owners.
THE COMPANY
GENERAL
Huntsman Packaging Corporation is one of the largest manufacturers of film
and flexible packaging products in North America. The Company offers one of
the most diverse product lines in the industry and has attained a leading
market position in each of its major product lines. Management attributes its
market leadership primarily to its advanced film extrusion equipment and
technology, broad and innovative product lines, well-established customer
relationships and low-cost production capabilities. The Company's product
lines constitute two business segments, flexible packaging and foam products.
The flexible packaging segment's product lines are comprised of the
following: (i) converter films that are sold for additional fabrication and
resale by other flexible packaging manufacturers for use in a wide range of
consumer and industrial markets; (ii) barrier films that contain and protect
food and other products; (iii) printed products that include printed
rollstock, bags and sheets used to package products in the food and medical
industries; (iv) stretch films that are used for industrial unitizing and
containerization; and (v) PVC films that are used by supermarkets,
institutions and homes to wrap meat, cheese and produce. The foam products
segment includes meat trays, egg cartons and fast food containers. For the
year ended December 31, 1997, approximately 91% of the Company's sales were
derived from flexible packaging and approximately 9% were derived from foam
products. Further information regarding the Company's operations in different
business segments appears in Note 12 of the Notes to Huntsman Packaging's
Consolidated Financial Statements contained herein.
Flexible Packaging:
Converter Films. Converter films are polyethylene films that are sold to
converters and laminators for final processing into consumer products such as
bags, pouches and printed products. With the consummation of the CT Film
Purchase, the Company currently holds North America's number one market
position in the converter film segment, with a 23% market share.
Barrier Films. Barrier films are polyethylene films that are sold to food
processors and other end users. These films provide specific types of barrier
protection against moisture, oxygen, light and gases and are puncture
resistant. The Company is the second largest producer of cookie, cracker and
cereal box liners in North America, with a 19% market share. The CT Film
Purchase allowed the Company to gain entry or increase access to other
growing barrier film markets, including medical, personal care and
agricultural films.
Printed Products. Printed products are manufactured and sold to fresh and
frozen food processors, bakeries, textile manufacturers and other dry goods
processors. The Company is North America's leading
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supplier of film used in the frozen food segment, with a 31% market share.
The Company is also the second largest producer in the bakery market, with a
20% market share, supplying approximately one-fifth of the five billion bread
bags manufactured in North America each year. Management also anticipates
growth opportunities in the packaged salad and fresh produce market, which is
expected to grow approximately 9% annually over the next several years.
Stretch Films. Stretch films are used primarily to bundle products and
wrap pallets. Currently, approximately one-half of all loads shipped in North
America are unitized with stretch film. Management expects additional growth
in stretch films as they continue to replace less economical and less
environmentally-acceptable packaging alternatives, such as steel strapping.
The Company is North America's fourth largest producer of stretch films, with
an 11% market share.
PVC Films. PVC films are used by supermarkets, institutions and homes to
wrap meat, cheese and produce. Management believes the Company has North
America's number two market position in PVC films. Management estimates that
the Company also has the number one and three market shares in Australia and
Western Europe with 60% and 16%, respectively. The Company expects PVC film
export sales to increase in the growing Central and South American markets.
Foam Products:
The Company's polystyrene foam products include meat trays, egg cartons
and fast food containers, which it manufactures in the U.K. and France.
Management estimates that the Company is the largest producer of egg cartons
in France, with a 26% market share, and the third largest producer of
polystyrene foam food packaging in Western Europe, with an 11% market share.
The Company expects growth in foam products sales by penetrating emerging
markets in Eastern Europe and the Middle East.
The Company has engaged J.P. Morgan to represent it in soliciting bids for
a possible sale of its foam products business. A "first round" of bids has
been received. Potential purchasers have conducted preliminary due diligence,
and "second round" bids were received February 16, 1998. If the Company
ultimately accepts one of the bids and determines to sell the foam products
business, it is contemplated that such a transaction would be concluded in
March or April of 1998. There can be no assurance that the Company will
ultimately accept any of the bids or any offer for the sale of the foam
products business, that the Company will ultimately be successful in
negotiating any such sale, or that the foam products business will ultimately
be sold.
Customers:
The Company currently has over 2,000 customers, including General Mills,
Kraft/General Foods, Campbell Soup, Albertson's, Safeway, American Stores,
Tyson Foods, Interstate Bakeries (Wonder Bread), Becton-Dickinson,
Kimberly-Clark, 3M and Johnson & Johnson. With the addition of CT Film, the
Company has a manufacturing capacity of nearly 800 million pounds of
polyethylene and PVC films. For the year ended December 31, 1997, the
Company, on a pro forma basis after giving effect to the CT Film Purchase,
would have had net sales of $614.6 million, a net loss of $5.6 million and
EBITDA (as defined under "Prospectus Summary -- Summary Historical and Pro
Forma Financial Data") of $35.7 million.
HUNTSMAN PACKAGING
Huntsman Packaging was founded in 1992 for the purpose of acquiring
Goodyear Tire & Rubber Company's Film Products Division. Since its formation,
Huntsman Packaging has pursued its growth strategy by improving operating
efficiency and by completing eight strategic acquisitions and receiving a
capital contribution from Huntsman Corporation, each of which has
complemented Huntsman Packaging's existing product lines and provided it with
new products and access to new markets. For example, the October 1996
acquisition (the "Deerfield Acquisition") of Deerfield Plastics Company, Inc.
("Deerfield") established Huntsman Packaging as a leading converter film
producer and nearly doubled
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its share in the stretch film market. The July 1996 acquisition (the "United
Films Acquisition") of United Films Corporation ("United Films") established
Huntsman Packaging as a premier producer of cookie, cracker and cereal box
liners. Huntsman Packaging has a successful track record of improving
capacity utilization, reducing overhead costs and increasing profits of its
acquired businesses. The Company's recent acquisitions have provided it with
additional state-of-the-art equipment, which has allowed it to reduce capital
expenditures and consolidate its manufacturing operations by closing older,
less efficient operations. Management believes that additional cost savings
can be achieved as it continues to integrate acquired companies.
Prior to September 30, 1997, Huntsman Packaging was a wholly-owned
subsidiary of Huntsman Corporation. Contemporaneous with the offering of the
Old Notes (the "Offering"), Huntsman Packaging was separated from Huntsman
Corporation (the "Split-Off"). As a result of the Split-Off, Jon M.
Huntsman owns approximately 65% of the total equity of Huntsman Packaging.
Richard P. Durham and the Christena Karen H. Durham Trust collectively own
approximately 35% of the total equity of Huntsman Packaging. See "Ownwership
of Capital Stock." Mr. Durham is Mr. Huntsman's son-in-law and the President
and Chief Executive Officer of Huntsman Packaging. Christena Durham is the
daughter of Mr. Huntsman, the beneficiary of the Christena Karen H. Durham
Trust and the wife of Mr. Durham. Jon M. Huntsman, Richard P. Durham and
Christena H. Durham are currently the directors of the Company.
The Company intends to sell additional shares of its common stock and to
issue incentive stock options to certain members of the Company's senior
management. See "Ownership of Capital Stock."
CT FILM PURCHASE
On August 27, 1997, an indirect subsidiary of Huntsman Corporation was
merged into Rexene Corporation (the "Rexene Acquisition"). The surviving
corporation was renamed Huntsman Polymers Corporation. On September 30, 1997,
Huntsman Packaging acquired CT Film, including Rexene Corporation Limited,
from Huntsman Polymers Corporation for $70 million in cash.
Management believes that the CT Film Purchase strengthened the Company's
position as a market leader in the film and flexible packaging industry by
enhancing its existing product lines and provided new growth opportunities.
The CT Film Purchase provided the Company with new customers, including
Becton-Dickinson, Kimberly-Clark and Johnson & Johnson, and provided access
to the growing medical, personal care and agricultural film markets. In
addition, CT Film increased the Company's share of the North American
converter film market from 11% to a leading 23% share.
With the CT Film Purchase, management expects to generate significant cost
savings, primarily from three sources: (i) approximately $4.0 million in
annual savings from raw material cost reductions; (ii) approximately $6.6
million in annual savings from the elimination of duplicative management and
operating personnel; and (iii) approximately $5.7 million in annual savings
through the consolidation of less efficient facilities and the related
elimination of personnel and fixed costs.
Because the former CT Film assets were operating at approximately 67% of
capacity prior to the acquisition of CT Film, management believes that CT
Film's available capacity can be used to: (i) relocate manufacturing to
facilities closer to customers, thereby reducing transportation costs and
increasing logistical flexibility in product delivery; (ii) reduce production
lead times; and (iii) reduce capital expenditures.
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THE EXCHANGE OFFER
The Exchange Offer ............ Huntsman Packaging is offering to exchange
up to $125,000,000 aggregate principal
amount of its 9 1/8% Senior Subordinated
Notes due 2007 (the "New Notes") for a like
principal amount of its 9 1/8% Senior
Subordinated Notes due 2007 (the "Old Notes"
and, collectively with the New Notes, the
"Notes") that are properly tendered and
accepted. The terms of the New Notes and the
Old Notes are identical in all material
respects, except for certain transfer
restrictions and registration rights
relating to the Old Notes described below
under "--Summary Description of the New
Notes and Guarantees."
Tenders; Expiration Date;
Withdrawal ................... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on April 1, 1998, or
such later date and time to which it is
extended (the "Expiration Date"). The tender
of Old Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to the
Expiration Date. Any Old Note not accepted
for exchange for any reason will be returned
without expense to the tendering Holder
thereof as promptly as practicable after the
expiration or termination of the Exchange
Offer. See "The Exchange Offer -- Terms of
the Exchange Offer; Period for Tendering Old
Notes," and "--Withdrawal of Tenders."
Procedure for Tendering Old
Notes ........................ Certain brokers, dealers, commercial banks,
trust companies and other nominees who hold
Old Notes through the Depository Trust
Company (the "Book-Entry Transfer Facility")
must effect tenders by book-entry through
the Book-Entry Transfer Facility's automated
tender offer program ("ATOP"). Tendering
Holders of Old Notes wishing to accept the
Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile together with either certificates
for such Old Notes or, if tendering through
ATOP, a Book-Entry Confirmation (as defined
herein) of such Old Notes into the
Book-Entry Transfer Facility, if such
procedure is available, and any other
required documentation to the exchange agent
(the "Exchange Agent") at the address set
forth herein. Tendering Holders of Old Notes
that use ATOP will, by so doing, represent
that they are bound by the terms of the
Letter of Transmittal. See "The Exchange
Offer -- Book-Entry Transfer." By executing
the Letter of Transmittal, each Holder will
represent to Huntsman Packaging, among other
things, that (i) the New Notes acquired
pursuant to the Exchange Offer by the Holder
and any other person are being obtained in
the ordinary course of business of the
person receiving such New Notes, (ii)
neither the Holder nor such other person is
participating in, intends to participate in
or has an arrangement or understanding with
any person to participate in the
distribution of such New Notes and (iii)
neither the Holder nor such other person is
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an "affiliate," as defined under Rule 405 of
the Securities Act, of Huntsman Packaging.
Each broker-dealer that receives New Notes
for its own account in exchange for Old
Notes, where such Old Notes were acquired by
such broker or dealer as a result of
market-making activities or other trading
activities, must represent that it will
deliver a prospectus in connection with any
resale of such New Notes. The Letter of
Transmittal states that by so representing
and by delivering a prospectus, a broker or
dealer will not be deemed to admit that it
is an "underwriter" within the meaning of
the Securities Act. See "The Exchange Offer
-- Procedures for Tendering Old Notes" and
"Plan of Distribution."
Special Procedures for
Beneficial Owners ............ Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender should
contact such registered Holder promptly and
instruct such registered Holder to tender on
such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
owner's behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered Holder. The
transfer of registered ownership may take
considerable time. See "The Exchange Offer
-- Procedures for Tendering Old Notes."
Guaranteed Delivery Procedures Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes or any other documents
required by the Letter of Transmittal to the
Exchange Agent must tender their Old Notes
according to the guaranteed delivery
procedures set forth in "The Exchange Offer
-- Guaranteed Delivery Procedures."
Federal Income Tax Consequences The exchange pursuant to the Exchange Offer
should not result in any income, gain or
loss to the Holders or Huntsman Packaging
for federal income tax purposes. See
"Certain United States Federal Income Tax
Considerations."
Use of Proceeds ............... Huntsman Packaging will not receive any
proceeds from this Exchange Offer. See "Use
of Proceeds."
Exchange Agent ................ The Bank of New York is serving as the
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer.
5
<PAGE>
CONSEQUENCES OF EXCHANGING OR FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Huntsman Packaging does
not currently anticipate that it will register Old Notes under the Securities
Act. See "Description of the Notes and Guarantees -- Registration Rights."
Under existing interpretations by the staff of the Commission contained in
several no-action letters issued to third parties, Huntsman Packaging
believes that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be freely transferable by holders thereof (other than
any such holder which is an "affiliate" of Huntsman Packaging within the
meaning of Rule 405 under the Securities Act) without further registration
under the Securities Act; provided, however, that each Holder that wishes to
exchange its Old Notes for New Notes will be required to represent (i) that
any New Notes to be received by it will be acquired in the ordinary course of
its business, (ii) that at the time of the commencement of the Exchange Offer
it has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the New Notes in
violation of the Securities Act, (iii) that it is not an "affiliate" (as
defined in Rule 405 promulgated under the Securities Act) of Huntsman
Packaging, (iv) that it is not engaged in, and does not intend to engage in,
the distribution of New Notes and (v) if such Holder is a broker-dealer (a
"Participating Broker-Dealer") that will receive New Notes for its own
account in exchange for Old Notes that were acquired as a result of
market-making or other trading activities, that it will deliver a prospectus
in connection with any resale of such New Notes and that it acquired such Old
Notes as a result of market-making activities or other trading activities.
However, Huntsman Packaging does not intend to request the Commission to
consider, and the Commission has not considered, the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Huntsman Packaging will agree
to make available, during the period required by the Securities Act, a
prospectus meeting the requirements of the Securities Act for use by
Participating Broker-Dealers and other persons, if any, with similar
prospectus delivery requirements for use in connection with any resale of New
Notes. If any Holder is an affiliate of Huntsman Packaging or is engaged in
or intends to engage in or has any arrangement with any person to participate
in the distribution of the New Notes to be acquired pursuant to the Exchange
Offer, such Holder (i) could not rely on the applicable interpretations of
the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, including the delivery of a prospectus which contains the
information with respect to any selling holder required by the Securities
Act. Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must represent to Huntsman Packaging that it will
deliver a prospectus in connection with any resale of such New Notes. The
Letter of Transmittal states that by so representing 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 New Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. Huntsman
Packaging has agreed that, starting on the Expiration Date and ending on the
close of business on the 90th day following the Expiration Date, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution." However, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may
not be offered or sold unless they have been registered or qualified for sale
in such jurisdictions or an exemption from registration or qualification is
available and is complied with. Huntsman Packaging does not currently intend
to register or qualify the sale of the New Notes in any such jurisdictions.
See "The Exchange Offer -- Consequences of Exchanging or Failing to Exchange
Old Notes."
6
<PAGE>
SUMMARY DESCRIPTION OF THE NOTES AND GUARANTEES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes. Interest on each New Note will accrue (A) from the
later of (i) the last interest payment date on which interest was paid on the
Old Note surrendered in exchange therefor, or (ii) if the Old Note is
surrendered for exchange on a date in a period which includes the record date
for an interest payment date to occur on or after the date of such exchange
and as to which interest will be paid, the date of such interest payment date
or (B) if no interest has been paid on the Old Notes, from September 30,
1997. Accordingly, registered Holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid or, if no interest has been paid, from September
30, 1997. Old Notes accepted for exchange will cease to accrue interest from
and after the date of consummation of the Exchange Offer. Holders of Old
Notes whose Old Notes are accepted for exchange will not receive any payment
in respect of interest on such Old Notes otherwise payable on any interest
payment date the record date for which occurs on or after consummation of the
Exchange Offer. In the event of a registration default under the Registration
Rights Agreement, Huntsman Packaging will pay additional interest
("Additional Interest") to each Holder of Transfer Restricted Securities (as
defined herein). See "Description of the Notes and Guarantees -- Additional
Interest."
Securities Offered ............ $125,000,000 aggregate principal amount of 9
1/8% Senior Subordinated Notes due 2007.
Issuer ........................ Huntsman Packaging Corporation, a Utah
corporation.
Maturity Date ................. October 1, 2007.
Interest Payment Dates ........ Interest on the New Notes will be payable
semi-annually in arrears on each April 1 and
October 1, commencing April 1, 1998.
Ranking ....................... The New Notes will be unsecured senior
subordinated obligations of Huntsman
Packaging and, as such, will be subordinated
in right of payment to all existing and
future Senior Debt (as defined) of Huntsman
Packaging and will be effectively
subordinated to all obligations of any
subsidiary of Huntsman Packaging that is not
a Guarantor. The New Notes will rank pari
passu in right of payment to all senior
subordinated Indebtedness of Huntsman
Packaging and will be senior in right of
payment to all existing and future
subordinated obligations of Huntsman
Packaging. As of December 31, 1997, Huntsman
Packaging had approximately $125.5 million
of Senior Debt outstanding, all of which
ranks senior to the Notes, and approximately
$250.5 million of total Indebtedness
outstanding (in each case, excluding unused
commitments and outstanding letters of
credit totalling $93.6 million under the
Credit Facilities), and Restricted
Subsidiaries that are not Guarantors would
have had no Indebtedness outstanding
(excluding intercompany loans and guarantees
of Huntsman Packaging Indebtedness).
7
<PAGE>
Guarantees .................... The New Notes will be fully and
unconditionally guaranteed on a senior
subordinated basis by each subsidiary,
including any future domestic subsidiary, of
Huntsman Packaging that guarantees the
Credit Facilities. The New Guarantees will
be guaranteed on a joint and several basis
by the Guarantors. The New Guarantees will
be unsecured senior subordinated obligations
of the Guarantors, and will be subordinated
in right of payment to all existing and
future Guarantor Senior Debt (as defined)
and will rank pari passu to any senior
subordinated Indebtedness of the Guarantors
and senior in right of payment to all
subordinated obligations of the Guarantors.
Optional Redemption ........... The New Notes will be redeemable, in whole
or in part, at the option of Huntsman
Packaging, on or after October 1, 2002. In
addition, at any time on or prior to October
1, 2000, Huntsman Packaging may, at its
option, redeem up to 35% of the aggregate
principal amount of the New Notes originally
issued with the net cash proceeds of one or
more Equity Offerings (as defined), at a
redemption price equal to 109 1/8% of the
principal amount thereof plus accrued
interest to the date of redemption;
provided, however, that, after giving effect
to any such redemption, at least 65% of the
aggregate principal amount of the New Notes
originally issued remain outstanding.
Change of Control ............. Upon a Change of Control (as defined), each
Holder will have the right to require
Huntsman Packaging to repurchase such
Holder's Notes at a price equal to 101% of
the principal amount thereof plus accrued
interest to the date of repurchase.
Certain Covenants ............. The Indenture contains certain covenants
that limit the ability of Huntsman Packaging
to, among other things, incur additional
indebtedness, pay dividends or make certain
other restricted payments, consummate
certain asset sales, enter into certain
transactions with affiliates, incur liens,
impose restrictions on the ability of a
subsidiary to pay dividends or make certain
payments to Huntsman Packaging and its
subsidiaries, merge or consolidate with any
other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or
substantially all the assets of Huntsman
Packaging. In addition, under certain
circumstances, Huntsman Packaging will be
required to offer to purchase the Notes, in
whole or in part, at a purchase price equal
to 100% of the principal amount thereof plus
accrued interest to the date of repurchase
with the proceeds of certain Asset Sales (as
defined).
For additional information regarding the Notes and Guarantees, see
"Description of the Notes and Guarantees."
8
<PAGE>
EXCHANGE OFFER AND REGISTRATION RIGHTS
Holders of New Notes other than as set forth below are not entitled to any
registration rights with respect to the New Notes. Pursuant to the
Registration Rights Agreement, Huntsman Packaging agreed, for the benefit of
the Holders of Old Notes, to use its best efforts to file an Exchange Offer
Registration Statement (as defined). The Registration Statement of which this
Prospectus is a part constitutes the Exchange Offer Registration Statement.
Under certain circumstances, certain Holders of Notes (including Holders who
may not participate in the Exchange Offer or who may not freely resell New
Notes received in the Exchange Offer) may require Huntsman Packaging to use
its best efforts to file, and cause to become effective, a shelf registration
statement under the Securities Act, which would cover resales of Notes by
such Holders. See "Description of the Notes and Guarantees --Registration
Rights."
USE OF PROCEEDS
Huntsman Packaging will not receive any proceeds from this Exchange Offer.
The net proceeds to Huntsman Packaging from the Offering, after deducting
discounts and expenses, were approximately $121 million. Huntsman Packaging
used the net proceeds of the Offering, together with borrowings under the
Credit Facilities, to finance repayment of all outstanding long-term
indebtedness to Huntsman Corporation (a portion of which was incurred to
finance the Deerfield Acquisition, the United Films Acquisition and capital
expenditures), fund the CT Film Purchase and provide funds for ongoing
working capital and general corporate purposes. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RISK FACTORS
Holders of Old Notes should consider carefully the information set forth
in this Prospectus and, in particular, should evaluate the specific factors
set forth under "Risk Factors" relating to the consequences of exchanging or
failing to exchange Old Notes, the Company's substantial leverage, its
ability to service indebtedness, the subordination of the Notes and
Guarantees, the unsecured status of the Notes and Guarantees, the
Restrictions under the Company's credit facilities, the Company's exposure to
fluctuations in resin prices and dependence on resin supplies, competition to
the Company, customer relationships, the integration of the CT Film Purchase,
fraudulent transfer considerations, the lack of an established market for the
Notes, and the Exchange Offer procedures before making a decision to tender
their Old Notes in connection with this Exchange Offer. See "Risk Factors."
Huntsman Packaging's executive offices are located at 500 Huntsman Way,
Salt Lake City, Utah 84108. Huntsman Packaging's telephone number is (801)
532-5200.
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary financial data set forth below present the historical
financial data of Huntsman Packaging. The summary financial data as of
December 31, 1994, 1995, 1996 and 1997 and for the years then ended have been
derived from the audited financial statements of Huntsman Packaging. The
summary financial data as of December 31, 1993 and for the year then ended
has been derived from the unaudited financial statements of Huntsman
Packaging.
The summary pro forma financial data of Huntsman Packaging set forth below
give effect to: (i) the Offering; (ii) the Split-Off; (iii) the CT Film
Purchase; (iv) the execution of the Credit Facilities (items (i)-(iv) are
collectively referred to as the "Pro Forma Transactions"). The unaudited pro
forma condensed statement of operations and other financial data for the year
ended December 31, 1997 give effect to the Pro Forma Transactions as if they
had occurred on January 1, 1997. The summary pro forma financial data do not
purport to be indicative of the financial position or results of operations
of future periods or indicative of results that would have occurred had the
transactions referred to above been consummated on the dates indicated. The
summary pro forma financial data should be read in conjunction with
"Unaudited Pro Forma Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," Huntsman Packaging's
Consolidated Financial Statements and the Notes thereto and the Combined
Financial Statements of CT Film and Rexene Corporation Limited and the Notes
thereto contained herein. Since 1992, Huntsman Packaging has completed eight
acquisitions, including acquisitions in 1996 of Deerfield and United Films
and in 1997 of CT Film. In addition, in 1996, Huntsman Packaging received a
capital contribution from Huntsman Corporation of the capital stock of
Huntsman Container Corporation International, which indirectly owns certain
foam packaging operations in Europe (such operations hereinafter referred to
as "European Foam"). During the past several years, Huntsman Packaging's net
sales have increased significantly from year to year primarily as a result of
the aforementioned acquisitions and capital contribution.
10
<PAGE>
<TABLE>
<CAPTION>
HUNTSMAN PACKAGING PRO FORMA
HUNTSMAN PACKAGING HISTORICAL (1) (2)
------------------------------------------------- ------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, 1997
------------------------------------------------- ------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- ---------- ---------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales ..................... $236.3 $294.7 $325.0 $339.1 $491.1 $614.6
Costs of goods sold ........... 195.2 242.4 273.5 288.9 424.8 539.5
-------- -------- -------- ---------- --------- ------------------------------
Gross profit ................. 41.1 52.3 51.5 50.2 66.3 75.1
Total operating expenses ..... 31.1 37.1 36.5 42.2 49.2 59.2
-------- -------- -------- ---------- --------- ------------------------------
Income from operations ...... 10.0 15.2 15.0 8.0 17.1 15.9
Interest expense--net ......... (6.5) (7.5) (8.7) (11.6) (16.4) (22.6)
Other income (expense) ........ 0.5 (0.3) (2.3) (3.8) 0.5 0.5
-------- -------- -------- ---------- --------- ------------------------------
Income (loss) before income
taxes and extraordinary item . 4.0 7.4 4.0 (7.4) 1.2 (6.2)
Provision for (benefit from)
income taxes ................. 1.4 3.0 1.7 (4.2) 0.8 (0.6)
-------- -------- -------- ---------- --------- ------------------------------
Income (loss) before
extraordinary item ........... 2.6 4.4 2.3 (3.2) 0.4 (5.6)
------------------------------
Extraordinary item............. -- -- -- (1.3)(3) -- --
-------- -------- -------- ---------- --------- ------------------------------
Net income (loss)............. $ 2.6 $ 4.4 $ 2.3 $ (4.5) $ 0.4 $ (5.6)
======== ======== ======== ========== ========= ==============================
OTHER FINANCIAL DATA:
Depreciation and amortization $ 9.0 $ 9.5 $ 11.6 $ 14.0 $ 16.4 $ 19.3
EBITDA (4) .................... 19.5 24.4 24.3 18.2 (5) 34.0 (6) 35.7 (6)(7)
Cash flows from operating
activities.................... 18.9 1.0 12.8 20.1 28.6 27.3
Cash flows from investing
activities.................... (42.8) (8.2) (20.5) (88.9) (87.2) (89.6)
Cash flows from financing
activities.................... 4.5 9.9 6.7 68.6 63.2 67.3
Net cash interest expense ..... 6.0 7.0 8.3 11.6 16.2 22.4
Capital expenditures .......... 7.2 8.4 19.5 12.8 17.9 20.4
Ratio of earnings to fixed
charges (8) .................. 1.6x 1.9x 1.4x 0.4x 1.1x 0.7x
BALANCE SHEET DATA (AT PERIOD END):
Working capital................ $ 34.1 $ 46.8 $ 54.8 $ 74.6 $ 94.1
Total assets .................. 181.3 196.1 231.7 329.1 409.6
Long-term debt ................ 78.1 88.7 103.0 187.2 250.5
Total liabilities ............. 123.6 136.1 160.7 262.1 346.6
Stockholders' equity........... 57.7 60.0 71.0 67.0 63.0
</TABLE>
- ------------
(1) Since 1992, Huntsman Packaging has completed eight acquisitions,
including acquisitions in 1996 of Deerfield and United Films and in
1997 of CT Film, and in 1996 received a capital contribution from
Huntsman Corporation of European Foam. During the past several years,
Huntsman Packaging's net sales have increased significantly from year
to year primarily as a result of the aforementioned acquisitions and
capital contribution. For additional discussion of such acquisitions
and capital contribution by the Company, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
Huntsman Packaging's Consolidated Financial Statements and the Notes
thereto contained herein.
(2) The summary pro forma financial data should be read in conjunction
with "Unaudited Pro Forma Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations,"
Huntsman Packaging's Consolidated Financial Statements and the Notes
thereto and the Combined Financial Statements of CT Film and Rexene
Corporation Limited and the Notes thereto contained herein.
(3) In 1996, the Company refinanced most of its long-term debt and
recorded an extraordinary item for the write-off of previously
deferred loan costs. See Note 5 of the Notes to Huntsman Packaging's
Consolidated Financial Statements contained herein for further
information.
(4) EBITDA is defined as net income before interest expense, taxes,
depreciation and amortization and extraordinary items. Huntsman
Packaging's management believes EBITDA information enhances an
investor's understanding of a company's ability to satisfy principal
and interest obligations with respect to its indebtedness and to
utilize cash for other purposes. However, there may be contractual,
legal, economic or other reasons which may prevent the Company from
satisfying its principal and interest obligations with respect to its
indebtedness and may require the Company to allocate funds for other
purposes. EBITDA does not represent and should not be considered as
an alternative to net income or cash flows from operations as
determined by generally accepted accounting principles ("GAAP") and
may not be comparable to other similarly titled measures of other
companies.
11
<PAGE>
(5) Includes aggregate nonrecurring charges of $12.1 million resulting
from the closing of certain facilities in the year ended December 31,
1996. Had these facilities been closed on January 1, 1996, the
Company estimates overhead savings of $2.9 million would have been
realized in the year ended December 31, 1996.
(6) Includes aggregate nonrecurring charges of $9.3 million resulting
from the closing of a certain facility in the year ended December 31,
1997. Had this facility been closed January 1, 1997, the Company
estimates overhead savings of $3.0 million would have been realized
in the year ended December 31, 1997.
(7) The pro forma income statement for the year ended December 31, 1997
does not include certain cost savings the Company expects to achieve
due to the combination of Huntsman Packaging and CT Film. Management
believes these savings will be fully realized by the end of 1998. Had
these cost savings been in place January 1, 1997, management believes
the following portion of estimated annual cost savings of $16.3
million would have been achieved during 1997:
<TABLE>
<S> <C>
Net reduction in raw material costs under the Company's existing contractual
arrangements compared to CT Film's historical raw material costs................. $ 3.0
Plant headcount reductions........................................................ 0.9
Administrative headcount reductions............................................... 4.1
Cost savings from the elimination of corporate allocations from Rexene
Corporation recorded by CT Film which will not recur............................. 1.8
Savings from United States plant closure ......................................... 4.1
Savings from United Kingdom plant closure......................................... 1.6
------
Total estimated recurring net cost savings........................................ $15.5
======
</TABLE>
(8) For purposes of this computation, earnings are defined as income
before income taxes plus fixed charges. Fixed charges consist of
interest (including amortization of deferred financing costs) and
that portion of rental expense that is representative of interest
(deemed to be one-third of operating lease rental expense). For the
year ended December 31, 1996, earnings were insufficient to cover
fixed charges by $7.4 million, due primarily to a $10.9 million plant
closing charge. For the year ended December 31, 1997, on a pro forma
basis, earnings were insufficient to cover fixed charges by $6.2
million, due primarily to additional interest expense.
12
<PAGE>
RISK FACTORS
Holders of Old Notes should consider carefully the following risk factors
as well as the other information contained in this Prospectus before making a
decision to tender their Old Notes in this Exchange Offer, although the risk
factors set forth below (other than "--Consequences of Exchanging or Failing
to Exchange Old Notes") are generally applicable to the Old Notes as well as
the New Notes.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
Transfer Restrictions of Old Notes
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Huntsman Packaging does
not currently anticipate that it will register Old Notes under the Securities
Act. See "Description of the Notes and Guarantees -- Registration Rights."
Representations for Exchange of Old Notes
Under existing interpretations by the staff of the Commission contained in
several no-action letters issued to third parties, Huntsman Packaging
believes that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be freely transferable by holders thereof (other than
any such holder which is an "affiliate" of Huntsman Packaging within the
meaning of Rule 405 under the Securities Act) without further registration
under the Securities Act; provided, however, that each Holder that wishes to
exchange its Old Notes for New Notes will be required to represent (i) that
any New Notes to be received by it will be acquired in the ordinary course of
its business, (ii) that at the time of the commencement of the Exchange Offer
it has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the New Notes in
violation of the Securities Act, (iii) that it is not an "affiliate" (as
defined in Rule 405 promulgated under the Securities Act) of Huntsman
Packaging, (iv) if such Holder is not a broker-dealer, that it is not engaged
in, and does not intend to engage in, the distribution of New Notes and (v) if
such Holder is a broker-dealer (a "Participating Broker-Dealer") that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making or other trading activities, that it
will deliver a prospectus in connection with any resale of such New Notes
and that it acquired such Old Notes as a result of market-making activities
or other trading activities . However, Huntsman Packaging does not intend to
request the Commission to consider, and the Commission has not considered,
the Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in such other circumstances.
Requirements for Brokers-Dealers
Huntsman Packaging will agree to make available, during the period
required by the Securities Act, a prospectus meeting the requirements of the
Securities Act for use by Participating Broker-Dealers and other persons, if
any, with similar prospectus delivery requirements for use in connection with
any resale of New Notes. If any Holder is an affiliate of Huntsman Packaging
or is engaged in or intends to engage in or has any arrangement with any
person to participate in the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such Holder (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, including the
delivery of a prospectus which contains the information with respect to any
selling holder required by the Securities Act. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
represent to Huntsman Packaging that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal
states that by so representing and by delivering a prospectus,
13
<PAGE>
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 New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. Huntsman Packaging has
agreed that, starting on the Expiration Date (as defined herein) and ending
on the close of business on the 90th day following the Expiration Date, it
will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
State Securities Laws
To comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. Huntsman
Packaging does not currently intend to register or qualify the sale of the
New Notes in any such jurisdiction. See "The Exchange Offer -- Consequences
of Exchanging or Failing to Exchange Old Notes."
SUBSTANTIAL LEVERAGE
As of December 31, 1997, Huntsman Packaging had outstanding long-term debt
of approximately $250.2 million or approximately 80% of its total
capitalization, stockholders' equity of $63.0 million and $93.6 million in
letters of credit and unused commitments. For the year ended December 31,
1997, on a pro forma basis after giving effect to the Pro Forma Transactions,
the ratio of earnings to fixed charges would have been 0.7x. On a pro forma
basis, earnings would have been insufficient to cover fixed charges by $6.2
million. See "Capitalization," "Unaudited Pro Forma Financial Data" and
"Selected Historical Financial Data."
Huntsman Packaging's high degree of leverage could have important
consequences to Holders, including, but not limited to, the following: (i)
Huntsman Packaging's ability to obtain additional financing in the future for
working capital, capital expenditures, product development, debt service
requirements, acquisitions, general corporate or other purposes may be
materially limited or impaired; (ii) a substantial portion of Huntsman
Packaging's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds
available to Huntsman Packaging for other purposes, including its operations
and future business opportunities; (iii) certain of Huntsman Packaging's
borrowings, including borrowings under the Credit Facilities, are at variable
rates of interest, exposing Huntsman Packaging to the risk of increased
interest rates; (iv) the indebtedness outstanding under the Credit Facilities
is secured by a lien on substantially all the assets of Huntsman Packaging
and its domestic subsidiaries and will mature prior to the maturity of the
Notes; (v) Huntsman Packaging's flexibility to adjust to changing market
conditions and ability to withstand competitive pressures could be limited by
its leveraged position and the covenants contained in its debt instruments,
thus putting Huntsman Packaging at a competitive disadvantage; and (vi)
Huntsman Packaging may be vulnerable in a downturn in general economic
conditions or in its business or be unable to carry out capital spending that
is important to its growth and productivity improvement programs.
ABILITY TO SERVICE INDEBTEDNESS
Cash Flow Limitations, Including Repatriation Risks
Huntsman Packaging is required to make scheduled principal payments under
the Credit Facilities commencing in 2001. Huntsman Packaging's ability to
make scheduled payments or to refinance its obligations with respect to its
indebtedness, including the Notes, will depend on its financial and operating
performance, which is subject to prevailing economic and competitive
conditions and to certain financial, business and other factors beyond its
control, including interest rates, unscheduled plant shutdowns, increased
operating costs, raw material and product prices, regulatory developments and
the ability of the Company to repatriate cash generated outside of the United
States without incurring a substantial tax liability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
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- --Liquidity." There can be no assurance that Huntsman Packaging will maintain
a level of cash flow from operations sufficient to permit it to pay the
principal, premium, if any, and interest on its indebtedness, including the
Notes.
If Huntsman Packaging's cash flow and capital resources are insufficient
to fund its debt service obligations, Huntsman Packaging may be forced to
reduce or delay capital expenditures, sell assets, seek additional capital or
restructure or refinance its indebtedness, including the Notes. There can be
no assurance that any such alternative measures would be successful or would
permit Huntsman Packaging to meet its scheduled debt service obligations. In
the absence of such operating results and resources, Huntsman Packaging could
face substantial liquidity problems and might be required to dispose of
material assets or operations to meet its debt service and other obligations.
The agreement governing the Credit Facilities (the "Credit Agreement") and
the Indenture (as defined) will restrict Huntsman Packaging's ability to sell
assets and use the proceeds therefrom. See "Description of the Notes and
Guarantees." There can be no assurance as to the ability of Huntsman
Packaging to consummate such sales or to obtain the proceeds which Huntsman
Packaging could realize therefrom or that such proceeds would be adequate to
meet the obligations then due.
Default Under Agreements Governing Indebtedness
In the event that Huntsman Packaging is unable to generate sufficient cash
flow and Huntsman Packaging is otherwise unable to obtain funds necessary to
meet required payments of principal, premium, if any, and interest on its
indebtedness, or if Huntsman Packaging otherwise fails to comply with the
various covenants in the instruments governing such indebtedness (including
covenants in the Indenture and the Credit Agreement), Huntsman Packaging
could be in default under the terms of the agreements governing such
indebtedness, including the Credit Agreement and the Indenture. In the event
of such default, the holders of such indebtedness could elect to declare all
the funds borrowed thereunder to be due and payable together with accrued and
unpaid interest, the lenders under the Credit Facilities could elect to
terminate their commitments thereunder and Huntsman Packaging could be forced
into bankruptcy or liquidation. Any default under the agreements governing
the indebtedness of Huntsman Packaging could have a significant adverse
effect on Huntsman Packaging's ability to pay principal, premium, if any, and
interest on the Notes and on the market value of the Notes. See "Use of
Proceeds" and "Description of the Notes and Guarantees."
Change of Control and Ability to Repurchase Notes
The Indenture provides that upon a Change in Control (as defined) of the
Company, the Company will be required to offer to repurchase all of the
outstanding Notes at 101% of the principal amount thereof plus accrued
interest to the date of repurchase. This provision will not necessarily
provide protection to Holders in the event of a highly leveraged transaction
or certain other transactions involving the Company or its subsidiaries. In
addition, the Company's ability to repurchase the Notes may be limited by the
Company's then existing financial resources. There can be no assurance that
in the event of a Change of Control, the Company will have, or will have
access to, sufficient funds or will be contractually permitted under the
terms of its outstanding indebtedness to purchase all Notes tendered by
holders upon a Change of Control. See "Description of the Credit Facilities"
and "Description of the Notes and Guarantees -- Change of Control."
SUBORDINATION OF THE NOTES AND GUARANTEES; UNSECURED STATUS OF THE NOTES AND
GUARANTEES
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes is subordinated in right of payment to
the prior payment in full of all existing and future Senior Debt (as defined
in the Indenture) of Huntsman Packaging, including all amounts owing under
the Credit Facilities. As of December 31, 1997, the aggregate principal
amount of such Senior Debt of Huntsman Packaging was $125.5 million
(excluding unused commitments and outstanding letters of credit totalling
$93.6 million under the Credit Facilities). Therefore, in the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with respect to Huntsman Packaging, the assets of Huntsman Packaging will be
available to pay obligations on the Notes only after all Senior Debt of
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Huntsman Packaging has been paid in full, and there can be no assurance that
there will be sufficient assets remaining to pay amounts due on all or any of
the Notes. The Guarantees will be unsecured senior subordinated obligations
of the Guarantors and will be subordinated in right of payment to all
existing and future Guarantor Senior Debt (as defined in the Indenture),
including all amounts owing under the Credit Facilities. In addition, the
Notes are effectively subordinated to all obligations of any subsidiary of
Huntsman Packaging that is not a Guarantor, including trade payables of such
subsidiaries, whether or not such liabilities constitute Guarantor Senior
Debt.
The Indenture permits Huntsman Packaging to incur certain secured
indebtedness, including indebtedness under the Credit Facilities, which is
secured by a lien on substantially all the assets of Huntsman Packaging and
its domestic subsidiaries. The Notes are unsecured and therefore do not have
the benefit of such collateral. Accordingly, if an event of default occurs
under the Credit Agreement, the lenders under the Credit Facilities will have
a prior right to the assets of Huntsman Packaging, and may foreclose upon
such collateral. In either such event, such assets would first be used to
repay in full amounts outstanding under the Credit Facilities, resulting in
all or a portion of Huntsman Packaging's assets being unavailable to satisfy
the claims of the Holders and other unsecured indebtedness.
RESTRICTIONS UNDER CREDIT FACILITIES
Huntsman Packaging will be subject to certain restrictive covenants under
the Credit Agreement, including financial and operating covenants. Failure to
comply with any such covenants would permit the lenders under the Credit
Agreement to cease making any further loans and to accelerate the maturity of
the indebtedness under the Credit Facilities and institute foreclosure
proceedings as to Huntsman Packaging's assets and could result in the
acceleration of other indebtedness of Huntsman Packaging, including the
Notes. Such actions would adversely affect Huntsman Packaging's ability to
pay the principal, premium, if any, or interest on the Notes.
EXPOSURE TO FLUCTUATIONS IN RESIN PRICES AND DEPENDENCE ON RESIN SUPPLIES
Huntsman Packaging uses large quantities of resin in manufacturing its
products. For the year ended December 31, 1997, resin costs comprised
approximately 80% of raw materials costs and approximately 43% of net sales.
Significant increases in the price of resin could adversely affect Huntsman
Packaging's operating margins. There can be no assurance that a significant
increase in resin prices, would not have an adverse effect on Huntsman
Packaging's business, results of operations and debt service capabilities. In
addition, Huntsman Packaging has relied on certain key suppliers of resin for
most of its resin supply, some of which resin has characteristics proprietary
to the supplier. Although Huntsman Packaging believes that its key suppliers
will continue to supply Huntsman Packaging with adequate amounts of resin on
a timely basis and that alternatives are available for resin with proprietary
characteristics, the loss of a key source of supply, the inability to obtain
resin with desired proprietary characteristics or a delay in shipments could
have an adverse effect on Huntsman Packaging's business. Huntsman Packaging
also obtains resin on favorable terms under certain contracts with suppliers.
Should any of Huntsman Packaging's resin suppliers fail to deliver resin or
should any such contract be canceled, Huntsman Packaging would be forced to
purchase resin in the open market and no assurances can be given that it
would be able to make such purchases at prices that would allow it to remain
competitive. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Raw Materials."
