SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission file number: 1-3462
CARLYLE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1574754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Palmer Terrace, Carlstadt, New Jersey 07072
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: (201)935-6220
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, par value $0.01 per share
Securities registered pursuant to Section 12(g) of the Act: Not applicable
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes[ ] No [X]
As of March 29, 1999, 7,382,782 shares of Registrant's Common Stock
were outstanding, and the aggregate market value of the voting stock held by
non-affiliates of Registrant was approximately $3,857.276. This figure was
calculated on the basis of the closing price of a share of Common Stock of
Registrant on the Electronic Bulletin Board March 29, 1999. As used herein,
non-affiliates means all stockholders of Registrant other than executive
officers, directors and 5% shareholders.
The information required by Part III of Form 10-K is incorporated by
reference to the Registrant's definitive proxy statement to be distributed to
stockholders in connection with its annual meeting scheduled for May 18, 1999.
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THIS ANNUAL REPORT ON FORM 10-K (THE "ANNUAL REPORT") CONTAINS STATEMENTS WHICH
CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). THOSE
STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS ANNUAL REPORT AND INCLUDE
STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY,
ITS DIRECTORS OR ITS OFFICERS WITH RESPECT TO, AMONG OTHER THINGS: (I) THE
COMPANY'S FINANCING PLANS; (II) TRENDS AFFECTING THE COMPANY'S FINANCIAL
CONDITION OR RESULTS OF OPERATIONS; (III) THE COMPANY'S GROWTH STRATEGY AND
OPERATING STRATEGY;(IV) CUSTOMER CONCENTRATION AND THE INCREASING CONSOLIDATION
OF THE COMPANY'S CUSTOMER BASE (V) THE DECLARATION AND PAYMENT OF DIVIDENDS;
(VI) IMPACT OF YEAR 2000 ISSUES. SHAREHOLDERS ARE CAUTIONED THAT ANY SUCH
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE
RISK AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. .
PART I
ITEM 1. BUSINESS OF THE COMPANY
Carlyle Industries, Inc. ("Carlyle") and its subsidiaries
(collectively, the "Company") package and distribute buttons, gifts and craft
products.
Carlyle was the surviving corporation in a merger (the "Merger") with
BH Acquisition Corporation, a Delaware corporation wholly-owned by Noel Group,
Inc. ("Noel"). The Merger, completed on October 29, 1993, was the second step of
a transaction pursuant to which Noel acquired the entire equity interest in the
Company. References herein to the "Predecessor" shall be deemed to refer to the
Company, as it existed prior to October 1, 1993. The Company's principal
executive offices are located in 7,307 square feet of leased premises at One
Palmer Terrace, Carlstadt, New Jersey and its telephone number is 201-935-6220.
The Company's business is conducted principally through two
subsidiaries: the Blumenthal Lansing Company, and Westwater Industries, Inc.
Blumenthal Lansing Company was formed from the merger of B. Blumenthal & Co.,
Inc., a wholly-owned subsidiary of the Company, and Lansing Company, B.
Blumenthal's wholly-owned subsidiary. The corporate name was changed to
Blumenthal Lansing Company on January 1, 1995. Westwater Industries, Inc.
("Westwater"), a Delaware corporation, was formed in June 1998 to acquire the
assets and business of Westwater Enterprises, LP. Westwater Industries, Inc. is
a wholly owned subsidiary of the Company.
PRODUCTS. The Company packages and distributes an extensive variety of
buttons, embellishments, gift and craft products to mass merchandisers,
specialty chains and independent retailers and wholesalers throughout the United
States. Products are sold under the La Mode (R), Le Chic (R), Streamline (R) and
Westwater Enterprises (R) registered trademarks and the Le Bouton, La Petite,
Classic, Boutique and Mill Mountain brand names. The Company also produces and
distributes a private-label line for one of the nation's best-known retailers.
The Company markets complimentary product lines, including appliques, craft kits
and fashion and jewelry.
MARKETS. The Company's button products are sold primarily for use in
the home sewing market where buttons are used for garment construction,
replacement and the upgrading and/or restyling of ready-to-wear clothing. More
modest button usage is found in craft projects, home decorating and garment
manufacturing. The market is concentrated and is served by national and regional
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fabric specialty chains, mass merchandisers, independent fabric stores, notions
wholesalers and craft stores and chains. During the years ended December 31,
1998 and 1997 sales to three major customers (Wal-Mart, Jo-Ann Stores and
Hancock Fabrics) accounted for 77% and 78% respectively of the Company's
aggregate net sales volume. A reduction in sales among any of these customers
could adversely impact the financial condition and results of operations of the
Company.
Through its Westwater subsidiary, the Company has a developing gift
market program which is being directed toward the myriad and varied outlets
where gifts are sold.
PRODUCT SOURCING, DISTRIBUTION AND SALES. The button lines are sourced
from more than 75 button manufacturers around the world, with most buttons
coming from the traditional markets of Europe and Asia. Button manufacturers
specialize in different materials (plastic, wood, glass, leather, metal, jewel,
pearl, etc.) and have varying approaches to fashion, coloration, finishing and
other factors. Most craft and gift products are developed within the Company and
produced in Asia.
All imported and domestically purchased buttons are shipped to the
Lansing, Iowa facility for carding and distribution to customers. As thousands
of button styles are received in bulk, computerized card printing systems enable
Blumenthal Lansing to economically imprint millions of button cards with such
necessary data as style number, price, number of buttons, bar code, country of
origin and care instructions. The Company also blister-packages and shrink-wraps
some products. Shipments are made primarily to individual stores with a smaller
percentage to warehouse locations. Craft and gift products are also distributed
from the Lansing, Iowa facility.
The Company's accounts include fabric and craft specialty chains, mass
merchandisers carrying buttons and crafts, distributors and many independent
stores. Mass merchandisers and specialty chain customers are characterized by
the need for sophisticated electronic support, rapid turn-around of merchandise
and direct-to-store service for hundreds to thousands of locations nationwide.
The Company enjoys long-standing ties to all of its key accounts and the average
relationship with its ten largest customers extends over 20 years. Due to the
large account nature of its customer base, most customer contact is coordinated
by management; additional sales coverage is provided by regional sales managers.
Many retailers are serviced by independent representatives and representative
organizations.
COMPETITIVE FACTORS. The retail button market is served by several
competitors. The Company competes primarily with full-line button packagers and
distributors in the general button market and several smaller competitors in the
promotional button market. Management believes that the principal bases for
competition are product innovation, range of selection, brand names, price,
display techniques and speed of distribution. The craft and gift markets are
served by many and varied competitors with innovation and competitive pricing
being of major importance.
Management believes that retail button distribution depends on trends
in the home-sewing market, which management believes is mature. The retail
customer base for buttons has changed substantially over the past two decades as
department stores and small independent fabric stores have been replaced by mass
merchandisers and specialty retail chains which have continued to consolidate
recently through mergers and store closings. In response to this trend, the
Company has broadened its lines to include embellishments, novelty buttons, and
products used in the craft and gift industries which are not viewed by
management as mature markets.
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The bulk of the Company's revenues are derived in the United States. In
1998, less than 1% of revenues related to export sales. Inventory levels remain
relatively constant throughout the year. The Company's policies related to
merchandise return and payment terms are in accordance with industry standards.
EMPLOYEES; LABOR RELATIONS. The Company has approximately 170
employees, none of whom are covered by a collective bargaining agreement.
Management believes relations with employees are satisfactory.
CURRENT BACKLOG. The Company fills at least 95% of its orders within 48
hours and as a result had no backlog of any significance at either December 31,
1998 or 1997.
DISCONTINUED OPERATIONS
In March 1997 the Company completed the sale of its Thread division
pursuant to an agreement dated as of December 12, 1996 (the "Thread Division
Agreement"). Proceeds received on the sale adjusted for closing costs and
changes in working capital of the division subsequent to September 30, 1996
totaled $54.9 million cash (of which $3.0 million was placed in escrow) plus the
assumption of approximately $6.8 million of liabilities. A portion of the
proceeds was used to pay down the Company's outstanding bank debt. Consequently,
the results of operations of the Thread division for 1997 and all prior periods
have been classified as discontinued operations. (See ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS).
The business of the Company's Thread division which was headquartered
in Charlotte, North Carolina, was conducted through various subsidiaries,
including a wholly-owned subsidiary, The Carlyle Thread Group, LLC, a
Connecticut limited liability company ("CTG"), which was formed through the
transfer of the net assets of the Belding Corticelli Thread Company, a division
of the Company ("BCTC"), and the Carlyle Manufacturing Company, Inc., a
wholly-owned subsidiary of the Company ("CM"). The Thread division also included
the business of Carlyle Threads, Inc. ("CTS") which was acquired in June 1994
and Carlyle International, Inc. and Culver Textile Corp. (together, "Culver")
which was acquired in August 1995. CTS and Culver were merged in August 1996
with CTS continuing as the surviving corporation. The Thread division
manufactured and marketed industrial thread and special engineered yarn used in
non-sewing products. CTS's and Culver's main products were specialty threads
marketed primarily to the wholesale bedding and embroidery market.
In July 1996 the Company completed the sale of its Home Furnishings
division. Proceeds received on the sale adjusted for closing costs and changes
in net asset value of the division subsequent to the contract date totaled $8.2
million, which proceeds were used to pay down the Company's revolving bank loan.
The Company had previously announced its decision to divest the Home Furnishings
division during the fourth quarter of 1995. Consequently, the results of
operations of the Home Furnishings division for 1996 and all prior periods have
been classified as discontinued operations. (See ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS).
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The Home Furnishings division operated under the name Belding Hausman,
was vertically integrated and produced low to medium priced natural and
synthetic, woven, patterned and solid fabrics for use in decorative home
furnishing products such as draperies, upholstery, slipcovers and pillows.
ITEM 2. PROPERTIES
See ITEM 1.
The Company owns a 104,000 square foot packaging and distribution
facility located in Lansing, Iowa. Corporate headquarters and divisional
management, sales and marketing, product development, fashion and purchasing are
headquartered in a leased 7,307 square foot office facility in Carlstadt, New
Jersey. Management believes that the Company's facilities are in good condition
and adequate for the Company's present and reasonably foreseeable future needs.
The Company owns a former dye facility located in Emporia, Virginia,
which is leased to the purchaser of the Company's former Home Furnishings
division under a triple net fifty-year lease with a nominal base rent. In
addition, the Company also owns two facilities no longer used in operations: a
100,000 square foot former production facility at Watertown, Connecticut of
which approximately 48,000 square feet are leased to unrelated third parties and
a former production facility at North Grosvenordale, Connecticut. (See Item 3
Legal Proceedings - Environmental Matters).
ITEM 3. LEGAL PROCEEDINGS
GENERAL. The Company is not currently a party to any significant
litigation except as indicated below.
ENVIRONMENTAL MATTERS. The Company is subject to a number of federal,
state and local environmental laws and regulations, including those concerning
the treatment, storage and disposal of waste, the discharge of effluents into
waterways, the emissions of substances into the air and various health and
safety matters. In addition, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), and comparable
state statutes generally impose joint and several liability on present and
former owners and operators, transporters and generators for remediation of
contaminated properties regardless of fault. These parties are typically
identified as "potentially responsible parties" or PRP.
Several years ago a property owned by the Carlyle Manufacturing
Company, Inc. ("CM") located at 30 Echo Lake Road in Watertown, Connecticut was
being investigated by the United States Environmental Protection Agency ("EPA")
for possible inclusion on the National Priorities List promulgated pursuant to
CERCLA but no such listing has occurred. A Site Inspection conducted at this
location detected certain on-site soil and groundwater contamination, as well as
contamination of nearby water. This site is listed on the Connecticut State
Hazardous Waste Disposal Site list, but remediation activity has not been
required by the Connecticut Department of Environmental Protection ("CTDEP").
CM owns an inactive facility located in North Grosvenordale,
Connecticut at which soil contamination has been found. The Company reported
this contamination to the CTDEP in 1989 and is presently working with the CTDEP
to define remedial options for the site, which it expects will focus primarily
on removal and possible stabilization of contaminated soil on site. The Company
estimates the cost of soil remediation at this site to be approximately $100,000
based upon information on the costs incurred by others in remediating similar
contamination at other locations. As the actual cost of
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remediation at this site will depend on the areal extent of soil contamination
and the remediation options approved for this site in the future by the CTDEP,
no assurances can be given that the actual cost will not be higher than the
Company's current estimate.
In or about June 1992 the Company received notices from the EPA that
the Company, Belding Corticelli Thread Co. ("BCTC") and CM had been identified,
along with 1,300 other parties, as PRPs in connection with the alleged release
of hazardous substances from the Solvents Recovery Service of New England
Superfund Site in Southington, Connecticut (the "SRS site").
The Company settled its alleged liability in connection with the SRS
sites by paying one thousand six hundred twenty six dollars ($1,626), along with
other PRPs, to perform the Remedial Investigation and Feasibility Study ("RIFS")
and two Non-Time Critical Removal Actions ("NTCRA"). The RIFS, and the first
NTCRA (except for certain maintenance activities) have been completed. BCTC and
CM have been allocated approximately .03% and 1.19%, respectively, of costs
incurred to date, based on their alleged volume of waste shipped to the SRS
site. At this time it is not possible to predict when the EPA will issue its
"Record of Decision" concerning the final remedy at the SRS site. The Company is
unable, at this time, to estimate the ultimate cost of the remedy for the SRS
site.
By letter dated January 21, 1994, the EPA gave notice to CM that it had
been identified as a PRP along with about 335 other parties in connection with
the alleged release of hazardous waste at the Old Southington Landfill Superfund
site located in Southington, Connecticut (the "OSL site"). The EPA's claim is
predicated on the allegation that certain waste sent to the SRS site prior to
October 1967 was commingled and transshipped to the OSL site.
On September 3, 1996, CM entered into an agreement (with the EPA and
other members of the SRS PRP Group) to settle its liability in connection with
the First Operable Unit of work ("OU#1") at the OSL site for two thousand
dollars ($2,000). The OU#1 Consent Decree was entered in June, 1998 by the U.S.
District Court for the District of Connecticut.
In September 1997, Pratt and Whitney and the Town of Southington
proposed a de minimis settlement which would allow CM and certain other members
of the SRS PRP Group (as well as certain Direct Shippers) to settle their future
OSL site liability for a sum certain (subject to certain reservation of rights
by the U.S.) Under this proposal CM's required payment is approximately $3,300.
CM has accepted the de minimis offer. The Consent Decree in connection with the
above de minimus settlement will be lodged with the federal court in the near
future.
By letter dated October 30, 1987, the Department of Environmental
Protection of the State of New Jersey ("DEP") notified the Company that CM,
together with 122 other parties, had been identified as a party responsible for
cleanup costs and damage claims paid in connection with the Chemical Control
Corporation hazardous waste site located in Elizabeth, New Jersey. A settlement
between CM and other members of the Chemical Control Responsible Party Group, on
the one hand, and the DEP and the New Jersey Spill Compensation Fund, on the
other hand, was finalized in December 1998. The amount paid by CM was
$142,218.93.
By third-party summons and complaint dated November 27, 1991, CM was
named as a third-party defendant in an action pending in the United States
District Court for the District of Rhode Island entitled
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United States v. Davis. In addition to CM, approximately 60 other companies were
joined as third-party defendants. Amended third-party complaints named
additional third-party defendants. The third-party complaint against CM alleged
claims for contribution under CERCLA, common law indemnification and state law
contribution. The third-party complaint alleged that CM (and the majority of the
other third-party defendants) shipped waste to the CCC site, which waste was
commingled and then shipped to the Davis Liquid Waste site located in
Smithfield, Rhode Island.
CM has entered into an agreement to settle liability in connection with
the above claims for payment of the sum of $200,000. The Consent Decree was
approved in 1998 by the Federal District Court.
By letter dated February 22, 1999, the EPA notified the Company that it
is investigating an uncontrolled environmental hazard site at the former
facilities of Divex, Inc. (the "Divex Site") and requested information which
would enable the EPA to evaluate the Company's involvement with the Divex Site.
The EPA informed the Company that a serious accident had occured at the Divex
Site in September 1993 and that the EPA is attempting to determine if the
Company is a potentially responsible party. The Company is cooperating with the
EPA but has no current information concerning the Divex Site other than what it
has learned from the EPA, and has requested the EPA to furnish it with copies of
documents which allegedly connect the Company to the Divex Site. Accordingly,
the Company is currently unable to make any cost estimate with respect to the
Divex Site.
The estimates provided above do not include costs that the Company or
its subsidiaries may incur for consultants' or attorneys' fees or for
administrative expenses in connection with their participation as part of the
PRP group at the SRS and OSL sites. The reserve the Company has established for
environmental liabilities, in the amount of $1.7 million, represents the
Company's best current estimate of the costs of addressing all identified
environmental problems, including the obligations of the Company and its
subsidiaries relating to the Remedial Investigation and two Non-Time Critical
Removal Actions at the Solvents Recovery Superfund site, based on the Company's
review of currently available evidence, and takes into consideration the
Company's prior experience in remediation and that of other companies, as well
as public information released by EPA and by the PRP groups in which the Company
or its subsidiaries are participating. Although the reserve currently appears to
be sufficient to cover these environmental liabilities, there are uncertainties
associated with environmental liabilities, and no assurances can be given that
the Company's estimate of any environmental liability will not increase or
decrease in the future. The uncertainties relate to the difficulty of estimating
the ultimate cost of any remediation that may be undertaken, including any
operating costs associated with remedial measures, the duration of any
remediation required, the amount of consultants' or attorneys' fees that may be
incurred, the administrative costs of participating in the PRP groups, and any
additional regulatory requirements that may be imposed by the federal or state
environmental agencies.
Escrow Agreement. In connection with the sale of the Thread division to
an affiliate of Hicking Pentecost PLC ("Hicking Pentecost"), $3.0 million of the
proceeds were placed in escrow.
Pursuant to a written indemnity contained in the Thread Division
Agreement, and under a reservation of rights, the Company had assumed the
defense and indemnity of Barbour Threads, Inc. ("Barbour"), as the successor in
interest to Danfield Threads, Inc., Barbour Industries, Inc., and Blue Mountain
Industries, Inc., and an individual, H.D. Whitlow ("Whitlow"), in an adversary
proceeding which relates to a Chapter 11 reorganization, in re Needlecraft
Industries, Inc. (":Needlecraft"), Case No. LA 97-
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41233 LF. The Company has had no role in the bankruptcy or the prosecution of
Barbour's claims against Needlecraft, and other counsel represent Barbour for
that purpose.
In the adversary proceeding, Needlecraft originally sought compensatory
damages of $600,000 and punitive damages of $1 million, reformation of contract,
and declaratory relief from Barbour for alleged breach of an oral contract,
detrimental reliance, and negligent and intentional interference with
prospective economic advantage. At a hearing in January 1998, the Bankruptcy
Court dismissed the claims against Whitlow.
On February 9, 1999, the Court permitted Needlecraft to file an amended
complaint that added new claims, among other things, for alleged resale price
maintenance, price discrimination, disparagement/trade libel, and unfair
competition and increased the compensatory damages claimed to $8.1 million. On
February 24, 1999, the Company notified Hicking Pentecost and the defendants in
the litigation that it rejected the claim for indemnification and will no longer
fund the defense. On March 1, 1999, Hicking Pentecost and Barbour disputed the
Company's rejection of their claim for indemnification and made a new claim for
indemnification based on the amended complaint.
By letter dated February 8, 1999, the CTDEP notified the Company that it
is CTDEP's position that the Company and the buyer of the Thread Division filed
an inappropriate form in connection with the transfer of certain Connecticut
property as part of the sale of the Thread Division. The CTDEP has asserted that
an alternate form and an environmental condition assessment is required. The
Company has notified Hicking Pentecost and Barbour that the Company believes
that compliance within the CTDEP's requirements are their responsibility.
Hicking Pentecost and Barbour have responded by demanding indemnity under the
Thread Division Agreement.
In a complaint filed in the United States District Court, District of
New Jersey, by Liberty Fabrics Rotterdam B.V. ("Liberty") against Barbour and
Danfield Threads, Inc. Liberty has alleged, among other things, breaches of a
distributorship agreement by Barbour and tortious interference by Barbour with
Liberty's agreements with third parties (the "Liberty Claim"). The amount of the
damages sought by Liberty is not currently known, but is alleged to be in excess
of $75,000. Hicking Pentecost and Barbour have asserted that the Company is
obligated by the Thread Division Agreement to indemnify them against costs and
liability of the Liberty claim. The Company has rejected the claim for
indemnification.
The Company expects that if its disagreements with Hicking Pentecost and
Barbour are not otherwise resolved, the dispute will be resolved in an
arbitration proceeding pursuant to the Thread Division Agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(A) Market Information. On September 2, 1998, the New York Stock
Exchange notified the Company that it would be delisted for
failing to meet listing criteria related to aggregate market
value, net income and net tangible assets. On September 4, 1998,
the Company commenced trading on the over-the-counter bulletin
board market under the symbol CRLH. The Company's Common Stock
had been trading on the NYSE, under the symbol CRL since March
27, 1997 and as BHY from February 15, 1995 to March 26, 1997. The
following table sets forth certain information as to the high and
low sales prices per share of the Company's Common Stock as
quoted on the NYSE for each of the last two years.
CALENDAR YEAR COMMON STOCK
-------------- ------------
1997 Low High
---- --- ----
First Quarter $2.00 $3.00
Second Quarter $1.843 $2.25
Third Quarter $1.625 $2.25
Fourth Quarter $1.1875 $2.0625
1998
----
First Quarter $1.1875 $1.5625
Second Quarter $1.1875 $1.625
Third Quarter $.4375 $1.3125
Fourth Quarter $.46875 $1.5625
(B) Holders. There were 174 record holders of the Company's Common
Stock as of February 23, 1999. The Company believes that, as of such date, there
were in excess of 2,148 beneficial holders, including those stockholders whose
shares are held of record by depository companies.
(C) Dividends. No cash dividends on the Common Stock have been paid to
date and the Company has no intention of paying dividends in the foreseeable
future. In addition, dividends on the Common Stock are subject to the prior
right of holders of the Preferred Stock to receive cumulative dividends at the
rate of $.06 per annum per share (or, if the Company defaults on its obligation
to redeem shares of Preferred Stock on the mandatory redemption dates, at the
rate of 6% per annum on the principal amount of the Preferred Stock then
outstanding plus accrued and unpaid dividends thereon). In addition, the holders
of Preferred Stock are entitled, upon a dissolution, liquidation or winding up
of the Company, to an unpaid liquidation preference of $1 per share plus all
accrued and unpaid dividends. Unpaid preferred dividends accrue dividends at a
rate of 6% per annum.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data relating to the
Company and its subsidiaries have been taken or derived from the financial
statements and other records of the Company. Such selected consolidated
financial data are qualified in their entirety by, and should be read in
conjunction with, the consolidated financial statements of the Company.
<TABLE>
<CAPTION>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales $ 23,801 $ 19,641 $ 22,162 $ 20,352 $ 18,949
========= ========= ========= ========= =========
Income from continuing operations 3,160 3,727 2,758 932 4,551
Income (loss) from continuing
operations applicable to common stock (1) 2,021 2,282 1,393 (350) 2,209
Income (loss) from discontinued
operations, net of taxes -- (316) 2,080 (22,502) 3,072
Loss on disposal of discontinued
operations, net of taxes -- (9,801) -- (17,983) --
--------- --------- --------- --------- ---------
Income (loss) applicable to common stock
before extraordinary item 2,021 (7,835) 3,473 (40,835) 5,281
Extraordinary loss on debt prepayment,
net of tax benefit -- -- (266) -- --
--------- --------- --------- --------- ---------
Net income (loss) applicable to common
stock $ 2,021 $ (7,835) $ 3,207 $(40,835)$ 5,281
========= ========= ========= ========= =========
PER COMMON SHARE DATA:
Continuing operations $ .27 $ .31 $ .19 $ (.05) $ .42
Discontinued operations -- (1.37) .28 (5.46) .58
Extraordinary item -- -- (.04) -- --
--------- --------- --------- --------- ---------
Total $ .27 $ (1.06) $ .43 $ (5.51) $ 1.00
========= --------- --------- --------- ---------
Cash dividend per common share None None None None None
========= ========= ========= ========= =========
DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------
BALANCE SHEET DATA:
Working capital $ 9,188 $ 10,646 $ (1,512) $ (323) $ (84)
Total assets $ 17,824 $ 25,062 $ 67,169 $ 75,727 $ 113,531
Long-term debt, capital
lease obligations and
redeemable preferred stock $ 21,108 $ 25,067 $ 56,647 $ 66,845 $ 61,262
Common stockholders' equity $ (17,285) $ (19,306) $ (11,471) $ (14,677) $ 26,162
</TABLE>
(1) Net income in 1994 includes $4.099 million or $.78 per share of gain on
preferred stock redemption.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
Sales during the year ended December 31, 1998 were $23.8 million as
compared to $19.6 million during the comparable period in 1997 for an increase
of $4.2 million. Westwater contributed $4.7 million of incremental sales, all
occurring during the second half of 1998. Somewhat offsetting the favorable
comparison due to Westwater was the impact on sales from customer consolidation
and related store closings occurring principally during the second half of 1997.
Gross margin during the year ended December 31, 1998 totaled $10.9
million as compared to $10.1 million during the comparable period in 1997. The
increase in gross margin dollars in 1998 as compared to 1997 was primarily the
result of Westwater which contributed $1.6 million of gross profit during the
period. During the year, the Company incurred approximately $398 thousand of
incremental cost of goods sold in connection with merchandise distributions
related to new store openings by customers. The gross margin percent for the
year ended December 31, 1998 was 46.0% as compared to 51.6% during 1997. The
decrease in gross margin percent was the result of lower margin in the Westwater
business and incremental costs associated with merchandise distributions related
to new store openings by customers.
Selling, general and administrative expense during the year ended
December 31, 1998 totaled $5.6 million as compared to $4.6 million during the
year ended December 31, 1997. Incremental Westwater selling, general and
administrative expense totaled $1.4 million. A reduction in selling, general and
administrative expense due to lower corporate administrative headcount and
expense offset some of the increase attributable to Westwater.
Net interest expense during the year ended December 31, 1998 totaled
$309 thousand as compared to net interest income of $304 thousand during the
year ended December 31, 1997. The increase in interest expense during 1998 as
compared to 1997 was the result of bank debt outstanding beginning June 23, 1998
in connection with the Preferred stock payment and also the subsequent
acquisitions of Westwater and Streamline. In 1997 interest expense incurred
prior to March 27, 1997 related to outstanding debt under former credit
facilities has been classified as discontinued operations
The provision for income taxes during 1998 totaled $1.9 million as
compared to $2.1 million during the comparable period in 1997. The effective tax
rate in 1998 was 37.1% as compared to 36.3% in 1997.
Preferred dividends accrued during the year ended December 31, 1998
totaled $1.139 million as compared to $1.445 million during the year ended
December 31, 1997. The reduction from 1997 was due to the partial redemption of
preferred stock in June 1998.
Page 11 of 45
<PAGE>
1997 COMPARED TO 1996
Sales during the year ended December 31, 1997 totaled $19.6 million as
compared to $22.2 million during the comparable period in 1996. During the year
ended December 31, 1996 sales were favorably impacted by the initial placement
of a new program with two major customers.
Gross margin during the year ended December 31, 1997 totaled $10.1
million as compared to $11.5 million during the comparable period in 1996. The
gross margin percentage during 1997 was 51.6% compared to 52.0% for 1996.
Selling, general and administrative expense during the year ended
December 31, 1997 totaled $4.6 million as compared to $7.0 million during the
year ended December 31, 1996. The reduction in selling, general and
administrative expense in 1997 as compared to 1996 was primarily the result of
the lower corporate administrative headcount and expense.
Interest expense related to outstanding debt under former credit
facilities is classified as discontinued operations during the years ended
December 31, 1997 and 1996, as the outstanding debt under such credit facilities
was required to be repaid in connection with the sales of the discontinued
operations.
During March 1997 the Company completed the sale of its Thread
division. $37.0 million of the proceeds received on the sale were used to repay
outstanding bank indebtedness. The results of the Thread division for the period
January 1, 1997 through March 26, 1997 and for all prior periods have been
presented as results of discontinued operations.
Summarized condensed operating results of the Thread division through
date of sale in 1997 and for the year ended December 31, 1996 are as follows
(dollars in thousands):
1997 1996
-------- ---------
Net sales $ 9,671 $ 66,845
======== =========
Gross margin 1,589 13,945
Selling, general and administrative 1,271 6,376
-------- ---------
Operating income $ 318 $ 7,569
======== =========
The provision for income taxes during 1997 totaled $2.1 million as
compared to $1.7 million during the comparable period in 1996. The effective
income tax rate in 1997 was 36.3% as compared to 38.7% during 1996.
Preferred dividends accrued during the year ended December 31, 1997
totaled $1.445 million as compared to $1.365 million during the year ended
December 31, 1996.
Page 12 of 45
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company's principal sources of liquidity
included cash and cash equivalents of $55 thousand and trade accounts receivable
of $4.7 million. In addition, the Company had $2.6 million available under its
revolving credit facility as of December 31, 1998.
Cash used by operations during the year ended December 31, 1998 totaled
$4.9 million which included income tax payments totaling $7.2 million made
during the first quarter of 1998 attributable to the tax gain from the sale of
the Thread division in 1997.
On June 23, 1998, the Company entered into a new $14 million revolving
credit agreement (the "Credit Agreement") with Fleet Bank, N.A. ("Fleet"). The
Credit Agreement has a term of five years and amounts available under the
agreement are reduced in $1 million increments at the end of each six month
period, with the first such reduction occurring December 31, 1998. Advances bear
interest equal to, at the Company's option, (1) the rate at which deposits in
U.S. dollars are offered by the principal office of Fleet in London, England to
prime banks in the London interbank market (LIBOR) plus 1.5% or (2) Fleet's
prime rate. A performance price grid provides that interest rates will step down
upon the Company's achievement of specified ratios of funded debt to earnings
before interest, income taxes, depreciation and amortization.
The Credit Agreement is guaranteed by all direct and indirect
subsidiaries of the Company and is secured by a first priority lien or security
interest in substantially all of the assets of the Company. The Credit Agreement
contains representations and warranties, covenants and events of default
customary for credit agreements of this nature. Such customary covenants include
restrictions on the ability to incur more debt, acquire other companies, make
preferred stock payments and use of proceeds from the sale of assets. In
addition to the semi-annual reduction in availability, additional payments may
be required based on the Company's proceeds from asset sales and "excess cash
flow" as defined in the Credit Agreement.