COMPETITION
The markets in which Huntsman Packaging operates are highly competitive on
the basis of price, service, quality and innovation in product structures. In
addition to many smaller competitors, Huntsman Packaging faces strong
competition from various large flexible packaging companies, including Bemis,
American National Can, Printpack, Cryovac (a division of W.R. Grace),
Tenneco, AEP and Exxon. Some of Huntsman Packaging competitors are
substantially larger, more diversified and have greater financial, personnel
and marketing resources than Huntsman Packaging and therefore may have
certain competitive advantages vis-a-vis Huntsman Packaging. Although
Huntsman Packaging has broad product lines
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and is continually developing its product structures and graphics, from time
to time customers may determine to use alternative product structures and
graphics not offered by Huntsman Packaging, with a corresponding reduction in
existing and potential revenues from these customers. See "Business."
CUSTOMER RELATIONSHIPS
Huntsman Packaging is dependent upon a limited number of large customers
with substantial purchasing power for a majority of its sales, many of which
are reducing their number of suppliers. The top ten customers accounted for
approximately 20% of Huntsman Packaging's total sales in 1996 and 1997. The
loss of one or more major customers, or a material reduction in the sales to
such customers would have a material adverse effect on Huntsman Packaging's
results of operations and on its ability to services its Indebtedness. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
RISKS RELATING TO THE INTEGRATION OF THE CT FILM PURCHASE
With the consummation of the CT Film Purchase, the sales efforts of
Huntsman Packaging and CT Film, the consolidation of less efficient
facilities and the elimination of duplicative management and operating
personnel must be completed successfully in order to capture the benefit of
the expected efficiencies and cost reductions. This process will require
substantial attention from Huntsman Packaging's management team. The
diversion of management attention, as well as any other difficulties that may
be encountered in the transition and integration process, could have a
material adverse effect on Huntsman Packaging's financial condition, results
of operations or cash flows. There can be no assurance that Huntsman
Packaging will be able to integrate the operations of Huntsman Packaging and
CT Film successfully. In addition, CT Film's sales volume and operating
results for 1996 were adversely affected by technological changes in the
disposable diaper market, resulting in a significant reduction in sales
volume to CT Film's largest customer. Although the Company is currently
developing various strategies to increase the sales and profits of CT Film,
there can be no assurance as to its ability to achieve such results.
FRAUDULENT TRANSFER CONSIDERATIONS
If, under relevant federal and state fraudulent transfer and conveyance
statutes, in a bankruptcy, reorganization or liquidation case or similar
proceeding or a lawsuit by or on behalf of unpaid creditors of Huntsman
Packaging or a Guarantor, a court were to find that, at the time the Notes
were issued by Huntsman Packaging, (a) Huntsman Packaging issued the Notes
with the intent of hindering, delaying or defrauding current or future
creditors or (b)(i) Huntsman Packaging or such Guarantor received less than
reasonably equivalent value or fair consideration for issuing the Notes or a
Guarantee, respectively, and (ii) after applying the proceeds, Huntsman
Packaging or such Guarantor (A) was insolvent or was rendered insolvent by
reason of such transactions, (B) was engaged, or about to engage, in a
business or transaction for which its assets constituted unreasonably small
capital to carry on its business, or (C) intended to incur, or believed or
reasonably should have believed that it would incur, debts beyond its ability
to pay as such debts matured or became due (as all of the foregoing terms are
defined in or interpreted under the relevant fraudulent transfer or
conveyance statutes), such court could avoid the obligations under the Notes
or such Guarantee or further subordinate the Notes or such Guarantee to
presently existing and future indebtedness of Huntsman Packaging or such
Guarantor or take other action detrimental to the Holders, including, under
certain circumstances, invalidating the Notes or such Guarantee. In that
event, there can be no assurance that any repayment on the Notes would ever
be received by Holders. The avoidance of such Notes could result in an event
of default with respect to other debt of Huntsman Packaging and its
subsidiaries, which could result in acceleration of such debt.
The measure of insolvency for purposes of the foregoing considerations
will vary depending upon the law of the jurisdiction that is be applied.
Generally, however, a company would be considered insolvent if, at the time
it incurred indebtedness, either (i) it is unable to pay its debts as they
become due in the usual course of its business, (ii) the sum of its debts,
including contingent liabilities, was greater than all its assets at a fair
valuation or (iii) the present fair saleable value of its assets is less than
the amount required to pay the probable liability on its total existing debts
and liabilities (including contingent
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liabilities), as they become absolute and matured. There can be no assurance
as to what standards a court would use to determine whether Huntsman
Packaging or a Guarantor was solvent at the relevant time, or whether,
whatever standard was used, the Notes or the Guarantees would be avoided on
another of the grounds set forth above.
The Holders of the Notes will have the benefit of the full and
unconditional Guarantees of the Guarantors. However, the Guarantees will be
limited to the maximum amount which the Guarantors are permitted to guarantee
under applicable law. As a result, a Guarantor's liability under its
Guarantee could be reduced to zero, depending upon the amount of other
obligations of the Guarantors. Notwithstanding such provision, such Guarantee
may be subject to review by a court under relevant federal and state
fraudulent conveyance and transfer statutes and, if a court makes certain
findings, it could take certain actions detrimental to the Holders of the
Notes. The Guarantees may also be released under certain circumstances. See
"Description of the Notes and Guarantees -- Guarantees."
LACK OF ESTABLISHED MARKET FOR THE NOTES
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes were issued on September 30, 1997 to a small number of institutional
investors and are eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages (PORTAL) Market, the National Association
of Securities Dealers' screen-based, automated market for trading of
securities eligible for resale under Rule 144A of the Securities Act. The New
Notes will constitute a new issue of securities for which there is no
established trading market, and there can be no assurance that an active
trading market for the New Notes will develop in the PORTAL Market or
elsewhere. Although the Initial Purchasers have advised the Company that they
currently intend to make a market in the New Notes, they are not obligated to
do so and may discontinue such market-making at any time without notice.
Accordingly, no assurance can be given as to (i) the likelihood that an
active market for the New Notes will develop, (ii) the liquidity of any such
market, (iii) the ability of the Holders to sell their New Notes or (iv) the
prices that Holders may obtain for their New Notes upon any sale. In
addition, such market-making activity will be subject to the limits imposed
by the Securities Act and Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and may be limited during the Exchange Offer. See
"Description of the Notes and Guarantees" and "The Exchange Offer." The
Company does not intend to apply for listing of the New Notes or Old Notes on
any securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System. Historically, the market for
non-investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the Notes.
There can be no assurance that the market for the Notes will not be subject
to similar disruptions. Any such disruptions may have an adverse effect on
the Holders.
EXCHANGE OFFER PROCEDURES
Subject to the conditions set forth under "The Exchange Offer --
Conditions to the Exchange Offer," issuance of the New Notes in exchange for
Old Notes pursuant to the Exchange Offer will be made only after a timely
receipt by Huntsman Packaging of (i) a book-entry confirmation (as defined
below) evidencing the tender of such Old Notes through ATOP or (ii)
certificates representing such Old Notes, a properly completed and duly
executed Letter of Transmittal, with any required signature guarantees, and
all other required documents. See "The Exchange Offer -- Acceptance of Old
Notes for Exchange; Delivery of New Notes and Guarantees" and "--Procedures
for Tendering Old Notes." Therefore, Holders of the Old Notes desiring to
tender such Old Notes in exchange for New Notes should allow sufficient time
to ensure timely delivery. Huntsman Packaging is under no duty to give
notification of defects or irregularities with respect to the tenders of Old
Notes for exchange.
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USE OF PROCEEDS
Huntsman Packaging will not receive any proceeds from the issuance of the
New Notes offered pursuant to the Exchange Offer. In consideration for
issuing the New Notes as contemplated in this Prospectus, Huntsman Packaging
will receive in exchange Old Notes in like principal amount, the terms of
which are identical in all material respects to the New Notes except for
certain transfer restrictions and registration rights. The Old Notes
surrendered in exchange for New Notes will be retired and cancelled and
cannot be reissued. Accordingly, issuance of the New Notes will not result in
any increase in the indebtedness of Huntsman Packaging.
The net proceeds to Huntsman Packaging from the Offering, after deducting
discounts and expenses, were approximately $121 million. Huntsman Packaging
used the net proceeds of the Offering, together with borrowings under the
Credit Facilities, to finance the repayment of all outstanding long-term
indebtedness owed to Huntsman Corporation (a portion of which was incurred to
finance the Deerfield Acquisition, the United Films Acquisition and capital
expenditures), fund the CT Film Purchase and provide funds for ongoing
working capital and general corporate purposes. The indebtedness repaid bore
interest at a variable rate of interest equal to LIBOR plus 2.00% and was
payable on demand.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
The Old Notes were sold by Huntsman Packaging on September 30, 1997 (the
"Closing Date") to BT Alex. Brown Incorporated and Chase Securities Inc., the
Initial Purchasers, pursuant to a Purchase Agreement, dated September 19,
1997, entered into by and among Huntsman Packaging, the Initial Purchasers
and the Guarantors named therein (the "Purchase Agreement"). Upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal (which together constitute the Exchange
Offer), Huntsman Packaging will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time on April 1, 1998; provided, however, that if Huntsman
Packaging, in its sole discretion, has extended the period of time for which
the Exchange Offer is open, the term "Expiration Date" means the latest time
and date to which the Exchange Offer is extended.
As of the date of this Prospectus, $125,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about March 2, 1998, to all Holders of
Old Notes known to Huntsman Packaging. Huntsman Packaging's obligation to
accept Old Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth under "--Conditions to the Exchange Offer"
below.
Huntsman Packaging expressly reserves the right, at any time or from time
to time, to extend the period of time during which the Exchange Offer is
open, and thereby delay acceptance for exchange of any Old Notes, by giving
oral or written notice of such extension to the Holders thereof as described
below. During any such extension, all Old Notes previously tendered will
remain subject to the Exchange Offer and may be accepted for exchange by
Huntsman Packaging. Any Old Notes not accepted for exchange for any reason
will be returned without expense to the tendering Holder thereof as promptly
as practicable after the expiration or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 or any integral multiple thereof.
Huntsman Packaging expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "--Conditions to the Exchange Offer."
Huntsman Packaging will give oral or written notice of any extension,
amendment, non-acceptance or termination to the Holders of the Old Notes as
promptly as practicable, such notice in the case of any extension to be
issued by means of a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to Huntsman Packaging of Old Notes by a Holder thereof as set
forth below and the acceptance thereof by Huntsman Packaging will constitute
a binding agreement between the tendering Holder and Huntsman Packaging upon
the terms and subject to the conditions set forth in this Prospectus and in
the accompanying Letter of Transmittal. Except as set forth below, a Holder
who wishes to tender Old Notes for exchange pursuant to the Exchange Offer
must transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to The
Bank of New York (the "Exchange Agent") at one of the addresses set forth
below under "--Exchange Agent" for receipt on or prior to the Expiration
Date. In addition, either (i) certificates for such Old Notes must be
received by the Exchange Agent along with the Letter of Transmittal or (ii)
if using ATOP, a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the Holder must comply with the guaranteed delivery
procedures described below.
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THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTER OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO HUNTSMAN PACKAGING.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact the registered Holder promptly and instruct
such registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter of Transmittal and
delivering such owner's Old Notes, either make appropriate arrangements to
register ownership of the Old Notes in such owner's name or obtain a properly
completed bond power from the registered Holder. The transfer of registered
ownership may take considerable time.
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
as described below (see "--Guaranteed Delivery Procedures") unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered Holder who
has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures of 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 a firm
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or by a commercial bank
or trust company having an office or correspondent in the United States
(collectively, "Eligible Institutions"). If Old Notes are registered in the
name of a person other than a signer of the Letter of Transmittal, the Old
Notes surrendered for exchange must be endorsed by, or be accompanied by a
written instrument or instruments of transfer or exchange, in satisfactory
form as determined by Huntsman Packaging, duly executed by the registered
Holder with the signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes will be determined by Huntsman
Packaging in its sole discretion, which determination will be final and
binding. Huntsman Packaging reserves the absolute right to reject any and all
tenders of any particular Old Notes not properly tendered or to not accept
any particular Old Note if acceptance would, in the judgment of Huntsman
Packaging or its counsel, be unlawful. Huntsman Packaging also reserves the
absolute right to waive any defects, irregularities or conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of
the terms and conditions of the Exchange Offer as to any particular Old Note
either before or after the Expiration Date (including the Letter of
Transmittal and the instructions thereto) by Huntsman Packaging will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes for exchange must be cured within such
reasonable period of time as Huntsman Packaging may determine. Neither
Huntsman Packaging, the Exchange Agent or any other person will be under any
duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor will any of them incur any liability
for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered Holder or Holders of Old Notes, such Old Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered Holder or Holders that
appear on the Old Notes.
If the Letter of Transmittal or any Old Note or powers of attorney 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
Huntsman Packaging, proper evidence satisfactory to Huntsman Packaging of
their authority to so act must be submitted with the Letter of Transmittal.
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By tendering, each Holder will be required to represent (i) that any New
Notes to be received by it will be acquired in the ordinary course of its
business, (ii) that at the time of the commencement of the Exchange Offer it
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the New Notes in
violation of the Securities Act, (iii) that it is not an "affiliate" (as
defined in Rule 405 promulgated under the Securities Act) of Huntsman Packaging,
(iv) if such Holder is not a broker-dealer, that it is not engaged in, and does
not intend to engage in, the distribution of New Notes and (v) if such Holder is
a Participating Broker-Dealer that will receive New Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making or other
trading activities, that it will deliver a prospectus in connection with any
resale of such New Notes. Huntsman Packaging will agree to make available,
during the period required by the Securities Act, a prospectus meeting the
requirements of the Securities Act for use by Participating Broker-Dealers
and other persons, if any, with similar prospectus delivery requirements for
use in connection with any resale of New Notes. If any Holder is an affiliate
of Huntsman Packaging, is engaged in or intends to engage in or has any
arrangement with any person to participate in the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could
not rely on the applicable interpretations of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction, including
the delivery of a prospectus which contains the information with respect to
any selling holder required by the Securities Act. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must represent to Huntsman Packaging
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution." The Letter of Transmittal states that by
so representing 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.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, Huntsman Packaging will accept, promptly after the Expiration Date,
all Old Notes properly tendered and will issue the New Notes promptly after
acceptance of the Old Notes. See "--Conditions to the Exchange Offer" below.
For purposes of the Exchange Offer, Huntsman Packaging will be deemed to have
accepted properly tendered Old Notes for exchange, when, as and if Huntsman
Packaging has given oral or written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Accordingly, registered Holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid or, if no interest has been paid, from September
30, 1997. Old Notes accepted for exchange will cease to accrue interest from
and after the date of consummation of the Exchange Offer. Holders of Old
Notes whose Old Notes are accepted for exchange will not receive any payment
in respect of accrued interest on such Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after
consummation of the Exchange Offer. In the event of a registration default
under the Registration Rights Agreement, Huntsman Packaging will pay
Additional Interest to each Holder of Transfer Restricted Securities (as
defined herein). See "Description of the Notes and Guarantees -- Additional
Interest."
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 certificates for such Old Notes or, if using
ATOP, a timely Book-Entry Confirmation of such Old Notes into the Exchange
Agent's account at the Book-Entry Facility, a properly completed and duly
executed Letter of Transmittal and all other required documents or, in the
case of a Book-Entry confirmation, 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 submitted for a greater
principal amount than the Holder desires to exchange, such unaccepted or
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
22
<PAGE>
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry procedures described below, such non-exchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Book-Entry Transfer Facility for purposes of
the Exchange Offer within two business days after the date of this
Prospectus, and any tendering financial institution that is a participant in
the Book-Entry Transfer Facility's systems must make book-entry delivery of
Old Notes by causing the Book-Entry Transfer Facility to transfer such Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
in accordance with the Book-Entry Transfer Facility's ATOP procedures for
transfer. Such holder of Old Notes using ATOP should transmit its acceptance
to the Book-Entry Transfer Facility on or prior to the Expiration Date (or
comply with the guaranteed delivery procedures set forth below). The
Book-Entry Transfer Facility will verify such acceptance, execute a
book-entry transfer of the tendered Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility and then send to the Exchange
Agent confirmation of such book-entry transfer, including an Agent's Message
confirming that the Book-Entry Transfer Facility has received an express
acknowledgment from such holder that such holder has received and agrees to
be bound by this Letter of Transmittal and that Huntsman Packaging may
enforce this Letter of Transmittal against such Holder (a "Book-Entry
Confirmation").
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot
be completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice
of Guaranteed Delivery, substantially in the form provided by Huntsman
Packaging (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the Holder of Old Notes and
the principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock Exchange,
Inc. ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may
be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically 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 NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of its addresses set forth below under
"--Exchange Agent" prior to the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the principal amount of such Old Notes) and (iii) (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the withdrawing
Holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing Holder must also submit the serial numbers of
the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution unless such Holder is
an Eligible Institution. If Old Notes have been tendered
23
<PAGE>
pursuant to the procedure for book-entry transfer described above, any notice
of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such
notices will be determined by Huntsman Packaging, whose determination shall
be final and binding on all parties. Any Old Note so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the Exchange
Offer. Any Old Note which has been tendered for exchange but which is not
exchanged for any reason will be returned to the Holder thereof without cost
to such Holder (or, in the case of Old Notes tendered by book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "--Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, Huntsman
Packaging will not be required to accept for exchange, or issue New Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer if
at any time before the acceptance of such Old Notes for exchange or the
exchange of the New Notes for such Old Notes, any of the following events
occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking
any damages as a result thereof, or (ii) resulting in a material delay in
the ability of Huntsman Packaging to accept for exchange or exchange some
or all of the Old Notes pursuant to the Exchange Offer, or any statute,
rule, regulation, order or injunction shall be sought, proposed,
introduced, enacted, promulgated or deemed applicable to the Exchange
Offer or any of the transactions contemplated by the Exchange Offer by any
government or governmental authority, domestic or foreign, or any action
shall have been taken, proposed or threatened, by any government or
governmental authority, agency or court, domestic or foreign, that in the
reasonable judgment of Huntsman Packaging might directly or indirectly
result in any of the consequences referred to in clauses (i) or (ii) above
or, in the reasonable judgment of Huntsman Packaging, might result in the
Holders of New Notes having obligations with respect to resales and
transfers of New Notes which are greater than those described in the
interpretation of the Commission referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of Huntsman Packaging to complete the transactions contemplated by
the Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of Huntsman Packaging and its subsidiaries taken as a whole
that, in the reasonable judgment of Huntsman Packaging, is or may be
adverse to Huntsman Packaging, or Huntsman Packaging shall have become
aware of facts that, in the reasonable judgment of Huntsman Packaging,
have or may have adverse significance with respect to the value of the Old
Notes or the New Notes;
24
<PAGE>
which, in the reasonable judgment of Huntsman Packaging in any case, and
regardless of the circumstances (including any action by Huntsman Packaging)
giving rise to any such condition, makes it inadvisable to proceed with the
Exchange Offer and/or with such acceptance for exchange or with such
exchange.
The foregoing conditions are for the sole benefit of Huntsman Packaging
and may be asserted by Huntsman Packaging regardless of the circumstances
giving rise to any such condition or may be waived by Huntsman Packaging in
whole or in part at any time and from time to time in its sole discretion.
The failure by Huntsman Packaging at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
In addition, Huntsman Packaging will not accept for exchange any Old Note
tendered, and no New Notes will be issued in exchange for any such Old Note,
if at such time any stop order shall be threatened or in effect with respect
to the Registration Statement of which this Prospectus constitutes a part or
the qualification of the Indenture under the Trust Indenture Act of 1939.
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent of the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notice of Guaranteed Delivery
should be directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: ByHandorOvernightDelivery:
The Bank of New York The Bank of New York
101 Barclay Street, Floor 7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Reorganization Section Ground Floor
New York, New York 10286
Attention: Reorganization Section
By Facsimile:
(Eligible Institutions Only)
(212) 815-6339
Confirm by Telephone:
(212) 815-5789
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
FEES AND EXPENSES
Huntsman Packaging will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by Huntsman Packaging and are estimated in the aggregate
to be $500,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer tax in connection therewith, except that Holders who
instruct Huntsman Packaging to register New Notes in the name of, or request
that Old Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering Holder will be responsible
for the payment of any applicable transfer tax thereon.
25
<PAGE>
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Huntsman Packaging does
not currently anticipate that it will register Old Notes under the Securities
Act. See "Description of the Notes and Guarantees -- Registration Rights."
Under existing interpretations by the staff of the Commission contained in
several no-action letters issued to third parties, Huntsman Packaging
believes the New Notes issued pursuant to the Exchange Offer in exchange for
the Old Notes may be freely transferable by holders thereof (other than any
such holder which is an "affiliate" of Huntsman Packaging within the meaning
of Rule 405 under the Securities Act) without further registration under the
Securities Act; provided, however, that each Holder that wishes to exchange
its Old Notes for New Notes will be required to represent (i) that any New
Notes to be received by it will be acquired in the ordinary course of its
business, (ii) that at the time of the commencement of the Exchange Offer it
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the New Notes in
violation of the Securities Act, (iii) that it is not an "affiliate" (as
defined in Rule 405 promulgated under the Securities Act) of Huntsman
Packaging, (iv) if such Holder is not a broker-dealer, that it is not engaged
in, and does not intend to engage in, the distribution of New Notes and (v) if
such Holder is a Participating Broker-Dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making or other trading activities, that it will deliver a prospectus
in connection with any resale of such New Notes. However, Huntsman Packaging
does not intend to request the Commission to consider, and the Commission has
not considered, the Exchange Offer in the context of a no-action letter and
there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer as in such other
circumstances. Huntsman Packaging will agree to make available, during the
period required by the Securities Act, a prospectus meeting the requirements
of the Securities Act for use by Participating Broker-Dealers and other
persons, if any, with similar prospectus delivery requirements for use in
connection with any resale of New Notes. If any Holder is an affiliate of
Huntsman Packaging or is engaged in or intends to engage in or has any
arrangement with any person to participate in the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could
not rely on the applicable interpretations of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction, including the
delivery of a prospectus which contains the information with respect to any
selling holder required by the Securities Act. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer where
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities must represent to Huntsman Packaging
that it will deliver a prospectus in connection with any resale of such New
Notes and that it acquired such Old Notes as a result of market-making
activities or other trading activities. The Letter of Transmittal states
that by so representing 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 New Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. Huntsman
Packaging has agreed that, starting on the Expiration Date (as defined
herein) and ending on the close of business on the 90th day following the
Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
However, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. Huntsman
Packaging does not currently intend to register or qualify the sale of the
New Notes in any such jurisdiction.
26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Huntsman Packaging as
of December 31, 1997.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------
(IN MILLIONS)
<S> <C>
Total cash ................................... $ 12.4(1)
=======================
Long-term debt:
Revolving credit facility(2) ................. $ 47.0
Term loan(3) ................................. 75.0
9 1/8% Senior Subordinated Notes due 2007 .... 125.0
Line of credit agreement and other ........... 3.5
-----------------------
Total long-term debt.......................... 250.5
-----------------------
Stockholders' equity:
Common stock ................................ 63.7
Stockholder note receivable ................. (.7)
Retained earnings ........................... 5.4
Translation adjustment ...................... (5.4)
-----------------------
Total stockholders' equity ................... 63.0
-----------------------
Total stockholders' equity and long-term
debt......................................... $313.5
=======================
</TABLE>
- ------------
(1) $9.5 million of this amount is held by the Company's European and
Australian subsidiaries. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Liquidity."
(2) Represents drawn portion of $150.0 million revolving credit facility.
(3) The eight-year $75 million Term Loan was issued pursuant to the terms
of the Credit Agreement. See "Description of the Credit Facilities."
27
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma condensed statement of operations and other
financial data for the year ended December 31, 1997 give effect to the Pro
Forma Transactions as if they had occurred on January 1, 1997. The pro forma
financial data do not purport to be indicative of the combined financial
position or results of operations of future periods or indicative of results
that would have occurred had the transactions referred to above been
consummated on the dates indicated. Since 1992, Huntsman Packaging has
completed eight acquisitions, including acquisitions in 1996 of Deerfield and
United Films and in 1997 of CT Film, and in 1996 received a capital
contribution from Huntsman Corporation of European Foam. During the past
several years, Huntsman Packaging's net sales have increased significantly
from year to year primarily as a result of the aforementioned acquisitions
and capital contribution. The pro forma financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," Huntsman Packaging's Consolidated Financial
Statements and the Notes thereto and the Combined Financial Statements of CT
Film and Rexene Corporation Limited and the Notes thereto contained herein.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
AND OTHER FINANCIAL DATA
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HUNTSMAN CT HUNTSMAN
PACKAGING FILM PACKAGING
HISTORICAL HISTORICAL PRO FORMA
FOR THE YEAR FOR THE NINE ADJUSTMENTS FOR THE YEAR
ENDED MONTHS ENDED FOR ENDED
DECEMBER 31, SEPTEMBER 30, PRO FORMA DECEMBER 31,
1997 1997 TRANSACTIONS(1) 1997
------------ ------------- --------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales ................................. $491.1 $123.5 -- $614.6
Costs of goods sold ....................... 424.8 116.8 $(2.1)(2) 539.5
------------ ------------ --------------- -----------
Gross profit ............................. 66.3 6.7 2.1 75.1
Total operating expenses .................. 49.2 10.0 -- 59.2
------------ ------------ --------------- -----------
Income (loss) from operations ............ 17.1 (3.3) 2.1 15.9
Interest expense--net ..................... (16.4) (0.9) (5.3)(3) (22.6)
Other income .............................. 0.5 -- -- 0.5
------------ ------------ --------------- -----------
Income (loss) before income taxes and
extraordinary item ....................... 1.2 (4.2) (3.2) (6.2)
Provision for (benefit from) income taxes 0.8 (0.1) (1.3)(4) (0.6)
------------ ------------ --------------- -----------
Net income (loss).......................... $ 0.4 $ (4.1) $(1.9) $ (5.6)
============ ============ =============== ===========
OTHER FINANCIAL DATA:
Depreciation and amortization.............. $ 16.4 $ 5.0 $(2.1) $ 19.3
EBITDA (5) ................................ 34.0 (6) 1.7 -- 35.7 (7)
Net cash interest expense.................. 16.2 0.9 5.3 22.4
Capital expenditures ...................... 17.9 2.5 -- 20.4
Ratio of earnings to fixed charges (8) ... 1.1x -- -- 0.7x
</TABLE>
(footnotes on following page)
28
<PAGE>
- ------------
(1) To reflect the September 30, 1997 purchase of CT Film and Rexene
Corporation Limited as if it occurred on January 1, 1997. Under the
purchase method of accounting, the total cash purchase price of $72.9
million (including transaction costs of $2.9 million) was allocated to
the net assets as follows:
<TABLE>
<CAPTION>
<S> <C>
(IN MILLIONS)
Current assets......... $46.6
Plant and equipment .. 33.6
Goodwill .............. 1.8
-------
Total assets ......... 82.0
Current liabilities .. $ 9.0
Other liabilities .... 0.1
-------
Total liabilities ... 9.1
-------
Total purchase price $72.9
=======
</TABLE>
The above amounts reflect a fair value write-down of net plant and
equipment of $50.2 million.
(2) Represents the net reduction in depreciation and amortization of
$2.1 million as a result of recording plant and equipment and goodwill
in accordance with the purchase method of accounting for the CT Film
Purchase.
(3) Represents additional interest expense at a rate of 9 1/8% on the Senior
Subordinated Notes due 2007 as a result of the Pro Forma Transactions.
(4) Represents the tax effect of all pro forma adjustments.
(5) EBITDA is defined as net income before interest expense, taxes,
depreciation and amortization and extraordinary items. Huntsman
Packaging's management believes EBITDA information enhances an
investor's understanding of a company's ability to satisfy principal
and interest obligations with respect to its indebtedness and to
utilize cash for other purposes. However, there may be contractual,
legal, economic or other reasons which may prevent the Company from
satisfying its principal and interest obligations with respect to its
indebtedness and may require the Company to allocate funds for other
purposes. EBITDA does not represent and should not be considered as an
alternative to net income or cash flows from operations as determined
by GAAP and may not be comparable to other similarly titled measures of
other companies.
(6) Includes aggregate nonrecurring charges of $9.3 million resulting from
the closing of a certain facility in the year ended December 31, 1997.
Had this facility been closed January 1, 1997, the Company estimates
overhead savings of $3.0 million would have been realized in the year
ended December 31, 1997.
(7) The pro forma income statement for the year ended December 31, 1997
does not include certain cost savings the Company expects to achieve
due to the combination of Huntsman Packaging and CT Film. Management
believes these savings will be fully realized by the end of 1998. Had
these cost savings been in place January 1, 1997, management believes
the following portion of estimated annual cost savings of $16.3 million
would have been achieved during 1997:
<TABLE>
<S> <C>
Net reduction in raw material costs under the Company's existing contractual arrangements compared to
CT Film's historical raw material costs................................................................ $ 3.0
Plant headcount reductions.............................................................................. 0.9
Administrative headcount reductions..................................................................... 4.1
Cost savings from the elimination of corporate allocations from Rexene Corporation recorded by CT Film
which will not recur................................................................................... 1.8
Savings from United States plant closure................................................................ 4.1
Savings from United Kingdom plant closure............................................................... 1.6
------
Total estimated recurring net cost savings............................................................. $15.5
======
</TABLE>
(8) For purposes of this computation, earnings are defined as income before
income taxes plus fixed charges. Fixed charges consist of interest
(including amortization of deferred financing costs) and that portion
of rental expense that is representative of interest (deemed to be
one-third of operating lease rental expense). For the year ended
December 31, 1997, on a pro forma basis, earnings were insufficient to
cover fixed charges by $6.2 million, due primarily to additional
interest expense.
29
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected financial data set forth below present the historical
financial data of Huntsman Packaging. The selected financial data as of
December 31, 1994, 1995, 1996 and 1997 and for the years then ended have been
derived from the audited financial statements of Huntsman Packaging. The
selected financial data as of December 31, 1993 and for the year then ended
have been derived from the unaudited financial statements of Huntsman
Packaging. Since 1992, Huntsman Packaging has completed eight acquisitions,
including acquisitions in 1996 of Deerfield and United Films and in 1997 of
CT Film, and in 1996 received a capital contribution from Huntsman
Corporation of European Foam. During the past several years, Huntsman
Packaging's net sales have increased significantly from year to year
primarily as a result of the aforementioned acquisitions and capital
contribution. The selected financial data should be read in conjunction with
"Unaudited Pro Forma Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Huntsman Packaging's
Consolidated Financial Statements and the Notes thereto contained herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- ---------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales ................................. $236.3 $294.7 $325.0 $339.1 $491.1
Costs of goods sold ....................... 195.2 242.4 273.5 288.9 424.8
-------- -------- -------- ---------- ---------
Gross profit ............................. 41.1 52.3 51.5 50.2 66.3
Total operating expenses .................. 31.1 37.1 36.5 42.2 49.2
-------- -------- -------- ---------- ---------
Income from operations ................... 10.0 15.2 15.0 8.0 17.1
Interest expenses--net .................... (6.5) (7.5) (8.7) (11.6) (16.4)
Other income (expense) .................... 0.5 (0.3) (2.3) (3.8) 0.5
-------- -------- -------- ---------- ---------
Income (loss) before income taxes and
extraordinary item ....................... 4.0 7.4 4.0 (7.4) 1.2
Provision for (benefit from) income taxes 1.4 3.0 1.7 (4.2) 0.8
-------- -------- -------- ---------- ---------
Income (loss) before extraordinary item .. 2.6 4.4 2.3 (3.2) 0.4
-------- -------- -------- ---------- ---------
Extraordinary item ........................ -- -- -- (1.3)(1) --
-------- -------- -------- ---------- ---------
Net income (loss) ........................ $ 2.6 $ 4.4 $ 2.3 $ (4.5) $ 0.4
======== ======== ======== ========== =========
OTHER FINANCIAL DATA:
Depreciation and amortization ............. $ 9.0 $ 9.5 $ 11.6 $ 14.0 $ 16.4
EBITDA (2) ................................ 19.5 24.4 24.3 18.2 (3) 34.0 (4)
Cash flows from operating activities ..... 18.9 1.0 12.8 20.1 28.6
Cash flows from investing activities ..... (42.8) (8.2) (20.5) (88.9) (87.2)
Cash flows from financing activities ..... 4.5 9.9 6.7 68.6 63.2
Capital expenditures ...................... 7.2 8.4 19.5 12.8 17.9
Ratio of earnings to fixed charges (5) ... 1.6x 1.9x 1.4x 0.4x 1.1x
BALANCE SHEET DATA (AT PERIOD END):
Working capital ........................... $ 34.1 $ 46.8 $ 54.8 $ 74.6 $ 94.1
Total assets .............................. 181.3 196.1 231.7 329.1 409.6
Long-term debt ............................ 78.1 88.7 103.0 187.2 250.5
Total liabilities ......................... 123.6 136.1 160.7 262.1 346.6
Stockholders' equity ...................... 57.7 60.0 71.0 67.0 63.0
</TABLE>
- ------------
(1) In 1996, the Company refinanced most of its long-term debt and recorded
an extraordinary item for the write-off of previously deferred loan
costs. See Note 5 of the Notes to Huntsman Packaging's Consolidated
Financial Statements contained herein for further information.
(2) EBITDA is defined as net income before interest expense, taxes,
depreciation and amortization and extraordinary items. Huntsman
Packaging's management believes EBITDA information enhances an
investor's understanding of a company's ability to satisfy principal
and interest obligations with respect to its indebtedness and to
utilize cash for other purposes. However, there may be contractual,
legal, economic or other reasons which may prevent the Company from
satisfying its principal and interest obligations with respect to its
indebtedness and may require the Company to allocate funds for other
purposes. EBITDA does not represent and should not be considered as an
alternative to net income or cash flows from operations as determined
by GAAP and may not be comparable to other similarly titled measures of
other companies.
(3) Includes aggregate nonrecurring charges of $12.1 million resulting from
the closing of certain facilities in the year ended December 31, 1996.
Had these facilities been closed on January 1, 1996, the Company
estimates overhead savings of $2.9 million would have been realized in
the year ended December 31, 1996.
(4) Includes aggregate nonrecurring charges of $9.3 million resulting from
the closing of a certain facility in the year ended December 31, 1997.
Had this facility been closed January 1, 1997, the Company estimates
overhead savings of $3.0 million would have been realized in the year
ended December 31, 1997.
(5) For purposes of this computation, earnings are defined as income before
income taxes plus fixed charges. Fixed charges consist of interest
(including amortization of deferred financing costs) and that portion
of rental expense that is representative of interest (deemed to be
one-third of operating lease rental expense). For the year ended
December 31, 1996, earnings were insufficient to cover fixed charges by
$7.4 million due primarily to a $10.9 million plant closing charge.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis of Huntsman Packaging's results of
operations, financial condition and liquidity should be read in conjunction
with "Unaudited Pro Forma Financial Data" and Huntsman Packaging's
Consolidated Financial Statements and the Notes thereto contained herein. The
following discussion also contains certain forward-looking statements that
involve risks and uncertainties, and Huntsman Packaging's results could
differ materially from those discussed herein. See "Cautionary Statements."
Huntsman Packaging derives its revenue, earnings and cash flow from the
sale of film and flexible packaging products to customers located throughout
the world. Huntsman Packaging manufactures these products at its facilities
located in North America, Europe and Australia. Huntsman Packaging's sales
have grown primarily as a result of the growth in the market for film and
flexible packaging products, acquisitions over the past several years and
production increases at acquired facilities. Since 1992, Huntsman Packaging
has completed eight acquisitions, including acquisitions in 1996 of Deerfield
and United Films and in 1997 of CT Films, and in 1996 received a capital
contribution from Huntsman Corporation of European Foam. During the past
several years, Huntsman Packaging's net sales have increased significantly
from year to year, primarily as a result of the aforementioned acquisitions
and capital contribution.
RESULTS OF OPERATIONS
The following table indicates net sales and expenses, and such amounts as
a percentage of net sales, for the years ended December 31, 1995, 1996 and
1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1996 1997
----------------- ----------------- -----------------
% OF % OF % OF
$ SALES $ SALES $ SALES
-------- ------- -------- ------- -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales ............... $325.0 100% $339.1 100% $491.1 100%
Cost of goods sold ...... 273.5 84% 288.9 85% 424.8 86%
-------- ------- -------- ------- -------- -------
Gross profit ............ 51.5 16% 50.2 15% 66.3 14%
Total operating
expenses................ 36.5 11% 42.2 12% 49.2 10%
-------- ------- -------- ------- -------- -------
Operating income ........ $ 15.0 5% $ 8.0 3% $ 17.1 4%
======== ======= ======== ======= ======== =======
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1996
Net Sales
Net sales increased by $152.0 million, or 44.8%, in 1997 to $491.1 million
from $339.1 million in 1996. The increase was primarily due to the
acquisition of CT Film in September 1997 and a full year's results from the
1996 Deerfield and United Films acquisitions. All of these operations became
part of the Company's flexible packaging segment. These acquisitions
increased sales by $158.0 million in 1997. Excluding the effect of these
acquisitions, flexible packaging sales decreased approximately $6.0 million
in 1997, primarily due to approximately 5% lower sales volumes in the North
America PVC product line and unfavorable Australian and European currency
translation rates. Foam products sales were virtually unchanged in 1997.
The Company's average sales prices generally follow the movement in resin
prices, as resins are the primary component of the Company's raw material
costs. As compared to 1995 and 1996, average resin prices were relatively
stable in 1997. As a result, changes in average sales prices were due to
factors other than changes in resin prices.
31
<PAGE>
Gross Profit
Gross profit increased by $16.1 million, or 32.1%, in 1997 to $66.3
million from $50.2 million in 1996. The CT Film, Deerfield and United Films
acquisitions discussed above increased gross profit by approximately $22.0
million in 1997. Gross profit in the foam products segment improved slightly,
$0.1 million, due to improved manufacturing efficiencies resulting from
capital additions made in 1996 and 1997. These increases were offset by
decreased gross profit of approximately $6.0 million in the flexible
packaging segment due primarily to decreased margins in the Company's
polyethylene film product lines. In the stretch film business, gross profit
decreased by approximately $3.0 million in 1997, due to continuing general
pricing pressure as a result of excess supply of stretch film. The remaining
gross profit decrease was due primarily to reduced North American PVC product
line sales volume and unfavorable Australian and European currency
translation rates.
Total Operating Expenses
Total operating expenses for 1997 (including research and development
expenses) increased by $7.0 million, or 16.6%, to $49.2 million from $42.2
million in 1996. All of this increase was attributable to the flexible
packaging segment.
Additional operating expenses of $8.6 million associated with the
Deerfield, United Films and CT Film acquisitions were incurred in 1997. This
increase was partially offset by $1.6 million in reduced plant closing costs
compared with 1996.
In 1997, the Company recognized a non-recurring plant closing charge of
$9.3 million. As with the 1996 acquisitions of Deerfield and United Films,
the acquisition of CT Film in 1997 provided the Company with relatively new,
efficient manufacturing equipment with significant available capacity. The
Company decided to consolidate the Carrollton, Ohio facility (purchased in
1992) and relocate most of the Carrollton equipment to the newly acquired CT
Film facilities and other facilities acquired in 1996. The non-recurring $9.3
million charge includes $4.2 million for the write-off of assets not
relocated, $3.3 million for the write-off of goodwill associated with the
acquisition of the Carrollton facility and $1.8 million for work force
reductions and other costs. See Note 3 of the Notes to Huntsman Packaging's
Consolidated Financial Statements contained herein.
Operating Income
Operating income increased by $9.1 million, or 113.8%, to $17.1 million
from $8.0 million due to the factors discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1995
Net Sales
Net sales increased by $14.1 million, or 4.3%, in 1996 to $339.1 million
from $325.0 million in 1995, primarily due to the acquisitions of Deerfield
and United Films in 1996. These acquisitions increased sales by $24.9 million
in 1996. In addition, an approximate 9.0% sales volume increase in North
American polyethylene film sales in the flexible packaging segment increased
net sales approximately $15.0 million in 1996. These increases were offset by
decreases in average sales prices in North America in the flexible packaging
segment as a result of decreases in the average market price of polyethylene
and PVC resins from 1995 to 1996. These decreases in average sales prices
resulted in decreased sales of approximately $27.5 million in 1996 as
compared to 1995. Polyethylene resin prices dropped significantly toward the
end of 1995 and increased steadily during 1996. Notwithstanding the upward
trend in polyethylene resin prices during 1996, such prices were
approximately 10% lower on average in 1996 as compared to 1995. Foam products
sales decreased approximately $1.6 million, due primarily to lower average
currency exchange rates during 1996.
Gross Profit
Gross profit decreased by $1.3 million, or 2.5%, in 1996 to $50.2 million
from $51.5 million in 1995. This decrease was due to lower margins, primarily
as a result of the Company's inability to promptly pass
32
<PAGE>
through to customers increases in the costs of resins and other raw materials
in 1996. This decline in margins was most significant in flexible packaging's
polyethylene stretch films, where margins decreased by $0.08 per pound, or
approximately $7.6 million, from 1995 to 1996. These decreases were offset by
increased margins in flexible packaging's European and Australian PVC film
operations, as well as an increase of $2.0 million due to the acquisitions of
Deerfield and United Films. Gross profit in the foam products segment
increased approximately $1.5 million, due to improved manufacturing
efficiencies resulting from capital additions made in 1996.
Total Operating Expenses
Total operating expenses (including research and development expenses)
increased by $5.7 million, or 15.6%, in 1996 to $42.2 million from $36.5
million in 1995, primarily due to a non-recurring plant closing charge of
$10.9 million in the flexible packaging segment. This charge resulted from
the closure of the Bowling Green, Kentucky and Dallas, Texas manufacturing
facilities. With the 1996 acquisitions of United Films and Deerfield, the
Company acquired relatively new, efficient equipment and significant
available capacity. In addition, the newly acquired facilities contained open
space considered necessary for future expansion. The Company decided to
consolidate and relocate most of the equipment in its Bowling Green
(purchased in July 1992) and Dallas (purchased in June 1995) facilities to
the newly-acquired Deerfield and United Films facilities. The non-recurring
$10.9 million charge includes $5.3 million for the write-off of assets not
relocated, $3.3 million for the write-off of goodwill associated with the
acquisitions of the Bowling Green and Dallas facilities and $2.3 million for
work force reduction expenses and other costs. See Note 3 of the Notes to
Huntsman Packaging's Consolidated Financial Statements contained herein. The
increase due to the non-recurring charge was offset partially by reduced
administration cost resulting from staff reduction programs initiated in
1995. Foam products operating expenses decreased approximately $0.5 million,
due primarily to staff reductions.