Under the terms of the Company's charter, dividends are payable upon
the Preferred Stock when, as and if declared by the Board of Directors out of
legally available funds. In addition, the Preferred Stock is required to be
redeemed by the Company in annual installments beginning March 15, 1995 through
March 15, 1999, subject among other things to the approval of the Company's
senior lenders, if any and the extent of legally available funds as determined
by the Board of Directors. Prior to March 27, 1997, the Company did not make any
payments on account of the Preferred Stock (either dividend or redemption) as
the Company's lenders declined to approve such payments. However, as of that
date, the Company discharged its credit facility. Consequently, the Company was
in default of its obligations to redeem the Preferred Stock to the extent of its
legally available funds.
On June 23, 1998 the Company paid $12.5 million to holders of its
Series B Preferred stock of record as of June 22, 1998. $10.1 million of this
amount represented the original redemption amount and $2.4 million reflected the
increase in the redemption amount resulting from accumulated and unpaid
dividends. The payment was authorized by the Company's board of directors at its
annual meeting on May 14, 1998, which authorization was contingent upon
obtaining the necessary bank financing and
Page 13 of 45
<PAGE>
receipt of an opinion by its investment banker that the payment could be made
from legally available funds. On June 23, 1998 both such conditions were met and
the payment was made.
As of December 31, 1998, the Preferred Stock payment arrearages
aggregated $8.6 million including accrued but unpaid preferred dividends of $2.9
million. Accrued but unpaid dividends are added to the redemption value of the
Preferred Stock and the total continues to accrue interest at a compound rate of
6% per annum.
The Company is engaged in discussions with Noel, with a view to
satisfying the balance of its obligations to the holders of the Preferred Stock
in accordance with the terms of its charter and to the extent consistent with
the Company's resources. Discussions have dealt with the amount and timing of
payments and possible modifications of the Preferred Stock terms and conditions.
Any such modifications would require the agreement of the Company and the
holders of the Preferred Stock.
The Company intends to fulfill its obligation to the holders of the
Preferred Stock as required by the Company's charter to the extent the Company
has cash resources in excess of those required to operate its business. As the
Company believes that it does not currently have such excess resources, its
ability to make payments on account of the Preferred Stock in the future will
depend on the Company's future cash flow, the timing of the settlement of the
liabilities recorded in the consolidated financial statements of the Company,
the outcome of the negotiations with Noel described above, the ability of the
Company to obtain additional financing and compliance with the Company's new
Credit Facility which presently permits only specified payment amounts including
25% of "excess cash flow", as defined in the agreement. In addition, as the
Company has agreed to notify the Pension Benefit Guaranty Corporation ("PBGC")
prior to making any redemption payment, the Company's decision to make any such
payments will depend on the successful resolution of any issues which may arise
with the PBGC relating to the Company's unfunded liability, if any, to its
defined benefit plan. The Company is also exploring strategic alternatives to
redemption of the preferred stock.
On June 30, 1998, the assets and business of Westwater Enterprises LP
were acquired by Westwater, a newly formed wholly-owned subsidiary of the
Company. Westwater is an importer and distributor of craft and gift products for
sale to retail and specialty chain stores. The Company paid approximately $3.1
million in cash and assumed $.5 million in bank debt. In addition, contingent
payments of up to $2 million may become payable upon the achievement of
specified earnings levels or the event an entity other than Noel acquires a more
than 50% voting control of the Company. The contingent payment period covers the
three years ended December 31, 2000 at which time the contingent payment period
expires.
On December 16, 1998 the Company's wholly owned subsidiary, Blumenthal
Lansing Company acquired the assets and business of Streamline Industries, Inc.
("Streamline") for approximately $1.6 million in cash. Streamline packages and
distributes a line of carded buttons and embelishments for sale to retail and
specialty chain stores.
The acquisitions have been recorded using the purchase method of
accounting. The accounts of Westwater and Streamline have been consolidated with
the accounts of the Company based on preliminary allocations of their respective
purchase prices. These allocations are expected to be finalized after various
studies and other work have been completed. The Company's historical results of
operations include
Page 14 of 45
<PAGE>
Westwater results for the period July 1, 1998 to December 31, 1998 and
Streamline results for the period December 16, 1998 to December 31, 1998.
YEAR 2000 ISSUES
The Company has implemented a plan to address year 2000 issues. The
Company's plan includes the identification and testing of its information
technology components and imbedded technology. In connection with this plan a
detailed list of hardware, software and other micro-processing technology has
been compiled.
The Company's plan includes an evaluation of each identified item as
compliant or not compliant and the testing of each component. Certain
noncompliant systems have been upgraded or replaced and others are scheduled to
be replaced. In addition, the Company's plan includes confirmation with its
significant customers and suppliers regarding their state of readiness with
respect to year 2000 issues. The Company does not currently have complete
information concerning the year 2000 compliance status of all of its major
customers and vendors. In the event that any of the Company's significant
customers or vendors do not successfully and timely achieve year 2000
compliance, the Company's business or operations could be adversely affected.
The Company's primary risks related to year 2000 issues are associated
with the failure of its management information systems, which include billing,
production scheduling, raw material ordering and financial reporting. In
addition, the Company may be at risk if any of its significant customers or
vendors experience risk of failures related to year 2000 issues.
Based on information currently available, management does not
anticipate that the Company will incur significant operating expenses or be
required to invest heavily in computer system improvements to be year 2000
compliant. The cost associated with the Company's year 2000 compliance is
estimated to be less than $50,000. To the extent the Company's systems are not
fully year 2000 compliant, there can be no assurance that potential systems
interruptions or the cost necessary to update software would not have a material
adverse effect on the Company's business, financial condition, results of
operations and business prospects.
Page 15 of 45
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Public Accountants......................................17
Consolidated Balance Sheets- December 31, 1998 and 1997.......................18
Consolidated Statements of Operations -
Years Ended December 31, 1998, 1997 and 1996.........................20
Consolidated Statements of Cash Flows -
Years Ended December 31, 1998, 1997 and 1996 ........................21
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996................22
Notes to Consolidated Financial Statements
for the Years Ended December 31, 1998, 1997 and 1996.................23
Consolidated Financial Statements Schedule
Schedule II - Valuation, Qualifying Accounts and Reserves............37
Page 16 of 45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Carlyle Industries, Inc.
We have audited the accompanying consolidated balance sheets of Carlyle
Industries, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations, cash flows
and stockholders' equity for each of the three years in the period ended
December 31, 1998. These consolidated 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, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Carlyle
Industries, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The 1998, 1997 and 1996 schedule listed
in the index to financial statements and schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The 1998, 1997 and 1996 schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
February 25, 1999
Page 17 of 45
<PAGE>
<TABLE>
<CAPTION>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1998 DECEMBER 31, 1997
ASSETS ----------------- -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 55 $ 12,475
Accounts receivable trade (net of allowance
of $1,263 and $879, respectively) 4,701 3,040
Inventories, net 4,592 2,541
Current deferred tax asset 2,646 2,740
Other current assets 219 118
-------- --------
Total current assets 12,213 20,914
-------- --------
Property, plant and equipment, at cost:
Land 40 40
Building and improvements 1,868 1,852
Machinery and equipment 843 617
-------- --------
2,751 2,509
Less: Accumulated depreciation and amortization (922) (739)
-------- --------
Net property, plant and equipment 1,829 1,770
-------- --------
Goodwill (net of amortization of $759 and $656, respectively) 2,955 2,152
Other assets 827 226
-------- --------
Total Assets $ 17,824 $ 25,062
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
Page 18 OF 45
<PAGE>
<TABLE>
<CAPTION>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AND SHARE DATA)
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,296 $ 731
Current maturities of long-term debt 56 51
Federal income taxes payable 390 6,514
Other current liabilities 1,283 2,972
-------- --------
3,025 10,268
-------- --------
Long-term Debt 10,421 78
Other Liabilities 8,034 9,033
-------- --------
Total Liabilities 21,480 19,379
-------- --------
Redeemable Preferred Stock, par value $0.01 per share
Shares authorized:
21,305,055 at December 31, 1997
11,187,451 at December 31, 1998
Shares issued and outstanding: 10,687 20,805
Series A - None
Series B - 20,805,060 at December 31, 1997
10,687,456 at December 31, 1998
Accumulated dividends on preferred stock 2,942 4,184
-------- --------
13,629 24,989
-------- --------
Common Stock, par value $0.01 per share
20,000,000 shares authorized;
Shares issued and outstanding: 74 74
7,382,782 at December 31, 1997 and 1998
Paid in Capital 19,858 19,858
Retained Earnings (37,217) (39,238)
-------- --------
Total Common Stockholders' Equity (17,285) (19,306)
-------- --------
Total Liabilities and Stockholders' Equity $ 17,824 $ 25,062
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
Page 19 of 45
<PAGE>
<TABLE>
<CAPTION>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Net sales $ 23,801 $ 19,641 $ 22,162
Cost of sales 12,852 9,497 10,638
--------- -------- ---------
10,949 10,144 11,524
Selling, general & administrative expenses 5,623 4,612 7,022
Other income, net (10) (12) (52)
--------- -------- ---------
Income from continuing operations before
interest and income taxes 5,336 5,544 4,554
Interest income (expense) (309) 304 (52)
--------- -------- ----------
Income from continuing operations before taxes 5,027 5,848 4,502
Provision for income taxes 1,867 2,121 1,744
--------- -------- ---------
Income from continuing operations 3,160 3,727 2,758
Less dividends on preferred stock 1,139 1,445 1,365
--------- -------- ---------
Income from continuing operations applicable
to common stock 2,021 2,282 1,393
Income (loss) from discontinued operations,
net of income tax provision -- (316) 2,080
Loss on disposal of discontinued operations,
net of income tax -- (9,801) --
--------- -------- ---------
Income (loss) applicable to common stock
before extraordinary item 2,021 (7,835) 3,473
Extraordinary loss on debt prepayment, net of tax
benefit of $178 in 1996 -- -- (266)
--------- -------- ---------
Net income (loss) applicable to common stock $ 2,021 $ (7,835) $ 3,207
========= ======== =========
Basic earnings per common share:
Continuing operations $ .27 $ .31 $ .19
Discontinued operations -- (1.37) .28
Extraordinary item -- -- (.04)
--------- -------- --------
Total $ .27 $ (1.06) $ 0.43
========= ======== ========
Diluted earnings (loss) per common share:
Continuing operations $ .27 $ .31 $ .19
Discontinued operations -- (1.37) .28
Extraordinary item -- -- (.04)
--------- -------- --------
Total $ .27 $ (1.06) $ .43
========= ======== ========
Dividend declared per common share -- -- --
========= ======== ========
Weighted average common shares
outstanding (in thousands) 7,383 7,386 7,395
========= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
Page 20 of 45
<PAGE>
<TABLE>
<CAPTION>
CARLYLE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 3,160 $ 3,727 $ 2,758
Reconciliation of net income from continuing
operations to net cash provided (used) by operations:
Depreciation and amortization 611 452 480
Deferred tax provision 383 2,521 1,609
Changes in operating assets and liabilities:
Accounts receivable 167 (193) 275
Inventory 1,015 297 682
Federal income taxes receivable -- -- 675
Other current assets -- -- (2,031)
Federal income taxes payable (6,248) -- --
Accounts payable (240) (790) 198
Other current liabilities (1,463) 80 (273)
Other operating assets and liabilities (1,889) (2,363) (554)
Cash flow from extraordinary item -- -- (266)
Cash flow from discontinued operations (393) (5,968) (1,093)
--------- --------- --------
(4,897) (2,237) 2,460
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations -- 51,924 8,190
Investment in net assets of acquired businesses (5,249) -- --
Capital expenditures (113) (323) (56)
--------- --------- --------
(5,362) 51,601 8,134
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility and
capitalized lease obligations 19,769 20,279 31,809
Repayment of long-term debt and capital lease obligations (9,430) (57,299) (43,268)
Preferred stock payment (12,500) -- --
--------- --------- --------
(2,161) (37,020) (11,459)
--------- --------- --------
Increase (decrease) in cash and cash equivalents (12,420) 12,344 (865)
Cash and cash equivalents beginning of year 12,475 131 996
--------- --------- --------
Cash and cash equivalents end of year $ 55 $ 12,475 $ 131
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 380 $ 856 $ 4,321
========= ========= =======
Income taxes $ 8,420 $ 152 $ 185
========= ========= =======
</TABLE>
See Notes to Consolidated Financial Statements
Page 21 of 45
<PAGE>
<TABLE>
<CAPTION>
CARLYLE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
PAID IN RETAINED
SERIES B PREFERRED STOCK COMMON STOCK CAPITAL EARNINGS
------------------------------------------ ------------------------- ------- --------
Accum.
------
Shares Amount Dividend Shares Amount
------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1995 20,805,060 $ 20,805 $ 1,374 7,409,282 $ 74 $ 19,859 $ (34,610)
========== ========== ========== ========== ========== ========== ==========
Net income 4,572
Dividends accrued on
preferred stock 1,365 (1,365)
Common stock returned (21,000) (1)
---------- ---------- ---------- ---------- ---------- ----------
DECEMBER 31, 1996 20,805,060 $ 20,805 $ 2,739 7,388,282 $ 74 $ 19,858 $ (31,403)
========== ========== ========== ========== ========== ========== ==========
Net loss (6,390)
Dividends accrued on
preferred stock 1,445 (1,445)
Common stock returned (5,500)
---------- ---------- ---------- ---------- ---------- ---------- ----------
DECEMBER 31, 1997 20,805,060 $ 20,805 $ 4,184 7,382,782 $ 74 $ 19,858 $ (39,238)
========== ========== ========== ========== ========== ========== ==========
Net income 3,160
Dividends accrued on
preferred stock 1,139 (1,139)
Dividends paid on
preferred stock (2,381)
Preferred stock redemption
(10,117,604) $ (10,118)
---------- ---------- ---------- ---------- ---------- ---------- ----------
DECEMBER 31, 1998 10,687,456 $ 10,687 $ 2,942 7,382,782 $ 74 $ 19,858 $ (37,217)
========== ========== ========== ========== ========== ---------- ==========
</TABLE>
See Notes to Consolidated Financial Statements
Page 22 of 45
<PAGE>
CARLYLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATION: Carlyle Industries, Inc. (the "Company") and its
Subsidiaries distribute a line of buttons, craft and gift products. The Company
was organized under the laws of the State of Delaware in 1947.
CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of the Company and all subsidiaries after elimination of
intercompany items and transactions.
RECLASSIFICATIONS AND DISCONTINUED OPERATIONS: In order to conform to
the 1998 presentation, certain reclassifications were made to the prior years'
financial statements. See Note 4 regarding discontinued operations.
REVENUE RECOGNITION:Revenue is recognized upon shipment of merchandise.
SALES RETURNS: The Company estimates an allowance for sales returns
based on historical sales and sales returns and records a related allowance, if
significant.
ALLOWANCE FOR DOUBTFUL ACCOUNTS: The Company maintains a reserve for
doubtful accounts which includes 100% of all invoices that management deems
doubtful of collection.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization are
computed principally by the straight-line method for each class of depreciable
and amortizable asset based on their estimated useful lives. Buildings and
improvements, machinery and equipment, and furniture, fixtures and leasehold
improvements are generally depreciated over periods of 20-35, 5-25 and 5-10
years, respectively.
INCOME TAXES: Deferred income taxes are determined using the liability
method following the provisions of Statement of Financial Accounting Standards
("SFAS") No. 109 (Accounting for Income Taxes) whereby the future expected
consequences of temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements are
recognized as deferred tax assets and liabilities.
IMPAIRMENT: Long term assets are reviewed for impairment following the
provisions of SFAS No. 121 (Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of). Goodwill not associated with
particular assets is reviewed for impairment based on an analysis of
undiscounted future cash flows associated with the related operation.
GOODWILL: Goodwill is amortized on a straight line basis over periods
ranging from 15 to 30 years.
ENVIRONMENTAL LIABILITIES: The Company accrues for losses associated
with environmental remediation obligations when such losses are probable and
reasonably estimable. Accruals for estimated losses from environmental
remediation obligations generally are recognized no later than completion of the
remedial feasibility study. Such accruals are adjusted as further information
develops or circumstances
Page 23 of 45
<PAGE>
change. Costs of future expenditures for environmental remediation obligations
are not discounted to their present value.
CASH EQUIVALENTS: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company 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.
2. ACQUISITIONS
On June 30, 1998, the assets and business of Westwater Enterprises LP
were acquired by Westwater Industries, Inc. ("Westwater"), a newly formed
wholly-owned subsidiary of the Company. Westwater is an importer and distributor
of craft and gift products for sale to retail and specialty chain stores. The
Company paid approximately $3.1 million in cash, assumed $.5 million in bank
debt. In addition, contingent payments of up to $2 million may become payable
upon the achievement of specified earnings levels or the event an entity other
than Noel Group, Inc. acquires a more than 50% voting control of the Company.
The contingent payment period covers the three years ended December 31, 2000 at
which time the contingent payment period expires.
On December 16, 1998 the Company acquired certain assets and the
business of Streamline Industries, Inc. ("Streamline") for approximately $1.6
million in cash. Streamline packages and distributes a line of carded buttons
and embelishments for sale to retail and specialty chain stores.
Both acquisitions have been recorded using the purchase method of
accounting. The accounts of Westwater and Streamline have been consolidated with
the accounts of the Company based on preliminary allocations of their respective
purchase prices. These allocations are expected to be finalized after various
studies and other work have been completed. The Company's historical results of
operations include Westwater results for the period July 1, 1998 to December 31,
1998 and Streamline results for the period December 16, 1998 to December 31,
1998.
3. PRO FORMA INFORMATION
The following pro forma condensed consolidated financial information
was prepared assuming Westwater was acquired on January 1, 1998 and 1997
respectively, and that the transaction was accounted for as a purchase. These
pro forma results are based on a preliminary allocation of the purchase price
and such pro forma results may change as the respective purchase price
allocations change. Pro forma information is presented for comparative purposes
only and does not purport to be indicative of the results which would have been
achieved had the acquisition occurred as of January 1, 1998 and 1997
respectively, nor does it purport to be indicative of results that may be
achieved in the future. Sales and income during the period December 16, 1998 to
December 31, 1998 attributable to the Streamline acquisition were not
significant and, therefore, pro forma amounts presented in this footnote do not
include the pro forma effects of such acquisition.
Page 24 of 45
<PAGE>
<TABLE>
<CAPTION>
Unaudited
(Dollars in thousands except per share data)
Years Ended December 31
----------------------
1998 1997
---- ----
<S> <C> <C>
Net Sales $ 27,924 $ 28,863
========== ==========
Income before taxes $ 4,933 $ 6,908
========== ==========
Net income before preferred dividends $ 3,132 $ 4,397
========== ==========
Preferred stock dividends $ 1,139 $ 1,445
========== ==========
Net income (loss) attributable to
common stock $ 1,993 $ 2,952
========== ==========
Earnings per share $ .27 $ .40
========== ==========
</TABLE>
4. DISCONTINUED OPERATIONS:
On March 26, 1997, the Company sold the assets and specified
liabilities of the Company's Thread division to an affiliate of Hicking
Pentecost PLC ("HP"). The aggregate cash consideration was $54.9 million, of
which $3.0 million was placed in escrow subject to certain post-closing
adjustments, plus the assumption of approximately $6.8 million of long term
liabilities. The proceeds from the $3.0 million held in escrow, if any, will be
recognized as income from discontinued operations, net of related income taxes
when, and if, the funds become receivable by the Company.
In connection with this sale, the Company repaid all of its outstanding
bank debt using proceeds received in the transaction. No penalties were incurred
by the Company in connection with this prepayment. In addition, the Company paid
approximately $7.3 million of income taxes related to the tax gain resulting
from this transaction in March 1998. Nondeductible goodwill associated with the
Thread division amounting to approximately $18.0 million was charged to
discontinued operations in connection with the sale. Operating results of the
Thread division for 1997 through the date of disposition and for all prior
periods have been presented as discontinued operations. The Thread division had
revenues of $9.8 million through the date of disposition in 1997 and $66.8
million during the year ended December 31, 1996.
During the fourth quarter of 1995, the Company announced its decision
to divest the Home Furnishings division. Consequently, the results of operations
of the Home Furnishings division for 1996 through the date of its sale on July
31, 1996 are classified as discontinued operations.
Proceeds of $8.2 million were received on the sale of this division and
were used to pay down the Company's revolving bank loan. Such net proceeds
approximated the amount that had been borrowed under the revolving loan in
support of the Home Furnishings division's inventories and receivables. The
repayment of bank debt was sufficient in amount to avoid bank fees that would
have been payable had the Company not completed the sale within the time frame
prescribed by the Company's former credit agreement dated October 29, 1993, as
amended, or in an amount sufficient to repay amounts borrowed against the
division's inventories and receivables. The Home Furnishings division had
revenues of $19.2 million through the date of disposition in 1996.
Page 25 of 45
<PAGE>
5. INVENTORIES:
The components of inventories as of December 31, net of reserves are as
follows (dollars in thousands):
1998 1997
--------- ---------
Raw materials $ 1,790 $ 1,976
Work in progress 10 10
Finished goods 2,792 555
--------- ---------
$ 4,592 $ 2,541
========= =========
At December 31, 1998 inventories were valued on both the last-in
first-out ("LIFO") basis and the first-in first-out ("FIFO") basis. At December
31, 1997, all inventories were valued by the last-in first-out ("LIFO") basis.
If the first-in, first-out ("FIFO") method (which approximates replacement
costs) of inventory accounting had been used by the Company, inventories would
not have been materially affected.
Inventories are stated at lower of cost or market. Cost elements
included in inventory are material, labor and overhead, primarily using standard
cost, which approximates actual cost.
6. OTHER CURRENT LIABILITIES AND OTHER LIABILITIES:
Other liabilities as of December 31 consist of the following (dollars
in thousands):
<TABLE>
<CAPTION>
CURRENT 1998 1997
------- ---- ----
<S> <C> <C>
Insurance............................................ $ -- $ 725
Salaries, wages, bonuses and other compensation...... 513 570
State income taxes................................... -- 731
Other................................................ 762 946
--------- ---------
$ 1,275 $ 2,972
========= =========
LONG TERM 1998 1997
--------- ---- ----
Pension liabilities.................................. $ 1,894 $ 2,855
Environmental accruals............................... 1,656 1,911
Other post-retirement benefits....................... 3,166 2,873
Other................................................ 1,318 1,394
--------- ---------
$ 8,034 $ 9,033
========= =========
</TABLE>
7. LONG TERM DEBT:
On June 23, 1998, the Company entered into a new $14 million revolving
credit agreement (the "Credit Agreement") with Fleet Bank, N.A. ("Fleet"). The
Credit Agreement has a term of five years and amounts available under the
agreement are reduced in $1 million increments at the end of each six month
period, with the first such reduction occurring December 31, 1998. Advances bear
interest equal to, at the Company's option, (1) the rate at which deposits in
U.S. dollars are offered by the principal office of Fleet in London, England to
prime banks in the London interbank market (LIBOR) plus 1.5% or (2) Fleet's
prime rate. A performance price grid provides that interest rates will step down
upon the Company's achievement of specified ratios of funded debt to earnings
before interest, income taxes, depreciation and amortization.
Page 26 of 45
<PAGE>
The Credit Agreement is guaranteed by all direct and indirect
subsidiaries of the Company and is secured by a first priority lien or security
interest in substantially all of the assets of the Company. The Credit Agreement
contains representations and warranties, covenants and events of default
customary for credit agreements of this nature. Such customary covenants include
restrictions on the ability to incur more debt, acquire other companies, make
preferred stock payments and use of proceeds from the sale of assets. In
addition to the semi-annual reduction in availability, additional payments may
be required based on the Company's proceeds from asset sales and "excess cash
flow" as defined in the Credit Agreement.
Debt obligations as of December 31 consist of (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revolving credit facility............................ $ 10,400 $ --
Capitalized lease obligations........................ 77 129
--------- ---------
................................................ 10,477 129
Less: Current maturities............................ 56 51
--------- ---------
$ 10,421 $ 78
========= =========
</TABLE>
8. LEASE PAYMENTS:
The following is a schedule of future minimum lease payments under
capital and non-cancelable operating leases with initial or remaining terms of
one year or more at December 31, 1998 (dollars in thousands):
1999 $ 70
2000 26
-------
Total minimum lease payments 96
Amount representing interest 11
-------
Present value of future minimum lease
payments (including current portion of $64) $ 85
=======
Rental expense for premises and machinery and equipment leased by the
Company under operating leases was as follows (dollars in thousands):
YEARS ENDED DECEMBER 31,
1998 1997 1996
-------- --------- ---------
Premises $ 132 $ 101 $ 374
Machinery $ 5 $ 8 $ 8
9. FINANCIAL INSTRUMENTS:
The Company's financial instruments are comprised of cash, cash
equivalents, accounts receivable, long term debt and Series B Preferred Stock at
December 31, 1998. The carrying amounts of cash, cash equivalents, accounts
receivable and long term debt approximate fair values due to the short-term
maturity of cash, cash equivalents and accounts receivable and in the case of
long term debt due to the Company's forecasted ability to repay such debt and
accrued interest. It was not practicable to obtain an estimate of the fair value
of the Company's Series B Preferred Stock.
Page 27 of 45
<PAGE>
10. CUSTOMER CONCENTRATION:
During the years ended December 31, 1998, 1997 and 1996, the Company
conducted business with four customers whose aggregate sales volume represented
approximately 77%, 78% and 75% of the Company's net revenues, respectively.
These customers also represented approximately 72% and 87% of the total
outstanding accounts receivable as of December 31, 1998 and 1997 respectively. A
reduction in sales to any of these customers could adversely impact the
financial condition and results of operations of the Company.
11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS:
The Company sponsors a defined benefit plan which requires no
contribution from the employees. The plan was frozen as of December 31, 1994,
and no new employees have been eligible to join this plan after that date. Prior
to December 31, 1994, the Plan covered substantially all employees. The
employees covered under this plan do not receive any additional accruals for
service rendered after December 31, 1994. Plan assets consist principally of
common stocks and U.S. Government and corporate obligations. The benefits under
this plan are determined based on formulas which reflect the employees' years of
service and compensation during their employment period. The projected unit
credit method is used to determine pension cost. Funding requirements for the
plan are based on the unit credit method. The Company's policy is to fund
pension cost as required by ERISA.
The Company provides certain health and life insurance benefits for
eligible retirees and their dependents. The Company accounts for post retirement
benefits in accordance with SFAS No. 106 (Employers' Accounting for
Post-retirement Benefits Other Than Pensions), whereby the cost of
post-retirement benefits are accrued during employees' working careers. The plan
is not funded. The Company's policy is to pay the cost of benefits as incurred.
Certain benefits are available to full-time employees who were over age 30, as
of January 1, 1992, provided such employees work for the Company for 25 years
and reach certain ages, but not less than age 55. Employees hired after January
1, 1993 are not eligible to receive benefits under this Plan. (dollars in
thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
YEARS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 20,704 $ 19,525 $ 3,356 $ 3,402
Service cost -- -- 1 --
Interest costs 1,457 1,481 218 251
Actuarial loss (gain) 1,138 1,350 (240) (110)
Benefits paid (1,649) (1,652) (167) (187)
-------- -------- -------- --------
Benefit obligation at end of year $ 21,650 $ 20,704 $ 3,168 $ 3,356
======== ======== ======== ========
</TABLE>
Page 28 of 45
<PAGE>
<TABLE>
<CAPTION>
CHANGE IN PLAN ASSETS
<S> <C> <C> <C> <C>
Fair value of plan assets at beginning of year $ 22,542 $ 19,877 $ -- $ --
Actual return on plan assets 1,679 4,176 -- --
Employer contribution -- 141 -- --
Benefits paid (1,649) (1,652) -- --
-------- -------- -------- --------
Fair value of plan assets at end of year $ 22,572 $ 22,542 $ -- $ --
======== ======== ======== ========
Funded status $ 922 $ 1,838 $ (3,168) $ (3,356)
Unrecognized net actuarial loss (gain) (1,283) (2,864) 177 429
Unrecognized prior service cost -- -- (175) (190)
-------- -------- -------- --------
Accrued benefit cost $ (361) $ (1,026) $ (3,166) $ (3,117)
======== ======== ======== ========
Weighted average assumptions as of December 31:
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets 9.50% 9.50% N/A N/A
Rate of compensation increase N/A N/A N/A N/A
COMPONENTS OF NET PERIODIC BENEFIT COST
Service -- -- 1 --
Interest cost 1,457 1,481 218 251
Expected return on plan assets (2,073) (1,816) -- --
Amortization of prior service cost -- -- (15) 54
Recognized net actuarial loss (gain) (49) -- 11 --
-------- -------- -------- --------
Net periodic benefit cost $ (665) $ (335) $ 215 $ 305
======== ======== ======== ========
</TABLE>
A one-percentage-point change in assumed health care cost trend rates
would not change the actuarial present value of the accumulated post-retirement
benefit obligations due to annual limitations of Company contributions per
employee.
12. PENSION BENEFIT GUARANTY CORPORATION:
In January 1997, the Pension Benefit Guaranty Corporation ("PBGC")
notified the Company that it was considering whether the sale of the Thread
division to HP would create an obligation under ERISA to immediately fund, in
whole or in part, the Company's unfunded liability to its defined benefit plan.
In February 1997, at the request of the PBGC, the Company agreed to provide the
PBGC with at least thirty (30) days advance notice of any proposed dividend,
stock redemption, stockholder buyback or other distribution to shareholders of
any class of equity which is projected to occur at any time prior to March 31,
2002. In consideration of such agreement, the PBGC agreed not to take action
solely with respect to the proposed sale transaction. In December 1997, the
Company notified the PBGC that it intends to redeem $10 million of Preferred
Stock as soon after year end as was practicable, plus additional amounts
quarterly thereafter, but only to the extent of legally available funds as
determined by the Board of Directors and if appropriate bank financing had been
satisfactorily obtained. Following such notice, the PBGC indicated that it would
not take any action with respect to such payments.
If the PBGC had taken the position that the Company should fund, in
whole or in part, the unfunded liability to the defined benefit plan, after
receiving notice of a proposed dividend, stock redemption, stockholder buyback
or other distribution to shareholders, and if such position were upheld, the
ability of the Company to take any such proposed action could be adversely
affected. The Company's liability to its defined benefit plan is recorded, in
accordance with financial accounting standards, at $361 thousand as of
Page 29 of 45
<PAGE>
December 31, 1998. Were the plan to be terminated or were the PBGC to require
that the plan be funded according to different standards, the Company's
obligation to transfer cash to the plan could be larger than the liability
reflected on the balance sheet. Based on an actuarial estimate, the obligation
to transfer cash in the event of a termination would be $3.3 million in excess
of the balance sheet liability. Any actual amounts transferred in the event of a
plan termination would depend on PBGC action and market conditions at the time
of transfer and could differ significantly from this estimate. For information
with respect to the Company's liability to its defined benefit plan, see Note
11.