Operating Income
Operating income decreased by $7.0 million, or 46.6%, in 1996 to $8.0
million from $15.0 million in 1995, due primarily to the factors discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
Huntsman Packaging has historically financed its operations through cash
provided by operations and by borrowings from Huntsman Corporation or under
Huntsman Packaging's credit facilities. Huntsman Packaging's primary uses of
cash have been the payment of operating expenses, funding capital
expenditures and payment for acquisitions.
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $28.6 million for the year
ended December 31, 1997, an increase of $8.5 million, or 42.3%, from $20.1
million for the same period in 1996. The increase resulted primarily from
increased net income in 1997 of $4.9 million and a favorable change in
inventories. Net cash provided by operating activities increased $7.3
million, or 57.0%, in 1996 to $20.1 million from $12.8 million in 1995. The
1996 increase resulted primarily from favorable changes in operating
liabilities, particularly accounts payable and accrued liabilities.
All of the net cash provided by operating activities was generated by the
Company's two operating segments, flexible packaging and foam products. The
flexible packaging segment's net cash provided by operating activities was
$23.1 million, $15.0 million and $9.6 million for the years ended December
31, 1997, 1996 and 1995, respectively. The foam products segment's net cash
provided by operating activities was $5.5 million, $5.1 million and $3.2
million for the same periods, respectively.
Net Cash Used in Investing Activities
Net cash used in investing activities was $87.2 million, $88.9 million and
$20.5 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The majority of cash used in investing activities
33
<PAGE>
resulted from the Deerfield, United Films and CT Film acquisitions. During
1996, the Company made net cash payments of approximately $12.3 million and
$63.9 million for the purchase of United Films and Deerfield, respectively.
During 1997, the Company made net cash payments of approximately $69.4
million for the purchase of CT Film. See Note 11 of the Notes to Huntsman
Packaging's Consolidated Financial Statements contained herein.
Capital Expenditures
Total capital expenditures were $17.9 million, $12.8 million and $19.5
million for the years ended December 31, 1997, 1996 and 1995, respectively.
Capital expenditures for the flexible packaging segment were $14.8 million,
$8.9 million and $18.4 million for the same periods. The 1997 capital
expenditures included film production capacity expansions in the Company's
newly-acquired Deerfield and United Film facilities, as well as printing
capacity expansion in the Company's Rochester, New York facility. The 1995
capital expenditures included $7.5 million for the purchase of the Rochester,
New York manufacturing building. Capital expenditures for the foam products
segment were $2.6 million, $3.1 million, and $0.6 million for 1997, 1996 and
1995, respectively. The 1996 and 1997 expenditures included a project to
significantly upgrade the foam products' manufacturing processes to newer,
more efficient technology. The Company estimates that total maintenance
capital expenditures of $12.0 million per year will be required in the near
future.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $63.2 million, $68.6 million
and $6.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Net cash provided by financing activities consists primarily of
net borrowings under the Company's current and prior credit arrangements. See
Note 5 of the Notes to Huntsman Packaging's Consolidated Financial Statements
contained herein. Net cash provided by financing activities was used
primarily to fund the acquisitions of Deerfield, United Films and CT Film, as
well as the Company's capital expenditures.
Liquidity
As of December 31, 1997, Huntsman Packaging had $94.1 million of working
capital. As of December 31, 1997, Huntsman Packaging had approximately $103.0
million available under the Credit Facilities, $9.4 million of which was issued
as letters of credit. The debt under the Credit Facilities bears interest at
LIBOR plus 2.00%, and may adjust downward based on Huntsman Packaging's
leverage ratio (as defined in the Credit Agreement) to a minimum of LIBOR
plus 1.00%. See "Description of the Credit Facilities."
As of December 31, 1997, the Company had $9.5 million in cash and cash
equivalents held by the Company's European and Australian subsidiaries. The
effective tax rate of repatriating this money and future foreign earnings to the
United States varies from approximately 40% to 65% depending on various U.S. and
foreign tax factors, including each foreign subsidiary's country of
incorporation. High effective repatriation tax rates may limit the ability of
the Company to access cash and cash equivalents generated by its European and
Australian operations for use in its United States operations, including to pay
principal, premium, if any, and interest on the Notes. In the years ended
December 31, 1997, 1996 and 1995, the Company's European and Australian
operations generated net income of $6.3 million, $7.4 million and $2.4 million,
respectively, and EBITDA of $13.1 million, $11.5 million and $5.9 million,
respectively.
Huntsman Packaging expects that cash flows from operations and available
borrowings under the Credit Facilities will provide sufficient working
capital to operate its business, to make expected capital expenditures and to
meet foreseeable liquidity requirements.
Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full set of
34
<PAGE>
general purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components
of comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS No. 130 does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The impact of SFAS No. 130 on Huntsman Packaging is not expected to be
material in relation to Huntsman Packaging's Consolidated Financial Statements
and the Notes thereto contained herein.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of
an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosure about products and services,
geographic areas, and major customers. SFAS No. 131 is effective for
financial statements for fiscal years beginning after December 15, 1997.
Huntsman Packaging does not expect the impact of SFAS No. 131 to be material
in relation to Huntsman Packaging's Consolidated Financial Statements and the
Notes thereto contained herein.
Environmental Matters
The operation of any flexible packaging manufacturing plant and the
distribution of such products, and the related production of by-products and
wastes, entails risk of adverse environmental effects. Huntsman Packaging and
its operations are subject to certain federal, state, local and foreign laws,
regulations, rules and ordinances relating to pollution, the protection of
the environment and the generation, storage, handling, transportation,
treatment, disposal and remediation of hazardous substances and waste
materials ("Environmental Laws"). In the ordinary course of business,
Huntsman Packaging is subject to periodic environmental inspections and
monitoring by governmental enforcement authorities. As a result of actual or
alleged violations arising under or in connection with any Environmental
Laws, the Company could incur substantial costs, including fines and civil or
criminal sanctions. In addition, Huntsman Packaging's production facilities
require environmental permits that are subject to revocation, modification
and renewal ("Environmental Permits"). Violations of Environmental Permits
can also result in substantial fines and civil or criminal sanctions.
Huntsman Packaging believes that it is in material compliance with applicable
Environmental Laws and Environmental Permits. The ultimate costs under
Environmental Laws and the timing of such costs, however, are difficult to
predict and potentially significant expenditures could be required in order
to comply with Environmental Laws that may be adopted or imposed in the
future.
Huntsman Packaging's costs and operating expenses relating to
environmental matters totaled approximately $200,000 in each of 1995, 1996
and 1997. This amount is expected to be sufficient to cover, among other
things, Huntsman Packaging's routine measures to prevent, contain and clean
up spills of materials that occur in the ordinary course of business.
Huntsman Packaging's estimated capital expenditures for environmental matters
were approximately $330,000 in 1995, $295,000 in 1996 and $517,000 in 1997
and are expected to be approximately $725,000 in 1998 and approximately
$175,000 in 1999. Capital expenditures and, to a lesser extent, costs and
operating expenses relating to environmental matters will be subject to
evolving regulatory requirements and will depend on the timing of and the
promulgation of specific standards which impose requirements on Huntsman
Packaging's operations.
35
<PAGE>
BUSINESS
GENERAL
Huntsman Packaging is one of the largest manufacturers of film and flexible
packaging products in North America. The Company offers one of the most diverse
product lines in the industry and has attained a leading market position in each
of its major product lines. Management attributes its market leadership
primarily to its advanced film extrusion equipment and technology, broad and
innovative product lines, well-established customer relationships and low-cost
production capabilities. The Company's product lines constitute two business
segments, flexible packaging and foam products. The flexible packaging segment's
product lines are comprised of the following: (i) converter films that are sold
for additional fabrication and resale by other flexible packaging manufacturers
for use in a wide range of consumer and industrial markets; (ii) barrier films
that contain and protect food and other products; (iii) printed products that
include printed rollstock, bags and sheets used to package products in the food
and medical industries; (iv) stretch films that are used for industrial
unitizing and containerization; and (v) PVC films that are used by supermarkets,
institutions and homes to wrap meat, cheese and produce. The foam products
segment includes meat trays, egg cartons and fast food containers. For the year
ended December 31, 1997, approximately 91% of the Company's sales were derived
from flexible packaging and approximately 9% were derived from foam products.
Further information regarding the Company's operations in different business
segments appears in Note 12 of the Notes to Huntsman Packaging's Consolidated
Financial Statements contained herein.
Flexible Packaging:
Converter Films. Converter films are polyethylene films that are sold to
converters and laminators for final processing into consumer products such as
bags, pouches and printed products. With the consummation of the CT Film
Purchase, the Company currently holds North America's number one market
position in the converter film segment, with a 23% market share.
Barrier Films. Barrier films are polyethylene films that are sold to food
processors and other end users. These films provide specific types of barrier
protection against moisture, oxygen, light and gases, and are puncture
resistant. The Company is the second largest producer of cookie, cracker and
cereal box liners in North America, with a 19% market share. The CT Film
Purchase allowed the Company to gain entry or increase access to other
barrier film markets, including medical, personal care and agricultural
films.
Printed Products. Printed products are manufactured and sold to fresh and
frozen food processors, bakeries, textile manufacturers and other dry goods
processors. The Company is North America's leading supplier of film used in
the frozen food segment, with a 31% market share. The Company is also the
second largest producer in the bakery market, with a 20% market share,
supplying approximately one-fifth of the five billion bread bags manufactured
in North America each year. Management also anticipates growth opportunities
in the packaged salad and fresh produce market, which is expected to grow
approximately 9% annually over the next several years.
Stretch Films. Stretch films are used primarily to bundle products and
wrap pallets. Currently, approximately one-half of all loads shipped in North
America are unitized with stretch film. Management expects additional growth
in stretch films as they continue to replace less economical and less
environmentally-acceptable packaging alternatives, such as steel strapping.
The Company is North America's fourth largest producer of stretch films, with
an 11% market share.
PVC Films. PVC films are used by supermarkets, institutions and homes to
wrap meat, cheese and produce. Management believes the Company has North
America's number two market position in PVC films. Management estimates that
the Company also has the number one and three market shares in Australia and
Western Europe with 60% and 16%, respectively. The Company expects PVC film
export sales to increase in the growing Central and South American markets.
36
<PAGE>
Foam Products:
The Company's polystyrene foam products include meat trays, egg cartons
and fast food containers, which it manufactures in the U.K. and France.
Management estimates that the Company is the largest producer of egg cartons
in France, with a 26% market share and the third largest producer of
polystyrene foam food packaging in Western Europe, with an 11% market share.
The Company expects growth in foam products sales by penetrating emerging
markets in Eastern Europe and the Middle East.
The Company has engaged J.P. Morgan to represent it in soliciting bids for a
possible sale of its foam products business. A "first round" of bids has been
received. Potential purchasers have conducted preliminary due diligence, and
"second round" bids were received February 16, 1998. If the Company ultimately
accepts one of the bids and determines to sell the foam products business, it is
contemplated that such a transaction would be concluded in March or April of
1998. There can be no assurance that the Company will ultimately accept any of
the bids or any offer for the sale of the foam products business, that the
Company will ultimately be successful in negotiating any such sale, or that the
foam products business will ultimately be sold.
Customers:
The Company currently has over 2,000 customers, including General Mills,
Kraft/General Foods, Campbell Soup, Albertson's, Safeway, American Stores,
Tyson Foods, Interstate Bakeries (Wonder Bread), Becton-Dickinson,
Kimberly-Clark, 3M and Johnson & Johnson. With the addition of CT Film, the
Company has a manufacturing capacity of nearly 800 million pounds of
polyethylene and PVC films. For the year ended December 31, 1997, the
Company, on a pro forma basis after giving effect to the CT Film Purchase,
would have had net sales of $614.6 million, a net loss of $5.6 million and
EBITDA (as defined under "Prospectus Summary -- Summary Historical and Pro
Forma Financial Data") of $35.7 million.
The Company operates principally in the United States and Europe. The
following is information regarding the Company's foreign and domestic
operations.
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
IDENTIFIABLE ASSETS:
United States........ $270,493 $336,897
Europe............... 39,843 54,643
Other................ 18,821 18,015
---------- ----------
Total.............. $329,157 $409,555
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES TO UNAFFILIATED CUSTOMERS:
United States........................ $220,542 $236,726 $389,069
Europe............................... 68,966 68,008 69,091
Other................................ 35,528 34,401 33,003
---------- ---------- ----------
Total.............................. $325,036 $339,135 $491,163
========== ========== ==========
OPERATING PROFIT:
United States........................ $ 13,917 $ 1,285 $ 13,516
Europe............................... 2,357 6,926 6,780
Other................................ 2,695 3,942 3,345
General corporate expenses........... (3,967) (4,100) (6,555)
---------- ---------- ----------
Total.............................. $ 15,002 $ 8,053 $ 17,086
========== ========== ==========
</TABLE>
HUNTSMAN PACKAGING
Huntsman Packaging was founded in 1992 for the purpose of acquiring
Goodyear Tire & Rubber Company's Film Products Division. Since its formation,
Huntsman Packaging has pursued its growth
37
<PAGE>
strategy by improving operating efficiency and by completing eight strategic
acquisitions and receiving a capital contribution from Huntsman Corporation
of European Foam, each of which has complemented Huntsman Packaging's
existing product lines and provided it with new products and access to new
markets. For example, the Deerfield Acquisition established Huntsman
Packaging as a leading converter film producer and nearly doubled its share
in the stretch film market. The United Films Acquisition established Huntsman
Packaging as a premier producer of cookie, cracker and cereal box liners.
Huntsman Packaging has a successful track record of improving capacity
utilization, reducing overhead costs and increasing profits of its acquired
businesses. The Company's recent acquisitions have provided it with
additional state-of-the-art equipment, which has allowed it to reduce capital
expenditures and consolidate its manufacturing operations by closing older,
less efficient operations. Management believes that additional cost savings
can be achieved as it continues to integrate acquired companies.
Prior to September 30, 1997, Huntsman Packaging was a wholly-owned
subsidiary of Huntsman Corporation. Contemporaneous with the Offering,
Huntsman Packaging was separated from Huntsman Corporation in the Split-Off.
As a result of the Split-Off, Jon M. Huntsman owns approximately 65%
of the total equity of Huntsman Packaging. Richard P. Durham and the
Christena Karen H. Durham Trust collectively own approximately 35% of the
total equity of Huntsman Packaging. See "Ownership of Capital Stock." Mr.
Durham is Mr. Huntsman's son-in-law and the President and Chief Executive
Officer of Huntsman Packaging. Christena Durham is the daughter of Mr.
Huntsman, the beneficiary of the Christena Karen H. Durham Trust and the
wife of Mr. Durham. Jon M. Huntsman, Richard P. Durham and Christena H. Durham
are currently the directors of the Company.
The Company intends to sell additional shares of its common stock and to
issue incentive stock options to certain members of the Company's senior
management. See "Ownership of Capital Stock."
CT FILM PURCHASE
On August 27, 1997, an indirect subsidiary of Huntsman Corporation was
merged into Rexene Corporation. The surviving corporation was renamed
Huntsman Polymers Corporation. On September 30, 1997, Huntsman Packaging
acquired CT Film, including Rexene Corporation Limited, from Huntsman
Polymers Corporation for $70 million in cash.
Management believes that the CT Film Purchase strengthened the Company's
position as a market leader in the film and flexible packaging industry by
enhancing its existing product lines and provided new growth opportunities.
The CT Film Purchase provided the Company with new customers, including
Becton-Dickinson, Kimberly-Clark and Johnson & Johnson, and provided access
to the growing medical, personal care and agricultural film markets. In
addition, CT Film increased the Company's share of the North American
converter film market from 11% to a leading 23% share.
With the CT Film Purchase, management expects to generate significant cost
savings, primarily from three sources: (i) approximately $4.0 million in
annual savings from raw material cost reductions; (ii) approximately $6.6
million in annual savings from the elimination of duplicative management and
operating personnel; and (iii) approximately $5.7 million in annual savings
through the consolidation of less efficient facilities and the related
elimination of personnel and fixed costs.
Because the former CT Film assets were at approximately 67% of capacity
prior to the acquisition of CT Film, management believes that CT Film's
available capacity can be used to: (i) relocate manufacturing to facilities
closer to customers, thereby reducing transportation costs and increasing
logistical flexibility in product delivery; (ii) reduce production lead
times; and (iii) reduce capital expenditures.
COMPETITIVE STRENGTHS
Superior Manufacturing Capability. With the acquisition of CT Film,
management believes the Company possesses a broader range of manufacturing
equipment and more state-of-the-art manufacturing equipment than any of its
competitors. The resulting combination of manufacturing flexibility and
efficiency enhances the Company's ability to bring new technologies to the
marketplace and meet the ever-increasing performance needs of its customers
in a cost-effective manner.
38
<PAGE>
Strong Market Positions. The Company has a leading market position in each
of its major product lines. With the CT Film Purchase, the Company is North
America's largest supplier of converter and frozen food films and its second
largest supplier of PVC films, cookie, cracker and cereal box liners and
bakery bags. The Company also maintains significant market shares in PVC film
in Western Europe and Australia and polystyrene foam food packaging products
in Western Europe. The Company attributes its market leadership primarily to
its broad and innovative product lines, well-established customer
relationships, low-cost manufacturing capabilities and technological
innovation.
Proven Management Team. The Company has assembled an outstanding
management team at both the corporate and operating levels, with extensive
experience in the flexible packaging industry. Senior management has an
average of over 20 years of experience in the film and flexible packaging
industry. Since the Company's formation in 1992, management has successfully
integrated eight acquisitions and one capital contribution, enhanced
productivity, diversified its product lines, strengthened its customer
relationships and increased EBITDA.
Well-Established Customer Relationships. The Company has close working
relationships with both its end-use customers and its distributors. The
Company is a major supplier to some of the most significant end users of film
products in the world, including Albertson's, American Stores, Campbell Soup,
General Mills, Interstate Bakeries (Wonder Bread), Keebler, Kraft/General
Foods, Pillsbury, Safeway, Tyson Foods and most of the flexible packaging
converters that supply such end users. In addition, the Company manufactures
and supplies film to some of the largest non-food film consumers in North
America, including Baxter, Becton-Dickinson, Kimberly-Clark, 3M, Johnson &
Johnson, Goodyear, Wal-Mart and Owens Corning. During the past five years,
the Company also has assembled a distribution network that includes the four
leading national film distributors: Unisource, Bunzl, Zellerbach and
ResourceNet. Management believes that the combination of its end-use
customers and leading national distributors gives the Company a strategic
advantage in the marketplace.
Low-Cost Production. The Company believes that its manufacturing costs are
among the lowest in the industry due to: (i) economies of scale provided by
its high volume production; (ii) high plant utilization, attained through the
continual consolidation of less efficient operations; (iii) favorable resin
and other raw material prices, based on its significant purchasing
requirements; (iv) state-of-the-art manufacturing equipment that minimizes
resin requirements and waste; and (v) capital investment that has resulted in
improved operating efficiency.
STRATEGY
Since its formation, the Company has focused on strategic acquisitions,
technology development and production improvements to take advantage of
current and projected market trends. Management believes that the following
trends will drive future growth in the film and flexible packaging industry:
(i) traditional forms of rigid packaging (paperboard, glass, metals and rigid
plastic) will be replaced by sophisticated, less expensive, higher
performing, flexible packaging alternatives; (ii) new metallocene-based resin
technologies will encourage growth in flexible packaging and require
state-of-the-art extrusion equipment to deliver these technologies in a
cost-efficient manner; and (iii) customers and distributors will continue to
prefer large, integrated suppliers, such as the Company, to smaller
suppliers. Management believes that the Company's combination of core
technological competencies, modern, flexible manufacturing capabilities and
innovative management and marketing practices will position the Company as
the premier film extrusion company in North America. To that end, the Company
will continue to pursue the following strategies:
Develop New Products and New Markets. To capitalize on the Company's core
technological and manufacturing competencies, the Company will continue to
focus on customer needs through its specialized product development teams
consisting of sales, marketing, technical and manufacturing professionals. In
cooperation with major customers, the Company is developing films for
stand-up plastic pouches that are replacing traditional rigid packaging for a
broad range of consumer products, including juices, pet food, laundry
detergent and snack foods. The Company recently developed a high-integrity
shrink film for Campbell Soup that replaces traditional corrugated box and
tray applications used in bundling canned goods. The Company also achieves
product innovation by identifying and purchasing or
39
<PAGE>
licensing value-added technologies. A recent example is the Company's
acquisition of the patent rights to the G-Bond manufacturing process. This
cost-effective method of film production has allowed Huntsman Packaging to
gain market share in the rapidly growing packaged salad market, most notably
with Dole Foods.
Continue Cost Reductions and Productivity Enhancements. The Company
continues to seek opportunities to reduce its operating costs and enhance
productivity. Recently, following the acquisitions of United Films and
Deerfield, the Company closed older, less efficient production facilities in
Dallas, Texas and Bowling Green, Kentucky, thereby reducing manufacturing
costs. Through the CT Film Purchase, the Company intends to achieve
significant cost savings through reduction in raw material prices and
overhead expenditures and further plant rationalizations. With the addition
of CT Film, the Company's plants will be able to service customers from
lower-cost manufacturing facilities that are located closer to the customers,
reducing both delivery times and transportation costs.
Enhance and Leverage Customer Relationships. The Company has developed
long-standing relationships with many of its customers. These customers value
product innovation and reliable supply, and consequently exercise great care
in establishing and maintaining their supplier relationships. The Company
believes that its reputation for innovation and reliability is recognized in
the marketplace. In addition, management believes that the trend of supplier
consolidation will continue. The Company focuses on meeting the increasingly
complex packaging needs of its customers with its wide array of film and
flexible packaging products. As the Company has grown through acquisitions,
it has successfully sold existing products to newly-acquired customers and
has sold newly-acquired products to existing customers. Management believes
this leveraging has provided and will continue to provide growth
opportunities.
INDUSTRY OVERVIEW
Flexible packaging and film products are thin, pliable bags, pouches,
labels and films for food and non-food consumer and industrial goods that are
generally produced from single or multi-layer laminates of various
combinations of plastics, paper, film and foil. Flexible packaging containers
not only protect their contents, they are also cost-effective, space-saving,
lightweight, tamper-evident, convenient and often recyclable.
Flexible packaging represents the fastest growing sector in the $94
billion North American packaging industry. Currently, flexible plastic
packaging is the second largest segment in the packaging industry, at 16%,
and is expected to become the largest in the next several years. There are
approximately 650 flexible packaging companies in the United States with over
950 plants, predominately concentrated in the Midwest. These companies have
approximately $16 billion in industry sales and approximately 84,000
employees. The flexible packaging industry has experienced record levels of
consolidation recently. There were 34 business combinations in 1995 and 1996,
totalling $2.1 billion in revenues. In addition to the high level of merger
and acquisition activity, companies in the industry are participating in more
joint ventures, partnerships, expansions and technology sharing agreements.
Large consumers of flexible packaging materials are driving market
consolidation by using fewer suppliers in order to increase buying
efficiencies and reduce administrative costs.
The food processing industry represents approximately 50% of the market
for flexible packaging. The remaining markets include medical and
pharmaceutical applications, household goods, garden supplies, pet food,
cosmetics, retail merchandise, agricultural, industrial and institutional
applications. End users of flexible packaging have increasingly sought better
performing and less expensive packaging alternatives to meet changing
demographics and customer needs. For example, in consumer markets,
convenience and health consciousness are driving demand for low-fat foods
such as ready-to-eat fresh salads and produce, which require sophisticated
packaging solutions to maintain freshness, increase shelf life and provide
resealability.
There is a general industry trend to replace rigid containers (paperboard,
glass, metals and rigid plastic) with lower-cost and lighter-weight flexible
packaging. In consumer markets, stand-up pouches are used to replace boxes,
jars or cans. In industrial markets, stretch and shrink films are being used
to unitize cans, boxes and loads for transport and are replacing traditional
forms of packaging, such as steel strapping, corrugated paper boxes and
taping.
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As end users continue to replace rigid packaging with flexible packaging,
consumers are demanding thinner, stronger and clearer packaging products. In
response, resin manufacturers have introduced new resin technologies, such as
metallocene resins, which enhance different physical properties of the film.
As demand for improved product offerings continues, management anticipates
that product lines and manufacturing equipment will change rapidly.
PRODUCTS, MARKETS AND CUSTOMERS
Huntsman Packaging is one of the largest manufacturers of film and flexible
packaging products in North America. The Company offers one of the most diverse
product lines in the industry and has attained a leading market position in each
of its major product lines. Management attributes its market leadership
primarily to its advanced film extrusion equipment and technology, broad and
innovative product lines, well-established customer relationships and low-cost
production capabilities. The Company's product lines constitute two business
segments, flexible packaging and foam products. The flexible packaging segment's
product lines are comprised of the following: (i) converter films that are sold
for additional fabrication and resale by other flexible packaging manufacturers
for use in a wide range of consumer and industrial markets; (ii) barrier films
that contain and protect food and other products; (iii) printed products that
include printed rollstock, bags and sheets used to package products in the food
and medical industries; (iv) stretch films that are used for industrial
unitizing and containerization; and (v) PVC films that are used by supermarkets,
institutions and homes to wrap meat, cheese and produce. The foam products
segment includes meat trays, egg cartons and fast food containers.
Flexible Packaging:
Converter Films
Converter films are single-and multi-layer extruded polyethylene films
that are sold to converters and laminators for final processing into consumer
products, such as bags, pouches and printed products. Converter films may
also be laminated to another film or to paper or foil to give each layer a
specific performance characteristic, such as moisture or oxygen barriers or
light protection. Converter films are sold either for their sealability
characteristics or their barrier characteristics, and must meet stringent
performance specifications, including gauge control, layer thickness,
sealability and web width accuracy.
Prior to the CT Film Purchase, the Company was the second largest supplier
of converter films in the estimated 710 million pound North American market.
With the consummation of the CT Film Purchase, the Company has the number one
market position, increasing its market share from approximately 11% to
approximately 23%.
Management believes the technological advantages of the Company's
converter films are recognized and respected in the marketplace. Adherence to
strict performance specifications allows the Company to price many of these
products at a premium. Single-layer films are a blend of resins that provide
desired sealant characteristics for specific packaging applications.
Three-and five-layer coextrusions produce films with distinct layers joined
together to form what appears to be a single-layer film. Each layer and each
resin in each layer provides a specific characteristic -a barrier, an
adhesive, a seal or a gloss. The Company's technological capabilities in
five-layer film offer an efficient and cost-effective method of sealing in or
sealing out moisture, oxygen or odors.
The Company continues to enhance its market share in converter films by
introducing new product offerings to meet new industry trends and customer
needs. Recently, for example, the Company worked closely with one of its
converter customers to develop a three-layer film that will replace paper
products in pet food packaging applications. In addition, the Company has
recently developed a thermal imaging polyethylene film for billboard
advertising in cooperation with a national media company.
Major converter film customers include All-Pak, Clear Lam Packaging,
Lawson Mardon, Plastic Packaging and Sonoco Flexible Packaging. Virtually all
laminators in North America buy at least a portion of their film from
Huntsman Packaging. These laminated structures are sold to such end users as
Federal Express, Heinz, Kraft/General Foods, M&M Mars, Nabisco and Procter &
Gamble.
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<PAGE>
Barrier Films
Barrier films are polyethylene films that are sold to food processors and
other end users. These films provide specific types of barrier protection
against moisture, oxygen, light or gases, and are puncture resistant. Barrier
films produced by the Company are sold in the following product segments: (i)
cookie, cracker and cereal box liners; (ii) medical packaging and personal
care films; (iii) shrink film; and (iv) agricultural film.
Cookie, Cracker and Cereal Box Liner Film Market
The Company sells coextruded barrier films that are manufactured into
sealed pouches as box liners for packaging cookies, crackers, cereals and
other dry goods. The Company is a leading supplier of these films, with a 19%
market share. This market of approximately 180 million pounds is expected to
grow approximately 8% annually over the next several years. The Company's
advanced, state-of-the-art coextrusion technology has allowed it to gain
market share and introduce new products in this segment, such as the
successful introduction of a cake mix box liner for General Mills. The
Company is a supplier to many market leaders, including General Mills,
Kellogg, Nabisco, Keebler and Pillsbury.
Medical and Personal Care Film Market
With the consummation of the CT Film Purchase, the Company increased its
presence in the medical film market and entered the personal care market.
There is an estimated 205 million pound medical film market, including
medical supply packaging and surgical drapes and gowns. This market is
expected to grow approximately 8% annually through the year 2000. The Company
now also produces films for use in infant care, adult incontinence and
feminine hygiene products for a portion of the estimated 280 million pound
personal care market. This market is expected to grow approximately 5%
annually through the year 2000. The Company's customers include
Becton-Dickinson, Kimberly-Clark, Drypers and Johnson & Johnson.
Shrink Film Market
Polyethylene shrink films, so-called because of their ability to shrink or
contract around a product when heated, are used in many applications,
including unitizing consumer products and protecting industrial items during
storage and shipment. The Company participates primarily in the industrial
segment of the shrink film market. The industrial shrink film market is
approximately 344 million pounds and is expected to grow approximately 5%
annually through the year 2000.
The Company has recently developed a technologically-advanced shrink film
that enables end users to downgauge from their current products and offers
greater strength and puncture resistance than ordinary shrink film. The
introduction of this film has been highly successful, and it is currently
used by such nationally-recognized industry leaders as General Mills,
Campbell Soup, Del Monte and Perrier.
Agricultural Film Market
The agricultural film market segment is generally divided into five
categories: mulch film, greenhouse film, fumigation/sterilization film, water
and soil conservation film and crop storage film. With the consummation of
the CT Film Purchase, the Company now produces mulch films and greenhouse
films. The North American market for mulch and greenhouse films is
approximately 230 million pounds and is expected to grow approximately 4%
annually. The Company's agricultural film customers include Asgrow, Gargiulo
Farms, Griffin Suppliers and Mecca Farms. The Company believes that it is
well-positioned to capitalize on the trends in the agricultural film segment,
which include downgauging and the use of metallocene resins.
Printed Products
The Company's printed products are manufactured and sold in two formats:
roll stock and bags. Printed roll stock is sold to fresh and frozen food
processors, who use their own packaging equipment to fabricate pouches and
bags for their products. Printed bags are sold to fresh and frozen food
processors, bakeries, textile manufacturers and other dry goods processors.
The Company has profitable niches in the markets for dry goods, ready-to-eat
salad and fresh-cut produce, textile, tortilla, medical and specialty
packaging.
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The Company is the number one supplier of film used in the frozen food
segment, with a 31% market share. The North American frozen food packaging
market is approximately 42 million pounds and is expected to grow
approximately 5% annually through the year 2000. The Company is also the
second largest producer in the 210 million pound bakery market, with a 20%
share, supplying approximately one-fifth of the five billion bread bags
manufactured in North America each year. The Company is also the number one
supplier of non-household zipper bags in North America.
The Company recently developed a new heat-sealed, puncture-resistant
printed film for one of the largest food processors in the country. In
addition, the Company was named the sole provider of bread bags for
IGA/Fleming and the preferred provider of zipper bags for Mission Foods, the
largest producer of tortillas in the world.
Along with the Company's superior printing and pre-press reclosable
technology, the Company's license to the patented G-Bond process further
differentiates the Company from its competitors. G-Bond is a lamination
simulation that can be achieved with a printing press. Traditional
laminations are a two-step process, first printing an image onto film and
then laminating the printed film onto a second film. G-Bond accomplishes both
steps in one process, eliminating the need for laminating equipment. A
modification to the G-Bond process, known as the Dial-a-Barrier process,
which is owned by the Company and is the subject of a pending patent
application, has become an industry leader in the growing packaged salad and
pre-cut produce market. The Company is currently working with Dole Foods,
Fresh Express and Mann Packing in this growing market. The Company continues
to invest in modern processing equipment, including 8-color presses,
specialty reclosability equipment, and state-of-the-art pre-press equipment
to reduce changeover time and enhance printing flexibility. This technology
recently allowed the Company to print a 17-color product for Hanes using
screening techniques on an 8-color press.
Huntsman Packaging's printed product customers include Dole Foods,
Interstate Bakeries (Wonder Bread), Mission Foods, Ore-Ida, Pepperidge Farms
and Pillsbury (Green Giant).
Stretch Films
Stretch films, used primarily to bundle products and wrap pallets, are
made of a blend or coextrusion of linear low density polyethylene, low
density polyethylene, metallocene and other specialty resins. Currently,
approximately one-half of all loads shipped in North America are unitized
with stretch film. Management expects additional growth as stretch films
continue to replace less economical and less environmentally-acceptable
packaging alternatives, such as steel strapping.
Consumption of stretch film in North America exceeds one billion pounds
per year and has grown at a rate of approximately 7% annually over the last
few years. The Company expects that this market will maintain a growth rate
of approximately 7%, and will reach approximately 1.3 billion pounds by 2000.
The Company is the fourth largest producer of stretch films in North America,
with an 11% market share.
Most of the Company's competitors view stretch film as a commodity product
and compete primarily on the basis of price. The Company views stretch film
as a value-added product. By using state-of-the-art extrusion equipment and
continually refining its product offering mix, the Company seeks to be the
supplier of choice in this market. Ongoing product development includes the
Company's license to the patented Winwrap product, a new lightweight stretch
wrap that is half the weight of traditional handwrap. Despite its reduced
weight, Winwrap brand stretch wrap offers superior elasticity and holding
force, and is also more durable than traditional handwrap. The Company is
engaged in a program to sub-license this technology to third parties.
Market trends include downgauging of film and the use of more
sophisticated resins. Management believes that recent capital improvements in
production equipment, strong relationships with all major resin suppliers and
ongoing investment in product development have positioned the Company to take
advantage of these trends.
The stretch film market has also recently been the focus of significant
industry consolidation. Tenneco recently purchased Mobil's packaging and
stretch film division, AEP purchased Borden's stretch film division, and in
October 1996, Huntsman Packaging purchased Deerfield. Management believes
that the stretch film market will continue to consolidate, with larger
manufacturers, such as the Company, gaining a competitive advantage in
servicing large, sophisticated customers.
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Huntsman Packaging sells stretch film primarily to distributors for resale
to end users. In North America, there are more than 3,700 distributors
selling stretch film products to more than 200,000 end users. The Company is
the only major stretch film producer that distributes its films through all
of the major national distributors. The Company's largest customers in this
market include Unisource, Zellerbach, NPS, Pacific Packaging and Resinas
Poli.
PVC Films
PVC films are used by supermarkets, institutions and homes to wrap meat,
cheese and produce. Management believes the Company has North America's
number two market position in PVC films. Management estimates that the
Company also has the number one and three market shares in Australia and
Western Europe, with 60% and 16%, respectively. The Company's PVC export
sales increased by over 20% in 1996, and the Company expects PVC film export
sales to further increase in the growing Central and South American markets.
In North America, PVC film is sold to distributors, supermarket chains and
converters. Approximately 58% of the Company's PVC film is sold through
distributors, 26% is sold directly to supermarket chains, and 16% is sold to
converters. Major customers include Albertson's, Bunzl, Kroger, Publix Super
Markets and Safeway. In Europe, the Company's major PVC film customers
include Disposable Supplies, Errecia, Northern Packaging, Omnipac and
Vitembal. In Australia, the Company's customers include Chep Australia,
Dalton Packaging, Grocery Holdings, Onwards Industrial and Woolworth.
Foam Products:
The Company's polystyrene foam products include primarily meat trays, egg
cartons and fast food containers, which it produces in the U.K. and France.
Management estimates that the Company is the largest producer of egg cartons
in France, with a 26% market share, and the third largest producer of all
polystyrene foam food packaging products in Western Europe, with an 11%
market share. The Company expects growth in PVC film sales by penetrating
emerging markets in Eastern Europe and the Middle East.
Approximately 45% of the Company's sales in the foam market are through
distributors to supermarkets, fast food chains and food processors. The
remainder of the Company's sales are directly to end users. The Company's
largest customers in this market include ACS Catering, Autobar, GB Quick,
Marshall Food and Sovereign Foods.
COMPETITION
The film and flexible packaging industry includes several hundred
companies. Small and medium-sized manufacturers, who compete primarily in
regional markets, predominate, with relatively few large, national
manufacturers. Statistics of the Flexible Packaging Association and available
trade and industry information indicate that the ten largest flexible
packaging companies accounted for 40% of the total industry sales in 1995.
Other sales leaders in this industry include Bemis, American National Can,
Printpack, Cryovac (a division of W.R. Grace), Tenneco, AEP and Exxon. See
"Risk Factors -- Competition."
SALES AND MARKETING
Nine sales professionals, located in eight cities, serve national
accounts, and approximately 70 additional professionals are responsible for
selling the Company's products. All of the Company's sales, marketing and
technical support personnel receive extensive training before assuming
account responsibilities. The Company believes it is critical that its sales,
marketing and technical support teams have in-depth knowledge of the
Company's products, and in some instances engineering and other technical
experience, in order to meet customers' product needs and provide meaningful
information to the Company for new product development. Technical support
personnel assist the sales force with technical expertise and assure
compliance with customer specifications.
The Company's major national accounts are serviced by national account
salespeople who are qualified to sell the entire range of the Company's
products. In addition, since each of the Company's product lines have
different characteristics and properties, and generally are sold and
distributed in different ways, the Company has sales, marketing and technical
support personnel dedicated specifically to each product. The Company's
products are sold directly to end users, to distributors and through brokers.
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RESEARCH AND DEVELOPMENT
Huntsman Packaging spent $2.0 million, $2.1 million and $2.5 million on
research and development for its products in 1995, 1996 and 1997,
respectively. CT Film spent $3.7 million, $2.7 million and $1.4 million on
research and development in 1995, 1996 and 1997, respectively. On a pro forma
basis, Huntsman Packaging and CT Film spent 0.6% of net sales in 1997 for
research and development. Huntsman Packaging conducts its research and
development at facilities in Akron, Ohio and Chippewa Falls, Wisconsin. Both
facilities have extensive physical property and analytical test equipment and
both blown and cast extrusion pilot line equipment.
INTELLECTUAL PROPERTY RIGHTS
Proprietary protection of Huntsman Packaging's processes, apparatuses, and
other technology and inventions is important to its business. Huntsman
Packaging owns approximately 25 unexpired U.S. patents. Approximately seven
patent applications, of which one is a provisional application, are currently
pending at the United States Patent and Trademark Office, and approximately
17 foreign patents have either been issued or are pending. While a
presumption of validity exists with respect to issued U.S. patents, Huntsman
Packaging cannot assure that any of its patents will not be challenged,
invalidated, circumvented or rendered unenforceable. Furthermore, Huntsman
Packaging cannot assure the issuance of any pending patent application, or
that if patents are issued, such patents will provide meaningful protection
against competitors or against competitive technologies.
Huntsman Packaging also relies on unpatented proprietary know-how,
continuing technological innovation and other trade secrets to develop and
maintain its competitive position. Huntsman Packaging has entered into a
number of confidentiality agreements to protect its trade secrets and
proprietary know-how upon making necessary disclosures to third parties.
There can be no assurance, however, that such agreements will not be
breached, that they will provide meaningful protection for Huntsman
Packaging's trade secrets or proprietary know-how, or that adequate remedies
will be available in the event of an unauthorized use or disclosure of such
trade secrets and know-how. In addition, there can be no assurance that
others will not obtain knowledge of such trade secrets through independent
development or other access by legal means.
In addition to its own patents, proprietary trade secrets and know-how,
Huntsman Packaging is a party to certain licensing arrangements and other
agreements authorizing Huntsman Packaging to use certain trade secrets,
know-how and related technology and/or operate within the scope of certain
patents owned by other entities. Huntsman Packaging also has licensed or
sub-licensed certain intellectual property rights to third parties.
Huntsman Packaging has associated brand names with a number of its
products, and owns approximately 35 U.S. trademark registrations, one
application for registration currently pending at the United States Patent
and Trademark Office, and approximately 170 foreign counterparts, including
both registrations and applications for registration. However, there can be
no assurance that Huntsman Packaging's trademark registrations will provide
meaningful protection against the use of similar trademarks by competitors,
or that the value of Huntsman Packaging's trademarks will not be diluted.
RAW MATERIALS
Polyethylene resin, PVC resin and polystyrene resin constitute the primary
raw materials used to manufacture all of the Company's products, with
polyethylene resin being the single largest raw material purchased by the
Company. In 1997, these three resins comprised approximately 80% of total raw
material costs and approximately 43% of the Company's net sales. The prices
of raw materials are a function of, among other things, manufacturing
capacity, demand, and the price of crude oil and natural gas feedstocks. See
"Risk Factors -- Exposure to Fluctuations in Resin Prices and Dependence on
Resin Supplies."
The Company's major suppliers of polyethylene resin are Dow Chemical,
Exxon, Chevron and Huntsman Polymers, its major suppliers of PVC resin are
Geon and BASF, and its major supplier of polystyrene resin is Huntsman
Chemical Corporation.
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MANUFACTURING
Huntsman Packaging manufactures its film products using both the blown and
cast extrusion processes. In each process, thermoplastic resin pellets are
combined with other resins, plasticizers, or modifiers in a controlled high
temperature and pressurized process to create films with specific performance
characteristics. These two basic film manufacturing processes produce
uniquely different performance characteristics. Cast films are generally
clearer, softer, and more uniform in thickness. Blown films offer enhanced
physical properties, such as increased tear and puncture strength and barrier
protection.
In the cast film process, the molten resin mixture is extruded through a
horizontal die onto a polished chill roll, where the film is quickly cooled.
As the film comes off the end of the chill roll, it is wound onto rolls.
Blown film is produced by extruding the molten resin mixture through a
circular die and chilled air ring to form a bubble as large as 55 feet high
and 25 feet in diameter. The bubble is then collapsed, cut and wound onto
rolls.
PROPERTIES
The principal executive offices of Huntsman Packaging are located at 500
Huntsman Way, Salt Lake City, Utah 84108, and are occupied pursuant to a
lease with Huntsman Corporation.
The following is a list of the Company's owned or leased properties where
manufacturing and research and development are located. In addition, the
Company leases sales offices and warehouse space in 30 locations spread over
14 states and 4 foreign countries. Unless otherwise indicated, the property
is owned.
<TABLE>
<CAPTION>
LOCATION FACILITY SQ. FOOTAGE
- -------- -------- -----------
<S> <C> <C>
Birmingham, Alabama Manufacturing 120,000 sq. ft.
Bloomington, Indiana Manufacturing* 21,500 sq. ft.
Calhoun, Georgia Manufacturing 39,000 sq. ft.