13. STOCKHOLDERS' EQUITY:
COMMON STOCK
Each share of Common Stock is entitled to one vote per share. As of
December 31, 1998 there were 20,000,000 shares of Common Stock authorized and
7,382,782 shares outstanding.
PREFERRED STOCK
Each share of Series B Preferred Stock is entitled to one vote per
share. As of December 31, 1998 there were 11,187,451 shares of Preferred Stock
authorized and 10,687,456 shares of Series B Preferred Stock issued and
outstanding. The Series B Preferred Stock is entitled to a preference on
liquidation equal to $1 per share plus accrued and unpaid dividends at the rate
of $.06 per annum per share. There remain 499,995 shares of authorized but
unissued shares of blank check Preferred Stock.
Twenty percent of the shares of Series B Preferred are scheduled to be
redeemed by the Company, from funds legally available therefore, on March 15th
of each year commencing in 1995 and ending in 1999. Such shares may also be
redeemed at any time at the Company's option. On June 23, 1998 the Company paid
$12.5 million to holders of its Series B Preferred stock of record as of June
22, 1998. $10.1 million of this amount represented the original redemption
amount and $2.4 million reflected the increase in the redemption amount
resulting from accumulated and unpaid dividends.
Dividends on the Series B Preferred Stock accrue at an annual rate of
6% and are payable quarterly on March 15, June 15, September 15, and December
15. Additional dividends accrue on all scheduled but unpaid dividends at a rate
of 6% per annum.
The amount of accrued but unpaid dividends at December 31, 1998 was
approximately $2.9 million or $.40 per common share. In addition, the
availability of resources to make payments to the holders of Preferred Stock in
the future will depend on the Company's future cash flow, the timing of the
settlement of the liabilities recorded in the financial statements of the
Company; and the ability of the Company to obtain financing.
Because of its holdings of Preferred Stock, Noel Group, Inc. ("Noel")
has approximately 54.9% of the vote with respect to the Company's capital stock.
14. DEFAULT ON PREFERRED STOCK
Under the terms of the Company's charter, dividends are payable upon
the Preferred Stock when, as and if declared by the Board of Directors out of
legally available funds. In addition, the Preferred Stock is required to be
redeemed by the Company in annual installments beginning March 15, 1995
Page 30 of 45
<PAGE>
through March 15, 1999, subject among other things to the approval of the
Company's senior lenders, if any and to the extent of legally available funds as
determined by the Board of Directors. Prior to March 27, 1997, the Company did
not make any payments on account of the Preferred Stock (either dividend or
redemption) as the Company's lenders declined to approve such payments. However,
as of that date, the Company discharged its credit facility. Consequently, the
Company was in default of its obligations to redeem the Preferred Stock to the
extent of its legally available funds.
On June 23, 1998 the Company paid $12.5 million to holders of its
Series B Preferred stock of record as of June 22, 1998. $10.1 million of this
amount represented the original redemption amount and $2.4 million represented
the increase in the required redemption payment resulting from accumulated and
unpaid dividends. The payment was previously authorized by the Company's Board
of Directors at its annual meeting on May 14, 1998, which authorization was
contingent upon obtaining the necessary bank financing and receipt of an opinion
by its investment banker that the payment could be made from legally available
funds. On June 23, 1998 both such conditions were met and the payment was made.
As of December 31, 1998, the Preferred Stock payment arrearages
aggregated $9.5 million including accrued but unpaid preferred dividends of $2.9
million. Accrued but unpaid dividends are added to the redemption value of the
Preferred Stock and the total continues to accrue interest at a compound rate of
6% per annum.
The Company is engaged in discussions with Noel, with a view to
satisfying the balance of its obligations to the holders of the Preferred Stock
in accordance with the terms of its charter and to the extent consistent with
the Company's resources. Discussions have dealt with the amount and timing of
payments and possible modifications of the Preferred Stock terms and conditions.
Any such modifications would require the agreement of the Company and the
holders of the Preferred Stock.
The Company intends to fulfill its obligation to the holders of the
Preferred Stock as required by the Company's charter to the extent the Company
has cash resources in excess of those required to operate its business. As the
Company believes that it does not currently have such excess resources, its
ability to make payments on account of the Preferred Stock in the future will
depend on the Company's future cash flow, the timing of the settlement of the
liabilities recorded in the consolidated financial statements of the Company,
the outcome of the negotiations with Noel described above, the ability of the
Company to obtain additional financing and compliance with the Company's new
Credit Facility which presently permits only specified payment amounts including
25% of "excess cash flow", as defined in the agreement. In addition, as the
Company has agreed to notify the PBGC prior to making any redemption payment,
the Company's decision to make any such payments will depend on the successful
resolution of any issues which may arise with the PBGC relating to the Company's
unfunded liability, if any, to its defined benefit plan. The Company is also
exploring strategic alternatives to redemption of the Preferred Stock.
15. INCOME TAXES:
The income (loss) before income taxes for the periods ended December
31, 1998, 1997 and 1996 are substantially all domestic in origin.
The components of the income tax provision or benefit are (dollars in
thousands):
Page 31 of 45
<PAGE>
CONTINUING OPERATIONS
YEARS ENDED DECEMBER 31,
1998 1997 1996
-------------------------------------
Current provision (benefit) 383 $ (400) $ 135
Deferred provision 1,484 2,521 1,609
-------- --------- --------
$ 1,867 $ 2,121 $ 1,744
======== ========= ========
DISCONTINUED OPERATIONS
YEARS ENDED DECEMBER 31,
1998 1997 1996
-------------------------------------
Current provision -- $ 7,503 $ 111
Deferred provision (benefit) $ -- (2,162) 1,324
-------- ---------- --------
$ -- $ 5,341 $ 1,435
======== ========= ========
The Company's tax provision or benefit differed from that which would
have been provided at a 34% rate as follows (dollars in thousands):
CONTINUING OPERATIONS
YEARS ENDED DECEMBER 31,
1998 1997 1996
-------------------------------------
Federal provision at 34% $ 1,709 $ 1,988 $ 1,531
State and local provision, net 100 95 170
Amortization of goodwill 32 32 31
Other, net 26 6 12
--------- --------- --------
$ 1,867 $ 2,121 $ 1,744
========= ========= ========
DISCONTINUED OPERATIONS
YEARS ENDED DECEMBER 31,
1998 1997 1996
-------------------------------------
Federal provision at 34% $ -- $ (1,624) $ 1,160
Foreign loss (income) -- -- --
State and local provision, net -- 352 15
Amortization/write-off of goodwill -- 6,119 257
Other, net -- 494 3
--------- --------- --------
$ -- $ 5,341 $ 1,435
========= ========= ========
Page 32 of 45
<PAGE>
At December 31, 1998 and 1997, the components of the net deferred tax asset
are (dollars in thousands):
1998 1997
--------- --------
Book value of fixed assets over tax basis $ (536) $ (536)
Pension liabilities 701 1,056
Other post-retirement benefit liability 1,171 1,063
Environmental accruals 613 707
Operating and capital loss carryforwards 402 402
Other, net 295 48
--------- --------
$ 2,646 $ 2,740
========= ========
Based on the Company's business plan for the future, management is of
the opinion that it is more likely than not that the deferred tax asset at
December 31, 1998 will be realized.
16. INCENTIVE PROGRAM:
As of December 6, 1994, the Company's voting stockholders adopted the
1994 Incentive Program (the "Program"). Grants under the Program may consist of
incentive stock options, non-qualified stock options, stock appreciation rights
in tandem with stock options or freestanding, restricted stock grants, or
restored options. In connection with the Program, 500,000 shares of Common Stock
were available for grants at the start of the Program. In addition, on April 22,
1997, the stockholders voted to amend the Program by increasing the number of
shares available for grant by 500,000.
SFAS No. 123 (Accounting for Stock-Based Compensation) modifies the
accounting and reporting standards for the Company's stock-based compensation
plans. SFAS 123 provides that stock-based awards be measured at their fair value
at the grant date in accordance with a valuation model. This measurement may
either be recorded in the Company's basic financial statements or the pro forma
effect on earnings may be disclosed in its financial statements. The Company has
elected to provide the pro forma disclosures.
The Company's reported and pro forma net income and earnings per share are as
follows:
1998 1997 1996
--------- --------- --------
Net Income (loss):
As Reported $ 2,021 $ (7,835) $ 3,207
Pro Forma $ 1,881 $ (7,917) $ 3,017
Basic EPS:
As Reported $ .27 $ (1.06) $ .43
Pro Forma $ .25 $ (1.07) $ .41
Diluted EPS:
As Reported $ .27 $ (1.06) $ .43
Pro Forma $ .25 $ (1.07) $ .41
The Company may grant options for up to 1,000,000 shares under the
Program. The Company has granted options on 773,081 shares through December 31,
1998. Under the Program the option exercise price equals the stock's market
price on date of grant.
Program options vest over a three to four-year period and expire after ten
years.
Page 33 of 45
<PAGE>
A summary of the status of the Program's outstanding grants and
weighted average exercise prices at December 31, 1998, 1997 and 1996 and changes
during the years then ended is presented in the table and narrative below
(shares in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 706 $ 4.83 448 $ 5.38 246 $ 8.54
Granted 172 1.185 330 2.00 217 2.11
Exercised -- -- -- -- -- --
Forfeited (105) 2.02 (72) 5.14 (15) 10.00
Expired -- -- -- -- -- --
----- ------ ----- ------ ----- ------
End of year 773 $ 4.40 706 $ 4.83 448 $5.385
===== ====== ===== ====== ===== ======
Shares exercisable at end
of year 541 427 123
===== ===== =====
Weighted average exercise
price of exercisable options $4.15 $4.38 $8.83
===== ===== =====
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively: risk-free
interest rates of 5.7, 6.5 and 6.7 percent, expected dividend yields of zero
percent; expected lives of 5.4, 4.9 and 6.1 years; expected volatility of 75, 35
and 83 percent.
17. EARNINGS PER COMMON SHARE:
In 1997, the Company adopted SFAS No. 128 (Earnings per Share). The
adoption of SFAS No. 128 had no effect on previously reported earnings per
share. Options to purchase shares of common stock of the Company had no effect
on earnings per share because the exercise price of such options exceeded the
market price of the Company's common stock in each of the years ended December
31, 1998, 1997 and 1996. Basic earnings per common share have been presented as
earnings from continuing operations, earnings from discontinued operations, and
earnings from extraordinary item. Basic earnings per share from continuing
operations have been calculated as net income from continuing operations after
preferred dividend requirements of $1,139,000, $1,445,000 and $1,365,000 for
1998, 1997 and 1996 respectively, divided by weighted average common shares
outstanding during the period. Basic earnings per common share from discontinued
operations have been calculated as income (loss) from discontinued operations
plus net loss on disposition of discontinued operations divided by the weighted
average number of common shares outstanding.
18. COMMITMENT AND CONTINGENCIES:
In connection with the sale of the Thread division to an affiliate of
HP, $3.0 million of the proceeds were placed in escrow.
Pursuant to a written indemnity, and under a reservation of rights, the
Company has assumed the defense and indemnity of Barbour Threads, Inc.
("Barbour"), as the successor in interest to Danfield Threads, Inc., Barbour
Industries, Inc., and Blue Mountain Industries, Inc., and an individual, H.D.
Whitlow
Page 34 of 45
<PAGE>
("Whitlow"), in an adversary proceeding which relates to a Chapter 11
reorganization, in re Needlecraft Industries, Inc. ("Needlecraft"), Case No. LA
97-41233 LF. The Company has no role in the bankruptcy or the prosecution of
Barbour's claims against Needlecraft, and other counsel represent Barbour for
that purpose.
In the adversary proceeding, Needlecraft originally sought compensatory
damages of $600,000 and punitive damages of $1 million, reformation of contract,
and declaratory relief from Barbour for alleged breach of an oral contract,
detrimental reliance, and negligent and intentional interference with
prospective economic advantage. At a hearing in January 1998, the Bankruptcy
Court dismissed the claims against Whitlow.
On February 9, 1999, the Court permitted Needlecraft to file an amended
complaint that added new claims, among other things, for alleged resale price
maintenance, price discrimination, disparagement/trade libel, and unfair
competition and increased the compensatory damages claimed to $8.1 million.
Discovery has been continued until June 15, 1999. A pretrial conference
is scheduled on July 20, 1999.
On February 24, 1999, the Company notified the defendants in the
litigation that it is rejecting the claim for indemnification and will no longer
fund the defense.
Although there can be no assurances, based on information currently
available, the Company does not believe that the outcome of all known or
threatened litigation and other claims will have a material adverse effect on
the Company's financial condition, liquidity or operating results.
<TABLE>
<CAPTION>
19. UNAUDITED QUARTERLY RESULTS OF OPERATIONS: (IN THOUSANDS EXCEPT FOR PER
SHARE DATA)
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
QUARTER ENDED 1998 1998 1998 1998
------------ ------------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $ 6,798 $ 8,111 $ 3,835 $ 5,057
Cost of sales 3,580 4,890 1,882 2,500
--------- --------- --------- ---------
Gross profit $ 3,218 $ 3,221 $ 1,953 $ 2,557
========= ========= ========= =========
Income applicable to common stock $ 517 $ 649 $ 238 $ 617
========= ========= ======== =========
BASIC AND DILUTED INCOME PER COMMON SHARE: $ .07 $ .09 $ .03 $ .08
========= ========= ========= =========
</TABLE>
Page 35 of 45
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
QUARTER ENDED 1997 1997 1997 1997
------------- -------------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $ 5,116 $ 5,050 $ 4,470 $ 5,005
Cost of sales 2,638 2,568 1,939 2,352
--------- --------- --------- ---------
Gross Profit $ 2,478 $ 2,482 $ 2,531 $ 2,653
======== ========= ========= =========
Income from continuing operations
applicable to common stock $ 615 $ 589 $ 575 $ 503
Income (loss) from discontinued operations -- -- -- $ (10,117)
--------- --------- --------- ---------
Income (loss) applicable to common stock $ 615 $ 589 $ 575 $ (9,614)
========= ========= ========= =========
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ .08 $ .08 $ .08 $ .07
Discontinued operations -- -- -- (1.37)
--------- --------- --------- ---------
$ .08 $ .08 $ .08 $ (1.30)
========= ========= ========= =========
</TABLE>
Page 36 of 45
<PAGE>
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III.
Pursuant to instruction (G) 3 to Form 10-K, the information required in
Items 10-13 is incorporated by reference from the Company's definitive proxy
statement which is expected to be filed by the Company pursuant to regulation
14A on or around April 20, 1999.
PART IV.
<TABLE>
<CAPTION>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
CARLYLE INDUSTRIES, INC. AND SUBSIDIARIES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------- -------------------- ------------------------------- ------------------ -----------------
Additions
- ----------------------------------- -------------------- ------------------------------- ------------------ -----------------
Description Balance at (1) (2) Deductions Balance at End
Beginning Charged to Charged to of Period
of Period Costs and Other Accounts
Expenses
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Allowance deducted from assets to
which they apply:
Allowance for doubtful accounts $ 108 $ 48 $ 502 $ (120) $ 538
========== ========== ========== =========== ==========
YEAR ENDED DECEMBER 31, 1997
Allowance deducted from assets
to which they apply:
Allowance for doubtful accounts $ 379 $ -- $ -- $ (271) $ 108
========== ========== ========== =========== ==========
YEAR ENDED DECEMBER 31, 1996
Allowance deducted from assets
to which they apply:
Allowance for doubtful accounts $ 433 $ -- $ -- $ (54) $ 379
========== ========== ========== =========== =========
</TABLE>
Page 37 of 45
<PAGE>
EXHIBIT LIST
14 (a) Documents filed as part of this Form 10-K:
1. FINANCIAL STATEMENTS. A list of financial statements included
herein is set forth in the Index to Financial Statements, Schedules and Exhibits
appearing in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
2. FINANCIAL STATEMENT SCHEDULES. A list of financial statement
schedules included herein is set forth in the Index to Financial Statements,
Schedules and Exhibits appearing in "ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTAL DATA." All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and therefore
have been omitted.
3. EXHIBITS FILED UNDER ITEM 601 OF REGULATION S-K.
EXHIBIT NO. DESCRIPTION
3.1 Restated Certificate of Incorporation of the Company *
incorporated by reference to Exhibit 3.1 to the
Company Statement on Form 10/A (Amendment No. 4), as
filed with the Commission on March 3, 1994,
Commission File No. 0-23082.
3.2 By-laws of the Company incorporated by reference to *
Exhibit 3.2 to the Registration Statement on Form
10/A (Amendment No. 3), as filed with the Commission
on February 18, 1994, Commission File No. 0-23082.
4.1 See Exhibit 3.1 *
10.1 Agreement dated as of April 13, 1993 between Belding
Heminway Company, Inc., Pentapco, Inc. and ConAgra
Pet Products Company, incorporated by reference to
Exhibit 2 to the Current Report on Form 8-K of
Belding Heminway Company, Inc. filed on April 28,
1993, Commission File No. 1-3462.
10.2 Letter Agreement dated as of July 21, 1993 between *
Gregory H. Cheskin and Belding Heminway Company, Inc.
incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form 10, as filed with the
Commission on December 15, 1993, Commission File No.
0-23082.
10.3 Letter Agreement dated as of August 9, 1993 between *
Winton J. Tolles and Belding Heminway Company, Inc.
incorporated by reference to Exhibit 10.3 to the
Registration Statement on Form 10, as filed with the
Commission on December 15, 1993, Commission File No.
0-23082.
Page 38 of 45
<PAGE>
10.4 Agreement and Plan of Merger dated as of June 16, *
1993 among Noel Group, Inc., BH Acquisition
Corporation and Belding Heminway Company, Inc.
incorporated by reference to Exhibit A to the
Schedule 14C Information Statement of Belding
Heminway Company filed on October 8, 1993, Commission
File No. 1-3462.
10.5 Credit Agreement among Belding Heminway Company, *
Inc., NationsBank of North Carolina, N.A., Fleet
Bank, The Bank of New York and the Daiwa Bank, Ltd.
dated as of October 29, 1993 incorporated by
reference to Exhibit 10.5 to the Registration
Statement on Form 10, as filed with the Commission on
December 15, 1993, Commission File No. 0-23082.
10.6 Stock Purchase Agreements dated as of December 17, *
1993 between Noel Group, Inc., Belding Heminway
Company, and the Purchasers listed on the signature
pages therein incorporated by reference to Exhibit
10.6 to the Registration Statement on Form 10/A
(Amendment No. 3), as filed with the Commission on
February 18, 1994, Commission File No. 0-23082.
10.7 Amendment No. 1 to Credit Agreement dated as of March *
23, 1994 between the Company and NationsBank of North
Carolina, N.A., individually and as agent for Fleet
Bank, The Bank of New York and the Daiwa Bank
Limited, incorporated by reference to exhibit 10.1 to
the Company's quarterly report on Form 10-Q for the
fiscal quarter ended March 31, 1994, as filed with
the Commission on May 16, 1994, Commission File No.
0-23082.
10.8 Stock Acquisition Agreement dated June 10, 1994, by *
and among Belding Heminway Company, Inc., Danfield
Threads, Inc., The Bridge Realty Company, Alexander
H. Dankin and Dorothy B. Dankin incorporated by
reference to exhibit 7(b)(1) the Company's current
report on Form 8-K filed with the Commission on June
15, 1994, Commission File No. 0-23082.
10.9 First Amendment to Stock Acquisition Agreement dated *
June 30, 1994 by and among Belding Heminway Company,
Inc., Danfield Threads, Inc., The Bridge Realty
Company, Alexander H. Dankin and Dorothy B. Dankin
incorporated by reference to exhibit 7(b)(2) the
Company's current report on Form 8-K filed with the
Commission on June 15, 1994, Commission File No.
0-23082.
10.10 Non-Competition Agreement dated June 30, 1994 between *
Belding Heminway Company, Inc. and Alexander H.
Dankin. incorporated by reference to exhibit 7(b)(3)
the Company's current report on Form 8-K filed with
the Commission on June 15, 1994, Commission File No.
0-23082.
Page 39 of 45
<PAGE>
10.11 Amendment No. 2 to Credit Agreement dated as of June *
30, 1994 between the Company and NationsBank of North
Carolina , N.A., individually and as agent for Fleet
Bank, The Bank of New York and the Daiwa Bank
Limited, incorporated by reference to exhibit 10.2 to
the Company's quarterly report on Form 10-Q for the
fiscal quarter ended June 30, 1994, as filed with the
Commission on August 15, 1994, Commission File No.
0-23082.
10.12 Belding Heminway Company Restated 1994 Voluntary *
Recapitalization Plan dated as of November 14, 1994,
as amended, incorporated by reference to exhibit
7(c)(1) to the Company's current report on Form 8-K
filed with the Commission on December 15, 1994,
Commission File No. 0-23082.
10.13 Belding Heminway Company, Inc. 1994 Incentive *
Program, effective as of December 6, 1994, as
amended, incorporated by reference to exhibit 7(c)(2)
to the Company's current report on Form 8-K filed
with the Commission on December 15, 1994, Commission
File No. 0-23082.
10.14 Exchange Agreement dated as of November 14, 1994 *
between Belding Heminway Company and the holders of
its Preferred Stock as amended, incorporated by
reference to exhibit 7(c)(3) to the Company's current
report on Form 8-K filed with the Commission on
December 15, 1994, Commission File No. 0-23082.
10.15 Amendment to Restated Certificate of Incorporation of *
Company filed on December 13, 1994, as amended,
incorporated by reference to exhibit 7(c)(4) to the
Company's current report on Form 8-K filed with the
Commission on December 15, 1994, Commission File No.
0-23082.
10.16 Sale - Purchase Agreement dated as of November 24, *
1993 by and between Corticelli Real Estate
Corporation and Akwa Inc. , incorporated by reference
to the corresponding exhibit on Company's annual
report on Form 10-K for the fiscal year ended
December 31, 1993, as filed with the Commission on
March 31, 1994, Commission File No. 1-3462.
10.17 Amendment No. 3 to Credit Agreement, dated as of *
February 1, 1995, between the Company and NationsBank
of North Carolina, N.A., individually and as agent
for Fleet Bank, The Bank of New York, and the Daiwa
Bank, Limited, incorporated by reference to exhibit
10.1 to the Company's quarterly report on Form 10-Q
for the fiscal quarter ended March 31, 1995, as filed
with the Commission on May 10, 1995, Commission File
No. 0-23082.
10.18 Amendment No. 4 to Credit Agreement dated as of March *
29, 1995, between the Company and NationsBank of
North Carolina, N.A., individually and as agent for
Fleet Bank, The Bank of New York, and
Page 40 of 45
<PAGE>
the Daiwa Bank, Limited, incorporated by reference to
exhibit 10.2 to the Company's quarterly report on
Form 10-Q for the fiscal quarter ended March 31,
1995, as filed with the Commission on May 10, 1995,
Commission File No. 0-23082.
10.19 Amendment No. 5 to Credit Agreement dated as of April *
17, 1995, between the Company and NationsBank of
North Carolina, N.A., individually and as agent for
Fleet Bank, The Bank of New York, and the Daiwa Bank,
Limited, incorporated by reference to exhibit 10.3 to
the Company's quarterly report on Form 10-Q for the
fiscal quarter ended March 31, 1995, as filed with
the Commission on May 10, 1995, Commission File No.
0-23082.
10.20 Amendment No. 6 to Credit Agreement dated as of *
August 30, 1995, between the Company and NationsBank
of North Carolina, N.A., individually and as agent
for Fleet Bank, The Bank of New York, and the Daiwa
Bank, Limited, incorporated by reference to exhibit
10.1 to the Company's quarterly report on Form 10-Q
for the fiscal quarter ended September 30, 1995, as
filed with the Commission on November 14, 1995,
Commission File No. 0-23082.
10.21 Amendment No. 7 to Credit Agreement dated as of *
October 31, 1995, between the Company and NationsBank
of North Carolina, N.A., individually and as agent
for Fleet Bank, The Bank of New York, and the Daiwa
Bank, Limited, incorporated by reference to exhibit
10.2 to the Company's quarterly report on Form 10-Q
for the fiscal quarter ended September 30, 1995, as
filed with the Commission on November 14, 1995,
Commission File No. 0-23082.
10.22 Letter Agreement dated October 31, 1995 between the *
Company and NationsBank of North Carolina, N.A.,
incorporated by reference to exhibit 10.3 to the
Company's quarterly report on Form 10-Q for the
fiscal quarter ended September 30, 1995, as filed
with the Commission on November 14, 1995, Commission
File No. 0-23082.
10.23 Amendment No. 8 to Credit Agreement dated as of March *
15, 1996, between the Company and NationsBank of
North Carolina, N.A., individually and as agent for
Fleet Bank, The Bank of New York, and the Daiwa Bank,
Limited, incorporated by reference to the
corresponding exhibit to the Company's annual report
on Form 10-K for the fiscal year ended December 31,
1996, as filed with the Commission on March 14, 1997,
Commission File No. 1-3462.
10.24 Consulting Agreement, dated March 22, 1996 between *
the Company and Karen Brenner incorporated by
reference to Exhibit 10.1 to the Company's quarterly
report on Form 10-Q for the fiscal quarter ended
March 31, 1996, as filed with the Commission on March
15, 1996, Commission File No. 0-23082.
10.25 Stock Purchase Agreement, dated July 12, 1996, *
between the Company and Lewis Textiles Corporation
incorporated by reference to
Page 41 of 45
<PAGE>
Exhibit (a) (1) to the Company's quarterly report on
Form 10-Q for the fiscal quarter ended June 30, 1996,
as filed with the Commission on August 12, 1996,
Commission File No. 0-23082.
10.26 Amendment, dated as of November 12, 1996 to Credit *
Agreement, dated as of October 29, 1996 (as
previously amended) between the Company and
NationsBank of North Carolina, N.A., individually and
as agent for Fleet Bank, The Bank of New York, and
The Daiwa Bank, Limited, incorporated by reference to
Exhibit 10.23A to the Company's Form 10-Q/A for the
quarterly period ended September 30, 1996, as filed
with the Commission on November 25, 1996, Commission
File No. 0-23082.
10.27 Loan and Security Agreement, among the Company, *
Blumenthal/Lansing Company, The Belding Thread Group
LLC, Culver International Inc., Danfield Threads,
Inc., American Collars, Inc., The Bridge Realty
Company, Sanwa Business Credit Corporation and Heller
Financial, Inc., dated as of December 30, 1996,
incorporated by reference to the corresponding
exhibit and Company's annual report on Form 10-K for
the fiscal year ended December 31, 1996, as filed
with the Commission on March 14, 1997, Commission
File No. 1-3462.
10.28 Separation Agreement, between the Company and Gregory *
H. Cheskin dated as of October 7, 1996, incorporated
by reference to the corresponding exhibit and
Company's annual report on Form 10-K for the fiscal
year ended December 31, 1996, as filed with the
Commission on March 14, 1997, Commission File No.
1-3462.
10.29 Separation Agreement, between the Company and Winton *
J. Tolles dated as of June 20, 1996, incorporated by
reference to the corresponding exhibit and Company's
annual report on Form 10-K for the fiscal year ended
December 31, 1996, as filed with the Commission on
March 14, 1997, Commission File No. 1-3462.
10.30 Separation Agreement, between the Company and Gary P. *
Silverman, dated as of January 31, 1997, incorporated
by reference to the corresponding exhibit and
Company's annual report on Form 10-K for the fiscal
year ended December 31, 1996, as filed with the
Commission on March 14, 1997, Commission File No.
1-3462.
10.31 Selected provisions of the Registrant's Definitive *
Proxy Statement filed with the Commission on March 3,
1997, incorporated by reference to the corresponding
exhibit and Company's annual report on Form 10-K for
the fiscal year ended December 31, 1996, as filed
with the Commission on March 14, 1997, Commission
File No. 1-3462.
10.32 Letter Agreement dated as of February 25, 1998 +
between Karen Brenner and Carlyle Industries, Inc.
Page 42 of 45
<PAGE>
10.33 Letter Agreement dated as of March 24, 1998 between +
Edward F. Cooke and Carlyle Industries, Inc.
10.34 Letter Agreement dated May 29, 1998 between Carlyle +
Industries, Inc. and Karen Brenner.
10.35 Employment Agreement dated as of November 25, 1998 +
between Carlyle Industries, Inc. and Ralph Langer.
10.36 Consulting Agreement by and between Blumenthal Lansing +
Company and David J. Schoenfarber dated December 16,
1998.
10.37 Employment Agreement dated February 22, 1999 and made +
effective as of January 1, 1999 among Carlyle
Industries, Inc. and Robert A. Levinson.
10.38 Amendment No 1. To Fleet Credit Agreement dated December
16, 1998.
16 Letter from Ernst & Young with respect to change in *
accountants incorporated by reference to Exhibit 16
to the Registration Statement
21 Subsidiaries of Carlyle Industries, Inc.
* INCORPORATED BY REFERENCE
+ MANAGEMENT CONTRACT
14 (b). REPORTS ON FORM 8-K.
On July 15, 1998, the Company filed a Current Report on Form
8-K to reflect the acquisition of Westwater Enterprises, LLP.
On September 11, 1998, the Company filed a Current Report on
Form 8-KA to reflect the pro forma financial information
related to the Westwater acquisition.
14 (c). See item 14 (a)(3), above.
14 (d). See item 14 (a)(2), above.
Page 43 of 45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CARLYLE INDUSTRIES, INC.
By:/s/ ROBERT A. LEVINSON
---------------------------------------
Robert A. Levinson, Chairman, President
and Chief Executive Officer
Date: March 23, 1999
----------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registration in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ROBERT A. LEVINSON Chairman, President March 23, 1999
- ----------------------- and Chief Executive Officer
Robert A. Levinson
/Ralph Langer March 23, 1999
- -----------------------
Ralph Langer Vice Chairman
/s/JOSEPH S. DIMARTINO March 23, 1999
- ----------------------- Director
Joseph S. DiMartino
/s/ HERBERT FRIEDMAN March 23, 1999
- ----------------------- Director
Herbert Friedman
/s/ EDWARD F. COOKE March 23, 1999
- -----------------------
Edward F. Cooke Chief Financial Officer
Page 44 of 45
SUBSIDIARIES OF CARLYLE INDUSTRIES, INC.