Manufacturing** 63,000 sq. ft. owned
Carrollton, Ohio (1) 12,000 sq. ft. leased
Danville, Kentucky Manufacturing 180,000 sq. ft.
Deerfield, Massachusetts Manufacturing 140,000 sq. ft.
Guegon, France Manufacturing and warehouse 45,000 sq. ft.
Lewisburg, Tennessee Manufacturing 42,000 sq. ft.
Merced, California Manufacturing 37,500 sq. ft.
Odon, Indiana Manufacturing* 20,000 sq. ft.
Philippsburg, Germany Manufacturing 38,000 sq. ft.
Melbourne, Australia Manufacturing* 40,000 sq. ft.
Rochester, New York Manufacturing 327,000 sq. ft.
Seattle, Washington Manufacturing 110,000 sq. ft.
Skelmersdale, U.K. Manufacturing and warehouse* 291,000 sq. ft.
Toronto, Canada Manufacturing 106,000 sq. ft.
Uniontown, Ohio Research and development*
Chippewa Falls, Wisconsin Manufacturing; Research and development 40,400 sq. ft.
Clearfield, Utah Manufacturing* 41,000 sq. ft.
Dalton, Georgia Manufacturing 52,000 sq. ft.
Harrington, Delaware Manufacturing 42,200 sq. ft.
Scunthorpe, U.K. (2) Manufacturing 32,000 sq. ft.
</TABLE>
- ------------
* Leased
** Partially owned and partially leased
(1) In December 1997, the Company announced its plan to close the
Carrollton, Ohio facility and relocate most of the equipment to other
of the Company's facilities. The Company expects to complete the
Carrollton, Ohio plant closing in the first half of 1998.
(2) The Company has announced that it will either sell or close the
Scunthorpe, U.K. facility prior to the end of 1998.
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EMPLOYEES
As of December 31, 1997, Huntsman Packaging employed approximately 2,250
persons. Approximately 21% of Huntsman Packaging's employees work outside the
United States. Huntsman Packaging has approximately 540 employees located in
the United States and 310 employees internationally who are subject to
collective bargaining agreements which expire from February 1998 to June
2000. Management believes its relationships with employees are good. There
have been no strikes or work stoppages.
ENVIRONMENTAL MATTERS
Huntsman Packaging is subject to certain environmental laws, including
those described below. Huntsman Packaging's operating budgets include costs
and expenses associated with complying with such laws, including the
acquisition, maintenance and repair of pollution control equipment.
Additional costs and expenses may also be incurred to meet new requirements
under Environmental Laws, as well as in connection with the investigation and
remediation of threatened or actual pollution. In many instances, the
ultimate costs under Environmental Laws and the time period during which such
costs are likely to be incurred are difficult to predict.
Under certain Environmental Laws, the Company may be jointly and severally
liable for the cost of remediation of environmental contamination on-site and
at certain off-site locations at which the Company disposed of or arranged
for the disposal or treatment of hazardous substances. Under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"), and similar state statutes, an owner or operator of
real property may be liable for the costs of removal or remediation of
certain hazardous substances on or under the property, regardless of whether
the owner or operator owned or operated the real property at the time of the
release of the hazardous substances and regardless of whether the release or
disposal was in compliance with law at the time it occurred. To date,
Huntsman Packaging is not aware that any claims under CERCLA or similar state
statutes are pending against it.
Under the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), and similar state statutes, companies that hold permits to treat or
store hazardous waste can be required to remediate contamination from solid
waste management units at the facility, regardless of when the contamination
occurred. The Company's plants generate only small, incidental volumes of
hazardous waste or larger volumes stored less than 90 days, and such
quantities do not require RCRA permits to be held at the individual
facilities. Such waste, when generated, is disposed of at fully-permitted,
off-site facilities or is recycled in fully-permitted recovery facilities.
At the Deerfield, Massachusetts plant, an underground storage tank ("UST")
used to store fuel oil was closed in place prior to acquiring the facility in
October 1996. Two tanks below the size regulated by the Commonwealth of
Massachusetts remain in service; one active 1,000 gallon fuel oil tank and a
500 gallon tank, which serves as a spill containment vessel for the process.
The spill containment tank has never contained any material. No indication of
soil or groundwater contamination from these vessels has been detected. There
are currently four 4,000 gallon USTs for n-propyl alcohol at the Rochester,
New York plant. These tanks are double-walled steel with an epoxy coating,
and they are monitored on a regular basis. Proper notifications relative to
the installation of the tanks have been provided to state and local
authorities. Fourteen additional USTs have been removed from the site between
1987 and 1992. For those tanks from which leakage was discovered, appropriate
remedial measures were taken to address soil and groundwater contamination.
At the Dalton, Georgia facility, two underground tanks that were installed
by a previous owner were discovered when a release to the soil was detected.
The release was reported to the State of Georgia Department of Natural
Resources in October 1990 by CT Film. Investigation revealed limited levels
of soil and groundwater contamination. A risk-based remediation plan, which
requires no further action, has been proposed to the State. However, the
Company has accrued $125,000 in its December 31, 1997 balance sheet to
remediate should the State decide such remediation is necessary. At this
time, Huntsman Packaging does not believe that this project constitutes a
material issue.
47
<PAGE>
Huntsman Packaging's operations are also subject to regulation under the
Clean Air Act and the Clean Water Act, as well as under similar state
statutes. Under such statutes, Huntsman Packaging may also incur costs for
capital improvements and other requirements, including requirements under the
Clean Air Act that are scheduled to take effect in the future. The facilities
at Rochester, New York and Seattle, Washington have the potential to emit air
pollutants in quantities that require them to obtain a Title V permit under
the Clean Air Act Amendments of 1990 and the implementing state regulations.
Both facilities have timely filed Title V applications under their respective
state programs and receipt of permits is expected. Some capital costs for
additional air pollution controls or monitors may be required at both sites,
however, such expenditures are not expected to be materially adverse to the
business. Several facilities may be required to obtain stormwater permits
under the Clean Water Act and implementing regulations. Expenditures are not
expected to exceed $20,000 to obtain and comply with all such permits.
Additional costs could be incurred if additional regulations are promulgated
under the Clean Air and Clean Water Acts and similar state statutes or under
other Environmental Laws.
An analysis is currently being performed at the Harrington, Delaware and
Chippewa Falls, Wisconsin facilities acquired in the CT acquisition to
determine if potential emissions from ozone pollution control equipment will
require permits under Title V of the Clean Air Act Amendments of 1990.
Preliminary estimates indicate that such permits will probably not be
required. However, a portion of contingent environmental reserves have been
accrued against the possibility that some additional capital investment will
be needed. Capital costs are expected to be less than $50,000. Additional
costs could be incurred if additional regulations are promulgated under the
federal Clean Air and Clean Water Acts and similar state statutes or under
other Environmental Laws.
In conjunction with the sale of a plant site in 1992, the Company agreed
to indemnify environmental losses of up to $5 million which may have been
created at the plant site between January 1, 1988 and May 18, 1992. This
indemnity expires on May 8, 2002 and reduces ten percent each year beginning
May 12, 1997. The Company believes that the ultimate liability, if any,
resulting from this indemnification will not be material.
Huntsman Packaging's costs and operating expenses relating to
environmental matters totaled approximately $200,000 in each of 1995, 1996
and 1997. This amount is expected to be sufficient to cover, among other
things, Huntsman Packaging's routine measures to prevent, contain and clean
up spills of materials that occur in the ordinary course of business.
Huntsman Packaging's estimated capital expenditures for environmental matters
are expected to be approximately $725,000 in 1998 and approximately $175,000
in 1999. Capital expenditures and, to a lesser extent, costs and operating
expenses relating to environmental matters will be subject to evolving
regulatory requirements and will depend on the timing of the promulgation of
specific standards which impose requirements on Huntsman Packaging's
operations.
Rexene Corporation's operating expenses for environmental remediation,
compliance and waste disposal for the CT Film division were approximately
$250,000 in 1997, $345,000 in 1996 and $127,000 in 1995. In 1996, Rexene
Corporation spent approximately $124,000 on environmental capital
expenditures for CT Film. Rexene Corporation did not incur any environmental
capital expenditures for CT Film in 1995. For the foreseeable future,
Huntsman Packaging expects to incur approximately $50,000 per year in capital
spending to address the requirements of Environmental Laws for CT Film.
LITIGATION
Huntsman Packaging is involved in litigation from time to time in the
ordinary course of its business. In management's opinion, none of such
litigation is material to Huntsman Packaging's financial condition or results
of operations.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Below are the names, ages, positions and offices held, and a brief account
of the educational and business experience of each current director and
executive officer of Huntsman Packaging.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -- --------
<S> <C> <C>
Jon M. Huntsman* .... 60 Director and Chairman of the Board of Directors
Karen H. Huntsman* . 59 Vice Chairman**
Richard P. Durham* .. 33 Director, President and Chief Executive Officer
Christena H. Durham*. 33 Director, Vice President
Jack E. Knott........ 43 Executive Vice President and Chief Operating
Officer
Scott K. Sorensen* . 36 Executive Vice President and Chief Financial
Officer, Treasurer
N. Brian Stevenson .. 53 Senior Vice President and General Manager,
Packaging Division
Douglas W. Bengtson . 50 Senior Vice President and General Manager,
Performance Films Division
Ronald G. Moffitt ... 45 Senior Vice President and General Counsel,
Secretary
Stanley B. Bikulege . 34 Vice President Stretch Films, Packaging
Division
Dale A. Brockman .... 47 Vice President Manufacturing, Performance Films
Division
Daren G. Cottle...... 35 Vice President and Controller, Assistant
Secretary
Thornton L. Hill .... 60 Vice President Sales and Marketing National
Accounts
Gary J. Penna........ 49 Vice President Sales and Marketing Converter
Films, Performance Films Division
Patrick H. Price .... 52 Vice President Administration
Edwin W. Stranberg .. 47 Vice President PVC Films, Packaging Division
</TABLE>
- ------------
* Such persons are related as follows: Jon M. Huntsman is the father of
Christena H. Durham and the father-in-law of Richard P. Durham. Karen H.
Huntsman is the wife of Jon M. Huntsman, the mother of Christena H. Durham
and the mother-in-law of Richard P. Durham. Scott K. Sorensen is the
brother-in-law of Richard P. Durham.
** The Vice Chairman is an advisory position to the Board of Directors but
does not vote on matters brought to the Board.
49
<PAGE>
JON M. HUNTSMAN is a Director and the Chairman of the Board of Directors
of Huntsman Packaging and has served as Chairman of the Board, Chief
Executive Officer and a Director of Huntsman Corporation, its predecessors
and other Huntsman companies for over 25 years. He is also the Chairman and
founder of the Huntsman Cancer Foundation. In addition, Mr. Huntsman serves
on numerous charitable, civic and industry boards. In 1994, Mr. Huntsman
received the prestigious Kavaler Award as the chemical industry's outstanding
Chief Executive Officer. Mr. Huntsman formerly served as Special Assistant to
the President of the United States and as Vice Chairman of the U.S. Chamber
of Commerce.
KAREN H. HUNTSMAN was appointed Vice Chairman of Huntsman Packaging
Corporation on November 24, 1997, and serves as an officer and director of other
Huntsman companies. She has served as a Vice President and Director of Huntsman
Corporation since 1995 and as a Vice President and director of Huntsman Chemical
Corporation since 1982 and 1986, respectively. By appointment of the Governor of
the State of Utah, Mrs. Huntsman also serves as a member of the Utah State Board
of Regents. Mrs. Huntsman serves on the board of directors of various corporate
and non-profit entities, including First Security Corporation and Intermountain
Health Care Inc.
RICHARD P. DURHAM became President and Chief Executive Officer of Huntsman
Packaging in March 1997. Mr. Durham is a Director of Huntsman Packaging and
also is a Director of Huntsman Corporation. Mr. Durham has been with the
Huntsman organization in various positions since 1985. Most recently, Mr.
Durham served as Co-President and Chief Financial Officer of Huntsman
Corporation, where in addition to being responsible for accounting, treasury,
finance, tax, legal, human resources, public affairs, purchasing, research
and development, and information systems, he also was responsible for
Huntsman Packaging. Mr. Durham attended Columbia College and graduated from
the Wharton School of Business at the University of Pennsylvania.
CHRISTENA H. DURHAM was appointed a Director of Huntsman Packaging
Corporation on October 1, 1997, and became a Vice President on November 24,
1997. Prior to joining the Company, Mrs. Durham held no other officer
positions or directorships with any other for-profit organizations. Mrs.
Durham also serves on the Board of Directors of various non-profit
organizations, including the YWCA of Salt Lake City and as a trustee of the
Huntsman Excellence in Education Foundation.
JACK E. KNOTT became Executive Vice President and Chief Operating Officer
of Huntsman Packaging on September 1, 1997. Prior to joining the Company, Mr.
Knott was a member of the Board of Directors of Rexene Corporation from April
1996 until August 1997 and held the position of Executive Vice President of
Rexene Corporation and President of Rexene Products from March 1995 to August
1997. Mr. Knott was Executive Vice President--Sales and Market Development of
Rexene Corporation from March 1992 to March 1995, Executive Vice President of
Rexene Corporation from January 1991 to March 1992 and President of CT Film,
a division of Rexene Corporation, from February 1989 to January 1991. Prior
to joining Rexene Corporation, Mr. Knott worked for American National Can.
Mr. Knott received a B.S. degree in Chemical Engineering and an M.B.A. degree
from the University of Wisconsin and holds nine patents.
SCOTT K. SORENSEN recently joined Huntsman Packaging as Executive Vice
President and Chief Financial Officer. Prior to joining the Company, Mr.
Sorensen was Chief Financial Officer of the Power Generation Division of
Westinghouse Electric Corporation. Prior to joining Westinghouse in 1996, Mr.
Sorensen spent two years as Director of Business Development and Planning at
Phelps Dodge Industries and over four years as an Associate with McKinsey &
Company. Mr. Sorensen received an M.B.A. degree from Harvard Business School
and a B.S. degree in Accounting from the University of Utah.
N. BRIAN STEVENSON became Senior Vice President and General Manager,
Packaging Division on September 1, 1997. Mr. Stevenson joined Huntsman
Packaging in April 1992 as Executive Vice President and Chief Operating
Officer. He has 27 years of operating and management experience in the
flexible packaging industry. Prior to joining the Company, Mr. Stevenson held
numerous management positions at James River and Crown Zellerbach, including
Plant and Divisional Controller, Eastern Regional Sales Manager, Eastern
General Manager and, most recently, Vice President of James River's Flexible
Packaging Division. In 1990, he left James River to become President of
Packaging Industries. Mr. Stevenson holds a B.S. degree in Accounting and an
M.B.A. degree from the University of Utah.
50
<PAGE>
DOUGLAS W. BENGTSON joined Huntsman Packaging on September 15, 1997 as
Senior Vice President and General Manager, Performance Films Division. Mr.
Bengtson has 24 years of experience in sales, marketing and senior
management. Most recently, Mr. Bengtson was Vice President, Sales and
Marketing for Food Packaging at American National Can, where Mr. Bengtson was
responsible for the sales and marketing of flexible packaging to the food
industry segment. His former positions include Vice President, Sales and
Marketing at CT Film and Vice President, Sales and Marketing, Rexene Products
Division. Mr. Bengtson holds a B.S. degree in Business/Marketing from
Colorado State University.
RONALD G. MOFFITT joined Huntsman Packaging in 1997, after serving as Vice
President and General Counsel of Huntsman Chemical Corporation. Prior to
joining Huntsman in 1994, Mr. Moffitt was a partner and director in the Salt
Lake City law firm of Van Cott, Bagley, Cornwall & McCarthy, with which he
had been associated since 1981. Mr. Moffitt holds a B.A. degree in
Accounting, a Master of Professional Accountancy degree, and a J.D. degree
from the University of Utah.
STANLEY B. BIKULEGE joined Huntsman Packaging in 1992 and was appointed
Vice President Stretch Films, Packaging Division in 1997. Mr. Bikulege's
prior positions with the Company include General Manager--Castflex in 1997,
Managing Director-Europe from 1996 to 1997, Managing Director PVC
Films-Europe from 1995 to 1996, Director of Manufacturing from 1993 to 1995,
and Plant Manager in 1992. Prior to joining Huntsman, Mr. Bikulege held
numerous positions in Goodyear's Wingfoot Films. Mr. Bikulege received a B.S.
degree in chemical Engineering from Youngstown State University and an M.B.A.
degree from Georgia State University.
DALE A. BROCKMAN joined Huntsman Packaging in February 1993 as the plant
manager of the newly-acquired Huntsman Design Products plant in Rochester,
New York and later that year was appointed to the position of Director of
Operations. In 1994 he became Vice President Operations and in 1995 became
responsible for numerous plants. He was appointed Vice President
Manufacturing, Packaging Division in September 1997 and was appointed Vice
President Manufacturing, Performance Films Division on November 24, 1997. He
has 24 years of experience in the flexible packaging industry. He has held
numerous engineering and management positions at Crown Zellerbach and James
River, including General Manager/Bakery Business Unit Manager. Mr. Brockman
holds a B.S. degree in Mechanical Technology from Indiana State University.
DAREN G. COTTLE joined the Huntsman organization in 1989 and has held
various positions at Huntsman Chemical Corporation, including Plant
Controller. Mr. Cottle joined Huntsman Packaging in July 1992 as the
Assistant Controller, was named Controller in March 1997, and became Vice
President and Controller on November 24, 1997. Prior to joining Huntsman, Mr.
Cottle was employed by the international accounting firm of Deloitte &
Touche. Mr. Cottle is a Certified Public Accountant and received a B.A. and a
masters degree in Professional Accountancy from Weber State University.
THORNTON L. HILL joined the Company as Vice President Sales in July 1992
and became Vice President Sales and Marketing National Accounts on November
24, 1997. Prior to that time, Mr. Hill was General Sales Manager of
Goodyear's Film Products Division and had worked for Goodyear for 29 years in
various sales and marketing positions, including Executive Vice President and
Chief Operating Officer of Goodyear's Wingfoot Films. He holds a B.A. degree
in Education from Morehead State University and has attended executive
management programs at Kent State University and Northwestern University.
GARY J. PENNA became Vice President Sales and Marketing Converter Films,
Performance Films Division on September 1, 1997. Mr. Penna joined Huntsman
Packaging in 1996 as a result of the Deerfield Acquisition. Mr. Penna had
been with Deerfield since 1994, as Vice President of Sales for Converter
Films. Prior to joining Deerfield, Mr. Penna served a variety of management
positions at Exxon Corporation. Mr. Penna has a degree in Chemical
Engineering from Princeton University and an M.B.A. degree from The Amos Tuck
School at Dartmouth College.
PATRICK H. PRICE joined the Company in April 1992 as Vice President
Administration. Prior to joining the Company, he was employed for fifteen
years with Huntsman Chemical Corporation in the human resource department,
holding positions as Director of Personnel and Director of Benefits. He holds
a B.S. degree in Business Administration from California State
University-Northridge.
51
<PAGE>
EDWIN W. STRANBERG joined Huntsman Packaging in February 1993 as Vice
President of Operations and became Vice President PVC Films, Packaging
Division on November 24, 1997. He has 25 years of experience in the flexible
packaging industry. He held various manufacturing, technical and sales
management positions with Crown Zellerbach and James River prior to joining
Huntsman Packaging. Prior to James River, he was Vice President and General
Manager of Sealright Co. Inc. Mr. Stranberg holds a B.S. degree in Industrial
Engineering from New Mexico State University.
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following Summary Compensation Table sets forth information concerning
compensation earned in the fiscal year ended December 31, 1997, by the
Company's Chief Executive Officers and its remaining four most highly
compensated executive officers (the "Named Executive Officers") as of the end
of the last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION ALL OTHER
------------------------------------ ------------------------------------- COMPENSATION
AWARDS PAYOUTS ($)
-------------------------- --------- -------------
NUMBER OF
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTION/ LTIP
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS
POSITION YEAR ($) ($) ($)(1) ($) (#) ($)
- -------------------------- ------ --------- --------- -------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jon M. Huntsman
Chief Executive
Officer(2) 1997 70,400 360,000 -- 0 0 0 68,679(3)
Richard P. Durham
Chief Executive
Officer(4)................ 1997 415,618 420,000 -- 0 0 0 117,033(5)
N. Brian Stevenson
President, Chief
Operating Officer(4)...... 1997 215,000 60,000 -- 0 0 0 22,525(6)
Ronald G. Moffitt
Senior Vice President
and General Counsel,
Secretary(4).............. 1997 116,939 50,000 -- 0 0 0 17,973(7)
Thornton L. Hill
Vice President--Sales .... 1997 163,500 25,000 -- 0 0 0 4,904(8)
Dale A. Brockman
Vice
President--Operations .... 1997 138,775 30,000 -- 0 0 0 5,043(8)
</TABLE>
- ------------
(1) Perquisites and other personnel benefits, securities or property are
less than either $50,000 or 10% of the total annual salary and bonus
reported for the named executive officer.
(2) Jon M. Huntsman's compensation, other than his director's fee (which is
described in "Compensation of Directors," and listed in the "All Other
Compensation" column), was paid entirely by Huntsman Corporation,
Huntsman Packaging's parent company prior to September 30, 1997.
Compensation figures for Jon M. Huntsman represent a prorated percentage
(based on the 1997 corporate overhead allocation formula) of Huntsman
Corporation compensation attributable to services rendered to Huntsman
Packaging.
(3) Consists of $25,000 director's fee from Huntsman Packaging, which is
also described in "Compensation of Directors;" $8,706 employer's 401(k)
contribution; and $34,973 employer's Money Purchase Plan contribution.
<PAGE>
(4) Richard P. Durham's, N. Brian Stevenson's and Ronald G. Moffitt's
compensation, other than Mr. Durham's and Mr. Stevenson's directors fees
(which are described in "Compensation of Directors," and listed in the
"All Other Compensation" column), was paid entirely by Huntsman
Corporation, Huntsman Packaging's parent company prior to September 30,
1997. Huntsman Packaging reimbursed Huntsman Corporation for such
compensation for the period beginning October 1, 1997 and ending December
31, 1997. Salary figures for Mr. Durham and Mr. Moffitt represent a
prorated portion of Huntsman Corporation compensation attributable to the
percentage of executive services that were dedicated to Huntsman
Packaging.
(5) Consists of $25,000 director's fee from Huntsman Packaging, which is
also described in "Compensation of Directors;" $17,233 employer's
401(k) contribution; and $74,800 Money Purchase Plan contribution.
(6) Consists of $18,750 director's fee (represents three fourths of
annual directors' fee -- Mr. Stevenson served as director from January 1,
1997 to September 30, 1997) from Huntsman Packaging, which is
also described in "Compensation of Directors;" $3,200 employer's 401(k)
contribution; and $575 Money Purchase Plan contribution.
(7) Consists of $3,200 employer's 401(k) contribution and $14,773 Money
Purchase Plan contribution.
(8) Employer's 401(k) contribution.
52
<PAGE>
The following table shows the estimated annual benefits payable under the
Huntsman Corporation's tax-qualified defined benefit pension plan (the
"Huntsman Corporation Pension Plan") and supplemental pension plan ("SERP")
in specified final average earnings and years-of-service classifications.
HUNTSMAN PACKAGING PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE AT RETIREMENT
----------------------------------------------------------------------
FINAL AVERAGE COMPENSATION 10 15 20 25 30 35 40
- ------------------------- -------- -------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$125,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000
150,000 24,000 38,000 48,000 60,000 72,000 84,000 96,000
175,000 24,533 36,800 49,067 61,333 73,600 85,867 98,133
200,000 24,533 36,800 49,067 61,333 73,600 85,867 98,133
</TABLE>
HUNTSMAN CORPORATION PENSION PLAN TABLE
<TABLE>
<CAPTION>
HUNTSMAN CORPORATION PENSION PLAN AND SERP
YEARS OF BENEFIT SERVICE AT RETIREMENT
FINAL AVERAGE -----------------------------------------------------------
COMPENSATION 10 15 20 25 30 35 40
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 150,000 $21,000 $31,500 $41,100 $52,600 $63,000 $73,500 $84,000
200,000 28,000 42,000 68,000 70,000 78,000 98,000 112,000
250,000 35,000 52,500 70,000 87,500 105,000 122,500 140,000
300,000 42,000 63,000 84,000 105,000 128,000 147,000 168,000
350,000 49,000 73,500 98,000 122,500 147,000 171,500 196,000
400,000 56,000 84,000 112,000 140,000 168,000 196,000 224,000
450,000 63,000 94,500 126,000 157,500 189,000 220,500 252,000
500,000 70,000 105,000 140,000 175,000 210,000 245,000 280,000
600,000 84,000 126,000 168,000 210,000 252,000 294,000 336,000
700,000 98,000 147,000 196,000 245,000 294,000 343,000 392,000
800,000 112,000 166,000 224,000 280,000 336,000 392,000 448,000
900,000 126,000 189,000 252,000 315,000 378,000 441,000 504,000
1,000,000 140,000 210,000 280,000 350,000 420,000 490,000 560,000
1,100,000 154,000 231,000 308,000 386,000 462,000 539,000 616,000
1,200,000 168,000 252,000 336,000 420,000 504,000 598,000 672,000
</TABLE>
The current Huntsman Corporation Pension Plan benefit is based on the
following formula: 1.4% of final average compensation multiplied by years of
credited service, minus 1.4% of estimated Social Security benefits multiplied
by years of credited service (with a maximum of 50% of Social Security
benefits). Final Average Compensation is based on the highest average of three
consecutive years of compensation. Messrs. Jon M. Huntsman, Richard P. Durham,
N. Brian Stevenson and Ronald G. Moffitt were participants in the Huntsman
Corporation Pension Plan in 1997. For the foregoing named executive officers,
covered compensation consists of base salary and is reflected in the "Salary"
column of the Summary Compensation Table. Federal regulations require that
for the 1997 plan year, no more than $160,000 in compensation be considered
for the calculation of retirement benefits under the Pension Plan, and the
maximum annual benefit paid from a qualified defined benefit plan cannot
exceed $125,000 as of January 1, 1997. Benefits are calculated on a straight
life annuity basis. The benefit amounts under the Huntsman Corporation Pension
Plan are offset for Social Security as described above.
The SERP is a nonqualified supplemental pension plan for designated
executive officers, that provides benefits based on certain compensation
amounts not included in the calculation of benefits payable under the Pension
Plan. Messrs. Huntsman and Stevenson and Moffitt were participants in the SERP
in 1997. The compensation amounts taken into account for these named
executive officers under the SERP include bonuses (as reflected in the "Bonus"
column of the Summary Compensation Table) and base salary in excess of the
qualified plan limitations. The SERP benefit is calculated as the difference
between (a) and (b) where (a) is the benefit determined using the Pension Plan
formula with unlimited base salary plus bonus, and (b) is the benefit
determined using base salary as limited by federal regulations.
The number of completed years of credited service as of December 31, 1997
under the Huntsman Corporation Pension Plan and SERP for the named executive
officers participating in the plans were 27, 12, 5 and 13 years for each of
Messrs. Huntsman, Durham, Stevenson and Moffitt, respectively.
The following table shows the estimated annual benefits payable under
Huntsman Packaging's tax-qualified defined benefit pension plan (the "Huntsman
Packaging Pension Plan"), in specified final average earnings and years of
service classifications.
53
<PAGE>
The current Huntsman Packaging Pension Plan benefit is based on the
following formula: 1.6% of final average compensation multiplied by years
of credited service, minus 1.5% of estimated Social Security benefits
multiplied by years of credited service (with a maximum of 50% of Social
Security benefits). Final Average Compensation is based on the highest average
of three consecutive years of compensation. Messrs. Jon M. Huntsman, Richard P.
Durham, N. Brian Stevenson and Ronald G. Moffitt were participants in the
Huntsman Corporation Pension Plan in 1997. For Messrs. Brockman and Hill,
who were participants in the Huntsman Packaging Pension Plan in 1997, covered
compensation consists of base salary and is reflected in the "Salary" column
of the Summary Compensation Table. Federal regulations require that for the
1997 plan year, no more than $160,000 in compensation be considered for the
calculation of retirement benefits under the Pension Plan, and the maximum
annual benefit paid from a qualified defined benefit plan cannot exceed
$125,000 as of January 1, 1997. Benefits are calculated on a straight life
annuity basis. The benefit amounts under the Huntsman Packaging Pension Plan
are offset for Social Security as described above.
The number of complete years of credited service as of December 31, 1997
under the Huntsman Packaging Pension Plan for the two named executive officers
participating in the plan were four years for each of Messrs. Brockman and
Hill.
COMPENSATION COMMITTEE
The Board of Directors of the Company has designated the Executive
Committee, which is comprised of Jon M. Huntsman and Richard P. Durham, to
perform the duties of a compensation committee for the Company. Richard P.
Durham is an officer and employee of the Company, and Jon M. Huntsman is the
Chairman of the Board of Directors of the Company, but is neither an officer
nor an employee of the Company.
Jon M. Huntsman is one of the people who performs the duties of a
compensation committee of the Board of Directors of Huntsman Corporation and
is on the Executive Committee of the Company. Jon M. Huntsman and Richard P.
Durham serve on the Board of Directors of Huntsman Corporation and are on the
Executive Committee of the Company. Jon M. Huntsman is one of the people who
performs the duties of a compensation committee of the Board of Directors of
Huntsman Corporation and is on the Board of Directors of the Company.
COMPENSATION OF DIRECTORS
Each director receives an annual fee of $25,000. N. Brian Stevenson served
as a director from January 1, 1997 to September 30, 1997 and Christena H.
Durham served as a director from October 1, 1997 to December 31, 1997. Their
director's fees were pro-rated and paid accordingly.
54
<PAGE>
OWNERSHIP OF CAPITAL STOCK
Jon M. Huntsman, 500 Huntsman Way, Salt Lake City, Utah 84108, owns
approximately 65% of the total equity of Huntsman Packaging. Richard P. Durham
and the Christena Karen H. Durham Trust, 500 Huntsman Way, Salt Lake City, Utah
84108, collectively own approximately 35% of the total equity of Huntsman
Packaging.
The Company intends to authorize 60,000 shares of a new class of non-voting
common stock for issuance to certain members of its senior management (the
"Option Shares") as incentive stock options (the "Incentive Stock Options") and
for sale to certain members of senior management (the "Purchase Shares").
Purchase Shares and Option Shares would total approximately 5.6% of the total
of all classes of issued and outstanding common stock of the Company on a fully
diluted basis. The purchase price of Purchase Shares and the exercise price of
Option Shares is expected to be $100.00 per share. The Chief Executive Officer,
Executive Vice Presidents and Senior Vice Presidents will be eligible to receive
Incentive Stock Options. The Executive Vice Presidents and Senior Vice
Presidents will be eligible to purchase Purchase Shares.
The Company anticipates granting the Incentive Stock Options and selling
the Purchase Shares during the first quarter of 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Huntsman Packaging is party to a lease agreement with Huntsman
Headquarters Corporation, an indirect wholly-owned subsidiary of Huntsman
Corporation, pursuant to which Huntsman Packaging leases its headquarters and
office space. Huntsman Packaging is obligated to pay rent calculated as a
pro-rata portion (based on its percentage occupancy) of the mortgage loan on
the headquarters facility. The term of the lease expires on December 31,
2005, with an option to extend until December 31, 2015.
In connection with the Offering, Huntsman Packaging repaid all outstanding
intercompany long-term indebtedness owed to Huntsman Corporation which
amounted to $195.8 million. See "Use of Proceeds." Jon M. Huntsman and his
family own approximately 99.6% of the outstanding capital stock of Huntsman
Corporation.
Prior to the Split-Off, Huntsman Packaging was a licensee under a license
agreement with Huntsman Group Intellectual Property Holdings Corporation to
use the "Huntsman" tradename. Huntsman Corporation owns all of the
outstanding common stock of Huntsman Group Intellectual Property Holdings
Corporation.
Huntsman Packaging is a party to agreements with certain affiliates of
Huntsman Corporation including, but not limited to, Huntsman Chemical
Corporation for the purchase of polystyrene and Huntsman Polymers for the
purchase of various resins. All such agreements provide for the purchase of
materials or services at prevailing market prices.
Huntsman Packaging obtains some of its insurance coverage under policies
of Huntsman Corporation. Huntsman Packaging is party to an agreement with
Huntsman Corporation that provides for reimbursement of insurance premiums
paid by Huntsman Corporation on behalf of Huntsman Packaging. The
reimbursement payments are based on premium allocations which are determined
in cooperation with Huntsman Corporation's independent insurance broker. It
is anticipated that Huntsman Packaging will continue to carry a portion of
its insurance coverage under Huntsman Corporation's policies.
In connection with the Split-Off, Huntsman Packaging entered into a
services agreement with Huntsman Corporation covering the provision of
certain tax, finance, treasury and other administrative services. These
services are provided to Huntsman Packaging at prices that would be payable
to an unaffiliated third party.
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In connection with the Split-Off, Huntsman Packaging issued 7,000 shares
of its common stock to Richard P. Durham, President and Chief Executive
Officer and a director of Huntsman Packaging, in exchange for a $700,000 note
receivable. Such note bears interest at 7% per annum and is payable over
approximately 51 months.
See Note 9 of the Notes to Huntsman Packaging's Consolidated Financial
Statements, Note 8 of the Notes to the Combined Financial Statements of CT
Film and Rexene Corporation Limited and "Supplemental Disclosures of Noncash
Investing and Financing Activities" in the Combined Statement of Cash Flows
for the Year Ended December 31, 1996, Eight Months Ended August 31, 1997 and
One Month Ended September 30, 1997 included in the Combined Financial
Statements of CT Film and Rexene Corporation Limited, each contained herein.
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<PAGE>
DESCRIPTION OF THE CREDIT FACILITIES
CREDIT AGREEMENT
Huntsman Packaging has entered into a credit agreement (the "Credit
Agreement") dated as of September 30, 1997 with the Lenders party thereto,
The Chase Manhattan Bank ("Chase"), as Administrative Agent, and Chase
Securities Inc. ("CSI"), as arranger, pursuant to which Chase has agreed to
underwrite the credit facilities described below and CSI has agreed to act as
arranger for such credit facilities. A copy of the Credit Agreement is filed
as an exhibit to the Registration Statement of which this Prospectus
constitutes a part. The following summary of certain provisions of the Credit
Agreement is subject to, and is qualified in its entirety by reference to the
Credit Agreement.
The Credit Agreement provides for an eight-year $75 million term loan (the
"Term Loan") and a seven-year $150 million revolving credit facility (the
"Revolving Credit Facility"), $20 million of which may be used for the
issuance of letters of credit and $5 million of which will be available as a
swingline facility. The Term Loan will amortize quarterly commencing
approximately four years after the closing. The Term Loan will amortize as
follows:
AMORTIZATION
(IN MILLIONS)
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION
YEAR AMOUNT
--------------
<S> <C>
1997........................................................... $ --
1998........................................................... --
1999........................................................... --
2000........................................................... --
2001........................................................... 1.875
2002........................................................... 17.500
2003........................................................... 17.500
2004........................................................... 19.375
2005........................................................... 18.750
</TABLE>
The Term Loan and the loans under the Revolving Credit Facility (the
"Revolving Loans", and, together with the Term Loan, the "Loans") bear
interest, at Huntsman Packaging's option, at adjusted LIBOR plus a margin
commencing at 2.00% per annum or Chase's adjusted base rate plus a margin
commencing at 0.75% per annum. Huntsman Packaging pays a quarterly commitment
fee on the unused amount of the Revolving Credit Facility at a rate
commencing at 0.50% per annum. Such margins and the commitment fee rate are
subject to reduction if Huntsman Packaging's ratio of maximum total debt to
consolidated EBITDA improves.
The Term Loan will be subject to mandatory prepayment with 50% of Excess
Cash Flow (as defined in the Credit Agreement) and the net proceeds of
certain asset sales and debt and equity issuances.
The obligations of Huntsman Packaging under the Credit Agreement will be
guaranteed by all of Huntsman Packaging's domestic subsidiaries and will be
secured by a first priority perfected lien or pledge on substantially all
assets of Huntsman Packaging and its domestic subsidiaries, including (i) all
cash, deposits, accounts receivable, inventory, and related intangible
assets, (ii) all personal property, plant and equipment, (iii) all material
real property, (iv) all general intangibles relating to the accounts
receivable and the inventory, including, without limitation, all technology
rights, contract rights related thereto and patents, trademarks, or
tradenames necessary to operate the business and dispose of receivables
and/or inventory; and (v) all equity and debt securities, stock rights and
intercompany notes (limited to a pledge of 65% of the capital stock of
foreign subsidiaries).
The Credit Agreement will contain covenants customary for transactions of
this type, including, without limitation, restrictions on indebtedness,
liens, sale/leaseback transactions, asset sales, capital
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expenditures, acquisitions, investments, transactions with affiliates,
dividends and other restricted payments, prepayment and redemptions of debt
and changes in business. The Credit Agreement will also contain financial
covenants including ratio of maximum total debt/EBITDA, minimum interest
coverage ratio and minimum net worth.
Events of Default under the Credit Facilities will include, without
limitation and subject to certain cure periods and exceptions: (i) the
failure by the Company to pay interest, principal or fees when due; (ii) the
failure by the Company to comply with any term, covenant, condition or
agreement provided for by the Credit Facilities, or the fact that any
representation or warranty made by the Company pursuant to the Credit
Facilities was false in any material respect when made; (iii) the existence
of defaults with respect to, or acceleration of, other material indebtedness
of the Company; (iv) a "Change in Control" (as defined in the Credit
Facilities) of the Company; (v) the occurrence of certain material adverse
events with respect to ERISA plans or environmental occurrences; and (vi) the
imposition of certain judgment defaults on the Company and the commencement
of a voluntary or involuntary bankruptcy or similar proceedings with respect
to the Company.
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DESCRIPTION OF THE NOTES AND GUARANTEES
The Old Notes were issued, and the New Notes will be issued under an
indenture (the "Indenture"), dated as of September 30, 1997 by and among the
Company, the Guarantors and The Bank of New York, as Trustee (the "Trustee"),
a copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus constitutes a part. The following summary of certain
provisions of the Indenture is subject to, and is qualified in its entirety
by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and
to all of the provisions of the Indenture, including the definitions of
certain terms therein and those terms made a part of the Indenture by
reference to the TIA as in effect on the date of the Indenture. The
definitions of certain capitalized terms used in the following summary are
set forth below under "--Certain Definitions." For purposes of this section
and the section entitled "The Exchange Offer" only, references to the
"Company" include only Huntsman Packaging Corporation and not its
Subsidiaries.
The Old Notes are, and the New Notes will be, unsecured senior
subordinated obligations of the Company, ranking subordinate in right of
payment to all existing and future Senior Debt of the Company, pari passu in
right of payment with all senior subordinated Indebtedness of the Company,
and senior in right of payment to all existing, and future subordinated
obligations of the Company.
The Old Notes were issued, and the New Notes will be issued in fully
registered form only, without coupons, in denominations of $1,000 and
integral multiples thereof. Initially, the Trustee will act as Paying Agent
and Registrar for the Notes. The Notes may be presented for registration of
transfer and exchange at the offices of the Registrar, which initially will
be the Trustee's corporate trust office. The Company may change any Paying
Agent and Registrar without notice to Holders. The Company will pay principal
(and premium, if any) on the Notes through the facilities of the Depository
Trust Company in New York, New York. At the Company's option, interest may be
paid at the Trustee's principal corporate trust office or by check mailed to
the registered address of Holders. Any Notes that remain outstanding after
the completion of the Exchange Offer, together with the Exchange Notes issued
in connection with the Exchange Offer, will be treated as a single class of
securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $125 million and
will mature on October 1, 2007. Interest on the Notes will accrue at the rate
of 9 1/8% per annum and will be payable semi-annually in cash on each April 1
and October 1 (each an "Interest Payment Date") commencing on April 1, 1998,
for the period commencing on and including the immediately preceding Interest
Payment Date and ending on and including the day next preceding the Interest
Payment Date (an "Interest Period"), with the exception that the first
Interest Period commenced on and included September 30, 1997 and shall end on
and include April 1, 1998. Interest is payable to the persons who are
registered Holders at the close of business on March 15, and September 15
immediately preceding the applicable Interest Payment Date.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after
October 1, 2002, upon not less than 30 nor more than 60 days' notice, at the
following redemption prices (expressed as percentages of the principal amount
thereof) if redeemed during the twelve-month period commencing on October 1
of the year set forth below, plus, in each case, accrued and unpaid interest
thereon, if any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ------------
<S> <C>
2002................ 104.563%
2003................ 103.042%
2004................ 101.521%
2005 and thereafter. 100.000%
</TABLE>
Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to October 1, 2000, the Company may, at its option, use the
net cash proceeds of one or more Equity
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Offerings (as defined below) to redeem up to 35% of the aggregate principal
amount of the Notes originally issued at a redemption price equal to 109 1/8%
of the principal amount thereof plus accrued and unpaid interest thereon, if
any, to the date of redemption; provided that at least 65% of the principal
amount of the Notes originally issued remains outstanding immediately after
any such redemption. In order to effect the foregoing redemption with the
proceeds of any Equity Offering, the Company shall make such redemption not
more than 120 days after the consummation of any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means any sale of
Qualified Capital Stock of the Company or any capital contribution to the
equity of the Company.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed or, if such Notes are not
then listed on a national securities exchange, on a pro rata basis, by lot or
by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Notes of a principal amount of $1,000 or less shall be
redeemed in part; provided, further, that if a partial redemption is made
with the proceeds of an Equity Offering, selection of the Notes or portions
thereof for redemption shall be made by the Trustee only on a pro rata basis
or on as nearly a pro rata basis as is practicable (subject to DTC
procedures), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days
before the redemption date to each Holder to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds
in satisfaction of the applicable redemption price pursuant to the Indenture.