SUBSIDIARY STATE OF INCORPORATION
---------- ----------------------
Blumenthal/Lansing Company Delaware
Carlyle Manufacturing Company, Inc. Connecticut
Westwater Industries, Inc. Delaware
Page 45 of 45
Carlyle Industries, Inc.
c/o Noel Group, Inc.
667 Madison Avenue
25th Floor
New York, New York 10021
May __, 1998
Karen Brenner
Carlyle Industries, Inc.
667 Madison Avenue
25th Floor
New York, New York 10021
Dear Ms. Brenner:
This letter sets forth and confirms the agreement between Carlyle
Industries, Inc. (the "Company") and you (herein sometimes the "Employee")
regarding the terms of your continued employment with the Company. The Agreement
between you and the Company is as follows:
1. EMPLOYMENT. The Company hereby agrees to continue your
employment as Chairman, President and Chief Executive Officer of the Company,
and you agree to continue in such employment, through May 29, 1998 or until such
later date as you and the Company may mutually agree. You will report to and be
responsible to the Board of Directors of the Company.
2. SALARY. The Company agrees to pay you an annual salary at the
rate of $250,000 per annum payable in accordance with the payroll practices of
the Company, plus any accrued and unpaid bonus. Your annual salary shall be
reviewed annually and may be increased in the discretion of the Board or the
Compensation Committee thereof. You shall also be entitled to participate in the
Company's Management Incentive Plan and all health insurance, profit sharing,
employee stock option and similar plans and benefits afforded by the Company to
its management employees generally, if and to the extent that you are eligible
to participate in such plans and benefits in accordance with their terms.
3. SEVERANCE. In the event that the Company terminates your
employment for any reason whatsoever, whether with or without cause, or if you
resign from all of your positions with the company and its subsidiaries on or
before May 29, 1998, the Company shall pay you, in a single lump sum payment,
within 23 days after the termination of your employment or the date when you
cease to serve as a director of the Company, whichever is later, an amount equal
to four (4) months of your annual base salary in effect on the date of such
termination (i.e.,
1
<PAGE>
$250,000 at the compensation rate in effect on the date hereof or such larger
amount as may reflect the compensation rate in effect at a later date due to
annual salary increases).
4. CHANGE IN CONTROL. Notwithstanding anything herein to the
contrary, in the event of a Change in Control (as defined below) of the Company
at any time during the period beginning on the date hereof and ending four
months after the date on which your employment with the Company terminates (for
this purpose any event of a nature described below recommended or approved in a
resolution adopted by the Board of Directors during such four-month period but
consummated thereafter shall be deemed to have occurred during such four-month
period), the Company shall pay you a single one-time payment in the amount of
$100,000 within 30 days after the occurrence of such Change in Control. For
purposes hereof, a "Change of Control" of the Company shall be deemed to have
occurred upon and only upon the occurrence of any of the following events:
(i) Any "person" or "group" (as such term is used in
connection with Section 13(d) and 14(d)(2) of the Exchange Act) but
excluding any employee benefit plan of the Company; any person or group
which, on the date hereof holds directly or indirectly fifty percent
(50%) or more of the combined voting power of the Company's outstanding
securities entitled ordinarily (and apart from rights accruing under
special circumstances to vote for the election of directors); or any
"affiliate" or "associate" of the Company (as defined in Regulation
12b-2 under the Exchange Act) (a) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing fifty percent (50%) or more
of the combined voting power of the Company's outstanding securities
then entitled ordinarily (and apart from rights accruing under special
circumstances) to vote for the election of directors; or
(ii) There shall be consummated (A) any consolidation or
merger of the Company or any similar transaction involving the Company
(other than a consolidation, merger or similar transaction with or into
an entity of which the Company owns more than fifty percent (50%) of
the securities prior to the commencement of the transaction or related
series of transactions), at the conclusion of which the shareholders of
the entity with or into which the Company is consolidated or merged
own, as a result of their holdings in such merged entity, more than
fifty percent (50%) of the voting power (determined by reference to the
tests provided in clause (i) above) of the surviving entity, or (B) any
sale, lease, exchange or other transfer (in one transaction or a series
of related transactions) of all, or substantially all, of the assets of
the Company; provided, that notwithstanding anything in this document
to the contrary a "Change in Control" shall expressly not be deemed to
have occurred upon or as a result of the happening of either (x) the
divestiture of less than substantially all of the operating assets of
the Company in one transaction or a series of related transactions,
whether effected by sale, lease, exchange, spin-off, sale of the stock
or merger of a subsidiary of the Company or otherwise, or a transaction
solely for the purpose of reincorporating the Company in
2
<PAGE>
another jurisdiction, or (y) the distribution by Noel Group, Inc. to
its shareholders of some or all of Noel Group Inc.'s holdings of
securities of the Company.
5. COMPANY PAYMENTS AND OTHER OBLIGATIONS.
a. Except as provided in Section 4 above and otherwise herein,
after the termination of your employment the Company shall have no obligations
to make any further payment to you (including without limitation salary,
vacation pay, severance pay, executive incentive plan bonuses or any other
bonuses, performance incentive award plan payments, stock option awards, pension
contributions or payments) and shall have no obligation to provide you with any
fringe benefits (including without limitation life insurance, dental insurance,
health and medical insurance, and disability protection), an office or other
amenities. The Company does, however, specifically agree that it will pay to
you, your accrued vacation pay (four (4) weeks) through the date of the
termination of your employment, and will reimburse you for all unreimbursed
travel and entertainment expenses properly incurred by you prior to the
termination of your employment in accordance with normal Company policy. The
Company agrees that your rights under all stock option agreements between you
and the Company shall continue in accordance with the terms of such agreements,
including terms relating to accelerated vesting upon the termination of your
employment with the Company.
b. Except as otherwise specified in paragraph 1 and 2 hereof,
this Agreement supersedes and terminates the Letter Agreement between you and
the Company dated February 25, 1998.
6. RELEASES.
a. Employee agrees that, except as provided herein, she waives
any right to employment, reinstatement or re-employment with the Company or any
Company Affiliate and specifically agrees that she will not apply for the same.
As used in this Section 6, the term "Company Affiliate" shall mean "affiliate"
as defined in Regulation 12b-2 under the Exchange Act, but excluding Lincoln
Snacks Company.
b. Employee acknowledges and agrees that she is fully aware
that there are various federal, state and municipal laws which prohibit
employment discrimination based on, including without limitation, the following:
race, age, sex, marital status, sexual orientation, citizenship, religion,
creed, national origin, military or national guard service, mental,
psychological record or prior convictions, or entitlement to pension or employee
benefits including retirement, pension and severance.
c. Employee also acknowledges and agrees that she fully
understands and is aware there are federal, state and municipal agencies which
enforce and administer these laws and ensure their enforcement.
d. In consideration of the payments and other undertaking of
the Company and the undertakings of Employee described in this Agreement, and
other good sufficient
3
<PAGE>
consideration provided by the parties, the receipt of which is hereby
acknowledged, Employee hereby, for herself, her heirs, legal representatives,
successors, and assigns, releases and discharges the Company and the Company
Affiliates and its and their respective officers, directors, employees,
successors and assigns, and the Company and the Company Affiliates hereby, for
themselves, their respective successors and assigns, release and discharge
Employee, her heirs, legal representatives, successors and assigns, from all
actions, causes of action, suits, debts, accounts, sums of money, damages,
judgments, claims and demands whatsoever, in law or in equity, known or unknown,
which either hereafter can, shall or may have against the other for, upon or by
reason of any matter, cause or thing whatsoever from the beginning of the world
to the date of this Agreement, including without limitation all claims arising
out of or by reason of the termination of Employee's employment, EXCEPT ONLY
those arising out of the performance by the Company and the Company Affiliates
and Employee of their respective covenants and agreements contained in this
Agreement; Employee's rights under all retirement, profit sharing, stock option
or similar benefit plans sponsored by the Company (to the extent that such
rights survive the termination of Employee's employment); Employee's
indemnification and similar rights which Employee would have in the absence of
this Section 6 d. with respect to liability by reason of her being an employee,
officer and director of the Company or the Company Affiliates, whether under
contract, statute or common law; and any rights which Employee would have in the
absence of this Section 6 d under any written agreements with Noel Group, Inc.
Further, the Company and the Company Affiliates do not hereby release Employee
from any liability which they or any of them may incur arising from or related
to any action or omission on the part of Employee in his capacity as a plan
administrator or trustee of any retirement plan or trust maintained by the
Company or any Company Affiliate which constitutes gross negligence, fraud or
willful misconduct.
e. Except as otherwise stated, the releases in the foregoing
Section 5 d. include but are not limited to releases of any rights the releasing
parties may have for breach of contract (whether express, implied or oral),
tort, wrongful termination, defamation, infliction of emotional distress,
slander, promissory estoppel, prima facie tort,. breach of the covenant of fair
dealing, fraud, violation of public policy, claims for physical or emotional
injury, any and all claims based on federal, state or local laws including,
without limitation, the Age Discrimination in Employment Act (29 U.S.C. ss.621,
et Seq.), the Employee Retirement Income Security Act of 1974, the Civil Rights
Acts, the fair employment laws of the State of New York, and the United States
Constitutions or common laws.
f. Employee acknowledges (i) that she has been given the
opportunity to consult with her attorney regarding this agreement, (ii) that she
fully understands this agreement and the effect of her signing it, (iii) that
she has been given up to twenty-one (21) days to consider this agreement and
(iv) that she may revoke this agreement within seven (7) days following the date
she signs it and that this agreement will not become effective or enforceable
until after seven (7) days have expired.
7. INDEMNIFICATION. The Company will defend, indemnify and hold
Employee (and her legal representative or other successors) harmless from and
against any damages, claims, liabilities, losses and expenses (including without
limitation the payment of
4
<PAGE>
reasonable attorney's fees and expenses in advance of final disposition of the
proceedings) of any kind or nature whatsoever which may be sustained or suffered
by Employee in connection with or arising out of any action, suit or proceeding
to which she (or her legal representative or other successors) may be made a
party by reason of her being or having been a director, officer or employee of
the Company, to the fullest extent permitted by Delaware General Corporation Law
as in effect at the time of the subject act or omission, the Articles of
Incorporation and By-Laws of the Company as in effect at such time or on the
date of this Agreement, or any insurance policies the Company or its parents may
elect to maintain generally for the benefit of the directors and officers of the
Company, whichever affords or afforded greater protection to the Employee. The
indemnification accorded the Employee by this Section 7 shall apply regardless
of whether the claim giving rise to indemnification is made against the Employee
in her capacity as a director, officer or employee of the Company, or otherwise;
provided, that the nature of the claim is such that it could have been brought
against the Employee in her capacity as a director, officer or employee of the
Company.
8. PRESS RELEASE. The parties agree that the Company may without
the Employee's consent issue a press release disclosing the fact of the
Employee's resignation and the identity of her successor. If, however, the
Company desires to disclose any additional facts relating to the Employee or her
resignation in a press release, the Company must obtain the consent of the
Employee prior to issuing such press release.
9. ENTIRE AGREEMENT.This Agreement contains the entire
understanding of the parties hereto relating to the subject matter hereof and
cannot be changed or altered orally.
10. GOVERNING LAW. This Agreement contains the entire
understanding of the parties hereto relating to the subject matter hereof and
cannot be changed or altered orally.
11. SEVERABILITY. The invalidity or unenforceability of any
provisions of this Agreement in any circumstance shall not affect the validity
or enforceability of any other provision of this Separation Agreement, and
except to the extent such provision is invalid or unenforceable, this Agreement
shall remain in full force and effect. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent that such provision is prohibited or
unenforceable, without invalidating or affecting the remaining provisions hereof
in such jurisdiction, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
12. NOTICES. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if sent by registered mail,
to her then residence in the case of Employee or to its then principal office in
the case of the Company, and shall be deemed given when deposited in the United
States mails, postage prepaid.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
Employee, the Company, and the Company's successors and assigns.
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Please confirm that the foregoing accurately sets forth our
understanding by executing the enclosed copy of this letter and returning it to
us.
CARLYLE INDUSTRIES, INC.
By:
------------------------------------
Authorized Signatory
AGREED TO AND ACCEPTED
as of the date of the signature below.
/s/ KAREN BRENNER
----------------------
Karen Brenner
Dated:
6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of the ___ day of
November, 1998 by and between CARLYLE INDUSTRIES, INC., a Delaware corporation
(the "Company"), and RALPH LANGER (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of packaging and
distributing home sewing and craft products, principally buttons, to mass
merchandisers, specialty chains and independent retailers and wholesalers
throughout the United States;
WHEREAS, effective January 1, 1999, the Employee will resign as the
President of Blumenthal/Lansing Company, a Delaware corporation and a wholly
owned subsidiary of the Company ("Blumenthal/Lansing");
WHEREAS, the Company desires to employ the Employee, and the Employee
desires to render services to the Company, as Vice Chairman of the Company, upon
the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual terms, covenants,
agreements and conditions hereinafter set forth, the Company and the Employee
hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs the Employee to serve as Vice
Chairman of the Company, to perform for the Company and its subsidiaries such
duties as may be reasonably requested from time to time by the Board of
Directors or the
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Chief Executive Officer of the Company or by the President of Blumenthal/Lansing
or by the President of Westwater Industries, Inc., including, but not limited
to, the performance of duties in connection with special projects of the Company
and the rendering of consulting services and services relating to customer
relations. The Employee shall be required to perform his duties hereunder only
on Tuesday, Wednesday and Thursday of each week during the Employment Term
(hereinafter defined) and shall not be required to perform such duties on any
Monday or Friday during the Employment Term; provided, however, if the Company
requests or the Employee is otherwise required to attend a meeting, trade show
or other event held on a Monday or Friday, then the Employee shall be entitled
to receive one personal day for each Monday or Friday in which the Employee
attends such meeting, trade show or other event on behalf of the Company, which
personal day(s) can be taken by the Employee at any time during the Employment
Term.
2. TERM. Unless sooner terminated as provided in this Agreement, the
term of this Agreement shall be for a period of one (1) year commencing on
January 1, 1999 and ending on December 31, 1999 (the "Employment Term").
3. COMPENSATION.
(a) In consideration for the services of the Employee rendered to
the Company hereunder, the Company shall pay the Employee a base salary (the
"Base Salary") at an annual rate of One Hundred Twenty Thousand Dollars
($120,000) during the Employment Term. The Employee's Base Salary shall be
payable in accordance with the payroll practices of the Company.
2
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(b) In addition, the Employee shall be eligible to participate in
the Company's Management Incentive Plan (the "MIP") based on a target award
percentage equal to fifty percent (50%) of his Base Salary (or $60,000), payable
at such time as payments are made by the Company to its employees under the MIP
(hereinafter, the "MIP Bonus"); provided, however, notwithstanding anything
contained in the MIP to the contrary, including without limitation, any
provisions relating to satisfaction of the requirements for an award payment,
the Employee shall be entitled to receive a minimum MIP Bonus of $40,000 in
respect of the Employment Term.
4. BENEFITS.
(a) The Employee shall be entitled to continue his participation in
the medical and health insurance plans of the Company, the Company's 401(k)
Plan, and such other benefits as the Employee participated in while employed by
Blumenthal/Lansing. The Employee shall also be entitled to receive such other
benefits as may be determined by the Company's Board of Directors in its
discretion.
(b) The Company shall make all lease and maintenance payments with
respect to the automobile leased by the Company on behalf of the Employee during
the Employment Term and thereafter until July 2000, the expiration of the
automobile lease.