RANKING
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt including, without limitation, the Company's
Obligations under the Credit Agreement. Upon any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors or marshaling of
assets of the Company or in a bankruptcy, reorganization, insolvency,
receivership or other similar proceeding relating to the Company or its
property, whether voluntary or involuntary, all Obligations due or to become
due upon all Senior Debt shall first be paid in full in cash or Cash
Equivalents, or such payment duly provided for to the satisfaction of the
holders of Senior Debt, before any payment or distribution of any kind or
character is made on account of any Obligations on the Notes, or for the
acquisition of any of the Notes for cash or property or otherwise. If any
default occurs and is continuing in the payment when due, whether at
maturity, upon any redemption, by declaration or otherwise, of any principal
of, interest on, unpaid drawings for letters of credit issued in respect of,
or regularly accruing fees with respect to, any Senior Debt, no payment or
distribution of any kind or character shall be made by or on behalf of the
Company or any other Person on its or their behalf with respect to any
Obligations on the Notes or to acquire any of the Notes for cash or property
or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding (or an agent or
trustee on their behalf) to accelerate the maturity thereof and if the
Representative for such issue of Designated Senior Debt gives written notice
of the event of default to the Trustee invoking the provisions described in
this paragraph (a "Default Notice"), then, unless and until all events of
default have been cured or waived or have ceased to exist or the Trustee
receives notice from the Representative for the respective issue of
Designated Senior Debt terminating the Blockage Period (as defined below),
during
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the 180 days after the delivery of such Default Notice (the "Blockage
Period"), neither the Company nor any other Person on its behalf shall (x)
make any payment or distribution of any kind or character with respect to any
Obligations on the Notes or (y) acquire any of the Notes for cash or property
or otherwise. Notwithstanding anything herein to the contrary, in no event
will a Blockage Period extend beyond 180 days after the delivery of the
Default Notice and only one such Blockage Period may be commenced within any
360 consecutive days. No event of default which existed or was continuing on
the date of the commencement of any Blockage Period with respect to the
Designated Senior Debt shall be, or be made, the basis for commencement of a
second Blockage Period by the Representative of such Designated Senior Debt
whether or not within a period of 360 consecutive days, unless such event of
default shall have 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 Blockage Period that, in either case, would give rise to
an event of default pursuant to any provisions under which an event of
default previously existed or was continuing shall constitute a new event of
default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt,
including the Holders, may recover less, ratably, than holders of Senior
Debt.
As of December 31, 1997 Huntsman Packaging had approximately $125.5
million of Senior Debt outstanding (excluding unused commitments and
outstanding letters of credit totalling $93.6 million under the Credit
Facilities) and Restricted Subsidiaries that are not Guarantors would have
had no Indebtedness outstanding (excluding intercompany loans and guarantees
of Huntsman Packaging's Indebtedness). See "Risk Factors -- Substantial
Leverage and Ability to Service Indebtedness."
GUARANTEES
Each Guarantor fully and unconditionally guarantees, on a senior
subordinated basis, jointly and severally, to each Holder and the Trustee,
the full and prompt performance of the Company's obligations under the
Indenture and the Notes, including the payment of principal of and interest
on the Notes. The Old Guarantees are, and the New Guarantees will be,
subordinated to Guarantor Senior Debt on the same basis as the Notes are
subordinated to Senior Debt. The obligations of each Guarantor are limited to
the maximum amount which, after giving effect to all other contingent and
fixed liabilities of such Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in
the obligations of such Guarantor under the Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in an amount pro rata,
based on the net assets of each Guarantor, determined in accordance with
GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to
(i) the Company, another Guarantor that is a Restricted Subsidiary of the
Company or a Restricted Subsidiary that is or in connection therewith becomes
a Guarantor without limitation, or (ii) other Persons upon the terms and
conditions set forth in the Indenture. See "--Certain Covenants -- Merger,
Consolidation and Sale of Assets." In the event all the Capital Stock or
assets of a Guarantor or parent company of a Guarantor are sold and the sale
complies with the provisions set forth in "--Certain Covenants -- Limitation
on Asset Sales," the Guarantor's Guarantee will be released.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the
principal amount thereof plus accrued interest to the date of purchase.
The Indenture provides that, prior to the mailing of the notice referred
to below, but in any event within 30 days following any Change of Control,
the Company covenants to (i) repay in full and terminate
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all commitments under Indebtedness under the Credit Agreement and all other
Senior Debt the terms of which require repayment upon a Change of Control or
offer to repay in full and terminate all commitments under all Indebtedness
under the Credit Agreement and all other such Senior Debt and to repay the
Indebtedness owed to each lender which has accepted such offer or (ii) obtain
the requisite consents under the Credit Agreement and all other Senior Debt
to permit the repurchase of the Notes as provided below. The Company shall
first comply with the covenant in the immediately preceding sentence before
it shall be required to repurchase Notes pursuant to the provisions described
below. The Company's failure to comply with the covenant described in the
immediately preceding sentence shall constitute an Event of Default described
in clause (iii) and not in clause (ii) under "Events of Default" below.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each
Holder, with a copy to the Trustee, which notice shall govern the terms of
the Change of Control Offer. Such notice shall state, among other things, the
purchase date, which must be no earlier than 30 days nor later than 60 days
from the date such notice is mailed, other than as may be required by law
(the "Change of Control Payment Date"). Holders electing to have a Note
purchased pursuant to a Change of Control Offer will be required to surrender
the Note, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the third business day prior
to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking
to accept the Change of Control Offer. In the event the Company is required
to purchase outstanding Notes pursuant to a Change of Control Offer, the
Company expects that it would seek third party financing to the extent it
does not have available funds to meet its purchase obligations. However,
there can be no assurance that the Company would be able to obtain such
financing.
Neither the Board of Directors of the Company nor the Trustee may waive
the covenant relating to a Holder's right to redemption upon a Change of
Control. Restrictions in the Indenture described herein on the ability of the
Company and its Restricted Subsidiaries to incur additional Indebtedness, to
grant liens on its property, to make Restricted Payments and to make Asset
Sales may also make more difficult or discourage a takeover of the Company,
whether favored or opposed by the management of the Company. Consummation of
any such transaction in certain circumstances may require redemption or
repurchase of the Notes, and there can be no assurance that the Company or
the acquiring party will have sufficient financial resources to effect such
redemption or repurchase. Such restrictions and the restrictions on
transactions with Affiliates may, in certain circumstances, make more
difficult or discourage any leveraged buyout of the Company or any of its
Subsidiaries by the management of the Company. While such restrictions cover
a wide variety of arrangements which have traditionally been used to effect
highly leveraged transactions, the Indenture may not afford the Holders
protection in all circumstances from the adverse aspects of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such rule, laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
"Change of Control" provisions of the Indenture, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed
to have breached its obligations under the "Change of Control" provisions of
the Indenture by virtue thereof.
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CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible
for payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default
shall have occurred and be continuing at the time of or as a consequence of
the incurrence of any such Indebtedness, the Company and its Restricted
Subsidiaries which are Guarantors may incur Indebtedness (including, without
limitation, Acquired Indebtedness) and Restricted Subsidiaries of the Company
which are not Guarantors may incur Acquired Indebtedness in each case if on
the date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the
Company is greater than 2.0 to 1.0 if such proposed incurrence is on or prior
to the third anniversary of the Issue Date and 2.25 to 1.0 if such proposed
incurrence is thereafter.
Limitation on Restricted Payments. The Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, (a) declare or pay any dividend or make any distribution (other
than dividends or distributions payable in Qualified Capital Stock of the
Company) on or in respect of shares of Capital Stock of the Company or any
Restricted Subsidiary of the Company to holders of such Capital Stock (other
than dividends or distributions payable to the Company or any Restricted
Subsidiary of the Company), (b) purchase, redeem or otherwise acquire or
retire for value any Capital Stock of the Company or any Restricted
Subsidiary of the Company or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock (other than any such
Capital Stock, warrants, rights or options owned by the Company or any
Restricted Subsidiary of the Company), (c) make any principal payment on,
purchase, defease, redeem, prepay, decrease or otherwise acquire or retire
for value, prior to any scheduled final maturity, scheduled repayment or
scheduled sinking fund payment, any Indebtedness of the Company or any
Restricted Subsidiary of the Company that is subordinate or junior in right
of payment to the Notes or the Guarantees, or (d) make any Investment (other
than Permitted Investments) (each of the foregoing actions set forth in
clauses (a), (b) (c) and (d) being referred to as a "Restricted Payment"), if
at the time of such Restricted Payment or immediately after giving effect
thereto, (i) a Default or an Event of Default shall have occurred and be
continuing or (ii) the Company is not able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance
with the "Limitation on Incurrence of Additional Indebtedness" covenant or
(iii) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment) made subsequent to the Issue Date (the amount expended
for such purposes, if other than in cash, being the fair market value of such
property as determined reasonably and in good faith by the Board of Directors
of the Company) shall exceed the sum of: (w) $10 million plus (x) 50% of the
cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the Company earned subsequent to
the Issue Date and on or prior to the date the Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting period); plus
(y) 100% of the aggregate net cash proceeds received by the Company from any
Person (other than a Subsidiary of the Company) from the issuance and sale
subsequent to the Issue Date and on or prior to the Reference Date of
Qualified Capital Stock of the Company; plus (z) without duplication of any
amounts included in clause (iii)(y) above, 100% of the aggregate net cash
proceeds of any equity contribution received by the Company from a holder of
the Company's Capital Stock (excluding, in the case of clauses (iii) (y) and
(z), any net cash proceeds from the issuance or sale of Specified Venture
Capital Stock).
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within
60 days after the date of declaration of such dividend if the dividend would
have been permitted on the date of declaration; (2) the acquisition of any
shares of Capital Stock of the Company, either (i) solely in exchange for
shares of Qualified Capital Stock of the Company or (ii) if no Default or
Event of Default shall have occurred and be continuing, through the
application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of shares of Qualified Capital
Stock of the Company; (3) if no Default or Event of Default shall
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have occurred and be continuing, the acquisition of any Indebtedness of the
Company that is subordinate or junior in right of payment to the Notes either
(i) solely in exchange for shares of Qualified Capital Stock of the Company,
or (ii) through the application of net proceeds of a substantially concurrent
sale or incurrence for cash (other than to a Subsidiary of the Company) of
(A) shares of Qualified Capital Stock of the Company or (B) Refinancing
Indebtedness; (4) so long as no Default or Event of Default shall have
occurred and be continuing, repurchases by the Company of Common Stock of the
Company from employees of the Company or any of its Subsidiaries or their
authorized representatives upon the death, disability or termination of
employment of such employees, in an aggregate amount not to exceed $2 million
in any calendar year; (5) the redemption or repurchase of any Common Stock of
the Company held by a Wholly Owned Restricted Subsidiary of the Company which
obtained such Common Stock directly from the Company; or (6) the payment of
consideration by an unaffiliated third party to shareholders of the Company.
In determining the aggregate amount of Restricted Payments made subsequent to
the Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, cash amounts expended pursuant to clauses (1), (2), (3)(ii)(A) and
(4) shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an officers' certificate stating that such
Restricted Payment complies with the Indenture and setting forth in
reasonable detail the basis upon which the required calculations were
computed, which calculations may be based upon the Company's quarterly
financial statements last provided to the Trustee pursuant to "--Reports to
Holders."
Limitation on Asset Sales. The Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets sold or otherwise disposed of (as determined in
good faith by the Company's Board of Directors), (ii) at least 75% of the
consideration received by the Company or the Restricted Subsidiary, as the
case may be, from such Asset Sale shall be in the form of cash or Cash
Equivalents (provided that the amount of any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or any such Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Notes) that are assumed by the transferee of
any such assets shall be deemed to be cash for purposes of this provision)
and is received at the time of such disposition; and (iii) upon the
consummation of an Asset Sale, the Company shall apply, or cause such
Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset
Sale within 365 days (or in the case of Foreign Subsidiary Asset Sales, 545
days) of receipt thereof either (A) to prepay any Senior Debt, Guarantor
Senior Debt or Indebtedness of a Restricted Subsidiary that is not a
Guarantor and, in the case of any such Indebtedness under any revolving
credit facility, effect a permanent reduction in the availability under such
revolving credit facility, (B) to make an investment in or expenditures for
properties and assets (including Capital Stock of any entity) that replace
the properties and assets that were the subject of such Asset Sale or in
properties and assets (including Capital Stock of any entity) that will be
used in the business of the Company and its Subsidiaries as existing on the
Issue Date or in businesses reasonably related thereto ("Replacement
Assets"), or (C) a combination of prepayment and investment permitted by the
foregoing clauses (iii)(A) and (iii)(B). On the 366th day (or in the case of
Foreign Subsidiary Asset Sales, the 546th day) after an Asset Sale or such
earlier date, if any, as the Board of Directors of the Company or of such
Restricted Subsidiary determines not to apply the Net Cash Proceeds relating
to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of
the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or
before such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A),
(iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds
Offer Amount") shall be applied by the Company or such Restricted Subsidiary
to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net
Proceeds Offer Payment Date") not less than 30 nor more than 45 days
following the applicable Net Proceeds Offer Trigger Date, from all Holders on
a pro rata basis, that amount of Notes equal to the Net Proceeds Offer Amount
at a price equal to 100% of the principal amount of the Notes to be
purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided, however, that if at any time any non-cash consideration
received by the Company or any Restricted Subsidiary of the Company, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of
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for cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant. The Company shall not be required
to make a Net Proceeds Offer until there is an aggregate unutilized Net
Proceeds Offer Amount equal to or in excess of $10 million resulting from one
or more Asset Sales, at which time, the unutilized Net Proceeds Offer Amount,
shall be applied as required pursuant to this paragraph, provided, however,
that the first $10 million of such Net Proceeds Offer Amount need not be
applied as required pursuant to this paragraph.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger,
Consolidation and Sale of Assets," and as a result thereof the Company is no
longer an obligor on the Notes, the successor corporation shall be deemed to
have sold the properties and assets of the Company and its Restricted
Subsidiaries not so transferred for purposes of this covenant, and shall
comply with the provisions of this covenant with respect to such deemed sale
as if it were an Asset Sale. In addition, the fair market value of such
properties and assets of the Company or its Restricted Subsidiaries deemed to
be sold shall be deemed to be Net Cash Proceeds for purposes of this
covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 80% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii)
such Asset Sale is for fair market value; provided that any consideration not
constituting Replacement Assets received by the Company or any of its
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Cash Proceeds subject
to the provisions of the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 30 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the
procedures set forth in the Indenture. Upon receiving notice of the Net
Proceeds Offer, Holders may elect to tender their Notes in whole or in part
in integral multiples of $1,000 in exchange for cash. To the extent Holders
properly tender Notes in an amount exceeding the Net Proceeds Offer Amount,
Notes of tendering Holders will be purchased on a pro rata basis (based on
amounts tendered). A Net Proceeds Offer shall remain open for a period of 20
business days or such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such rule, laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset
Sale" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the Indenture
by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or
make any other distributions on or in respect of its Capital Stock; (b) make
loans or advances or to pay any Indebtedness or other obligation owed to the
Company or any other Restricted Subsidiary of the Company; or (c) transfer
any of its property or assets to the Company or any other Restricted
Subsidiary of the Company, except for such encumbrances or restrictions
existing under or by reason of: (1) applicable law; (2) the Indenture; (3)
customary non-assignment provisions of any contract or any lease governing a
leasehold interest of any Restricted Subsidiary of the Company; (4) any
instrument governing Acquired Indebtedness, which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person or the properties or assets of the Person so acquired;
(5) agreements existing on the Issue Date to the extent and in the manner
such agreements are in effect on the Issue Date; (6) restrictions
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imposed by any agreement to sell assets or Capital Stock permitted under the
Indenture to any Person pending the closing of such sale; (7) any agreement
or instrument governing Capital Stock of any Person that is acquired as in
effect at the time of such acquisition which was not entered into in
connection with, or in anticipation or contemplation of, such acquisition;
(8) Indebtedness or other contractual requirements of a Securitization Entity
in connection with a Qualified Securitization Transaction; provided that such
restrictions apply only to such Securitization Entity; (9) Liens incurred in
accordance with the covenant described under "--Limitation on Liens"; (10)
any restrictions under an agreement governing Indebtedness of a Foreign
Subsidiary permitted under "--Limitation on Incurrence of Additional
Indebtedness"; (11) the Credit Agreement; or (12) an agreement governing
Indebtedness incurred to Refinance the Indebtedness issued, assumed or
incurred pursuant to an agreement referred to in clause (2), (4), (5), (8),
(9), (10) or (11) above; provided, however, that the provisions relating to
such encumbrance or restriction contained in any such Indebtedness are no
less favorable to the Company in any material respect as determined by the
Board of Directors of the Company in their reasonable and good faith judgment
than the provisions relating to such encumbrance or restriction contained in
agreements referred to in such clause (2), (4), (5), (8), (9), (10) or (11).
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company.
Limitation on Liens. The Company shall not, and shall not permit any of
its Restricted Subsidiaries to, create, incur or otherwise cause or suffer to
exist or become effective any Liens of any kind upon any property or assets
of the Company or any Restricted Subsidiary, now owned or hereafter acquired,
which secures Indebtedness pari passu with or subordinated to the Notes or
the Guarantees unless (i) if such Lien secures Indebtedness which is pari
passu with the Notes or the Guarantees, then the Notes or the Guarantees, as
the case may be, are secured on an equal and ratable basis with the
obligations so secured until such time as such obligation is no longer
secured by a Lien or (ii) if such Lien secures Indebtedness which is
subordinated to the Notes or the Guarantees, any such Lien shall be
subordinated to a Lien granted to the Holders of the Notes in the same
collateral as that securing such Lien to the same extent as such subordinated
Indebtedness is subordinated to the Notes or the Guarantees, as the case may
be.
Prohibition on Incurrence of Senior Subordinated Debt. The Company will
not, and will not cause or permit any Guarantor to, incur or suffer to exist
Indebtedness that is senior in right of payment to the Notes or the
Guarantees, as the case may be, and subordinate in right of payment to any
other Indebtedness of the Company or such Guarantor, as the case may be.
Merger, Consolidation and Sale of Assets. The Company will not, in a
single transaction or series of related transactions, consolidate or merge
with or into any Person, or sell, assign, transfer, lease, convey or
otherwise dispose of (or cause or permit any Restricted Subsidiary of the
Company to sell, assign, transfer, lease, convey or otherwise dispose of) all
or substantially all of the Company's assets (determined on a consolidated
basis for the Company and the Company's Restricted Subsidiaries) whether as
an entirety or substantially as an entirety to any Person unless: (i) either
(1) the Company shall be the surviving or continuing entity or (2) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, transfer,
lease, conveyance or other disposition the properties and assets of the
Company and of the Company's Restricted Subsidiaries substantially as an
entirety (the "Surviving Entity") (x) shall be an entity organized and
validly existing under the laws of the United States or any State thereof or
the District of Columbia and (y) shall expressly assume, by supplemental
indenture (in form and substance satisfactory to the Trustee), executed and
delivered to the Trustee, the due and punctual payment of the principal of,
and premium, if any, and interest on all of the Notes and the performance of
every covenant of the Notes, the Indenture and the Registration Rights
Agreement on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred
in connection with or in respect of such transaction), the Company or such
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Surviving Entity, as the case may be, (1) shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction and (2) shall be able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant
to the "--Limitation on Incurrence of Additional Indebtedness" covenant;
(iii) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred or be continuing; and (iv) the Company
or the Surviving Entity shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other disposition
and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with the applicable
provisions of the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company unless such transfer is to the Company or one or more
Wholly-Owned Restricted Subsidiaries.
The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which
the Company is merged or to which such conveyance, lease or transfer is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under the Indenture and the Notes with the same effect
as if such surviving entity had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee 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 "--Limitation on Asset
Sales") will not, and the Company will not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than the Company or
any other Guarantor unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor) or to which such sale,
lease, conveyance or other disposition shall have been made is an entity
organized and existing under the laws of the United States or any State
thereof or the District of Columbia; (ii) such entity assumes by supplemental
indenture all of the obligations of the Guarantor on the Guarantee; (iii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; and (iv) immediately after
giving effect to such transaction and the use of any net proceeds therefrom
on a pro forma basis, the Company could satisfy the provisions of clause (ii)
of the first paragraph of this covenant. Any merger or consolidation of a
Guarantor with and into the Company (with the Company being the surviving
entity) or another Guarantor need not comply with the first paragraph of this
covenant. Any merger of the Company with and into a Guarantor need not comply
with clause (ii)(2) of the first paragraph of this covenant.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or permit to exist any transaction or series of
related transactions (including, without limitation, the purchase, sale,
lease or exchange of any property or the rendering of any service) with, or
for the benefit of, any of its Affiliates (each an "Affiliate Transaction"),
other than (x) Affiliate Transactions permitted under paragraph (b) below and
(y) Affiliate Transactions on terms that are no less favorable than those
that might reasonably have been obtained in a comparable transaction at such
time on an arm's-length basis from a Person that is not an Affiliate of the
Company or such Restricted Subsidiary. All Affiliate Transactions (and each
series of related Affiliate Transactions which are similar or part of a
common plan) that involve an aggregate fair market value of more than $2
million shall be approved by the Board of Directors of the Company or such
Restricted Subsidiary, as the case may be, such approval to be evidenced by a
Board Resolution stating that such Board of Directors has determined that
such transaction complies with the foregoing provisions. If the
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Company or any Restricted Subsidiary of the Company enters into an Affiliate
Transaction (or a series of related Affiliate Transactions related to a
common plan) that involves an aggregate fair market value of more than $5
million, the Company or such Restricted Subsidiary, as the case may be,
shall, prior to the consummation thereof, obtain a favorable opinion as to
the fairness of such transaction or series of related transactions to the
Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the
same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any
Restricted Subsidiary of the Company as determined in good faith by the
Company's Board of Directors or senior management; (ii) transactions
exclusively between or among the Company and any of its Restricted
Subsidiaries or exclusively between or among such Restricted Subsidiaries,
provided such transactions are not otherwise prohibited by the Indenture;
(iii) any agreement as in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby (including pursuant to any
amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the Holders
in any material respect than the original agreement as in effect on the Issue
Date; (iv) Restricted Payments permitted by the Indenture; (v) transactions
with distributors or other purchasers of sales of goods or services, in each
case in the ordinary course of business and otherwise in compliance with the
terms of the Indenture and which are fair to the Company or the Restricted
Subsidiaries as applicable, in the reasonable determination of the Board of
Directors of the Company or the senior management thereof, or are on terms at
least as favorable as might reasonably have been obtained at such time from
an unaffiliated party; and (vi) the CT Film Purchase.
Limitation of Guarantees by Restricted Subsidiaries. The Company will not
permit any of its Restricted Subsidiaries, directly or indirectly, by way of
the pledge of any intercompany note or otherwise, to assume, guarantee or in
any other manner become liable with respect to any Indebtedness of the
Company or any other Restricted Subsidiary (other than (A) Indebtedness under
Currency Agreements in reliance on clause (v) of the definition of Permitted
Indebtedness, (B) Interest Swap Obligations or Commodity Agreements incurred
in reliance on clause (iv) of the definition of Permitted Indebtedness or (C)
any guarantee by a Foreign Subsidiary of Indebtedness of another Foreign
Subsidiary permitted under "--Limitation of Incurrence of Additional
Indebtedness"), unless, in any such case (a) such Restricted Subsidiary that
is not a Guarantor executes and delivers a supplemental indenture to the
Indenture, providing a Guarantee and (b) (x) if any such assumption,
guarantee or other liability of such Restricted Subsidiary is provided in
respect of Senior Debt, the guarantee or other instrument provided by such
Restricted Subsidiary in respect of such Senior Debt may be superior to the
Guarantee pursuant to subordination provisions no less favorable in any
material respect to the Holders than those contained in the Indenture and (y)
if such assumption, guarantee or other liability of such Restricted
Subsidiary is provided in respect of Indebtedness that is expressly
subordinated to the Notes, the guarantee or other instrument provided by such
Restricted Subsidiary in respect of such subordinated Indebtedness shall be
subordinated to the Guarantee pursuant to subordination provisions no less
favorable in any material respect to the Holders than those contained in the
Indenture.
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any
further action required on the part of the Trustee or any Holder, upon: (i)
the unconditional release of such Restricted Subsidiary from its liability in
respect of the Indebtedness in connection with which such Guarantee was
executed and delivered pursuant to the preceding paragraph; or (ii) any sale
or other disposition (by merger or otherwise) to any Person which is not a
Restricted Subsidiary of the Company of all of the Company's Capital Stock
in, or all or substantially all of the assets of, such Restricted Subsidiary
or the parent of such Restricted Subsidiary; provided that (a) such sale or
disposition of such Capital Stock or assets is otherwise in compliance with
the terms of the Indenture and (b) such assumption, guarantee or other
liability of such Restricted Subsidiary has been released by the holders of
the other Indebtedness so guaranteed or (iii) such Guarantor becoming an
Unrestricted Subsidiary in accordance with the Indenture.
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Conduct of Business. The Company and its Restricted Subsidiaries (other
than a Securitization Entity) will not engage in any businesses which are not
the same, similar or related to the businesses in which the Company and its
Restricted Subsidiaries are engaged on the Issue Date, except to the extent
that after engaging in any new business, the Company and its Restricted
Subsidiaries, taken as a whole, remain substantially engaged in similar lines
of business as are conducted by them on the Issue Date.
Reports to Holders. The Indenture provides that the Company will deliver
to the Trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the
information, documents and other reports, if any, which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. The Indenture further provides that, 180 days after the Issue
Date, notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will
file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and
other reports specified in Sections 13 and 15(d) of the Exchange Act which it
would have been required to file had it been subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act. The Company will
also comply with the other provisions of TIA Section 314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due and
payable and the default continues for a period of 30 days (whether or not
such payment shall be prohibited by the subordination provisions of the
Indenture);
(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon acceleration, upon redemption or
otherwise (including the failure to make a payment to purchase Notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period of
45 days after the Company receives written notice specifying the default (and
demanding that such default be remedied) from the Trustee or the Holders of
at least 25% of the outstanding principal amount of the Notes (except in the
case of a default with respect to the "Merger, Consolidation and Sale of
Assets" covenant, which will constitute an Event of Default with such notice
requirement but without such passage of time requirement);
(iv) the failure to pay at final maturity (giving effect to any applicable
grace periods and any extensions thereof) the principal amount of any
Indebtedness of the Company or any Restricted Subsidiary of the Company, or
the acceleration of the final stated maturity of any such Indebtedness, if,
in either case, the aggregate principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness in default for
failure to pay principal at final maturity or which has been accelerated,
aggregates $10 million or more at any time and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such final maturity or acceleration;
(v) one or more judgments in an aggregate amount in excess of $10 million
(which are not covered by third party insurance as to which the insurer has
not disclaimed coverage) shall have been rendered against the Company or any
of its Restricted Subsidiaries and such judgments remain undischarged, unpaid
or unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Restricted Subsidiaries which is also a Material Subsidiary; or
(vii) any Guarantee of a Material Subsidiary ceases to be in full force
and effect or any Guarantee of a Material Subsidiary is declared to be null
and void and unenforceable or any Guarantee of a Material Subsidiary is found
to be invalid or any of the Guarantors that is a Material Subsidiary denies
its liability under its Guarantee (other than by reason of release of a
Guarantor in accordance with the terms of the Indenture).
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If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding
Notes may declare the principal of and accrued interest on all the Notes to
be due and payable by notice in writing to the Company and the Trustee
specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding
under the Designated Senior Debt, shall become immediately due and payable
upon the first to occur of an acceleration under the Designated Senior Debt
or 5 business days after receipt by the Company and the Representative under
the Designated Senior Debt of such Acceleration Notice. If an Event of
Default specified in clause (vi) above with respect to the Company occurs and
is continuing, then all unpaid principal of, and premium, if any, and accrued
and unpaid interest on all of the outstanding Notes shall ipso facto become
and be immediately due and payable without any declaration or other act on
the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the Notes may
rescind and cancel such declaration and its consequences (i) if the
rescission would not conflict with any judgment or decree, (ii) if all
existing Events of Default have been cured or waived except nonpayment of
principal or interest that has become due solely because of the acceleration,
(iii) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid, (iv) if
the Company has paid the Trustee its reasonable compensation and reimbursed
the Trustee for its expenses, disbursements and advances and (v) in the event
of the cure or waiver of an Event of Default of the type described in clause
(vi) of the description above of Events of Default, the Trustee shall have
received an officers' certificate and an opinion of counsel that such Event
of Default has been cured or waived. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest
on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate
principal amount of the then outstanding Notes have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee. The
Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal, premium or interest) if it determines that
withholding notice is in their interest.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default
or Event of Default) that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to
the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that
the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes, except for (i) the rights
of Holders to receive, solely from the trust fund described below, payments
in respect of the principal of, premium, if any, and interest on the Notes
when such payments are due, (ii) the Company's obligations with respect to
the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and
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the maintenance of an office or agency for payments, (iii) the rights,
powers, trust, duties and immunities of the Trustee and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any
time, elect to have the obligations of the Company released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not
constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, reorganization and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
Notes on the stated date for payment thereof or on the applicable redemption
date, as the case may be; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of the Indenture, there has been a
change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the
Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; provided,
however, such opinion of counsel shall not be required if all the Notes will
become due and payable on the maturity date within one year or are to be
called for redemption within one year under arrangements satisfactory to the
Trustee; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance have been complied with; (viii) the
Company shall have delivered to the Trustee an opinion of counsel to the
effect that (A) either (i) the Company has assigned all its ownership
interest in the trust funds to the Trustee or (ii) the Trustee has a valid
perfected security interest in the trust funds and (B) assuming no
intervening bankruptcy of the Company between the date of the deposit and the
124th day following the perfection of a security interest in the deposit and
that no Holder is an insider of the Company, after the 124th day following
the perfection of a security interest in the deposit, the trust funds will
not be subject to avoidance as a preference under Section 547 of the Federal
Bankruptcy Code.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding
Notes when (i) either (a) all the Notes theretofore authenticated and
delivered (except lost, stolen or destroyed Notes which have been replaced or
paid and Notes for whose payment money has
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theretofore been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust)
have been delivered to the Trustee for cancellation or (b) all Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable and the Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and discharge the
entire Indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on the Notes to
the date of deposit together with irrevocable instructions from the Company
directing the Trustee to apply such funds to the payment thereof at maturity
or redemption, as the case may be; (ii) the Company has paid all other sums
payable under the Indenture by the Company; and (iii) the Company has
delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the Trustee, without
the consent of the Holders, may amend the Indenture for certain specified
purposes, including curing ambiguities, defects or inconsistencies, so long
as such change does not, in the opinion of the Trustee, adversely affect the
rights of any of the Holders in any material respect. In formulating its
opinion on such matters, the Trustee will be entitled to rely on such
evidence as it deems appropriate, including, without limitation, solely on an
opinion of counsel. Other modifications and amendments of the Indenture may
be made with the consent of the Holders of a majority in principal amount of
the then outstanding Notes issued under the Indenture, except that, without
the consent of each Holder affected thereby, no amendment may: (i) reduce the
amount of Notes whose Holders must consent to an amendment; (ii) reduce the
rate of or change or have the effect of changing the time for payment of
interest, including defaulted interest, on any Notes; (iii) reduce the
principal of or change or have the effect of changing the fixed maturity of
any Notes, or change the date on which any Notes may be subject to redemption
or repurchase, or reduce the redemption or repurchase price therefore; (iv)
make any Notes payable in money other than that stated in the Notes; (v) make
any change in provisions of the Indenture protecting the right of each Holder
to receive payment of principal of and interest on such Note on or after the
due date thereof or to bring suit to enforce such payment, or permitting
Holders of a majority in principal amount of Notes to waive Defaults or
Events of Default; (vi) amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control Offer in
the event of a Change of Control or make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated or modify in any
material respect any of the provisions or definitions with respect thereto;
(vii) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner which adversely affects the Holders; or (viii) release
any Guarantor from any of its obligations under its Guarantee or the
Indenture otherwise than in accordance with the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the law of another jurisdiction would
be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture,
and use the same degree of care and skill in its exercise as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to
obtain payments of claims in certain cases or to realize
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on certain property received in respect of any such claim as security or
otherwise. Subject to the TIA, the Trustee will be permitted to engage in
other transactions; provided that if the Trustee acquires any conflicting
interest as described in the TIA, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture 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 Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
of the Company or at the time it merges or consolidates with the Company or
any of its Restricted Subsidiaries or assumed in connection with the
acquisition of assets from such Person and in each case not incurred by such
Person in connection with, or in anticipation or contemplation of, such
Person becoming a Restricted Subsidiary of the Company or such acquisition,
merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which
such Person shall become a Restricted Subsidiary of the Company or of any
Restricted Subsidiary of the Company, or shall be merged with or into the
Company or of any Restricted Subsidiary of the Company, or (b) the
acquisition by the Company or any Restricted Subsidiary of the Company of the
assets of any Person (other than a Restricted Subsidiary of the Company),
which constitute all or substantially all of the assets of such Person or
comprise any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Restricted Subsidiary
of the Company of (a) any Capital Stock of any Restricted Subsidiary of the
Company; or (b) any other property or assets of the Company or any Restricted
Subsidiary of the Company other than in the ordinary course of business;
provided, however, that Asset Sales shall not include (i) a transaction or
series of related transactions for which the Company or its Restricted
Subsidiaries receive aggregate consideration of less than $5 million, (ii)
sales of accounts receivable and related assets (including contract rights)
of the type specified in the definition of "Qualified Securitization
Transaction" to a Securitization Entity for the fair market value thereof,
(iii) sales or grants of licenses to use the Company's or any Restricted
Subsidiary's patents, trade secrets, know-how and technology to the extent
that such license does not prohibit the licensor from using the patent, trade
secret, know-how or technology licensed in North America or require the
licensor to pay any fees for any such use, (iv) the sale, lease, conveyance,
disposition or other transfer (A) of all or substantially all of the assets
of the Company or a Restricted Subsidiary of the Company as permitted under
"Merger, Consolidation and Sale of Assets", (B) of any Capital Stock or other
ownership interest in or assets or property of an Unrestricted Subsidiary or
a Person which is not a Subsidiary, (C) pursuant to any foreclosure of assets
or other remedy provided by applicable law to a creditor of the Company or
any Subsidiary of the Company with a Lien on such assets, which Lien is
permitted under the Indenture; provided that such foreclosure or other remedy
is conducted in a commercially reasonable manner or in accordance with any
bankruptcy law, (D) involving only Cash Equivalents or inventory in the
ordinary course of business or obsolete equipment in the ordinary course of
business consistent with past practices
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of the Company or (E) including only the lease or sublease of any real or
personal property in the ordinary course of business; (v) the consummation of
any transaction in accordance with the terms of "--Limitation on Restricted
Payments", and (vi) Permitted Investments.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors of such Person and
to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other
equivalents (however designated and whether or not voting) of corporate
stock, including each class of Common Stock and Preferred Stock of such
Person and (ii) with respect to any Person that is not a corporation, any and
all partnership or other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted
for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the
capitalized amount of such obligations at such date, determined in accordance
with GAAP.
"Cash Equivalents" means (i) a marketable obligation, maturing within two
years after issuance thereof, issued or guaranteed by the United States of
America or an instrumentality or agency thereof, (ii) a certificate of
deposit or banker's acceptance, maturing within one year after issuance
thereof, issued by any lender under the Credit Agreement, or a national or
state bank or trust company or a European, Canadian or Japanese bank in each
case having capital, surplus and undivided profits of at least $100,000,000
and whose long-term unsecured debt has a rating of "A" or better by Standard
& Poor's Ratings Group, a division of McGraw Hill Companies ("S&P") or A2 or
better by Moody's Investors Service, Inc. ("Moody's") or the equivalent
rating by any other nationally recognized rating agency (provided that the
aggregate face amount of all Investments in certificates of deposit or
bankers' acceptances issued by the principal offices of or branches of such
European or Japanese banks located outside the United States shall not at any
time exceed 33 1/3% of all Investments described in this definition), (iii)
open market commercial paper, maturing within 270 days after issuance
thereof, which has a rating of A1 or better by S&P or P1 or better by
Moody's, or the equivalent rating by any other nationally recognized rating
agency, (iv) repurchase agreements and reverse repurchase agreements with a
term not in excess of one year with any financial institution which has been
elected a primary government securities dealer by the Federal Reserve Board
or whose securities are rated AA-or better by S&P or Aa3 or better by Moody's
or the equivalent rating by any other nationally recognized rating agency
relating to marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or instrumentality
thereof and backed by the full faith and credit of the United States of
America, (v) "Money Market" preferred stock maturing within six months after
issuance thereof or municipal bonds issued by a corporation organized under
the laws of any state of the United States, which has a rating of "A" or
better by S&P or Moody's or the equivalent rating by any other nationally
recognized rating agency and (vi) tax exempt floating rate option tender
bonds backed by letters of credit issued by a national or state bank whose
long-term unsecured debt has a rating of AA or better by S&P or Aa2 or better
by Moody's or the equivalent rating by any other nationally recognized rating
agency.
"Change of Control" means (i) prior to the initial public equity offering
of the Company, the failure by Jon M. Huntsman, his spouse, direct
descendants or their spouses, an entity controlled by any of the foregoing
and/or by a trust of the type described hereafter, and/or a trust for the
benefit of any of the foregoing (the "Huntsman Group"), collectively to own
and control at least a sufficient amount of the outstanding voting capital
stock of the Company to elect at least a majority of the Board of Directors
of the Company or (ii) after the initial public equity offering of the
Company, the occurrence of the following: (x) any "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other
than one or more members of the Huntsman Group, is or becomes the "beneficial
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owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of 35% or more of the then outstanding voting capital stock of
the Company other than in a transaction having the approval of the board of
directors of the Company at least a majority of which members are Continuing
Directors; or (y) Continuing Directors shall cease to constitute at least a
majority of the directors constituting the board of directors of the Company.
"Commodity Agreements" means any commodity futures contract, commodity
option or other similar agreement or arrangement entered into by the Company
or any of its Subsidiaries designed to protect the Company or any of its
Subsidiaries against fluctuation in the price of commodities actually at that
time used in the ordinary course of business of the Company or its
Subsidiaries.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on
the Issue Date or issued after the Issue Date, and includes, without
limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes
of such Person and its Restricted Subsidiaries paid or accrued in accordance
with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or taxes attributable
to sales or dispositions outside the ordinary course of business), (B)
Consolidated Interest Expense and (C) Consolidated Non-cash Charges less any
non-cash items increasing Consolidated Net Income for such period, all as
determined on a consolidated basis for such Person and its Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters for which financial statements have been or should have been
delivered to the Trustee under "--Reports to Holders" (the "Four Quarter
Period") ending on or prior to the date of the transaction giving rise to the
need to calculate the Consolidated Fixed Charge Coverage Ratio (the
"Transaction Date") to Consolidated Fixed Charges of such Person for the Four
Quarter Period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis for the
period of such calculation to (i) the incurrence or repayment of any
Indebtedness of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence or repayment
of Indebtedness in the ordinary course of business for working capital
purposes pursuant to working capital facilities, occurring during the Four
Quarter Period or at any time subsequent to the last day of the Four Quarter
Period and prior to the Transaction Date, as if such incurrence or repayment,
as the case may be (and the application of the proceeds thereof), occurred on
the first day of the Four Quarter Period and (ii) any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of such Person or one
of its Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost reduction
calculated on a basis consistent with Regulation S-X under the Securities Act
as in effect on the Issue Date) (provided that such Consolidated EBITDA shall
be included only to the extent includable pursuant to the definition of
"Consolidated Net Income") attributable to the assets which are the subject
of the Asset Acquisition or Asset Sale during the Four Quarter Period
occurring during the Four Quarter Period or at any time subsequent to the
last day of the Four Quarter Period and on or prior to the Transaction Date,
as if such Asset Sale or Asset Acquisition (including the incurrence,
assumption or liability for any such Acquired Indebtedness) occurred on the
first day of the Four Quarter Period. If such Person or any of its Restricted
Subsidiaries directly or indirectly guarantees Indebtedness of a Person other
than the Company or a Restricted Subsidiary, the preceding sentence shall
give effect to the incurrence of such guaranteed
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Indebtedness as if such Person or any Restricted Subsidiary of such Person
had directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated
Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness
determined on a fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter shall be deemed to have accrued at a
fixed rate per annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; (2) if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four
Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest
is covered by agreements relating to Interest Swap Obligations, shall be
deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense,
plus (ii) the product of (x) the amount of all dividend payments on any
series of Preferred Stock of such Person and its Restricted Subsidiaries
(other than dividends paid in Qualified Capital Stock and other than
dividends paid to such Person or to a Restricted Subsidiary of such Person)
paid, accrued or scheduled to be paid or accrued during such period times (y)
a fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or
write-off of deferred financing costs, (b) the net costs under Interest Swap
Obligations, (c) all capitalized interest and (d) the interest portion of any
deferred payment obligation; and (ii) the interest component of Capitalized
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by
such Person and its Restricted Subsidiaries during such period as determined
on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in
accordance with GAAP; provided that there shall be excluded therefrom (a)
after-tax gains from Asset Sales or abandonments or reserves relating
thereto, (b) after-tax items classified as extraordinary or nonrecurring
gains, (c) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary of
the referent Person or is merged or consolidated with the referent Person or
any Restricted Subsidiary of the referent Person, (d) the net income (but not
loss) of any Restricted Subsidiary of the referent Person to the extent that
the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is restricted by a contract, operation of law or
otherwise; (e) the net income of any Person, other than a Restricted
Subsidiary of the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or to a Wholly Owned Restricted
Subsidiary of the referent Person by such Person, (f) any restoration to
income of any contingency reserve, except to the extent that provision for
such reserve was made out of Consolidated Net Income accrued at any time
following the Issue Date, (g) income or loss attributable to discontinued
operations (including without limitation, operations disposed of during such
period whether or not such operations were classified as discontinued), (h)
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 of the
successor corporation prior to such consolidation, merger or transfer of
assets and (i) all gains or losses from the cumulative effect of any change
in accounting principles.
"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.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries
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reducing Consolidated Net Income of such Person and its Restricted
Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an
extraordinary item or loss or any such charge which requires an accrual of or
a reserve for cash charges for any future period).
"Continuing Directors" means, as of any date, the collective reference to
(i) all members of the board of directors of the Company who have held office
continuously since a date no later than twelve months prior to the Company's
initial public equity offering, and (ii) all members of the board of
directors of the Company who assumed office after such date and whose
appointment or nomination for election by the Company's shareholders was
approved by a vote of at least 50% of the Continuing Directors in office
immediately prior to such appointment or nomination.
"Credit Agreement" means the Credit Agreement, dated as of September 30,
1997 among the Company, the lenders party thereto in their capacities as
lenders thereunder and The Chase Manhattan Bank, as agent, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such Credit Agreement and
related documents may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing (whether or not
contemporaneously) or otherwise restructuring (including increasing the
amount of available borrowings thereunder (to the extent that such increase
in borrowings is permitted by the "Limitation on Incurrence of Additional
Indebtedness" covenant above) or adding Restricted Subsidiaries of the
Company as additional borrowers or guarantors thereunder) all or any portion
of the Indebtedness under such agreement or any successor or replacement
agreement and whether by the same or any other agent, lender or group of
lenders.
"CT Film" means the CT Film Division of Huntsman Polymers Corporation.
"CT Film Purchase" means the acquisition of substantially all of the
assets of CT Film for an aggregate consideration of not in excess of $70
million pursuant to that certain Asset Purchase Agreement dated August 27,
1997 between the Company and Huntsman Polymers Corporation as in effect on
the date hereof.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Debt" means (i) Indebtedness under or in respect of the
Credit Agreement and (ii) any other Indebtedness constituting Senior Debt
which, at the time of determination, has an aggregate principal amount of at
least $25 million and is specifically designated in the instrument evidencing
such Senior Debt as "Designated Senior Debt" by the Company.
"Disqualified Capital Stock" means that portion of any Capital Stock
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 sole option of the holder
thereof on or prior to the final maturity date of the Notes.
"Domestic Overdraft Facility" means an overdraft line of credit in a
maximum principal amount of $5 million at any time outstanding.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length. free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of
whom is under undue pressure or compulsion to complete the transaction. Fair
market value shall be determined by the Board of Directors of the Company
acting reasonably and in good faith and shall be evidenced by a Board
Resolution of the Board of Directors of the Company delivered to the Trustee.
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"Foreign Subsidiary" means any Restricted Subsidiary of the Company
organized and conducting its principal operations outside the United States.
"Foreign Subsidiary Asset Sale" means any direct or indirect sale,
issuance, conveyance, transfer, lease, assignment or other transfer for value
by the Company or any of its Restricted Subsidiaries (including any Sale and
Leaseback Transaction) to any Person other than the Company or a Restricted
Subsidiary of the Company of the Capital Stock of any Foreign Subsidiary or
any of the property or assets of any Foreign Subsidiary.
"GAAP" means generally accepted accounting principles 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 may be approved by a significant segment
of the accounting profession of the United States, which are in effect as of
the Issue Date.
"Guarantees" means the guarantees of the Notes of the Company by the
Guarantors.
"Guarantor" means (i) each of the guarantors under the Credit Agreement
and (ii) each of the Company's Restricted Subsidiaries that in the future
executes a supplemental indenture in which such Restricted Subsidiary agrees
to be bound by the terms of the Indenture as a Guarantor; provided that any
Person constituting a Guarantor as described above shall cease to constitute
a Guarantor when its respective Guarantee is released in accordance with the
terms of the Indenture.
"Guarantor Senior Debt" means with respect to any Guarantor, (i) the
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for
in the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Guarantor,
whether outstanding on the Issue Date or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Guarantee of such Guarantor. Without limiting the generality
of the foregoing, "Guarantor Senior Debt" shall also include the principal
of, premium, if any, interest (including any interest accruing subsequent to
the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other amounts owing in
respect of, (w) all monetary obligations of every nature of a Guarantor in
respect of the Credit Agreement, including, without limitation, obligations
to pay principal and interest, reimbursement obligations under letters of
credit, fees, expenses and indemnities, (x) all monetary obligations of every
nature of a Guarantor evidence by a promissory note and which is, directly or
indirectly, pledged as security for the obligations of the Company under the
Credit Agreement, (y) all Interest Swap Obligations and (z) all obligations
under Currency Agreements, in each case whether outstanding on the Issue Date
or thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior
Debt" shall not include (i) any Indebtedness of such Guarantor to a
Subsidiary of such Guarantor or any Affiliate of such Guarantor or any such
Affiliate's Subsidiaries other than as described in clause (x), (ii)
Indebtedness to, or guaranteed on behalf of, any shareholder, director,
officer or employee of such Guarantor or any Restricted Subsidiary of such
Guarantor (including, without limitation, amounts owed for compensation),
(iii) Indebtedness to trade creditors and other amounts owed to suppliers in
connection with obtaining goods, materials or services, (iv) Indebtedness
represented by Disqualified Capital Stock, (v) any liability for federal,
state, local or other taxes owed or owing by such Guarantor, (vi)
Indebtedness to the extent incurred in violation of the Indenture provisions
set forth under "Limitation on Incurrence of Additional Indebtedness," (vii)
Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to such
Guarantor and (viii) any Indebtedness which is, by its express terms,
subordinated in right of payment to any other Indebtedness of such Guarantor.
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all
Obligations of such Person issued or assumed as the deferred purchase price
of property, all conditional sale obligations
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and all Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary course
of business that are not overdue by 90 days or more or are being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted), (v) all Obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, (vi)
guarantees and other contingent obligations in respect of Indebtedness
referred to in clauses (i) through (v) above and clause (viii) below, (vii)
all Obligations of any other Person of the type referred to in clauses (i)
through (vi) which are secured by any lien on any property or asset of such
Person, the amount of such Obligation being deemed to be the lesser of the
fair market value of such property or asset or the amount of the Obligation
so secured, (viii) all Obligations under Currency Agreements, Commodity
Agreements and Interest Swap Agreements of such Person and (ix) all
Disqualified Capital Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal to
the greater of its voluntary or involuntary liquidation preference and its
maximum fixed repurchase price, but excluding accrued dividends, if any. For
purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as
if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture,
and if such price is based upon, or measured by, the fair market value of
such Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the Board of Directors of the issuer of such
Disqualified Capital Stock; provided, however that notwithstanding the
foregoing, "Indebtedness" shall not include unsecured indebtedness of the
Company and/or its Restricted Subsidiaries incurred to finance insurance
premiums in a principal amount not in excess of the insurance premiums to be
paid by the Company and/or its Restricted Subsidiaries for a three year
period beginning on the date of any incurrence of such indebtedness.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified
to perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant
to any arrangement with any other Person, whereby, directly or indirectly,
such Person is entitled to receive from time to time periodic payments
calculated by applying either a floating or a fixed rate of interest on a
stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the
same notional amount and shall include, without limitation, interest rate
swaps, caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect
loan or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition by such Person of
any Capital Stock, bonds, notes, debentures or other securities or evidences
of Indebtedness issued by, any Person. "Investment" shall exclude extensions
of trade credit by the Company and its Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of
the Company or such Restricted Subsidiary, as the case may be. For the
purposes of the "Limitation on Restricted Payments" covenant, (i)
"Investment" shall include and be valued at the fair market value of the net
assets of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary and shall exclude the
fair market value of the net assets of any Unrestricted Subsidiary at the
time that such Unrestricted Subsidiary is designated a Restricted Subsidiary
and (ii) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by the Company or any
of its Restricted Subsidiaries, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to
such Investment, reduced by the payment of dividends or distributions in
connection with such Investment or any other amounts received in respect of
such Investment; provided that no such payment of dividends or distributions
or receipt of any such other amounts shall reduce the amount of any
Investment if such payment of dividends or distributions or receipt of any
such amounts would be included in Consolidated Net Income. If the Company or
any Restricted Subsidiary of the Company sells
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or otherwise disposes of any Common Stock of any direct or indirect
Restricted Subsidiary of the Company such that, after giving effect to any
such sale or disposition, the Company no longer owns, directly or indirectly,
greater than 50% of the outstanding Common Stock of such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Common Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement
to give any security interest).
"Material Subsidiary" means, at any date of determination, any Subsidiary
of the Company that, together with its Subsidiaries, (i) for the most recent
fiscal year of the Company accounted for more than 10% of the consolidated
revenues of the Company or (ii) as of the end of such fiscal year, was the
owner of 10% of the consolidated assets of the Company, all as set forth on
the most recently available consolidated financial statement of the Company
and its consolidated Subsidiaries for such fiscal year prepared in conformity
with GAAP.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of (a) all out-of-pocket expenses and fees relating to
such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable
after taking into account any reduction in consolidated tax liability due to
available tax credits or deductions and any tax sharing arrangements,
including any taxes to be paid by the Company or any of its Subsidiaries upon
the repatriation of such cash proceeds to the United States upon consummation
of a Foreign Subsidiary Asset Sale, (c) repayment of Indebtedness that is
required to be repaid in connection with such Asset Sale, (d) the decrease in
proceeds from Qualified Securitization Transactions which results from such
Asset Sale and (e) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Permitted Indebtedness" means, without duplication, each of the
following:
(i) Indebtedness under the Notes, the Indenture and the Guarantees;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount not exceeding $225 million at any one time
outstanding, less (i) the amount of any principal payments made by the
Company under the Credit Agreement with the Net Cash Proceeds of any Asset
Sale (which are accompanied by a corresponding permanent commitment
reduction to the extent that the amount paid could otherwise be reborrowed
under the Credit Agreement) pursuant to clause (iii)(A) of the first
sentence of "--Limitation on Asset Sales" and (ii) if the CT Film Purchase
is not consummated on or before December 31, 1997, a permanent reduction
of the facilities under the Credit Agreement in an aggregate principal
amount equal to $70 million;
(iii) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
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(iv) Commodity Agreements and Interest Swap Obligations of the Company
covering Indebtedness of the Company or any of its Restricted Subsidiaries
(or Indebtedness which the Company or any Restricted Subsidiary intends to
incur) and Interest Swap Obligations of any Restricted Subsidiary of the
Company covering Indebtedness of such Restricted Subsidiary (or
Indebtedness which such Restricted Subsidiary intends to incur); provided,
however, that such Interest Swap Obligations are entered into to protect
the Company and its Restricted Subsidiaries from fluctuations in interest
rates on Indebtedness permitted under the Indenture to the extent the
notional principal amount of such Interest Swap Obligation, when incurred,
does not exceed the principal amount of the Indebtedness to which such
Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(vi) Indebtedness of a Restricted Subsidiary of the Company to the
Company or to a Wholly-Owned Restricted Subsidiary of the Company for so
long as such Indebtedness is held by the Company or a Wholly-Owned
Restricted Subsidiary of the Company, in each case subject to no Lien held
by a Person other than the Company or a Restricted Subsidiary of the
Company; provided that if as of any date any Person other than the Company
or a Wholly-Owned Restricted Subsidiary of the Company owns or holds any
such Indebtedness or holds a Lien in respect of such Indebtedness such
date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the issuer of such Indebtedness;
(vii) Indebtedness of the Company to a Restricted Subsidiary of the
Company for so long as such Indebtedness is held by a Restricted
Subsidiary of the Company, in each case subject to no Lien; provided that
(a) any Indebtedness of the Company to any Restricted Subsidiary of the
Company is unsecured and subordinated, pursuant to a written agreement, to
the Company's obligations under the Indenture and the Notes and (b) if as
of any date any Person other than a Restricted Subsidiary of the Company
owns or holds any such Indebtedness or any Person holds a Lien in respect
of such Indebtedness (other than pledges securing the Credit Agreement)
such date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the Company;
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; provided, however,
that such Indebtedness is extinguished within two business days of
incurrence;
(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security
for workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(x) Refinancing Indebtedness;
(xi) Indebtedness arising from agreements of the Company or a Subsidiary
providing for indemnification, adjustment of purchase price or similar
obligations, in each case, incurred in connection with the disposition of
any business, assets or Subsidiary, other than guarantees of Indebtedness
incurred by any Person acquiring all or any portion of such business,
assets or Subsidiary for the purpose of financing such acquisition;
provided that the maximum aggregate liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds actually received
by the Company and the Subsidiary in connection with such disposition;
(xii) Obligations in respect of performance bonds and completion,
guarantee, surety and similar bonds provided by the Company or any
Restricted Subsidiary in the ordinary course of business;
(xiii) Guarantees by the Company or a Subsidiary of Indebtedness incurred
by the Company or a Subsidiary so long as the incurrence of such
Indebtedness by the Company or any such Subsidiary is otherwise permitted
by the terms of the Indenture;
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(xiv) Indebtedness of the Company or any Restricted Subsidiary incurred
in the ordinary course of business not to exceed $10 million at any time
outstanding (A) representing Capitalized Lease Obligations or (B)
constituting purchase money Indebtedness incurred to finance property or
assets of the Company or any Restricted Subsidiary of the Company acquired
in the ordinary course of business; provided, however, that such purchase
money Indebtedness shall not exceed the cost of such property or assets
and shall not be secured by any property or assets of the Company or any
Restricted Subsidiary of the Company other than the property and assets so
acquired;
(xv) Indebtedness of Foreign Subsidiaries that are Restricted
Subsidiaries to the extent that the aggregate outstanding amount of
Indebtedness incurred by such Foreign Subsidiaries under this clause (xv)
does not exceed at any one time an amount equal to the sum of (A) 80% of
the consolidated book value of the accounts receivable of all Foreign
Subsidiaries and (B) 60% of the consolidated book value of the inventory
of all Foreign Subsidiaries.
(xvi) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is not recourse to the Company
or any Subsidiary of the Company (except for Standard Securitization
Undertakings);
(xvii) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $15 million at
any one time outstanding; and
(xviii) Indebtedness under any Domestic Overdraft Facility.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company, (ii) Investments in the Company by any
Restricted Subsidiary of the Company; provided that any Indebtedness
evidencing such Investment is unsecured and subordinated (other than pursuant
to intercompany notes pledged under the Credit Agreement), pursuant to a
written agreement, to the Company's Obligations under the Notes and the
Indenture; (iii) Investments in cash and Cash Equivalents; (iv) loans and
advances to employees and officers of the Company and its Restricted
Subsidiaries in the ordinary course of business for travel, relocation and
related expenses for bona fide business purposes not in excess of $3 million
at any one time outstanding; (v) Commodity Agreements, Currency Agreements
and Interest Swap Obligations entered into in the ordinary course of the
Company's or its Restricted Subsidiaries' businesses and otherwise in
compliance with the Indenture; (vi) Investments in Unrestricted Subsidiaries
or joint ventures not to exceed $20 million, plus (A) the aggregate net
after-tax amount returned to the Company or any Restricted Subsidiary in cash
on or with respect to any Investments made in Unrestricted Subsidiaries and
joint ventures whether through interest payments, principal payments,
dividends or other distributions or payments (including such dividends,
distributions or payments made concurrently with such Investment), (B) the
net after-tax cash proceeds received by the Company or any Restricted
Subsidiary from the disposition of all or any portion of such Investments
(other than to the Company or a Subsidiary of the Company), (C) upon
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the
fair market value of such Subsidiary and (D) the net cash proceeds received
by the Company from the issuance of Specified Venture Capital Stock; (vii)
Investments in securities received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of any debtors of the
Company or its Restricted Subsidiaries; (viii) Investments made by the
Company or its Restricted Subsidiaries as a result of consideration received
in connection with an Asset Sale made in compliance with the "Limitation on
Asset Sales" covenant; (ix) Investments existing on the Issue Date; (x) any
Investment by the Company or a Wholly Owned Subsidiary of the Company in a
Securitization Entity or any Investment by a Securitization Entity in any
other Person in connection with a Qualified Securitization Transaction;
provided that any Investment in a Securitization Entity is in the form of a
Purchase Money Note or an equity interest; (xi) Investments constituting
guarantees by the Company or a Subsidiary of Indebtedness incurred by the
Company or a Subsidiary so long as the incurrence of such Indebtedness by the
Company or any such Subsidiary is otherwise permitted by the terms of the
Indenture; and (xii) additional Investments in an aggregate amount not to
exceed $2 million.
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"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Securitization Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its
Subsidiaries pursuant to which the Company or any of its Subsidiaries may
sell, convey or otherwise transfer pursuant to customary terms to (a) a
Securitization Entity (in the case of a transfer by the Company or any of its
Subsidiaries) and (b) any other Person (in the case of transfer by a
Securitization Entity), or may grant a security interest in any accounts
receivable (whether now existing or arising or acquired in the future) of the
Company or any of its Subsidiaries, and any assets related thereto including,
without limitation, all collateral securing such accounts receivable, all
contracts and contract rights and all guarantees or other obligations in
respect of such accounts receivable, proceeds of such accounts receivable and
other assets (including contract rights) which are customarily transferred or
in respect of which security interests are customarily granted in connection
with asset securitization transactions involving accounts receivable.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire,
or to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance
with the "Limitation on Incurrence of Additional Indebtedness" covenant
(other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix),
(xi), (xii), (xiii), (xiv), (xv), or (xvi) of the definition of Permitted
Indebtedness), in each case that does not (1) result in an increase in the
aggregate principal amount of Indebtedness of such Person as of the date of
such proposed Refinancing (plus the amount of any premium required to be paid
under the terms of the instrument governing such Indebtedness and plus the
amount of reasonable expenses incurred by the Company in connection with such
Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company, (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes,
then such Refinancing Indebtedness shall be subordinate to the Notes at least
to the same extent and in the same manner as the Indebtedness being
Refinanced and (z) if such Indebtedness being refinanced is subordinated or
junior to the Guarantee of such Guarantor, then such Refinancing Indebtedness
shall be subordinate to the Guarantee of such Guarantor at least to the same
extent and in the same manner as the Indebtedness being Refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if,
and for so long as, any Designated Senior Debt lacks such a representative,
then the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether
owned by the Company or any Restricted Subsidiary at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom
funds have been or are to be advanced by such Person on the security of such
property.
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"Securitization Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company makes an
Investment and to which the Company or any Subsidiary of the Company
transfers accounts receivable or equipment and related assets) which engages
in no activities other than in connection with the financing of accounts
receivable or equipment and which is designated by the Board of Directors of
the Company (as provided below) as a Securitization Entity (a) no portion of
the Indebtedness or any other Obligations (contingent or otherwise) of which
(i) is guaranteed by the Company or any Subsidiary of the Company (excluding
guarantees of Obligations (other than the principal of, and interest on,
Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is
recourse to or obligates the Company or any Subsidiary of the Company in any
way other than pursuant to Standard Securitization Undertakings or (iii)
subjects any property or asset of the Company or any Subsidiary of the
Company, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to Standard Securitization
Undertakings, (b) with which neither the Company nor any Subsidiary of the
Company has any material contract, agreement, arrangement or understanding
other than on terms no less favorable to the Company or such Subsidiary than
those that might be obtained at the time from Persons that are not Affiliates
of the Company, other than fees payable in the ordinary course of business in
connection with servicing receivables of such entity and (c) to which neither
the Company nor any Subsidiary of the Company has any obligation to maintain
or preserve such entity's financial condition or cause such entity to achieve
certain levels of operating results. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee, by filing with
the Trustee a certified copy of the resolution of the Board of Directors of
the Company giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing conditions.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable
law) on any Indebtedness of the Company, whether outstanding on the Issue
Date or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes. Without
limiting the generality of the foregoing, "Senior Debt" shall also include
the principal of, premium, if any, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for
in the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other amounts owing in
respect of, (x) all monetary obligations of every nature of the Company under
the Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit,
fees, expenses and indemnities, (y) all Interest Swap Obligations and (z) all
Obligations under Currency Agreements and Commodity Agreements in each case
whether outstanding on the Issue Date or thereafter incurred. Notwithstanding
the foregoing, "Senior Debt" shall not include (i) any Indebtedness of the
Company to a Restricted Subsidiary of the Company or any Affiliate of the
Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness to, or
guaranteed on behalf of, any shareholder, director, officer or employee of
the Company or any Subsidiary of the Company (including, without limitation,
amounts owed for compensation), (iii) Indebtedness to trade creditors and
other amounts owed to suppliers in connection with obtaining goods, materials
or services, (iv) Indebtedness represented by Disqualified Capital Stock, (v)
any liability for federal, state, local or other taxes owed or owing by the
Company, (vi) Indebtedness to the extent incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of Additional
Indebtedness," (vii) Indebtedness which, when incurred and without respect to
any election under Section 1111(b) of Title 11, United States Code, is
without recourse to the Company and (viii) any Indebtedness which is, by its
express terms, subordinated in right of payment to any other Indebtedness of
the Company.
"Specified Venture Capital Stock" means Qualified Capital Stock of the
Company issued to a Person (or Affiliates of such Person) who is not an
Affiliate of the Company and the proceeds from the issuance of which are
applied within 180 days after the issuance thereof to an Investment in an
Unrestricted Subsidiary or joint venture.
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"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of
the Company which are reasonably customary in an accounts receivable
securitization transaction.
"Subsidiary" with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii)
any other Person of which at least a majority of the voting interest under
ordinary circumstances is at the time, directly or indirectly, owned by such
Person.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be
designated an Unrestricted Subsidiary in the manner provided below and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate any Subsidiary (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of or owns or holds any Lien on any property of, the Company or
any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided that (x) the Company certifies to
the Trustee that such designation complies with the "Limitation on Restricted
Payments" covenant and (y) each Subsidiary to be so designated and each of
its Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the
lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately
after giving effect to such designation, the Company is able to incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant and (y) immediately before and immediately after giving effect to
such designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall 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.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the
then outstanding aggregate principal amount of such Indebtedness into (b) the
sum of the total of the products obtained by multiplying (i) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payment of principal, including payment at final maturity, in
respect thereof, by (ii) the number of years (calculated to the nearest
one-twelfth) which will elapse between such date and the making of such
payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person that is a Wholly Owned Subsidiary of such Person.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such
Person of which all the outstanding voting securities (other than in the case
of a foreign Subsidiary, directors' qualifying shares or an immaterial amount
of shares required to be owned by other Persons pursuant to applicable law)
are owned by such Person or any Wholly Owned Subsidiary of such Person.
REGISTRATION RIGHTS
Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. Pursuant to the Registration Rights Agreement,
Holders of Old Notes are entitled to certain registration rights. Pursuant to
the Registration Rights Agreement, the Company has agreed that it will, at
its cost, for the benefit of the Holders, (i) use its best efforts with
respect to the Exchange Offer to cause the Exchange Offer Registration
Statement to become effective under the Securities Act within 150 days after
the original issuance of the Old Notes (the "Issue Date") and (ii) upon the
Exchange Offer Registration Statement becoming effective, to offer the New
Notes in exchange for surrender of the Old Notes. The Registration Statement
of which this Prospectus is a part constitutes the Exchange Offer
Registration Statement. The Company will keep the Exchange Offer open for not
less than 30 days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the Holders. For each
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of the Old Notes surrendered to the Company pursuant to the Exchange Offer,
the Holder who surrendered such Old Notes will receive a New Note having a
principal amount equal to that of the surrendered Old Notes. Interest on each
New Note will accrue (A) from the later of (i) the last interest payment date
on which interest was paid on the Old Note surrendered in exchange therefor,
or (ii) if the Old Note is surrendered for exchange on a date in a period
which includes the record date for an interest payment date to occur on or
after the date of such exchange and as to which interest will be paid, the
date of such interest payment date or (B) if no interest has been paid on the
Old Notes, from the Issue Date.
Under existing interpretations of the Commission contained in several
no-action letters to third parties, the New Notes will be freely transferable
by holders thereof (other than affiliates of the Company) after the Exchange
Offer without further registration under the Securities Act; provided,
however, that each Holder that wishes to exchange its Old Notes for New Notes
will be required to represent (i) that any New Notes to be received by it
will be acquired in the ordinary course of its business, (ii) that at the
time of the commencement of the Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the New Notes in violation of the
Securities Act, (iii) that it is not an "affiliate" (as defined in Rule 405
promulgated under the Securities Act) of the Company, (iv) if such
Holder is not a broker-dealer, that it is not engaged in, and does not
intend to engage in, the distribution of Exchange Notes and (v) if such
Holder is a Participating Broker-Dealer that will receive Exchange Notes
for its own account in exchange for Old Notes that were acquired as a result
of market-making or other trading activities, that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The
Company has agreed to make available, during the period required by
the Securities Act, a prospectus meeting the requirements of the
Securities Act for use by Participating Broker-Dealers and other persons, if
any, with similar prospectus delivery requirements for use in connection with
any resale of New Notes.
If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Company is not permitted
to effect an Exchange Offer, (ii) the Exchange Offer is not consummated
within 195 days of the Issue Date, (iii) in certain circumstances, certain
holders of unregistered New Notes so request, or (iv) in the case of any
Holder that participates in the Exchange Offer, such Holder does not receive
New Notes on the date of the exchange that may be sold without restriction
under state and federal securities laws (other than due solely to the status
of such Holder as an affiliate of the Company within the meaning of the
Securities Act), then in each case, the Company will (x) promptly deliver to
the Holders and the Trustee written notice thereof and (y) at their sole
expense, (a) as promptly as practicable, file a shelf registration statement
covering resales of the Old Notes (the "Shelf Registration Statement"), (b)
use their best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act and (c) use their best efforts to
keep effective the Shelf Registration Statement until the earlier of two
years after the Issue Date or such time as all of the applicable Notes have
been sold thereunder. The Company will, in the event that a Shelf
Registration Statement is filed, provide to each Holder copies of the
prospectus that is a part of the Shelf Registration Statement, notify each
such Holder when the Shelf Registration Statement for the Notes has become
effective and take certain other actions as are required to permit
unrestricted resales of the Notes. A Holder that sells Old Notes pursuant to
the Shelf Registration Statement will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by
the provisions of the Registration Rights Agreement that are applicable to
such a Holder (including certain indemnification rights and obligations).
ADDITIONAL INTEREST
If the Company fails to comply with the provisions above under
"--Registration Rights" or if the Exchange Offer Registration Statement or
the Shelf Registration Statement fails to become effective, then, as
liquidated damages, additional interest (the "Additional Interest") shall
become payable in respect of the Notes as follows:
(i) if (A) neither the Exchange Offer Registration Statement nor Shelf
Registration Statement is filed with the Commission on or prior to the Filing
Date or (B) notwithstanding that the Company has
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consummated or will consummate an Exchange Offer, the Company is required to
file a Shelf Registration Statement and such Shelf Registration Statement is
not filed on or prior to the date required by the Registration Rights
Agreement, then commencing on the day after either such required filing date,
Additional Interest shall accrue on the principal amount of the Notes at a
rate of 0.50% per annum for the first 90 days immediately following each such
filing date, such Additional Interest rate increasing by an additional 0.50%
per annum at the beginning of each subsequent 90-day period; or
(ii) if (A) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission on or prior to
the date required by the Registration Rights Agreement or (B) notwithstanding
that the Company has consummated or will consummate an Exchange Offer, the
Company is required to file a Shelf Registration Statement and such Shelf
Registration Statement is not declared effective by the Commission on or
prior to the 90th day following the date such Shelf Registration Statement
was filed, then, commencing on the day after the required effectiveness date,
Additional Interest shall accrue on the principal amount of the Notes at a
rate of 0.50% per annum for the first 90 days immediately following such
date, such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 90-day period; or
(iii) if (A) the Company has not exchanged New Notes for all Notes validly
tendered in accordance with the terms of the Exchange Offer on or prior to
the 45th day after the date on which the Exchange Offer Registration
Statement was declared effective or (B) if applicable, the Shelf Registration
Statement has been declared effective and such Shelf Registration Statement
ceases to be effective at any time prior to the second anniversary of the
Issue Date (other than after such time as all Notes have been disposed of
thereunder), then Additional Interest shall accrue on the principal amount of
the Notes at a rate of 0.50% per annum for the first 90 days commencing on
(x) the 46th day after such effective date, in the case of (A) above, or (y)
the day such Shelf Registration Statement ceases to be effective in the case
of (B) above, such Additional Interest rate increasing by an additional 0.50%
per annum at the beginning of each subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not
exceed in the aggregate 1.0% per annum; provided, further, however, that (1)
upon the filing of the Exchange Offer Registration Statement or a Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Exchange Offer Registration Statement or a Shelf
Registration Statement (in the case of clause (ii) above), or (3) upon the
exchange of New Notes for all Notes tendered (in the case of clause (iii) (A)
above), or upon the effectiveness of the Shelf Registration Statement which
had ceased to remain effective (in the case of clause (iii) (B) above),
Additional Interest on the Notes as a result of such clause (or the relevant
subclause thereof), as the case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clause (i), (ii) or
(iii) above will be payable in cash on April 1 and October 1 of each year to
the Holders of record on the preceding March 15 or September 15,
respectively.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement,
a copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Company,
has advised the Company that the following discussion, except as otherwise
indicated, expresses their opinion as to the material federal income tax
consequences applicable to the exchange of Old Notes for New Notes and the
ownership and disposition of the New Notes by holders who acquire the New
Notes pursuant to the Exchange Offer. The discussion is based upon current
laws, regulations, rulings and judicial decisions, all of which are subject
to change, possibly retroactively. The discussion does not address all
aspects of United States federal income taxation that may be relevant to
particular Holders in the context of their specific investment circumstances
or certain types of Holders subject to special treatment under such laws (for
example, financial institutions, banks, tax-exempt organizations, insurance
companies and, except to the extent described below, Non-U.S. Holders (as
defined below)). In addition, the discussion does not address any aspect of
state, local or foreign taxation and assumes that a Holder of the New Notes
will hold them as "capital assets" (generally, property held for investment)
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code").
For purposes of this discussion, a "U.S. Holder" is (i) an individual
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, (iii) an estate that is subject to
United States federal income taxation without regard to the source of its
income, or (iv) a trust whose administration is subject to the primary
supervision of a United States court and which has one or more United States
fiduciaries who have the authority to control all substantial decisions of
the trust. Notwithstanding the preceding sentence, to the extent provided in
Treasury regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date, that elect to continue
to be treated as United States persons also will be U.S. Holders. For
purposes of this discussion, a "Non-U.S. Holder" is any Holder who is not a
U.S. Holder.
PROSPECTIVE HOLDERS OF THE NEW NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
ACQUIRING, OWNING AND DISPOSING OF THE NEW NOTES AS WELL AS THE APPLICATION
OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
will not be treated as an exchange or other taxable event for United States
federal income tax purposes because under Treasury regulations, the New Notes
do not differ materially in kind or extent from the Old Notes. Rather, the
New Notes received by a Holder will be treated as a continuation of the Old
Notes in the hands of such Holder. As a result, there will be no United
States federal income tax consequences to Holders who exchange Old Notes for
New Notes pursuant to the Exchange Offer and any such Holder will have the
same tax basis and holding period in the New Notes as it had in the Old Notes
immediately before the exchange.
U.S. HOLDERS
Interest payable on the New Notes will be includible in the income of a
U.S. Holder in accordance with such Holder's regular method of accounting. If
a New Note is redeemed, sold or otherwise disposed of, a U.S. Holder
generally will recognize gain or loss equal to the difference between the
amount realized upon such disposition (to the extent such amount does not
represent accrued but unpaid interest) and such Holder's adjusted tax basis
in the New Note. Subject to the market discount rules discussed below, such
gain or loss will be capital gain or loss. Under recently-enacted
legislation, net capital gain (i.e., generally, capital gain in excess of
capital loss) recognized by an individual Holder upon the disposition of New
Notes that have been held for more than 18 months will generally be subject
to tax at a rate not to exceed 20%. Net capital gain recognized by a Holder
upon the disposition of New Notes that have been held for more than 12 months
but for not more than 18 months will continue to be subject to tax at a rate
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not to exceed 28% and net capital gain recognized from the disposition of New
Notes that have been held for 12 months or less will continue to be subject
to tax at ordinary income tax rates. In addition, capital gain recognized by
a corporate Holder will continue to be subject to tax at the ordinary income
tax rates applicable to corporations.
Under the market discount rules of the Code, a Holder (other than a Holder
who made the election described below) who purchased an Old Note with "market
discount" (generally defined as the amount by which the stated redemption
price at maturity exceeds the Holder's purchase price) will be required to
treat any gain recognized on the redemption, sale or other disposition of the
New Note received in the exchange as ordinary income to the extent of the
market discount that accrued during the holding period of such New Note
(which would include the holding period of the Old Note). A Holder who has
elected under applicable Code provisions to include market discount in income
annually as such discount accrues will not, however, be required to treat any
gain recognized as ordinary income under these rules. Holders should consult
their tax advisors as to the portion of any gain that would be taxable as
ordinary income under these provisions.
NON-U.S. HOLDERS
Under present United States federal income and estate tax law, assuming
certain certification requirements are satisfied (which include
identification of the beneficial owner of the instrument), and subject to the
discussion of backup withholding below:
(a) payments of interest on the New Notes to any Non-U.S. Holder
generally will not be subject to United States federal income or
withholding tax, provided that (1) the Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of Huntsman Packaging entitled to vote, (2) the Holder is
not a controlled foreign corporation that is related to Huntsman Packaging
through stock ownership, and (3) such interest payments are not
effectively connected with the conduct of a United States trade or
business of the Holder;
(b) a Holder who is a Non-U.S. Holder generally will not be subject to
the United States federal income tax on gain realized on the sale,
exchange, or other disposition of a New Note, unless (1) such Holder is an
individual who is present in the United States for 183 days or more during
the taxable year and certain other requirements are met, or (2) the gain
is effectively connected with the conduct of a United States trade or
business of the Holder; and
(c) if interest on the New Notes is exempt from withholding of United
States federal income tax under the rules described above, the New Notes
will not be included in the estate of a deceased Non-U.S. Holder for
United States federal estate tax purposes.
The certification referred to above may be made on an Internal Revenue
Service ("IRS") Form W-8 or substantially similar substitute form.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A Holder of the New Notes may be subject to information reporting and to
backup withholding at a rate of 31 percent of certain amounts paid to the
Holder unless such Holder (a) is a corporation or comes within certain other
exempt categories and, when required, provides proof of such exemption or (b)
provides a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. Under current regulations,
information reporting and backup withholding do not apply to interest
payments made at an address outside the United States to a Holder of the New
Notes that is not a U.S. Holder if the beneficial owner of the New Notes (a)
provides a statement in which such owner certifies, under penalties of
perjury, that such owner is not a United States person and provides such
owner's name and address or (b) otherwise establishes an exemption; provided
that Huntsman Packaging or its paying agent, as the case may be, does not
have actual knowledge that the Holder is a U.S. Holder.
Under current regulations, payment of the proceeds from the sale of the
New Notes to or through a foreign office of a "broker" (as defined in
applicable Treasury regulations) will not be subject to
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information reporting or backup withholding, except that if the broker is a
United States person, a controlled foreign corporation for United States
federal income tax purposes or a foreign person 50 percent or more of whose
gross income from all sources for the three-year period ending with the close
of its taxable year preceding the payment was effectively connected with a
United States trade or business, information reporting (but not backup
withholding) may apply to such payments unless the broker has in its records
documentary evidence that the Holder of the New Note is not a United States
person and certain conditions are met or the Holder of the New Note otherwise
establishes an exemption. Payment of the proceeds from a sale of the New
Notes to or through the United States office of a broker is subject to
information reporting and backup withholding unless the Holder certifies as
to its non-U.S. status under penalties of perjury or otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules are not an
additional tax and may be credited against the U.S. Holder's United States
federal income tax liability, provided that the required information is
furnished to the IRS.
Recently, the Treasury Department promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general,
the final regulations do not significantly alter the substantive withholding
and information reporting requirements described above but unify current
certification procedures and forms and clarify reliance standards. The final
regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules.
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BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Old Notes initially were,
and the New Notes will be, represented by Global Notes. The Global Notes are
or will be deposited on the Issue Date with, or on behalf of DTC and
registered in the name of a nominee of DTC.
The Global Notes. Huntsman Packaging expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Notes
of the individual beneficial interests represented by such Global Notes to
the respective accounts of persons who have accounts with such depositary and
(ii) ownership of beneficial interests in the Global Notes will be shown on,
and the transfer of such 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). Such accounts initially will be designated by or on
behalf of the Initial Purchasers and ownership of beneficial interests in the
Global Notes will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. QIBs and
institutional Accredited Investors who are not QIBs may hold their interests
in the Global Notes directly through DTC if they are participants in such
system, or indirectly through organizations which are participants in such
system.
So long as DTC, or its nominee, is the registered owner or Holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or Holder of the Notes represented by such Global Notes for all
purposes under the Indenture. No beneficial owner of an interest in the
Global Notes will be able to transfer that interest except in accordance with
DTC's procedures, in addition to those provided for under the Indenture with
respect to the Notes.
Payments of the principal of, premium, if any, interest (including
Additional Interest) on, the Global Notes will be made to DTC or its nominee,
as the case may be, as the registered owner thereof. None of Huntsman
Packaging, 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 interest.
Huntsman Packaging expects that DTC or its nominee, upon receipt of any
payment of principal, premium, if any, interest (including Additional
Interest) on the Global Notes, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the Global Notes as shown on the records of DTC or
its nominee. Huntsman Packaging also expects that payments by participants to
owners of beneficial interests in the Global Notes held through such
participants will be governed by standing instructions and customary
practice, as is now the case with securities held for the accounts of
customers registered in the names 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
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a Holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such Holder must transfer its interest in a Global Note, in
accordance with the normal procedures of DTC and with the procedures set
forth in the Indenture.
DTC has advised Huntsman Packaging 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 account the DTC interests in the Global Notes are
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. However, if there is an Event of Default under the
Indenture, DTC will exchange the Global Notes for Certificated Securities,
which it will distribute to its participants.
DTC has advised Huntsman Packaging as follows: DTC is a limited purpose
trust company organized under the laws of the State of New York, a member of
the Federal Reserve System, a "clearing
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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 the 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").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither Huntsman Packaging nor the Trustee will
have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is
not appointed by Huntsman Packaging within 90 days, Certificated Securities
will be issued in exchange for the Global Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with the 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. Huntsman Packaging has agreed that, starting on the
Expiration Date and ending on the close of business on the 90th day following
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until May 31, 1998 (90 days from the date of this Prospectus), all
dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
Huntsman Packaging will not receive any proceeds from any sale of New
Notes by broker-dealers or any other persons. New Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the New
Notes or a combination of such methods of resale, at 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 purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or purchasers of
any such New Notes. Any broker-dealer that resells New Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
representing that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, Huntsman Packaging will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. Huntsman Packaging has agreed to pay
all expenses incident to Huntsman Packaging's performance of, or compliance
with, the Registration Rights Agreement and will indemnify the Holders
(including any broker-dealers) and certain parties related to the Holders
against certain liabilities, including liabilities under the Securities Act.
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LEGAL MATTERS
Certain legal matters as to the validity of the New Notes and the New
Guarantees offered hereby and certain federal income tax considerations will
be passed upon for Huntsman Packaging by Skadden, Arps, Slate, Meagher & Flom
LLP, New York, New York and certain legal matters relating to the New Notes
and the New Guarantees will be passed upon for Huntsman Packaging by Van
Cott, Bagley, Cornwall & McCarthy, Salt Lake City, Utah, by King & Spalding,
Atlanta, Georgia and by Ronald G. Moffitt, Senior Vice President and General
Counsel of Huntsman Packaging.
EXPERTS
The consolidated financial statements of Huntsman Packaging Corporation
and subsidiaries as of December 31, 1996 and 1997 and for each of the three
years in the period ended December 31, 1997 and the combined financial
statements of CT Film and Rexene Corporation Limited as of December 31, 1996
and September 30, 1997 and for the eight months ended August 31, 1997 and the
one month ended September 30, 1997 included in this Prospectus and the
related financial statement schedule of Huntsman Packaging Corporation
included elsewhere in the Registration Statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the Registration Statement, and have been
so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
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PAGE
--------
<S> <C>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES:
As of December 31, 1996 and 1997 and for the years ended December 31, 1995, 1996 and 1997:
Independent Auditors' Report.............................................................. F-2
Consolidated Balance Sheets............................................................... F-3
Consolidated Statements of Operations .................................................... F-5
Consolidated Statements of Stockholders' Equity........................................... F-6
Consolidated Statements of Cash Flows .................................................... F-7
Notes to Consolidated Financial Statements ............................................... F-9
CT FILM, A DIVISION OF HUNTSMAN POLYMERS CORPORATION, AND REXENE CORPORATION LIMITED, A
WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION:
As of December 31, 1996 and September 30, 1997 and for the eight months ended August 31,
1997 and for the one month ended September 30, 1997:
Independent Auditors' Report ............................................................. F-33
Combined Balance Sheets .................................................................. F-34
Combined Statements of Operations ........................................................ F-35
Combined Statements of Cash Flows......................................................... F-36
Notes to Combined Financial Statements ................................................... F-38
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Huntsman Packaging Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Huntsman
Packaging Corporation and subsidiaries as of December 31, 1996 and 1997, and
the consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Huntsman Packaging
Corporation and subsidiaries at December 31, 1996 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 11, 1998
F-2
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1996 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 10,647 $ 12,411
Receivables:
Trade accounts (less allowance for doubtful accounts: $2,818
and $3,434, respectively).................................... 54,691 81,806
Other ........................................................ 3,227 4,894
Inventories ................................................... 53,441 68,426
Prepaid expenses and other .................................... 3,901 2,746
Deferred income taxes ......................................... 1,088 1,271
---------- ----------
Total current assets......................................... 126,995 171,554
---------- ----------
PLANT AND EQUIPMENT:
Land and improvements ......................................... 6,339 7,188
Buildings and improvements..................................... 35,126 43,536
Machinery and equipment........................................ 141,763 171,897
Furniture, fixtures, and automobiles .......................... 1,248 1,739
Leasehold improvements ........................................ 423 419
Construction in progress ...................................... 6,600 6,261
---------- ----------
Total........................................................ 191,499 231,040
Less accumulated depreciation and amortization................. (50,056) (56,120)
---------- ----------
Plant and equipment--net..................................... 141,443 174,920
---------- ----------
INTANGIBLE ASSETS--Net.......................................... 54,843 50,053
OTHER ASSETS ................................................... 5,876 13,028
---------- ----------
TOTAL .......................................................... $329,157 $409,555
========== ==========
</TABLE>
(Continued)
F-3
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable........................................ $ 25,779 $ 31,949
Accrued liabilities:
Customer rebates............................................. 3,393 5,378
Other........................................................ 16,106 21,278
Long-term debt--current portion .............................. 506 343
Due to affiliates ............................................ 5,966 15,279
Income taxes payable ......................................... 598 3,237
---------- ---------
Total current liabilities.................................... 52,348 77,464
LONG-TERM DEBT ................................................ 186,691 250,171
OTHER LIABILITIES ............................................. 9,024 8,869
DEFERRED INCOME TAXES ......................................... 14,082 10,077
---------- ---------
Total liabilities............................................ 262,145 346,581
---------- ---------
COMMITMENTS AND CONTINGENCIES
(Notes 5, 6, 8, and 10)
STOCKHOLDERS' EQUITY:
Common stock--Class A voting $1.00 par value; 50,000 shares
authorized; 1,000 shares issued and outstanding at December
31, 1996...................................................... 1
Common stock--Class A voting no par value; 1,200,000 shares
authorized; 1,000,001 shares issued and outstanding .......... 63,161
Common stock--Class B voting no par value; 10,000 shares
authorized; 6,999 shares issued and outstanding............... 515
Additional paid-in capital..................................... 62,975
Stockholder note receivable.................................... (700)
Retained earnings ............................................. 5,053 5,393
Translation adjustment......................................... (1,017) (5,395)
---------- ---------
Total stockholders' equity................................... 67,012 62,974
---------- ---------
TOTAL.......................................................... $329,157 $409,555
========== =========
</TABLE>
(Concluded)
See notes to consolidated financial statements.
F-4
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
SALES--Net ................................................ $325,036 $339,135 $491,163
COST OF SALES ............................................. 273,520 288,884 424,868
---------- ---------- ----------
GROSS PROFIT .............................................. 51,516 50,251 66,295
---------- ---------- ----------
OPERATING EXPENSES:
Administration and other ................................. 18,662 12,502 17,794
Sales and marketing ...................................... 15,850 16,666 19,612
Research and development ................................. 2,002 2,157 2,527
Plant closing costs ...................................... 10,873 9,276
---------- ---------- ----------
Total operating expenses ................................ 36,514 42,198 49,209
---------- ---------- ----------
OPERATING INCOME .......................................... 15,002 8,053 17,086
INTEREST EXPENSE--Net ..................................... (8,683) (11,571) (16,402)
OTHER INCOME (EXPENSE)--Net ............................... (2,293) (3,826) 530
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM ................................... 4,026 (7,344) 1,214
---------- ---------- ----------
INCOME TAX EXPENSE (BENEFIT):
Current .................................................. 88 2,334 5,027
Deferred ................................................. 1,639 (6,490) (4,188)
---------- ---------- ----------
Total income taxes ...................................... 1,727 (4,156) 839
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ................... 2,299 (3,188) 375
EXTRAORDINARY ITEM--Loss on early
extinguishment of debt (less applicable current income
tax benefit of $780) ..................................... (1,338)
---------- ---------- ----------
NET INCOME (LOSS) ......................................... $ 2,299 $ (4,526) $ 375
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK A COMMON STOCK B
------------------ ------------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995
(As previously reported) .......... 1 $ 1
Adjustments to record the
combination with HCCI as a
pooling of interest (Note 11) ....
-------- -------- -------- --------- -------- --------
BALANCE, JANUARY 1, 1995 (As
restated) ......................... 1 1
Dividends paid on common stock ...
Net income ........................
Aggregate adjustment resulting
from the translation of foreign
currency statements ..............
Other--including gain on sale of
land to affiliate ................
-------- -------- -------- --------- -------- --------
BALANCE, DECEMBER 31, 1995.......... 1 1
Net loss ..........................
Aggregate adjustment resulting
from the translation of foreign
currency statements ..............
Other .............................
-------- -------- -------- --------- -------- --------
BALANCE, DECEMBER 31, 1996.......... 1 1
Net income ........................
Recapitalization (Note 1) ......... (1) (1) 995 $62,661 5 $315
Shares issued for note receivable 5 500 2 200
Aggregate adjustment resulting
from the translation of foreign
currency statements ..............
Other .............................
-------- -------- -------- --------- -------- --------
BALANCE, DECEMBER 31, 1997 ......... None None 1,000 $63,161 7 $515
======== ======== ======== ========= ======== ========
<CAPTION>
ADDITIONAL
PAID-IN STOCKHOLDER RETAINED TRANSLATION
CAPITAL RECEIVABLE EARNINGS ADJUSTMENT TOTAL
------------ ------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995
(As previously reported) .......... $ 59,735 $ 2,703 $(2,483) $59,956
Adjustments to record the
combination with HCCI as a
pooling of interest (Note 11) .... 7,596 7,596
------------ ------------- ---------- ------------- ---------
BALANCE, JANUARY 1, 1995 (As
restated) ......................... 59,735 10,299 (2,483) 67,552
Dividends paid on common stock ... (3,000) (3,000)
Net income ........................ 2,299 2,299
Aggregate adjustment resulting
from the translation of foreign
currency statements .............. 948 948
Other--including gain on sale of
land to affiliate ................ 3,240 14 3,254
------------ ------------- ---------- ------------- ---------
BALANCE, DECEMBER 31, 1995.......... 62,975 9,612 (1,535) 71,053
Net loss .......................... (4,526) (4,526)
Aggregate adjustment resulting
from the translation of foreign
currency statements .............. 518 518
Other ............................. (33) (33)
------------ ------------- ---------- ------------- ---------
BALANCE, DECEMBER 31, 1996.......... 62,975 5,053 (1,017) 67,012
Net income ........................ 375 375
Recapitalization (Note 1) ......... (62,975)
Shares issued for note receivable $(700)
Aggregate adjustment resulting
from the translation of foreign
currency statements .............. (4,378) (4,378)
Other ............................. (35) (35)
------------ ------------- ---------- ------------- ---------
BALANCE, DECEMBER 31, 1997 ......... None $(700) $ 5,393 $(5,395) $62,974
============ ============= ========== ============= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 2,299 $ (4,526) $ 375
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item--loss on early extinguishment of
debt.................................................... 1,338
Depreciation and amortization............................ 11,646 14,000 16,442
Deferred income taxes ................................... 1,639 (6,490) (4,188)
Provision for losses on accounts receivable ............. 688 264 241
Write-off of goodwill ................................... 3,283 3,286
Provision for write-down of plant and equipment ........ 5,300 4,262
Changes in operating assets and liabilities--net of
assets acquired:
Trade accounts receivable .............................. 995 (7,484) (6,431)
Other receivables ...................................... 2,857 4,957 (1,666)
Inventories............................................. 4,660 (12,833) 7,961
Prepaid expenses and other ............................. 522 (2,665) 1,758
Other assets............................................ (1,603) 3,174 (7,621)
Trade accounts payable.................................. (6,190) 3,825 340
Income taxes receivable................................. (2,537) 200 3,427
Accrued liabilities .................................... (4,302) 9,722 (96)
Due to affiliates ...................................... 2,318 5,153 8,839
Other liabilities ...................................... (204) 2,901 1,719
---------- ----------- -----------
Net cash provided by operating activities ............. 12,788 20,119 28,648
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of CT Film, net of cash acquired ... (69,366)
Payment for purchase of United Films Corporation ........ (12,276)
Payment for purchase of Deerfield Plastics, net of cash
acquired ................................................ (63,889)
Payment for purchase of Performance Films ................ (4,279)
Sale of land to affiliate ................................ 3,239
Capital expenditures for plant and equipment ............. (19,479) (12,774) (17,861)
---------- ----------- -----------
Net cash used in investing activities.................. (20,519) (88,939) (87,227)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt...................... (14,903) (131,731) (249,509)
Proceeds from long-term debt.............................. 24,650 200,348 312,700
Payment of cash dividend.................................. (3,000)
---------- ----------- -----------
Net cash provided by financing activities.............. 6,747 68,617 63,191
---------- ----------- -----------
</TABLE>
(Continued)
F-7
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ----------
<S> <C> <C> <C>
EFFECT OF EXCHANGE RATE CHANGES ON
CASH................................... $ 692 $ 3,660 $(2,848)
-------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ...................... (292) 3,457 1,764
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR .................................. 7,482 7,190 10,647
-------- --------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $7,190 $10,647 $12,411
======== ========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest ............................. $8,754 $ 501 $27,596
======== ========= ==========
Income taxes ......................... $2,656 $ 800 $ 1,614
======== ========= ==========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
(Note 11):
On June 1, 1995, the Company purchased all of the assets of Performance
Films Corporation for approximately $4,279. In conjunction with the
acquisition, liabilities assumed were as follows:
Fair value of assets acquired. $ 5,172
Cash paid..................... (4,279)
---------
Liabilities assumed........... $ 893
=========
On August 1, 1996, the Company purchased all of the outstanding capital
stock of United Films Corporation (United) for approximately $12,276. In
conjunction with the acquisition, liabilities assumed were as follows:
Fair value of assets acquired (including goodwill of $12,076) $ 21,950
Cash paid .................................................... (12,276)
----------
Liabilities assumed .......................................... $ 9,674
==========
On October 21, 1996, the Company purchased all of the outstanding capital
stock of Deerfield Plastics, Inc. (Deerfield) for approximately $68,207. In
conjunction with the acquisition, liabilities assumed were as follows:
Fair value of assets acquired (including goodwill of $18,400) $ 90,265
Cash paid..................................................... (68,207)
----------
Liabilities assumed (including deferred acquisition payments) $ 22,058
==========
On September 30, 1997, the Company purchased all of the assets of CT Film
(a division of Huntsman Polymers Corporation, formerly Rexene Corporation)
and Rexene Corporation Limited (a wholly-owned subsidiary of Huntsman
Polymers Corporation) for cash of approximately $70 million. In conjunction
with the acquisition, liabilities assumed were as follows:
Fair value of assets acquired (including goodwill of $1,799) $ 81,959
Cash paid ................................................... (70,000)
----------
Liabilities assumed ......................................... $ 11,959
==========
(Concluded)
See notes to consolidated financial statements.
F-8
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Huntsman Packaging Corporation and subsidiaries (collectively, the
Company) produce plastic films for food packaging, pallet wrapping, shrink
wrapping, and medical packaging; printed films and bags; specialty films; and
foam packaging. The Company's manufacturing facilities are located in North
America, Europe, and Australia.
RECAPITALIZATION -- Prior to September 30, 1997, the Company was a
wholly-owned subsidiary of Huntsman Corporation (HC). On September 30, 1997,
the Company was recapitalized by authorizing two new classes of common stock
with identical rights, except that Class A stockholders are entitled to elect
one of three directors and Class B stockholders are entitled to elect the
other remaining directors. The 1,000 shares of common stock previously issued
and outstanding were canceled.
On September 30, 1997, the Company was separated from HC (the Split-Off).
The Split-Off transaction occurred as follows:
o Jon M. Huntsman exchanged 1,041,896 shares of HC common stock for
650,000 shares of the Company's Class A common stock.
o The Christena Karen H. Durham Trust (the Trust) exchanged 561,021
shares of HC common stock for 345,001 shares of Class A common stock
and 4,999 shares of Class B common stock of the Company.
Additionally, on September 30, 1997, Richard P. Durham purchased 5,000
shares of Class A Common Stock and 2,000 shares of Class B Common Stock of
the Company in exchange for a note receivable.
As a result of the recapitalization and Split-Off, Jon M. Huntsman,
majority shareholder of HC, Richard P. Durham and the Trust each became
shareholders of the Company.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Huntsman Packaging Corporation and its wholly-owned
subsidiaries; Huntsman Deerfield Films Corporation; Huntsman United Films
Corporation; Huntsman Preparatory, Inc.; Huntsman Container Corporation
International; Huntsman Packaging Georgia, Inc.; Huntsman Film Products of
Mexico, Inc.; and Huntsman Bulk Packaging Corporation (see Note 14). All
significant intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS -- 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.
REVENUE RECOGNITION -- Sales revenue is recognized upon shipment of
product in fulfillment of a customer order.
CARRYING VALUE OF LONG-TERM ASSETS -- The Company evaluates the carrying
value of long-term assets, including intangible assets, based upon current
and anticipated undiscounted cash flows, and recognizes an impairment when
such estimated cash flows will be less than the carrying value of the asset.
Measurement of the amount of impairment, if any, is based upon the difference
between carrying value and fair value.
INVENTORIES -- Inventories consist principally of finished film products
and the raw materials necessary to produce them. Finished goods inventories
are carried at the lower of cost (on a first-in, first-out basis) or market.
F-9
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
PLANT AND EQUIPMENT -- Plant and equipment is stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Land improvements........................ 5 years
Buildings and improvements............... 20 years
Machinery and equipment.................. 7-15 years
Furniture, fixtures, and automobiles .... 3-7 years
Leasehold improvements................... Shorter of the term of lease
or economic life
</TABLE>
INTANGIBLE ASSETS -- Intangible assets are stated at cost and amortized
using the straight-line method over the estimated useful lives of the assets
as follows:
<TABLE>
<S> <C>
Cost in excess of fair value of net assets acquired ... 40 years
Other intangible assets................................ 2-15 years
</TABLE>
OTHER ASSETS -- Other assets consist primarily of deferred debt issuance
costs, deposits, spare parts, and the cash surrender values of life insurance
policies.
CASH AND CASH EQUIVALENTS -- For the purposes of the consolidated
statements of cash flows, the Company considers cash in checking accounts and
in short-term highly liquid investments with an original maturity of three
months or less to be cash and cash equivalents. Cash and cash equivalents
generated outside of the United States are generally subject to tax
liabilities if repatriated.
INCOME TAXES -- The Company uses the asset and liability method of
accounting for income taxes. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial and tax reporting purposes. Subsequent to the
Split-Off, the Company will file its own consolidated income tax returns.
Prior to the Split-Off in 1997 and during 1996, the Company's operations were
included in consolidated U.S. income tax returns of HC. Prior to 1996, the
Company was included in the consolidated returns of other affiliated
entities. The intercompany tax allocation policy provided for each subsidiary
to calculate its own provision on a "separate return basis.''
DERIVATIVE FINANCIAL INSTRUMENTS --The Company enters into interest rate
collar and swap agreements to manage interest rate risk on long-term debt.
These agreements are classified as hedges or matched transactions. The
differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense. The related amount payable
to or receivable from the counterparties is included in other liabilities or
assets. Gains and losses on terminations of interest-rate swap agreements are
deferred and amortized as an adjustment to interest expense over the lesser
of the remaining term of the original contract or the life of the debt.
ENVIRONMENTAL EXPENDITURES -- Environmental related restoration and
remediation costs are recorded as liabilities when site restoration and
environmental remediation and clean-up obligations are either known or
considered probable, and when the related costs can be reasonably estimated.
Other environmental expenditures, that are principally maintenance or
preventative in nature, are recorded when expended and expensed or
capitalized as appropriate.
FOREIGN CURRENCY TRANSLATION -- The accounts of the Company's foreign
subsidiaries consider local currency to be the functional currency. Accordingly,
revenues, expenses, gains, and losses are translated at a weighted average rate
for the period. Transactions are translated at the rate prevailing as of the
transaction date. Cumulative translation adjustments are recorded as an
adjustment to stockholders' equity in a separate translation adjustment account.
F-10
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
ACCOUNTING STANDARDS --In June 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 130, Reporting Comprehensive Income. This
Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full
set of general purpose financial statements. This Statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. This
Statement does not require a specific format for that financial statement but
requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement. This
Statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The impact of SFAS No. 130 on the Company
is not expected to be material in relation to the consolidated financial
statements.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of
an Enterprise and Related Information. SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosure about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal
years beginning after December 15, 1997. The Company does not expect the
impact of SFAS No. 131 to be material in relation to the consolidated
financial statements.
2. INVENTORIES
Inventories consist of the following at December 31, 1996 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Finished goods . $34,843 $39,632
Raw materials .. 14,586 23,341
Work-in-process 4,012 5,453
--------- ---------
Total........... $53,441 $68,426
========= =========
</TABLE>
3. PLANT CLOSING COSTS
As the Company has completed recent acquisitions (see Note 11), it has
developed a plan to close its less efficient production facilities and
utilize available capacity at other facilities. During 1997 the Company
terminated operations at its Dallas, Texas and Bowling Green, Kentucky
flexible packaging facilities. Included in 1996 operating expenses is a $3.3
million provision for the write-off of impaired goodwill and a $5.3 million
provision for the write-down of impaired plant and equipment associated with
the two operations. Also, included in operating expenses is an accrual for
reduction in work force costs of $1.1 million associated with the elimination
of approximately 81 full-time equivalent employees from all levels of
operations and an accrual of $1.2 million of other costs related to the
closure of the facilities. As of December 31, 1997, these plant closings were
completed and no additional costs are anticipated.
During 1997, the Company announced its plan to terminate operations at its
Carrollton, Ohio flexible packaging facility. Included in 1997 operating
expenses is a $3.3 million provision for the write-off of impaired goodwill
and a $4.2 million provision for the write-down of impaired plant and
equipment associated with the facility. Also, included in operating expenses
is an accrual for reduction in work force costs of $1.6 million associated
with the elimination of approximately 83 full-time equivalent employees from
all levels of operations and an accrual of $0.2 million of other costs
related to the closure of the facilities.
F-11
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
4. INTANGIBLE ASSETS
The cost of intangible assets and accumulated amortization at December 31,
1996 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Cost in excess of fair value of net assets acquired. $ 52,200 $ 50,458
Trademarks.......................................... 4,676 4,676
Noncompete agreements............................... 7,283 7,283
Other............................................... 4,455 4,455
---------- ----------
Total............................................... 68,614 66,872
Less accumulated amortization....................... (13,771) (16,819)
---------- ----------
Total............................................... $ 54,843 $ 50,053
========== ==========
</TABLE>
Amortization expense on intangible assets was approximately $2,736,
$1,596, and $3,058 for the years ended December 31, 1995, 1996, and 1997,
respectively.
5. LONG-TERM DEBT
Long-term debt as of December 31, 1996 and 1997 consists of the following
(in thousands):
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Credit Agreement:
Revolver, variable interest, weighted average 7.93% as of
December 31, 1997........................................... $ 47,000
Term Loan, variable interest, 7.72% as of December 31, 1997 . 75,000
Senior subordinated notes .................................... 125,000
Line of credit agreement, interest at 8.5%, due September 2000 2,852
Borrowings under the HC credit facilities, repaid
September 30, 1997........................................... $186,085
Obligations under capital leases (Note 6)..................... 1,107 531
Other......................................................... 5 131
---------- ---------
Total......................................................... 187,197 250,514
Less current portion.......................................... (506) (343)
---------- ---------
Long-term portion............................................. $186,691 $250,171
========== =========
</TABLE>
On September 30, 1997, the Company entered into a credit agreement (the
Credit Agreement). The Credit Agreement provides for an eight year $75
million term loan (the Term Loan) and a seven year $150 million revolving
credit facility (the Revolver), $20 million of which may be used for the
issuance of letters of credit and $5 million of which is available as a
swingline facility.
The Term Loan and Revolver bear interest, at the Company's option, at
adjusted LIBOR plus a margin commencing at 2% per annum or the bank's
adjusted base rate plus a margin commencing at 0.75% per annum. The Company
pays a quarterly commitment fee on the unused amount of the Revolver at a
rate commencing at 0.5% per annum. Such margins and the commitment fee are
subject to reduction if the Company achieves certain ratios. As of December
31, 1997, the Company had unused letters of credit of approximately
$10,600,000.
The Term Loan amortizes quarterly commencing in 2001. The Term Loan is
subject to mandatory prepayment with 50% of excess cash flow (as defined) and
the net proceeds of certain asset sales and debt
F-12
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
and equity issuances. Additionally, obligations under the Credit Agreement
are guaranteed by the assets of all of the Company's domestic subsidiaries.
The Credit Agreement does not permit cash dividends and contains covenants
customary for transactions of this type, including restrictions on
indebtedness, liens, asset sales, capital expenditures, acquisitions,
investments, transactions with affiliates, and other restricted payments. The
Credit Agreement also contains financial covenants, including ratio of
maximum total debt to EBITDA, minimum interest coverage ratio, and minimum
net worth.
Also on September 30, 1997, the Company issued $125,000,000 of 9.125%
unsecured senior subordinated notes which mature on October 1, 2007 (the
Notes). Interest on the Notes is payable semi-annually on each April 1 and
October 1, commencing April 1, 1998. The Notes are guaranteed by the
Company's domestic subsidiaries (Note 14).
The Notes are redeemable, at the Company's option, in whole at any time or
in part from time to time, on or after October 1, 2002, at redemption prices
decreasing from 104.563% to 100% of the outstanding principal balance after
October 2005. Additionally, up to 35% of the Notes may be redeemed prior to
October 1, 2000, with the proceeds of one or more equity offerings at a price
equal to 109.125% of the principal amount.
The Notes are subject to certain covenants customary to this type of
transaction including restrictions on the incurrence of additional
indebtedness, certain restricted payments, asset sales, dividend and other
payment restrictions affecting subsidiaries, liens, mergers, and transactions
with affiliates.
Management believes the Company was in compliance with the covenants of
the Credit Agreement and the Notes as of December 31, 1997.
The proceeds of the Credit Agreement and the Notes were used to repay
indebtedness to HC, at the time of the Split-Off and to purchase CT Film (see
Notes 1 and 11).
On January 29, 1996, the Company wrote-off approximately $2.1 million of
previously deferred loan costs, which have been recorded, net of the
applicable income tax benefit of approximately $780,000, as an extraordinary
item in the accompanying 1996 consolidated statement of operations.
The scheduled maturities of long-term debt by year as of December 31, 1997
are as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1998.................... $ 343
1999.................... 45
2000.................... 2,898
2001.................... 1,920
2002.................... 17,545
Thereafter.............. 227,765
---------
Total.................... $250,516
=========
</TABLE>
In 1997, the Company entered into interest rate collar and swap contracts
to manage interest rate risk on long-term debt. The Company purchased an
interest rate collar agreement to reduce the impact of changes in interest
rates on its floating-rate long-term debt. The collar agreement entitles the
Company to receive from the counterparty (a major bank) the amounts, if any,
by which the Company's interest payments on certain of its floating-rate
borrowings exceed 6.25%. The collar agreement requires the Company to pay to
the counterparty the amounts, if any, by which the Company's interest
payments on certain of its floating-rate borrowings are less than 5.25%.
F-13
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
The net premium paid for the collar agreement purchased is included in
other assets in the consolidated balance sheets and is amortized to interest
expense over the term of the agreement. Amounts receivable or payable under
the agreement are recognized as yield adjustments over the life of the
related debt.
The Company is exposed to credit losses in the event of nonperformance by
the counterparty to the financial instrument. The Company anticipates,
however, that the counterparty will be able to fully satisfy its obligations
under the contract. Market risk arises from changes in interest rates.
As of December 31, 1997, the Company had one outstanding interest rate
collar contract. The terms of the agreement are as follows:
<TABLE>
<S> <C>
Notional amount..... $20,000,000
Maturity date....... November 5, 2001
Cap rate............ 6.25%
Floor rate ......... 5.25%
</TABLE>
The Company also entered into a series of interest rate swap agreements to
hedge the interest rate exposure in anticipation of issuing the Notes. The
agreements were accounted for as hedges and were subsequently terminated.
Termination costs of approximately $1.2 million are being amortized to
interest expense over the life of the Notes.
6. LEASES
CAPITAL LEASES --The Company is obligated under various capital leases for
land, a building, and machinery and equipment that expire at various dates
through 2007. At December 31, 1996 and 1997, the gross amounts of plant and
equipment and related accumulated amortization recorded under capital leases
were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Building...................... $ 671 $ 671
Machinery..................... 1,512 1,512
--------- ---------
Total cost.................... 2,183 2,183
Less accumulated
amortization................. (1,402) (1,652)
--------- ---------
Net........................... $ 781 $ 531
========= =========
</TABLE>
OPERATING LEASES -- The Company also has several noncancelable operating
leases, primarily for vehicles, equipment, warehouse, and office space, that
expire through 2006, as well as month-to-month leases. The total expense
recorded under all operating lease agreements in the accompanying
consolidated statements of operations is approximately $2,038,000,
$2,291,000, and $2,912,000 for the years ended December 31, 1995, 1996, and
1997, respectively.
F-14
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
Future minimum lease payments under operating leases and the present
value of future minimum capital lease payments as of December 31, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
Years ending December 31:
1998....................................................... $ 340 $2,673
1999....................................................... 46 2,117
2000....................................................... 45 1,725
2001....................................................... 45 1,238
2002....................................................... 45 709
Thereafter................................................. 261 879
--------- -----------
Total minimum lease payments................................ 782 $9,341
===========
Amounts representing interest at rates ranging from 6% to
14.5%...................................................... (251)
---------
Present value of net minimum capital lease payments (Note
5)......................................................... $ 531
=========
</TABLE>
7. INCOME TAXES
The following is a summary of domestic and foreign provisions for current
and deferred income taxes and a reconciliation of the U.S. statutory income
tax rate to the effect income tax rate.
The provision (benefit) for income taxes for the years ended December 31,
1995, 1996, and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- ---------
<S> <C> <C> <C>
Current:
Federal.............................................. $ (753)
State................................................ (86) $ 1,156
Foreign.............................................. 927 $ 2,334 3,871
-------- ---------- ---------
Total current........................................ 88 2,334 5,027
-------- ---------- ---------
Deferred:
Federal.............................................. 592 (5,876) (4,110)
State................................................ 68 (671) (470)
Foreign.............................................. 979 57 392
-------- ---------- ---------
Total deferred....................................... 1,639 (6,490) (4,188)
-------- ---------- ---------
Total income tax expense (benefit)(excluding current
income tax benefit of $780 for extraordinary item in
1996)................................................ $1,727 $(4,156) $ 839
======== ========== =========
</TABLE>
F-15
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
The effective income tax rate reconciliations for the years ended
December 31, 1995, 1996, and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- --------
<S> <C> <C> <C>
Income (loss) before income taxes and extraordinary
item ............................................... $4,026 $(7,344) $1,214
Extraordinary item--loss on early extinguishment of
debt................................................ (2,118)
-------- ---------- --------
Total................................................ $4,026 $(9,462) $1,214
======== ========== ========
Expected tax (benefit) at U.S. statutory rate of
35%................................................. $1,409 $(3,312) $ 425
Increase (decrease) resulting from:
Nondeductible cost in excess of fair value of net
assets acquired.................................... 1,186 1,150
State taxes......................................... (18) (663) 49
Foreign rate difference and other (net)............. 336 (2,147) (785)
-------- ---------- --------
Total income tax expense (benefit)(including $780
benefit in 1996 related to extraordinary item) ..... $1,727 $(4,936) $ 839
======== ========== ========
Effective income tax rate............................ 42.9% 67.2% 69.1%
======== ========== ========
</TABLE>
Components of net deferred income tax assets and liabilities as of December
31, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
LONG-
DECEMBER 31, 1996 CURRENT TERM
- ----------------- --------- ----------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful trade accounts
receivable....................................... $ 559
Net operating loss carryforward.................. $ 3,591
Amortization of intangibles...................... 1,071
Plant closing costs not deducted for tax ........ 3,392
Inventory ....................................... 828
AMT credit carryforward.......................... 540
Other............................................ 74 272
--------- ----------
Total............................................ 1,461 8,866
--------- ----------
Deferred income tax liabilities:
Tax depreciation in excess of book depreciation . (21,898)
Other............................................ (373) (1,050)
--------- ----------
Total............................................ (373) (22,948)
--------- ----------
Net deferred income tax asset (liability) ........ $1,088 $(14,082)
========= ==========
</TABLE>
F-16
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
LONG-
DECEMBER 31, 1997 CURRENT TERM
- ----------------- --------- ----------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful trade accounts
receivable....................................... $ 577
Net operating loss carryforward.................. $ 4,685
Amortization of intangibles...................... 501
Plant closing costs not deducted for tax ....... 4,439
Inventory........................................ 234
AMT and foreign tax credit carryforward ......... 3,617
Other............................................ 834 1,088
--------- ----------
Total............................................ 1,645 14,330
--------- ----------
Deferred income tax liabilities:
Tax depreciation in excess of book depreciation . (23,086)
Other............................................ (374) (1,321)
--------- ----------
Total............................................ (374) (24,407)
--------- ----------
Net deferred income tax asset (liability) ........ $1,271 $(10,077)
========= ==========
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards
of approximately $11,700,000 expiring in 2012.
8. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLAN --The Company sponsors a salary deferral plan
covering substantially all of its non-union domestic employees. Plan
participants may elect to make voluntary contributions to this plan up to a
specified amount of their compensation. The Company contributes 1% of the
participants' compensation and also matches employee contributions up to 2%
of the participants' compensation. The Company expensed approximately
$1,158,000, $873,000, and $3,143,000 as its contribution to this plan for the
years ended December 31, 1995, 1996, and 1997, respectively.
DEFINED BENEFIT PLANS --The Company sponsors three noncontributory defined
benefit pension plans (the United States plans) covering domestic employees
with 1,000 or more hours of service. The Company funds the actuarially
computed retirement cost. Contributions are intended to not only provide for
benefits attributed to service to date but also for those expected to be
earned in the future. The Company also sponsors a defined benefit plan in
Germany (the Germany plan). The consolidated accrued net pension expense for
the years ended December 31, 1995, 1996, and 1997 includes the following
component (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ---------
UNITED STATES PLANS (CONSISTING OF THE CORPORATE,
AND TWO UNION PLANS):
- ----------------------
<S> <C> <C> <C>
Service cost-benefits earned during the
period.......................................... $1,703 $1,717 $ 2,240
Interest cost on projected benefit obligation ... 430 520 1,686
Actual return on assets.......................... (860) (683) (1,769)
Other............................................ 465 107 6
-------- -------- ---------
Total accrued pension expense.................... $1,738 $1,661 $ 2,163
======== ======== =========
GERMANY PLAN:
- -------------
Service cost--benefits earned during the period . $ 82 $ 77 $ 58
Interest cost on projected benefit obligation ... 75 22 56
Other............................................ (57)
-------- -------- ---------
Total accrued pension expense ................... $ 100 $ 99 $ 114
======== ======== =========
</TABLE>
F-17
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
The following table sets forth the funded status of the United States
plans and the Germany plan as of December 31, 1996 and 1997 and the amounts
recognized in the consolidated balance sheets at those dates (in thousands):
<TABLE>
<CAPTION>
1996 1997
---------- ----------
UNITED STATES PLANS (CONSISTING OF THE CORPORATE,
AND TWO UNION PLANS):
- ----------------------
<S> <C> <C>
Actuarially computed present value of accumulated benefit
obligations:
Vested ........................................................... $ 10,966 $ 15,061
Nonvested ........................................................ 2,319 2,983
---------- ----------
Total.............................................................. $ 13,285 $ 18,044
========== ==========
Actuarially computed present value of projected benefit
obligations for service rendered to date ......................... $ 18,861 $ 25,147
Less plan assets at fair value, principally comprised of equity
and bond funds ................................................... (19,294) (22,764)
---------- ----------
Projected benefit obligation in excess of (less than) plan assets (433) 2,383
Unrecognized net gain ............................................. 2,247 1,878
Unrecognized prior service cost ................................... (70) (299)
Additional liability .............................................. 14
---------- ----------
Accrued long-term pension liability included in other liabilities $ 1,744 $ 3,976
========== ==========
</TABLE>
For the above calculations, increases in future compensation of rates
ranging from 4.00% through 4.75% were used for the non-union plans. There was
no increase in future compensation used for the two union plans. For the
calculations, a discount rate of 7.00% and an expected rate of return on plan
assets of 9.0% were used for all plans.
<TABLE>
<CAPTION>
1996 1997
-------- -------
GERMANY:
- --------
<S> <C> <C>
Actuarially computed present value of accumulated benefit
obligations:
Vested ........................................................... $ 695 $ 565
Nonvested ........................................................ 284 190
-------- -------
Total ............................................................. $ 979 $ 755
======== =======
Actuarially computed present value of projected benefit
obligations for service rendered to date ......................... $1,249 $ 956
Less plan assets .................................................. None None
-------- -------
Projected benefit obligation in excess of plan assets ............ 1,249 956
Unrecognized net gain ............................................. 110 84
-------- -------
Accrued long-term pension liability included in other liabilities $1,359 $1,040
======== =======
</TABLE>
Increases in future compensation ranging from 2.5% through 3.5% and
discount rates ranging from 6.5% through 7.0% were used in determining the
actuarially computed present value of the projected benefit obligation of the
Germany plan. The cash surrender value of life insurance policies for Germany
plan participants included in other assets is approximately $506,000 and
$525,000 as of December 31, 1996 and 1997, respectively.
F-18
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
FOREIGN PLANS OTHER THAN GERMANY --Employees in other foreign countries
are covered by various post employment arrangements consistent with local
practices and regulations. Such obligations are not significant and are
included in the consolidated financial statements in other liabilities.
9. RELATED PARTY TRANSACTIONS
The accompanying consolidated financial statements include the following
balances and transactions with affiliated companies not disclosed elsewhere
(in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 AND 1997:
Due to Huntsman Corporation
and subsidiaries ........................ $ 5,966 $15,279
Long-term debt--Huntsman Corporation .... 186,085
TRANSACTIONS FOR THE YEARS ENDED DECEMBER
31, 1995, 1996, AND 1997:
With Huntsman Corporation and
subsidiaries:
Inventory purchases ..................... $10,446 $ 9,449 $15,692
Rent expense under operating lease ..... 353 423
Administrative expenses ................. 1,980 2,126 4,220
Sale of land ............................ 3,239
</TABLE>
ROYALTY TRANSACTION WITH HUNTSMAN GROUP INTELLECTUAL PROPERTIES HOLDING
CO. (HUNTSMAN INTELLECTUAL) --During 1996, the Company and other affiliates
entered into a royalty agreement (the Royalty Agreement) with Huntsman
Intellectual whereby the Company paid Huntsman Intellectual a royalty for the
use of certain trademarks, etc. Huntsman Intellectual was owned by the
Company and certain subsidiaries of HC. During 1996 and 1997, the Company
paid royalties of approximately $1,708,000 and $1,926,000 to Huntsman
Intellectual. Huntsman Intellectual recorded a patronage dividend to the
Company of $1,092,000 and $1,233,000 during 1996 and 1997. The royalty
expense is included in administration and other expense. The dividend is
included in other income. Immediately prior to the Split-Off, the patronage
dividend receivable from Huntsman Intellectual at the date of the Split-Off
was settled in full. The Company's ownership of Huntsman Intellectual and its
participation in the Royalty Agreement was terminated. The Company no longer
uses the trademarks, etc. covered under the royalty Agreement
CT FILM EMPLOYEES --Subsequent to the purchase of CT Film from Huntsman
Polymers Corporation (a subsidiary of HC) (Huntsman Polymers) (see Note 11),
employees associated with the CT Films operation remained employed by
Huntsman Polymers through December 31, 1997. The total payroll and benefits
costs incurred by Huntsman Polymers from September 30, 1997 to December 31,
1997 for these employees of approximately $6,205,000 was allocated to the
Company and are included in cost of sales and operating expenses in the
consolidated statement of operations.
INSURANCE COVERAGE --The Company obtains some of its insurance coverage
under policies of HC. Reimbursement payments to HC are based on premium
allocations which are determined in cooperation with an independent insurance
broker.
ADMINISTRATIVE EXPENSES --Prior to the Split-Off, HC allocated
administrative expenses to the Company for the estimated portion of the total
costs incurred by HC resulting from services provided to the Company and is
included in administrative and other expense in the consolidated statement of
operations. In connection with the Split-Off, the Company entered into a
services agreement with HC covering the provision of certain tax, finance,
treasury, and other administrative services.
OFFICE SPACE --The Company is obligated to pay rent calculated as a pro rata
portion (based on its percentage occupancy) of the mortgage loan on the HC
headquarters facility. The mortgage loan expires on December 31, 2005. Payments
under this obligation were included in administrative expense above.
F-19
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
10. COMMITMENTS AND CONTINGENCIES
INDEMNITY AGREEMENT --The Company's operations are subject to extensive
environmental laws and regulations concerning emissions to the air,
discharges to surface and subsurface waters, and the generation, handling,
storage, transportation, treatment, and disposal of waste materials, as
adopted by various governmental authorities in the jurisdictions in which the
Company operates. The Company makes every reasonable effort to remain in full
compliance with existing governmental regulations. In conjunction with a sale
of a plant site in 1992, the Company has agreed to indemnify environmental
losses of up to $5 million which may have been created at the plant site
between January 1, 1988 and May 18, 1992. This indemnity expires on May 8,
2002 and reduces ten percent each year beginning May 12, 1997. The Company
believes that the ultimate liability, if any, resulting from this
indemnification will not be material to the Company's consolidated financial
statements.
ROYALTY AGREEMENTS --The Company has entered into royalty agreements (the
Agreements) for the right to use certain patents in the production of certain
plastic film. The Company paid a fee of $450,000 to the patent holder for the
first 2,250,000 pounds of film produced in North America. The Agreements
require the Company to pay the patent holder a fee of $.10 for each pound
produced in excess of 2,250,000 pounds but less than 37,500,000 pounds and
$.05 per pound for each pound produced in excess of 37,500,000 pounds in
North America. The Agreements require the Company to pay certain fees to
obtain the rights to sell the product outside of North America. The
Agreements also require the Company to pay $.075 per pound of product sold
outside of North America. The Company has the option to maintain these rights
in subsequent years for certain agreed-upon fees. The Agreements terminate
upon the expiration of the related patents in 2009.
LITIGATION --The Company is party to litigation and claims arising in the
ordinary course of business. Management believes, after consulting with legal
counsel, that the liabilities, if any, arising from such litigation and
claims will not have a material adverse effect on the Company's consolidated
financial statements.
11. ACQUISITIONS
UNITED FILMS CORPORATION --On July 31, 1996, the Company acquired all of
the issued and outstanding common stock of United Films Corporation for cash
of approximately $12,276,000. The acquisition has been accounted for using
the purchase method of accounting; as such, results of operations have been
included in the accompanying consolidated financial statements from the date
of acquisition. In conjunction with the acquisition, the Company recorded
goodwill of approximately $12,076,000, which is being amortized on a
straight-line basis over 40 years.
DEERFIELD PLASTICS COMPANY, INC. --Effective October 21, 1996, the Company
acquired all of the issued and outstanding common stock of Deerfield Plastics
Company, Inc. for cash of approximately $68,207,000, a $1,400,000 payment
made in 1997 based on Deerfield's working capital at the acquisition date, a
deferred payment paid in 1997 of $2,170,000, and deferred payments over the
next two years totaling $3,000,000. The acquisition has been accounted for
using the purchase method of accounting; as such, results of operations have
been included in the accompanying consolidated financial statements from the
date of acquisition. In conjunction with the acquisition, the Company
recorded goodwill of approximately $18,400,000, which is being amortized on a
straight-line basis over 40 years.
CT FILM --At the close of business on September 30, 1997, the Company
acquired all of the assets of CT Film (a division of Huntsman Polymers
Corporation, formerly Rexene Corporation) and Rexene Corporation Limited (a
wholly-owned subsidiary of Huntsman Polymers Corporation) for approximately
$70 million in cash. The acquisition has been accounted for using the
purchase method of accounting; as such, results of operations have been
included in the accompanying consolidated financial statements from the date
of acquisition. The Company has not finalized its plan to exit certain of the
activities
F-20
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
acquired with the purchase of CT Film. Management intends to complete plans
and record a liability as an adjustment to the purchase price during the
first half of 1998. In conjunction with the acquisition, the Company recorded
goodwill of approximately $1,799,000 which is being amortized on a
straight-line basis over 40 years.
The pro forma results of operations of the Company for the years ended
December 31, 1996 and 1997 (assuming the acquisition of United Films
Corporation, Deerfield Plastics Company, Inc., and CT Film had occurred as of
January 1, 1996) are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Revenues .. $567,556 $614,662
Net loss .. (1,342) (5,600)
</TABLE>
HUNTSMAN CONTAINER CORPORATION INTERNATIONAL (HCCI) --On August 31, 1996,
HC contributed all of the outstanding capital stock of HCCI to the Company in
the form of a capital contribution. The transaction was accounted for at
historical costs in a manner similar to a pooling of interests and the
accompanying financial statements for 1995 and 1996 have been restated as if
the Company and HCCI had been combined at January 1, 1995. At the date of the
merger, assets and liabilities were $27,090,000 and $16,631,000,
respectively. There were no significant intercompany transactions prior to
the merger.
Consolidated sales and net income for 1995 and 1996 as previously reported
and as restated are as follows (in thousands):
<TABLE>
<CAPTION>
THE COMPANY
AS PREVIOUSLY
REPORTED HCCI AS RESTATED
--------------- --------- -------------
<S> <C> <C> <C>
1995
- ----
Net sales ......... $279,991 $45,045 $325,036
Net income ........ 936 1,363 2,299
1996
- ----
Net sales ......... $308,092 $31,043 $339,135
Net income (loss) (6,025) 1,499 (4,526)
</TABLE>
F-21
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
12. SEGMENTS OF BUSINESS
The Company operates principally in two business segments (Flexible
Packaging and Foam Products) and three geographic areas (United States,
Europe, and other). The following is information regarding the two business
segments (in thousands). Sales between industry segments are insignificant.
<TABLE>
<CAPTION>
LINES OF BUSINESS 1996 1997
- ----------------- ---------- ----------
<S> <C> <C>
IDENTIFIABLE ASSETS:
Flexible Packaging ....... $298,685 $336,897
Foam Products ............ 28,982 30,226
---------- ----------
Total identifiable assets 327,667 397,639
Corporate assets .......... 1,490 7,770
---------- ----------
TOTAL ..................... $329,157 $409,555
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES TO UNAFFILIATED CUSTOMERS:
Flexible Packaging ................. $279,991 $295,679 $447,743
Foam Products ...................... 45,045 43,456 43,420
---------- ---------- ----------
TOTAL ............................... $325,036 $339,135 $491,163
========== ========== ==========
OPERATING INCOME:
Flexible Packaging ................. $ 17,075 $ 8,238 $ 19,631
Foam Products ...................... 1,894 3,915 4,010
General corporate expenses ......... (3,967) (4,100) (6,555)
---------- ---------- ----------
Total operating income ............. 15,002 8,053 17,086
Interest expense--net ............... (8,683) (11,571) (16,402)
Other income (expense)--net ......... (2,293) (3,826) 530
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM ............. $ 4,026 $ (7,344) $ 1,214
========== ========== ==========
DEPRECIATION AND AMORTIZATION:
Flexible Packaging ................. $ 8,224 $ 11,353 $ 13,375
Foam Products ...................... 1,073 1,102 1,801
Corporate .......................... 2,349 1,545 1,266
---------- ---------- ----------
TOTAL ............................... $ 11,646 $ 14,000 $ 16,442
========== ========== ==========
EXPENDITURES FOR PLANT AND
EQUIPMENT:
Flexible Packaging ................. $ 18,431 $ 8,942 $ 14,833
Foam Products ...................... 623 3,127 2,602
Corporate .......................... 425 705 426
---------- ---------- ----------
TOTAL ............................... $ 19,479 $ 12,774 $ 17,861
========== ========== ==========
</TABLE>
F-22
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
GEOGRAPHIC AREA 1996 1997
- --------------- ---------- ----------
<S> <C> <C>
IDENTIFIABLE ASSETS:
United States ...... $270,493 $336,897
Europe ............. 39,843 54,643
Other .............. 18,821 18,015
---------- ----------
TOTAL ............... $329,157 $409,555
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES TO UNAFFILIATED CUSTOMERS:
United States ...................... $220,542 $236,726 $389,069
Europe ............................. 68,966 68,008 69,091
Other .............................. 35,528 34,401 33,003
---------- ---------- ----------
TOTAL ............................... $325,036 $339,135 $491,163
========== ========== ==========
OPERATING INCOME:
United States ...................... $ 13,917 $ 1,285 $ 13,516
Europe ............................. 2,357 6,926 6,780
Other .............................. 2,695 3,942 3,345
General corporate expenses ......... (3,967) (4,100) (6,555)
---------- ----------
TOTAL ............................... $ 15,002 $ 8,053 $ 17,086
========== ========== ==========
</TABLE>
13. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. In the case of cash and
cash equivalents, the carrying amount is considered a reasonable estimate of
fair value. The carrying amount of floating rate debt approximates fair value
because of the floating interest rates associated with such debt. The fair
value of fixed rate debt is estimated by discounting estimated future cash
flows through the projected maturity using market discount rates that
approximately reflect the credit risk, operating cost, and interest rate risk
potentially inherent in the notes. The estimated fair value of off-balance
sheet instruments is obtained from market quotes representing the estimated
amount the Company would receive or pay to terminate the contract, taking
into account current interest rates.
Fair value estimates are made at a specific point in time. Because no
market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics
of various financial instruments, interest rate levels, and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of judgment and therefore cannot be determined or relied on with any
degree of certainty. Changes in assumptions could significantly affect the
estimates.
F-23
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
A summary of the carrying amounts and estimated fair values for the
Company was as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Financial assets--cash and cash equivalents . $ 10,647 $ 10,647 $ 8,265 $ 8,265
========== ============ ========== ============
Financial liabilities:
Floating rate debt ......................... $186,691 $186,691 $125,516 $125,516
Fixed rate debt ............................ None None 125,000 127,500
---------- ------------ ---------- ------------
Total financial liabilities ................. $186,691 $186,691 $250,516 $253,016
========== ============ ========== ============
Off-Balance Sheet Instruments:
Interest rate collar ....................... $ 144 $ (134)
Letter of credit ........................... None (50)
</TABLE>
14. CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
The following are consolidating condensed financial statements which present,
in separate columns, Huntsman Packaging Corporation carrying its investment in
subsidiaries under the equity method, on a combined basis the guarantors of
Huntsman Packaging Corporation, and on a combined basis the non-guarantors of
Huntsman Packaging Corporation, with additional columns reflecting eliminating
adjustments and the consolidated total as of December 31, 1996 and 1997 and for
the years ended December 31, 1995, 1996 and 1997. There are no restrictions
limiting transfers of cash from guarantor and non-guarantor subsidiaries to
Huntsman Packaging Corporation. On September 29, 1997, in connection with the
Split-Off, Huntsman Film Products Corporation, a guarantor subsidiary, was
merged into Huntsman Packaging Corporation. The consolidating condensed
financial statements of Huntsman Packaging Corporation (Parent Only) for 1995,
1996 and 1997 have been presented as if Huntsman Film Products Corporation had
been combined on January 1, 1995. The consolidating condensed financial
statements are included herein because management has concluded that separate
financial statements relating to the guarantors are not material to investors.
F-24
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED INCOME STATEMENT
(IN THOUSANDS)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING HUNTSMAN
CORPORATION COMBINED PACKAGING
PARENT ONLY NON-GUARANTORS ELIMINATIONS CORPORATION
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SALES--Net .............. $221,796 $104,558 $(1,318) $325,036
COST OF SALES............ 184,614 90,224 (1,318) 273,520
------------- -------------- -------------- --------------
GROSS PROFIT............. 37,182 14,334 51,516
TOTAL OPERATING
EXPENSES................ 27,133 9,381 36,514
------------- -------------- -------------- --------------
OPERATING INCOME (LOSS) . 10,049 4,953 15,002
INTEREST EXPENSE--Net ... (7,902) (781) (8,683)
EQUITY EARNINGS IN
SUBSIDIARIES............ $3,121 (3,121)
OTHER INCOME
(EXPENSE)--Net.......... (2,997) 704 (2,293)
------------- -------------- -------------- --------------
NET INCOME (LOSS) BEFORE
INCOME TAXES ........... 2,271 4,876 (3,121) 4,026
INCOME TAX EXPENSE
(BENEFIT)............... (28) 1,755 1,727
------------- ------------ -------------- --------------
NET INCOME (LOSS) ....... $2,299 $ 3,121 $(3,121) $ 2,299
============= ============ ============== ==============
</TABLE>
F-25
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING HUNTSMAN
CORPORATION COMBINED PACKAGING
PARENT ONLY NON-GUARANTORS ELIMINATIONS CORPORATION
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES ...... $ 2,414 $10,374 $ 12,788
--------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of Performance
Films, net of each....................... (4,279) (4,279)
Sale of land to affiliate................. 3,239 3,239
Capital acquisitions for property,
plants, and equipment.................... (14,559) (4,920) (19,479)
--------------- -------------- -------------- --------------
Net cash used in investing activities ... (15,599) (4,920) (20,519)
--------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt ...... (14,424) (479) (14,903)
Proceeds from long-term debt.............. 24,650 24,650
Payment of cash dividend.................. (3,000) (3,000)
--------------- -------------- -------------- --------------
Net cash provided by (used in) financing
activities.............................. 7,226 (479) 6,747
--------------- -------------- -------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ... 494 198 692
--------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... (5,465) 5,173 (292)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................... 1,577 5,905 7,482
--------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................... $ (3,888) $11,078 $ 7,190
=============== ============== ============== ==============
</TABLE>
F-26
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING COMBINED HUNTSMAN
CORPORATION COMBINED NON- PACKAGING
PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........ $ (868) $ (426) $11,941 $ 10,647
Receivables ...................... 26,228 12,653 19,037 57,918
Inventories ...................... 32,178 12,052 9,211 53,441
Prepaid expenses and other ...... 2,853 41 1,007 3,901
Deferred income taxes ............ 1,047 41 1,088
------------- ------------ ------------ -------------- --------------
Total current assets ........... 61,438 24,361 41,196 126,995
PLANT AND EQUIPMENT--Net ......... 75,617 44,602 21,224 141,443
INTANGIBLE ASSETS--Net ........... 22,557 30,476 1,810 54,843
INVESTMENT IN SUBSIDIARIES ...... 154,460 $(154,460)
OTHER ASSETS ..................... 3,878 618 1,380 5,876
------------- ------------ ------------ -------------- --------------
TOTAL ............................ $317,950 $100,057 $65,610 $(154,460) $329,157
============= ============ ============ ============== ==============
LIABILITIES AND STOCKHOLDER'S
EQUITY
CURRENT LIABILITIES:
Trade accounts payable ........... $ 14,107 $ 5,429 $ 6,243 $ 25,779
Accrued liabilities .............. 8,258 2,100 9,141 19,499
Long-term debt--current portion . 76 430 506
Due to affiliates ................ 7,641 (5,117) 3,442 5,966
Income taxes payable ............. 598 598
------------- ------------ ------------ -------------- --------------
Total current liabilities ..... 30,082 2,842 19,424 52,348
LONG-TERM DEBT ................... 177,060 706 8,925 186,691
OTHER LIABILITIES ................ 7,274 252 1,498 9,024
DEFERRED INCOME TAXES ............ 2,849 9,314 1,919 14,082
------------- ------------ ------------ -------------- --------------
Total liabilities .............. 217,265 13,114 31,766 262,145
------------- ------------ ------------ -------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock ..................... 1 167 19,021 $(19,188) 1
Additional paid-in capital ...... 62,975 87,448 10,255 (97,703) 62,975
Retained earnings (deficit) ..... 38,979 (672) 4,474 (37,728) 5,053
Translation adjustment ........... (1,270) 94 159 (1,017)
------------- ------------ ------------ -------------- --------------
Total stockholder's equity .... 100,685 86,943 33,844 (154,460) 67,012
------------- ------------ ------------ -------------- --------------
TOTAL ............................ $317,950 $100,057 $65,610 $(154,460) $329,157
============= ============ ============ ============== ==============
</TABLE>
F-27
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED INCOME STATEMENT
(IN THOUSANDS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING COMBINED HUNTSMAN
CORPORATION COMBINED NON- PACKAGING
PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
SALES--Net .................... $217,991 $26,974 $104,787 $(10,617) $339,135
COST OF SALES ................. 189,414 25,011 85,076 (10,617) 288,884
------------- ------------ ------------ -------------- --------------
GROSS PROFIT .................. 28,577 1,963 19,711 50,251
TOTAL OPERATING EXPENSES ..... 31,567 834 9,797 42,198
------------- ------------ ------------ -------------- --------------
OPERATING INCOME (LOSS) ...... (2,990) 1,129 9,914 8,053
INTEREST EXPENSE--Net ......... (10,926) (38) (607) (11,571)
EQUITY EARNINGS IN
SUBSIDIARIES ................. 6,809 (6,809)
OTHER INCOME (EXPENSE)--Net .. (1,527) (2,192) (107) (3,826)
------------- ------------ ------------ -------------- --------------
NET INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM ........... (8,634) (1,101) 9,200 (6,809) (7,344)
INCOME TAXES EXPENSE
(BENEFIT)..................... (6,118) 429 2,391 (4,156)
------------- ------------ ------------ -------------- --------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM ........... (2,516) (672) 6,809 (6,809) (3,188)
EXTRAORDINARY ITEM ............ (1,338) (1,338)
------------- ------------ ------------ -------------- --------------
NET INCOME (LOSS) ............. $(3,854) $ (672) $ 6,809 $ (6,809) $ (4,526)
============= ============ ============ ============== ==============
</TABLE>
F-28
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING COMBINED HUNTSMAN
CORPORATION COMBINED NON- PACKAGING
PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
--------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES ...... $ (872) $5,584 $ 15,407 $ 20,119
--------------- ------------ ------------ -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of United Films
Corporation .............................. (12,276) (12,276)
Payment for purchase of Deerfield
Plastics, net of cash acquired ........... (63,889) (63,889)
Capital acquisitions for property, plants,
and equipment ............................ (6,977) (336) (5,461) (12,774)
--------------- ------------ ------------ -------------- --------------
Net cash used in investing activities .. (83,142) (336) (5,461) (88,939)
--------------- ------------ ------------ -------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES:
Principal payment on long-term debt ...... (113,879) (5,674) (12,178) (131,731)
Proceeds from long-term debt .............. 200,348 200,348
--------------- ------------ ------------ -------------- --------------
Net cash provided by (used in) financing
activities ............................. 86,469 (5,674) (12,178) 68,617
--------------- ------------ ------------ -------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ... 565 3,095 3,660
--------------- ------------ ------------ -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................... 3,020 (426) 863 3,457
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD .................................... (3,888) 11,078 7,190
--------------- ------------ ------------ -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ (868) $(426) $ 11,941 $ 10,647
=============== ============ ============ ============== ==============
</TABLE>
F-29
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING HUNTSMAN
CORPORATION COMBINED COMBINED PACKAGING
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..... $ 402 $ 823 $11,186 $ 12,411
Receivables .................... 51,533 16,881 18,286 86,700
Inventories .................... 45,548 11,918 10,960 68,426
Prepaid expenses and other .... 1,997 (8) 757 2,746
Deferred income taxes .......... 1,266 5 1,271
------------- ------------ -------------- -------------- --------------
Total current assets .......... 100,746 29,619 41,189 171,554
PLANT AND EQUIPMENT--Net......... 93,700 52,778 28,442 174,920
INTANGIBLE ASSETS--Net .......... 19,322 29,234 1,497 50,053
INVESTMENT IN SUBSIDIARIES ...... 132,917 $(132,917)
OTHER ASSETS .................... 11,392 106 1,530 13,028
------------- ------------ -------------- -------------- --------------
TOTAL ........................... $358,077 $111,737 $72,658 $(132,917) $409,555
============= ============ ============== ============== ==============
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Trade accounts payable ......... $ 18,516 $ 5,809 $ 7,624 $ 31,949
Accrued liabilities ............ 16,026 2,133 8,497 26,656
Long-term debt--current
portion........................ 19 324 343
Due to affiliates .............. 5,123 (1,656) 11,812 15,279
Income taxes payable ........... 3,237 3,237
------------- ------------ -------------- -------------- --------------
Total current liabilities .... 42,921 6,610 27,933 77,464
LONG-TERM DEBT .................. 245,947 319 3,905 250,171
OTHER LIABILITIES ............... 7,351 288 1,230 8,869
DEFERRED INCOME TAXES ........... (1,116) 9,275 1,918 10,077
------------- ------------ -------------- -------------- --------------
Total liabilities ............. 295,103 16,492 34,986 346,581
------------- ------------ -------------- -------------- --------------
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ................... $ 63,676 88,481 29,931 $(118,412) 63,676
Stockholder note receivable ... (700) (700)
Retained earnings .............. 5,393 6,764 11,837 (18,601) 5,393
Translation adjustment ......... (5,395) (4,096) 4,096 (5,395)
------------- ------------ -------------- -------------- --------------
Total stockholders' equity ... 62,974 95,245 37,672 (132,917) 62,974
------------- ------------ -------------- -------------- --------------
TOTAL ........................... $358,077 $111,737 $72,658 $(132,917) $409,555
============= ============ ============== ============== ==============
</TABLE>
F-30
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED INCOME STATEMENT
(IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING HUNTSMAN
CORPORATION COMBINED COMBINED PACKAGING
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
SALES--Net .................. $256,016 $142,915 $102,094 $(9,862) $491,163
COST OF SALES ............... 220,229 131,120 83,381 (9,862) 424,868
------------- ------------ -------------- -------------- --------------
GROSS PROFIT ................ 35,787 11,795 18,713 66,295
TOTAL OPERATING EXPENSES ... 29,636 10,985 8,588 49,209
------------- ------------ -------------- -------------- --------------
OPERATING INCOME (LOSS) .... 6,151 810 10,125 17,086
INTEREST EXPENSE--Net ....... (16,047) (134) (221) (16,402)
EQUITY EARNINGS IN
SUBSIDIARIES ............... 5,513 (5,513)
OTHER INCOME (EXPENSE)--Net . 1,334 99 (903) 530
------------- ------------ -------------- -------------- --------------
NET INCOME (LOSS) BEFORE
INCOME TAXES ............... (3,049) 775 9,001 (5,513) 1,214
INCOME TAXES EXPENSE
(BENEFIT) .................. (3,424) 4,263 839
------------- ------------ -------------- -------------- --------------
NET INCOME (LOSS) ........... $ 375 $ 775 $ 4,738 $(5,513) $ 375
============= ============ ============== ============== ==============
</TABLE>
F-31
<PAGE>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING HUNTSMAN
CORPORATION COMBINED COMBINED PACKAGING
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES ..... $ 14,004 $7,965 $ 6,679 $ 28,648
-------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of CT Film, net of
cash acquired ........................... (69,366) (69,366)
Capital acquisitions for plant
and equipment ........................... (8,435) (6,222) (3,204) (17,861)
-------------- -------------- -------------- -------------- --------------
Net cash used in investing activities . (77,801) (6,222) (3,204) (87,227)
-------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt ..... (249,015) (494) (249,509)
Proceeds from long-term debt ............. 312,700 312,700
Payment of cash dividend ................. 1,900 (1,900)
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
financing activities .................. 65,585 (494) (1,900) 63,191
-------------- -------------- -------------- -------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH . (518) (2,330) (2,848)
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................ 1,270 1,249 (755) 1,764
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................. (868) (426) 11,941 10,647
-------------- -------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD ................................. $ 402 823 $11,186 $ 12,411
============== ============== ============== ============== ==============
</TABLE>
* * * * * * * *
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Huntsman Polymers Corporation
We have audited the accompanying combined balance sheets of CT Film (a
division of Rexene Corporation) and Rexene Corporation Limited (a
wholly-owned subsidiary of Rexene Corporation) (collectively, the
Predecessor) as of December 31, 1996 and the related combined statements of
operations and of cash flows for the year ended December 31, 1996 and for the
eight months ended August 31, 1997 and the combined balance sheet of CT Film
(a division of Huntsman Polymers Corporation) and Rexene Corporation Limited
(a wholly-owned subsidiary of Huntsman Polymers Corporation) (collectively,
the Successor) as of September 30, 1997 and the combined statements of
operations and cash flows for the one month ended September 30, 1997. These
financial statements are the responsibility of the Predecessor's and
Successor's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the Predecessor combined financial statements referred to
above present fairly, in all material respects, the combined financial
position of CT Film and Rexene Corporation Limited as of December 31, 1996
and the combined results of their operations and their cash flows for the
year ended December 31, 1996 and eight months ended August 31, 1997 in
conformity with generally accepted accounting principles. Further, in our
opinion, the Successor combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
CT Film and Rexene Corporation Limited as of September 30, 1997 and the
combined results of their operations and their cash flows for the one month
ended September 30, 1997 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 11, 1998
F-33
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 252 $ 634
Accounts receivable (less allowance for doubtful accounts and
sales returns of $1,266 and $815, respectively)................... 20,703 22,363
Inventory ......................................................... 28,732 22,947
Prepaid expenses................................................... 262 662
-------------- ---------------
Total current assets.............................................. 49,949 46,606
PLANT AND EQUIPMENT -- NET.......................................... 86,366 28,642
NOTE RECEIVABLE .................................................... 1,550 1,550
-------------- ---------------
TOTAL............................................................... $137,865 $76,798
============== ===============
LIABILITIES AND HUNTSMAN POLYMERS CORPORATION'S
INVESTMENT IN THE COMPANY
CURRENT LIABILITIES:
Accounts payable................................................... $ 9,532 $ 6,305
Accrued expenses................................................... 5,237 3,086
-------------- ---------------
Total current liabilities......................................... 14,769 9,391
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION....................... 2,910 2,905
LONG-TERM PENSION LIABILITY......................................... 149
OTHER LONG-TERM LIABILITIES ........................................ 125
-------------- ---------------
Total liabilities................................................. 17,828 12,421
-------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 9)
HUNTSMAN POLYMERS CORPORATION'S INVESTMENT IN THE COMPANY .......... 120,037 64,377
-------------- ---------------
TOTAL............................................................... $137,865 $76,798
============== ===============
</TABLE>
See notes to combined financial statements.
F-34
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------- ---------------
EIGHT ONE
MONTHS MONTH
YEAR ENDED ENDED ENDED
DECEMBER 31, AUGUST 31, SEPTEMBER 30,
1996 1997 1997
-------------- ------------ ---------------
<S> <C> <C> <C>
SALES--Net of returns and allowances .. $152,464 $107,221 $16,278
COST OF SALES .......................... 141,485 101,492 15,261
-------------- ------------ ---------------
GROSS PROFIT............................ 10,979 5,729 1,017
-------------- ------------ ---------------
OPERATING EXPENSES:
Marketing, general, and
administrative......................... 8,276 5,839 991
Research and development............... 2,685 1,218 220
Allocated corporate expenses........... 2,779 1,604 158
-------------- ------------ ---------------
Total operating expenses.............. 13,740 8,661 1,369
-------------- ------------ ---------------
OPERATING LOSS.......................... (2,761) (2,932) (352)
INTEREST EXPENSE........................ (1,245) (808) (110)
-------------- ------------ ---------------
LOSS BEFORE INCOME TAXES................ (4,006) (3,740) (462)
INCOME TAX BENEFIT (EXPENSE)
--Deferred............................. 689 (93) 177
-------------- ------------ ---------------
NET LOSS................................ $ (3,317) $ (3,833) $ (285)
============== ============ ===============
</TABLE>
See notes to combined financial statements.
F-35
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------- ---------------
EIGHT
MONTHS ONE MONTH
YEAR ENDED ENDED ENDED
DECEMBER 31, AUGUST 31, SEPTEMBER 30,
1996 1997 1997
-------------- ------------ ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $(3,317) $(3,833) $ (285)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.................. 6,516 4,705 309
Loss on sale of equipment...................... 10 15
Deferred income tax benefit (expense) ......... (689) 93 (177)
Changes in operating assets and liabilities:
Accounts receivable........................... 2,928 375 (2,035)
Inventory..................................... (9,334) (750) 6,535
Prepaid expenses.............................. (57) 86 (428)
Accounts payable.............................. 3,496 (4,296) 594
Accrued expenses.............................. (379) (2,529) 378
Accumulated postretirement benefit
obligation...................................... 154 (5)
Long-term pension liability................... 100 (211) 4
Other long-term liability..................... 125
-------------- ------------ ---------------
Net cash provided by (used in) operating
activities.................................. (572) (6,225) 4,895
-------------- ------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of equipment................ 8 21
Capital expenditures for plant and equipment ... (7,878) (2,380) (108)
-------------- ------------ ---------------
Net cash used in investing activities ...... (7,870) (2,359) (108)
-------------- ------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES-- Net
transactions with Huntsman Polymers Corporation
(formerly Rexene Corporation)................... 8,207 8,885 (4,686)
-------------- ------------ ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ......... 20 (20)
-------------- ------------ ---------------
NET DECREASE (INCREASE) IN CASH AND CASH
EQUIVALENTS..................................... (215) 281 101
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .. 467 252 533
-------------- ------------ ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........ $ 252 $ 533 $ 634
============== ============ ===============
</TABLE>
(Continued)
F-36
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On December 29, 1996, Rexene Corporation Limited issued an additional
2,500 common shares to Huntsman Polymers Corporation (formerly Rexene
Corporation) in exchange for a $4,281 reduction to the related party debt
owing to Rexene Corporation. During the year ended December 31, 1996, the
eight months ended August 31, 1997, and the one month ended September 30,
1997, Rexene Corporation Limited incurred approximately $1,245, $810, and
$111, respectively, of interest which was added to the balance owing to
Huntsman Polymers Corporation (formerly Rexene Corporation).
Due to the operating losses generated, the Company did not make any income
tax payments during the year ended December 31, 1996, the eight months ended
August 31, 1997, or the one month ended September 30, 1997.
(Concluded)
See notes to combined financial statements.
F-37
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION --The accompanying combined financial statements
present on a historical cost basis the assets, liabilities, revenues, and
expenses related to CT Film (a division of Huntsman Polymers Corporation,
formerly Rexene Corporation) and Rexene Corporation Limited (a wholly-owned
subsidiary of Huntsman Polymers Corporation, formerly Rexene Corporation)
(collectively, the Company). As a result of the transactions described below,
the combined balance sheet as of December 31, 1996 is not comparable to the
combined balance sheet as of September 30, 1997. Operating results prior to
September 1, 1997 are presented on a historical cost basis and are comparable
to operating results subsequent to September 1, 1997 except for depreciation
and amortization.
SALE OF REXENE CORPORATION TO HUNTSMAN CORPORATION --On August 27, 1997,
pursuant to an Agreement and Plan of Merger (the Merger Agreement) by and
with Rexene Corporation (Rexene), Huntsman Corporation (HC) and Huntsman
Centennial Corporation, a wholly-owned subsidiary of HC, Huntsman Centennial
Corporation was merged with and into Rexene Corporation and changed its name
to Huntsman Polymers Corporation (Polymers). Pursuant to this merger, the
stockholders of Rexene received $16.00 in cash for each outstanding share of
common stock. As a result, Polymers owns all of the issued common stock. For
financial accounting purposes, the Merger Agreement was effective September
1, 1997 (the Effective Date).
The merger was accounted for as a purchase transaction and, accordingly,
the combined financial statements subsequent to the Effective Date reflect
the purchase price, including transaction costs and liabilities. The cash
consideration paid has been "pushed down" to the Company. The allocation of
the purchase price is based upon valuation and other studies. The value
assigned to the Company's assets was equal to the $70 million selling price
of the assets to Huntsman Packaging Corporation (Packaging), as discussed
below.
The allocation of the purchase price of the Company is summarized as
follows:
<TABLE>
<S> <C>
Current assets ........... $ 50,500
Plant and equipment ..... 28,800
Other non-current assets 1,600
Liabilities assumed ..... (10,900)
----------
Total purchase price .... $ 70,000
==========
</TABLE>
SALE OF THE COMPANY TO HUNTSMAN PACKAGING --On September 30, 1997 pursuant
to an Asset Purchase Agreement (the Agreement), Packaging acquired the assets
and liabilities of the Company for a purchase price of $70 million, plus
transaction costs. The acquisition was accounted for as a purchase
transaction. Adjustments to reflect the purchase by Packaging will be
recorded effective October 1, 1997.
Packaging was a wholly-owned subsidiary of HC until September 30, 1997. As
a result of a split off transaction from HC, Packaging is no longer
controlled by HC but continues to be an affiliated entity.
DESCRIPTION OF THE BUSINESS --The Company produces plastic films for the
converter, personal care/medical and agricultural films markets in North
America and the United Kingdom. The following is a summary of the Company's
significant accounting policies.
F-38
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
PRINCIPLES OF COMBINATION --The combined financial statements include the
accounts of CT Film and Rexene Corporation Limited. All significant
intercompany balances and transactions have been eliminated in the combined
financial statements.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS --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.
REVENUE RECOGNITION --Sales revenue is recognized upon shipment of product
in fulfillment of a customer order.
CARRYING VALUE OF LONG-TERM ASSETS --The Company evaluates the carrying
value of long-term assets based upon current and anticipated undiscounted
cash flows, and recognizes an impairment when such estimated cash flows are
less than the carrying value of the asset. Measurement of the amount of
impairment, if any, is based upon the difference between carrying value and
fair value.
INVENTORY --Inventory consists principally of finished film products and
the raw materials necessary to produce them. Finished goods are carried at
the lower of cost (on a first-in, first-out basis) or market.
PLANT AND EQUIPMENT --Plant and equipment is stated at cost. Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets as follows:
<TABLE>
<S> <C>
Land improvements .............. 20 years
Buildings and improvements .... 20 years
Tools, molds, and dies ......... 3-15 years
Machinery and equipment ........ 3-15 years
</TABLE>
CASH AND CASH EQUIVALENTS --For the purposes of the combined statement of
cash flows, the Company considers cash in checking accounts and in short-term
highly liquid investments with original maturities of three months or less to
be cash and cash equivalents. Cash and cash equivalents generated outside the
United States are generally subject to tax liabilities if repatriated.
FINANCIAL INSTRUMENTS --The carrying amounts reported in the combined
balance sheet for cash and cash equivalents approximate fair value because of
the immediate or short-term maturity of these financial instruments. The
carrying amount of the note receivable approximates fair value because the
interest rate of the note approximates the current market rates of comparable
notes.
INCOME TAXES --The Company uses the asset and liability method of
accounting for income taxes. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial and tax reporting purposes. Through September 1,
1997, CT Film's operations were included in the consolidated U.S. income tax
return of Rexene Corporation. From September 1, 1997 to September 30, 1997,
CT Film's operations were included in the consolidated U.S. income tax return
of Polymers. Rexene Corporation Limited files a separate tax return in the
United Kingdom. For purposes of preparing the combined financial statements,
CT Film's income tax provision is determined on a "separate return basis."
F-39
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
ENVIRONMENTAL EXPENDITURES --Environmental related restoration and
remediation costs are recorded as liabilities when site restoration and
environmental remediation and clean-up obligations are either known or
considered probable, and the related costs can be reasonably estimated. Other
environmental expenditures, that are principally maintenance or preventative
in nature, are recorded when expended and expensed or capitalized as
appropriate.
FOREIGN CURRENCY TRANSLATION --The accounts of Rexene Corporation Limited
are translated into U.S. dollars in the accompanying combined financial
statements. Assets and liabilities are translated at rates prevailing at the
balance sheet date. Revenues, expenses, gains, and losses are translated at a
weighted average rate for the period. Cumulative translation adjustments are
recorded as an adjustment to equity and are presented as a component of
Huntsman Polymer Corporation's investment in the Company (see Note 5).
The following financial information relating to foreign operations in the
United Kingdom has been included in the combined financial statements (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------- ------------------
YEAR ENDED EIGHT MONTHS ONE MONTH ENDED
DECEMBER 31, 1996 AUGUST 31, 1997 SEPTEMBER 30, 1997
----------------- --------------- ------------------
<S> <C> <C> <C>
Assets ........ $23,717 $22,947 $11,847
Liabilities .. 2,455 1,087 1,005
Sales ......... 7,686 7,036 875
Net loss ...... (3,807) (4,137) (345)
</TABLE>
Transaction gains and losses on amounts payable in currencies other than
the Company's functional currencies are recognized in the statements of
operations. During the year ended December 31, 1996 and the eight months
ended August 31, 1997, the Company recognized transaction gains of $1,576,000
and transaction losses of $872,000, respectively. During the one month ended
September 30, 1997, transaction losses were insignificant.
F-40
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
2. INVENTORY
Inventory consists of the following as of December 31, 1996 and September
30, 1997 (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
1996 1997
------------- -----------
<S> <C> <C>
Finished goods ........................ $ 9,826 $ 9,779
Raw materials ......................... 19,060 12,864
Work-in process ....................... 427 304
------------- -----------
Total ................................. 29,313 22,947
Less allowance for obsolete inventory (581)
------------- -----------
Inventory--net ........................ $28,732 $22,947
============= ===========
</TABLE>
3. PLANT AND EQUIPMENT
Plant and equipment consists of the following as of December 31, 1996 and
September 30, 1997 (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
1996 1997
------------- -----------
<S> <C> <C>
Land and improvements .......................... $ 1,330 $ 922
Buildings and improvements ..................... 12,648 7,472
Tools, molds, and dies ......................... 3,838 2,059
Machinery and equipment ........................ 88,198 18,498
Construction in progress ....................... 1,929
------------- -----------
Total .......................................... 107,943 28,951
Less accumulated depreciation and amortization (21,577) (309)
------------- -----------
Plant and equipment--net ....................... $ 86,366 $28,642
============= ===========
</TABLE>
4. NOTE RECEIVABLE
The Company sold certain equipment in 1995 and received a note in the
amount of $1,550,000. The note bears interest at 10% and is due on March 31,
2003. The terms of the note require interest only payments through December
1997 with quarterly payments of principal and interest ranging from
approximately $72,000 to $110,000 beginning in 1998.
F-41
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
5. HUNTSMAN POLYMERS CORPORATION'S INVESTMENT IN THE COMPANY
Huntsman Polymers Corporation's investment in the Company consists of the
following as of December 31, 1996 and September 30, 1997 (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
1996 1997
------------- -----------
<S> <C> <C>
Deferred income tax liability (asset) --net ................ $ 13,950 $(8,324)
Rexene Corporation Limited note payable to Huntsman
Polymers Corporation ...................................... 16,629 21,987
Inventory in transit from Huntsman Polymers Corporation ... (1,855)
Accumulated deficit of Rexene Corporation Limited ......... (2,931) (8,921)
Common stock equity of Rexene Corporation Limited ......... 7,297 7,297
Cumulative translation adjustment .......................... (138) 871
Net intercompany payable to Huntsman Polymers Corporation . 87,085 51,467
------------- -----------
Total ...................................................... $120,037 $64,377
============= ===========
</TABLE>
6. INCOME TAXES
The following is a summary of domestic and foreign provisions for deferred
income taxes and a reconciliation of the U.S. statutory income tax rate to
the effective income tax rate.
The deferred income tax benefit (expense) is as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------- ------------------
YEAR ENDED EIGHT MONTHS ONE MONTH ENDED
DECEMBER 31, 1996 AUGUST 31, 1997 SEPTEMBER 30, 1997
----------------- --------------- ------------------
<S> <C> <C> <C>
Deferred:
Federal ......................... $189 $ 1,244 $154
State ........................... 28 187 23
Foreign ......................... 472 (1,524) --
----------------- --------------- ------------------
Total deferred income tax benefit
(expense) ....................... $689 $ (93) 177
================= =============== ==================
</TABLE>
F-42
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
The effective income tax rate reconciliation is as follows (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------- ------------------
YEAR ENDED EIGHT MONTHS ONE MONTH ENDED
DECEMBER 31, 1996 AUGUST 31, 1997 SEPTEMBER 30, 1997
----------------- --------------- ------------------
<S> <C> <C> <C>
Loss before income tax benefit
(expense)............................. $(4,006) $(3,740) $(462)
================= =============== ==================
Expected tax benefit at U.S. statutory
rate of 35% .......................... $ 1,402 $ 1,309 $ 162
Increase (decrease) resulting from:
Deferred tax asset valuation
allowance ........................... (1,012) (1,524)
State taxes .......................... 18 122 15
Foreign rate difference and other
(net) ............................... 281
----------------- --------------- ------------------
Total income tax benefit (expense) .... $ 689 $ (93) $ 177
================= =============== ==================
</TABLE>
Components of net deferred income tax assets and liabilities, included in
Huntsman Polymers Corporation's investment in the Company, as of December 31,
1996 and September 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
DECEMBER 31, 1996 SEPTEMBER 30, 1997
---------------------- ----------------------
CURRENT LONG-TERM CURRENT LONG-TERM
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Deferred income tax assets:
Allowance for doubtful trade accounts
receivable .............................. $ 739 $ 555
Allowance for obsolete inventory ........ 152 260
Net operating loss carryforward .......... $ 2,906 $ 5,653
Basis difference in fixed assets ........ 2,410
Inventory ................................ 163 213
Other .................................... 2,647 1,526 482 1,295
--------- ----------- --------- -----------
Total ..................................... 3,701 4,432 1,510 9,358
--------- ----------- --------- -----------
Deferred income tax liability-basis
difference in fixed assets ............... (21,071)
--------- ----------- --------- -----------
Deferred tax asset valuation allowance ... (1,012) (2,544)
--------- ----------- --------- -----------
Net deferred income tax asset (liability)
-included with Huntsman Polymers
Corporation's investment in the Company . $3,701 $(17,651) $1,510 $ 6,814
========= =========== ========= ===========
</TABLE>
F-43
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
NET OPERATING LOSS CARRYFORWARDS --The Company has available
approximately $12.0 million of net operating loss carryforwards available to
offset future income taxes in the United Kingdom. Due to the uncertainties
regarding realization, the Company has established a valuation allowance to
offset the deferred tax asset associated with the net operating loss
carryforward.
7. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLANS -- CT Film employees participate in the
Polymers Employee Savings Plan which covers substantially all CT Film and
Rexene Corporation Limited employees participate in a separate defined
contribution plan. Plan participants may elect to make voluntary
contributions to this plan up to a specified amount of their compensation.
The Company matches a minimum of 25% of the participants' aggregate
contributions up to 6% of the participant's base compensation. The Company's
contributions to these plans for all periods presented were insignificant.
DEFINED BENEFIT PLAN --CT Film's employees participate in the Polymers
non-contributory defined benefit pension plan which covers substantially all
full-time domestic employees. CT Film funds the actuarially determined
retirement cost. Contributions are intended to not only provide for benefits
attributed to service to date but also for those expected to be earned in the
future. The combined accrued net pension expense for the year ended December
31, 1996, the eight months ended August 31, 1997, and the one month ended
September 30, 1997 includes the following components (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------- ------------------
YEAR ENDED EIGHT MONTHS ONE MONTH ENDED
DECEMBER 31, 1996 AUGUST 31, 1997 SEPTEMBER 30, 1997
----------------- --------------- ------------------
<S> <C> <C> <C>
Service cost--benefits earned during
the year ............................ $ 327 $ 274 $ 34
Interest cost on projected benefit
obligation .......................... 241 289 36
Actual return on assets .............. (221) (277) (35)
Other ................................ (24) 36 5
----------------- --------------- ------------------
Total accrued pension expense ....... $ 323 $ 322 $ 40
================= =============== ==================
</TABLE>
F-44
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
The following table sets forth the funded status of the plan as of
December 31, 1996 and September 30, 1997 and the amount recognized in the
combined balance sheet as of that date (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
1996 1997
------------- -----------
<S> <C> <C>
Present value of accumulated benefit obligation:
Vested .......................................................... $ 2,636 $ 4,834
Nonvested ....................................................... 401 617
------------- -----------
Total ............................................................ $ 3,037 $ 5,451
============= ===========
Present value of projected benefit obligation for service
rendered to date ................................................ $ 3,893 $ 6,538
Less plan assets at fair value, principally comprised of equity
securities and bonds ............................................ (3,152) (5,513)
------------- -----------
Projected benefit obligation in excess of plan assets ........... 741 1,025
Unrecognized net loss ............................................ (495) (818)
Unrecognized prior service cost .................................. (97) (329)
------------- -----------
Accrued (prepaid) long-term pension cost ......................... $ 149 $ (122)
============= ===========
</TABLE>
Assumptions used in the actuarial valuation include an increase in future
compensation of 4.5%, a discount rate of 7.75% in 1996 and 7.25% in 1997, and
an expected rate of return on plan assets of 9% were used.
POSTRETIREMENT BENEFITS --CT Film provides certain health care and medical
benefits for substantially all of its retired employees. CT Film reimburses
retirees for those benefits but does not provide any additional funding for
the postretirement benefits.
The combined accrued net postretirement benefit expense includes the
following components (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------- ------------------
YEAR ENDED EIGHT MONTHS ONE MONTH ENDED
DECEMBER 31, 1996 AUGUST 31, 1997 SEPTEMBER 30, 1997
----------------- --------------- ------------------
<S> <C> <C> <C>
Service cost -benefits earned
during the year .................... $ 112 $ 72 $ 9
Interest cost on accumulated
postretirement benefit obligation . 137 90 11
Other ............................... (130) (41) (5)
----------------- --------------- ------------------
Total ............................... $ 119 $121 $15
================= =============== ==================
</TABLE>
F-45
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
The following table sets forth the funded status of the plan as of
December 31, 1996 and September 30, 1997 and the amount recognized in the
combined balance sheet as of that date (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
1996 1997
------------- -----------
<S> <C> <C>
Present value of accumulated postretirement benefit
obligation:
Retirees ..................................................... $ 531 $ 534
Fully eligible plan participants ............................. 469 507
Other active plan participants ............................... 1,195 1,250
------------- -----------
Accumulated postretirement benefit obligation ................. 2,195 2,291
Unrecognized net gain ......................................... 735 624
Unrecognized prior service cost ............................... (20) (10)
------------- -----------
Accumulated postretirement benefit obligation ................. $2,910 $2,905
============= ===========
</TABLE>
CT Film has not funded any part of the accumulated postretirement benefit
obligation.
The assumed health care cost trend rate used to measure the expected cost
of benefits covered by the plan for 1997 is 9%; the rate is assumed to
decrease each successive year until it reaches 5.5% in 2003, after which it
remains constant. A one percent increase in the assumed health care cost
trend rate for each year would not significantly increase the accumulated
postretirement benefit obligation for any periods presented. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 7.75% and 7.25% as of December 31, 1996 and September 30,
1997, respectively.
8. RELATED PARTY TRANSACTIONS
The accompanying combined financial statements include the following
transactions with Polymers (formerly Rexene), for the year ended December 31,
1996, eight months ended August 31, 1997, and one month ended September 30,
1997 (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------- ------------------
YEAR ENDED EIGHT MONTHS ONE MONTH ENDED
DECEMBER 31, 1996 AUGUST 31, 1997 SEPTEMBER 30, 1997
----------------- --------------- ------------------
<S> <C> <C> <C>
Inventory purchases .......... $29,655 $31,882 $4,576
Allocated operating expenses 2,779 1,604 158
Interest expense ............. 1,245 810 111
</TABLE>
ADMINISTRATIVE EXPENSES --As noted above, Polymers (formerly Rexene)
allocated administrative expenses to the Company. The allocation is for the
estimated portion of the total costs incurred by Polymers resulting from
services provided to the Company and is included in the combined statement of
operations.
INSURANCE --Effective September 1, 1997, the Company obtained some of its
insurance coverage under policies of HC. Reimbursement payments to HC are based
on premium allocations which are determined in cooperation with an independent
broker.
F-46
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
9. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL --The Company's operations are subject to extensive
environmental laws and regulations concerning emissions to the air,
discharges to surface and subsurface waters, and the generation, handling,
storage, transportation, treatment, and disposal of waste materials, as
adopted by various governmental authorities in the jurisdictions in which the
Company operates. The Company makes every reasonable effort to remain in full
compliance with existing governmental regulations.
LITIGATION --The Company is party to litigation and claims arising in the
ordinary course of business. Management believes, after consulting with legal
counsel, that the liabilities, if any, arising from such litigation and
claims will not have a material adverse effect on the Company's combined
financial statements.
OPERATING LEASES --The Company has several noncancelable operating leases,
primarily for vehicles, equipment, warehouse, and office space, that expire
through 2011. The total expense recorded under all operating lease agreements
in the accompanying combined statement of operations is approximately
$750,000, $532,000, and $62,000 for the year ended December 31, 1996, the
eight months ended August 31, 1997, and the one month ended September 30,
1997, respectively.
Future minimum operating lease payments are as follows (in thousands):
<TABLE>
<S> <C>
Year ending September 30,
1998........................................... $ 555
1999........................................... 524
2000 .......................................... 460
2001........................................... 458
2002 .......................................... 409
Thereafter .................................... 4,828
-------
Total future minimum operating lease payments $7,234
=======
</TABLE>
10. ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income. This Statement establishes standards
for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) if a full set of general purpose
financial statements. This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. This Statement does
not require a specific format for that financial statement but requires that
an enterprise display an amount representing total comprehensive income for
the period in that financial statement. This Statement is effective for
fiscal years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The impact of SFAS No. 130 on the Company is not expected to be material in
relation to the combined financial statements.
F-47
<PAGE>
CT FILM
(A DIVISION OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE CORPORATION)
AND
REXENE CORPORATION LIMITED
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN POLYMERS CORPORATION, FORMERLY REXENE
CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997, AND
ONE MONTH ENDED SEPTEMBER 30, 1997
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of
an Enterprise and Related Information. SFAS No. 131 established standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosure about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. The Company does not expect the impact of SFAS No. 131 to
be material in relation to its combined financial statements.
F-48
<PAGE>
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY HUNTSMAN PACKAGING. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN
OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF HUNTSMAN PACKAGING SINCE THE DATE HEREOF NOR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
TABLE OF CONTENTS
PAGE
Prospectus Summary.......................... 1
Risk Factors................................ 13
Use of Proceeds............................. 19
The Exchange Offer ......................... 20
Capitalization.............................. 27
Unaudited Pro Forma Financial Data.......... 28
Selected Historical Financial Data.......... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 31
Business.................................... 36
Management.................................. 49
Ownership of Capital Stock ................. 55
Certain Relationships and Related
Transactions............................... 55
Description of the Credit Facilities ....... 57
Description of the Notes and Guarantees .... 59
Certain United States Federal Income
Tax Considerations ........................ 88
Book-Entry; Delivery and Form............... 91
Plan of Distribution ....................... 92
Legal Matters............................... 93
Experts .................................... 93
Index to Consolidated Financial Statements . F-1
UNTIL MAY 31, 1998, ALL DEALERS OFFERING TRANSACTIONS IN
THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THE
EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
PROSPECTUS
[LOGO HUNTSMAN PACKAGING]
$125,000,000
HUNTSMAN PACKAGING CORPORATION
9 1/8% SENIOR
SUBORDINATED NOTES DUE 2007
MARCH 2, 1998