(c) The Employee shall be entitled to paid vacation during the
Employment Term, as follows: (i) an aggregate of four (4) weeks during the
months of January and
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February; (ii) the week commencing December 24, 1999 and ending December 31,
1999; and (iii) a minimum of ten (10) additional days, which additional days
shall be subject to the approval of the President or Chief Executive Officer of
the Company. In addition, upon the expiration or termination of the Employee's
employment hereunder for any reason, the Employee shall be entitled to receive
payment (the "Accrued Vacation Payment") for his forty (40) days of accrued but
unused vacation time while employed by Blumenthal/Lansing (i.e., $23,461.60 for
the forty days), which amount is based upon the Employee's 1998 base salary.
(d) The Employee shall be entitled to reimbursement for reasonable
out-of-pocket expenses incurred by the Employee pursuant to his employment
hereunder, provided that prior to incurring any expenses in excess of $1,000 the
Employee shall submit to the Company for approval an estimate of such expenses.
5. STOCK OPTIONS. The Company and the Employee acknowledge that the
Company previously issued to the Employee non-qualified stock options
(collectively, the "Options"), as follows: (i) stock options to purchase 50,000
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") pursuant to an Employee Stock Option Agreement dated as of May 16, 1997
between the Company and the Employee (the "1997 Stock Option Agreement"); (ii)
stock options to purchase 5,000 shares of Common Stock pursuant to an Employee
Stock Option Agreement dated as of December 1, 1995 between the Company and
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the Employee (the "1995 Stock Option Agreement"); and (iii) stock options to
purchase 10,000 shares of Common Stock pursuant to an Amended and Restated
Employee Stock Option Agreement dated as of December 14, 1994 between the
Company and the Employee (the "1994 Stock Option Agreement") (the 1997 Stock
Option Agreement, the 1995 Stock Option Agreement and the 1994 Stock Option
Agreement are collectively referred to herein as the "Stock Option Agreements").
The Options shall continue to vest in accordance with the terms of the Stock
Option Agreements; provided, however, notwithstanding anything contained in the
Stock Option Agreements, upon the expiration or termination of the Employee's
employment hereunder for any reason, including death, (i) all unvested Options
shall immediately vest in full and (ii) any Options, to the extent not yet
exercised, shall not terminate until ten (10) years after their respective dates
of grant.
6. WORK PRODUCT. Any and all ideas, discoveries, processes, techniques,
inventions, patents, patent applications, technology, copyrights, derivative
works, trademarks, service marks, improvements, trade secrets and the like,
which are developed, conceived, created, discovered, learned, produced and/or
otherwise generated by the Employee, whether individually or otherwise, during
the time that the Employee is employed or retained by the Company, whether or
not during working hours, that relate to the business and/or activities of the
Company, shall be the sole and exclusive property of the Company. This Section 6
shall survive any termination of this Agreement. The Employee shall execute such
documents or other papers and take
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<PAGE>
such further actions as may be reasonably required or desirable to carry out the
provisions of this Section 6, including but not limited to, the execution of any
assignment documents. For purposes of this Section 6, the "Company" shall
include any subsidiary of the Company.
7. CONFIDENTIAL INFORMATION. The Employee agrees that, subject to the
exceptions set forth below, he shall not, directly or indirectly, reveal,
disclose, publish or otherwise make known any Confidential Information (as
defined below) to any other person, firm, association, corporation, partnership
or other entity (a "Third Party") and shall not at any time use, or permit any
Third Party within his control to use, any Confidential Information. For
purposes hereof, "Confidential Information" shall mean any technology, data,
know-how, concepts, ideas, plans, studies, procedures and processes in which the
Company has an interest, including such information relating to the business,
business plans, software, technology, technology development or marketing plans
or financial operations of the Company that the Employee knows, or reasonably
should know, are sufficiently unknown to third parties such that third parties
may derive economic value from the disclosure thereof. However, Confidential
Information shall not include any information that: (i) is disclosed to the
Employee by a Third Party without breach by such Third Party of any obligation
to the Company; or (ii) becomes generally known to the public. The Employee
shall not have any obligations with regard to Confidential Information to the
extent that (i) disclosure is necessary to permit the
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<PAGE>
Employee to discharge his duties hereunder in the best interests of the Company,
in which event the Employee shall obtain the Company's prior written consent to
disclose such Confidential Information, or (ii) disclosure is compelled by law,
in which event the Employee agrees to give the Company prior written notice of
any disclosure to be made pursuant hereto and the Employee shall cooperate fully
with the Company to obtain protective orders, confidential treatment or other
protective action as may be available to preserve the confidentiality of the
information required to be disclosed. For purposes of this Section 7, the
"Company" shall include any subsidiary of the Company.
8. RETURN OF COMPANY MATERIAL. Employee shall promptly deliver to the
Company, upon termination of the Employee's employment with the Company, or at
any time the Company may so request, all Company memoranda, notes, records,
reports, manuals, drawings, computer software, and all documents containing
Confidential Information belonging to the Company, including all copies of such
materials which the Employee may then possess or have under his control.
9. NON-COMPETITION; NON-SOLICITATION. The Employee agrees that during
the Employment Term and for a period of one (1) year thereafter, he will not,
(i) directly or indirectly, throughout the entire world: (A) own, manage,
operate, join, control or participate in or be connected with, as an officer,
director, employee, agent, consultant, shareholder, owner, partner, principal,
or any other capacity, any business venture
7
<PAGE>
which engages in any activities that, directly or indirectly, compete with the
Company (which for purposes of this Section 9 shall include any subsidiary or
affiliate of the Company) in any respect; or (B) prepare, develop, package,
assemble or distribute any products that are functionally similar to, or that
can reasonably substitute for the products of the Company; or (ii) solicit,
induce or attempt to induce, or assist others to solicit, induce or attempt to
induce, any employee of the Company (which for purposes of this Section 9 shall
include any subsidiary or affiliate of the Company) to terminate his or her
association with the Company or in any manner, directly or indirectly, interfere
with or disrupt any relationship between the Company and such employee, or
solicit, entice, take away or employ any person employed by the Company.
Notwithstanding anything contained herein, in the event that the Employee's
employment is terminated by the Company or the Employee resigns prior to the
expiration of the Employment Term, the restrictive covenants contained in this
Section 9 shall survive such termination and continue in effect until December
31, 2000.
10. PAYMENTS AND OTHER RIGHTS ON TERMINATION, DEATH OF EMPLOYEE AND/OR
CHANGE IN CONTROL.
(a) RIGHTS ON TERMINATION. In the event that the Employee's employment
hereunder is terminated by the Company for any reason (other than a Change in
Control (hereinafter defined) as provided in Paragraph (c) below), upon such
termination the Company (i) shall pay the Employee (A) the balance of the Base
Salary that would have been paid to the Employee had his
8
<PAGE>
employment not been terminated, (B) the MIP Bonus, (C) the Accrued Vacation
Payment and (ii) shall make all further lease payments required pursuant to
Section 4(b) hereof. In addition, the provisions of Section 5 regarding the
Employee's Options shall survive any such termination.
(b) DEATH OF EMPLOYEE. In the event of the Employee's death, the
Employee's beneficiary or estate shall be entitled to receive payment from the
Company of any sums that have accrued to the Employee as of the date of the
Employee's death, and shall be entitled to receive the MIP Bonus and the Accrued
Vacation Payment. In addition, any unvested Options on the date of the
Employee's death shall immediately vest in full as provided in Section 5 hereof
and may be exercised by the Employee's beneficiary or estate at any time prior
to the termination of such Options pursuant to Section 5 hereof.
(c) CHANGE IN CONTROL. In the event of a Change in Control (hereinafter
defined) of the Company, whether or not the Employee is terminated in connection
with such a Change in Control, the Employee shall be entitled to receive from
the Company or the successor corporation (A) a base salary at the same rate as
the Base Salary for a period of one (1) year from the effective date of the
Change in Control, (B) the MIP Bonus as provided in Section 3(b) hereof, (C) the
Accrued Vacation Payment as provided in Section 4(c) hereof, and (D) the lease
payments required pursuant to Section 4(b) hereof, and all of the foregoing
shall continue to be an obligation of the Company or any successor corporation.
In addition, any unvested Options
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<PAGE>
shall immediately vest in full upon a Change in Control and all Options, to the
extent not yet exercised, shall be exercisable by the Employee until ten (10)
years from their respective dates of grant. As used herein, a "Change in
Control" shall mean (i) a direct or indirect transfer of 50% or more of the
legal or beneficial ownership of the issued and outstanding Common Stock of the
Company in one transaction or a series of related transactions and as a result
of such transaction(s) one or more of the existing stockholders on the date
hereof cease to exercise control of the Company, or (ii) a sale of all or
substantially all of the assets of the Company; provided, however, the foregoing
definition shall not include any such transaction involving Levcor International
Inc. In the event of a Change in Control, nothing in the language of this
Agreement shall be construed to obligate the Employee to work for the Company or
any successor corporation beyond December 31, 1999.
11. ASSIGNMENT. The Company may assign this Agreement without the
consent of the Employee to any subsidiary or other affiliate of the Company, or
any other person or entity who in connection with such assignment acquires all
or substantially all of the assets of the Company or into or with which the
Company is merged or consolidated, subject to the provisions of Section 10(c)
hereof. Except as provided in this Agreement, the Employee may not encumber or
transfer his rights or obligations under this Agreement without the prior
written consent of the Company.
12. EMPLOYEE'S REPRESENTATION. The Employee represents that he is not a
party to, bound by or subject to any
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indenture, mortgage, lease, agreement, instrument, charter or by-law provision,
statute, regulation, order, judgment, decree or law that would be violated,
contravened or breached by, or under which any default would occur as a result
of the execution and delivery by the Employee of this Agreement or the
performance by the Employee of any of the terms hereof.
13. NOTICE. Any notice or document required or permitted by this
Agreement to be given to a party hereto shall be in writing and is sufficiently
given if delivered personally, by facsimile (receipt confirmed), or if sent by
prepaid certified mail, return receipt requested, to such party addressed as
follows:
(i) to the Employee, at:
18 Farragut Road
Old Bethpage, New York 11804
(ii) to the Company, at:
Carlyle Industries, Inc.
One Palmer Terrace
Carlstadt, New Jersey 07072
Attn.: Edward F. Cooke
with a copy to:
Bryan Cave LLP
245 Park Avenue
New York, New York 10167
Attention: Peter A. Eisenberg
Facsimile: 212-692-1900
Notices so delivered shall be deemed to have been given two (2) days following
the date sent. Any party may from time to time notify the other in the manner
provided herein of any change of
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address which thereafter, until changed by like notice, shall be the address of
such party for all purposes hereof.
14. SEVERABILITY. If any clause, phrase, provision or portion of this
Agreement or the application thereof to any person or circumstance shall be
invalid or unenforceable under any applicable law, such event shall not affect
or render invalid or unenforceable the remainder of this Agreement, and shall
not affect the application of any clause, provision or portion hereof to other
persons or circumstances.
15. PRIOR AGREEMENTS.Execution of this Agreement hereby revokes any and
all prior written or oral agreements between the Employee and the Company, its
officers or representatives, whether express or implied, in respect to the
employment by the Company of the Employee.
16. AMENDMENT. This Agreement may be modified or amended only by
written agreement of the parties hereto.
17. INJUNCTIVE RELIEF. The Company and the Employee hereby expressly
acknowledge that money damages might be difficult to calculate and may not
adequately compensate the Company in connection with an actual or threatened
breach by the Employee of any provision of Sections 6, 7, 8 or 9 of this
Agreement. Accordingly, the Employee hereby expressly waives any right to object
to the Company's procedural right to seek an injunction if the Company seeks to
enforce by injunction or other equitable relief the due and proper performance
and observance of any provision of Sections 6, 7, 8 or 9 of this Agreement,
provided the Employee does not waive any right to defend such
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injunction or application for equitable relief. In addition, the Company shall
be entitled to pursue any other available remedies at law or equity, including
the recovery of money damages, in respect of the actual or threatened breach of
Sections 6, 7, 8 or 9 hereof.
18. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without regard to the
principles of conflict of laws.
19. COUNTERPARTS. This Agreement may be executed by the parties hereto
in one or more counterparts, each of which when so executed and delivered shall
be an original, but together such counterparts shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.
CARLYLE INDUSTRIES, INC.
By: /s/ RALPH LANGER
----------------------------------------
Name: Ralph Langer
Title:
/s/ RALPH LANGER
----------------------------------------
Ralph Langer
13
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "AGREEMENT") is made and
entered into as of the ____ day of December, 1998 by and between
BLUMENTHAL/LANSING COMPANY, a Delaware corporation having its principal offices
at One Palmer Terrace, Carlstadt, New Jersey 07072 (the "COMPANY"), and DAVID J.
SCHOENFARBER ("CONSULTANT").
W I T N E S S E T H:
WHEREAS, in a certain Letter of Intent (the "LETTER OF
INTENT"), dated November 4, 1998, between the Company and Streamline Industries,
Inc. ("STREAMLINE"), the Company has agreed to purchase from Streamline pursuant
to a sale of assets and assignment of contracts under Sections 363 and 365 of
the Bankruptcy Code, certain assets and executory contracts of the bankruptcy
estate of Streamline, subject to the terms and conditions of the Letter of
Intent;
WHEREAS, Consultant is the President of Streamline as of the
date hereof; and
WHEREAS, the Company desires to retain Consultant to render
consulting services to the Company, and Consultant desires to render such
services to the Company, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. CONSULTING TERM AND DUTIES.
A. The Company hereby retains Consultant for a period of two (2)
years (the "CONSULTING PERIOD"), commencing on the Closing Date (as defined in
the Letter of Intent), subject to earlier termination as provided in Section 3
hereof. The Consulting Period may be extended by the Company, in its sole and
absolute discretion, for up to three (3) additional one-year periods (the
"ADDITIONAL YEARS"). During the Consulting Period, Consultant agrees to provide
consulting services in connection with certain projects of the Company, at the
direction of the Company; provided that (i) the Company provides Consultant with
at least thirty (30) days notice prior to commencement of such services and (ii)
Consultant and the Company agree as to the approximate length of each consulting
assignment and the approximate number of days Consultant will be engaged, on a
full-time or part-time basis, in the assignment. Notwithstanding the foregoing,
Consultant shall perform consulting services on a full-time basis at the
direction of the Company for a period of up to 120 days from and after the
Closing Date (as defined in the Letter of Intent) to assist in the transition
associated with the Company's purchase of Streamline's business, which services
shall include, but not be limited to, transition services relating to both the
Garden City and New York City facilities.
B. In addition, office space and clerical assistance will be
provided to Consultant at the Company's facilities, as may be required in
connection with the performance of Consultant's services hereunder.
<PAGE>
2. COMPENSATION; REIMBURSEMENT.
A. As compensation for all services rendered by Consultant
hereunder, the Company shall pay Consultant One Hundred Thousand Dollars
($100,000.00) per year during the Consulting Period, which shall be payable in
equal monthly installments at the end of each month during the Consulting
Period. In the event that the Company extends the Consulting Period for an
Additional Year(s) as provided in Section 1 above, the Company shall pay
Consultant One Hundred Twenty-Five Thousand Dollars ($125,000.00) for each
Additional Year.
B. The Company agrees to reimburse Consultant for all
pre-approved out-of-pocket expenses incurred in connection with the performance
of the consulting services hereunder. Reimbursement of all such out-of-pocket
expenses shall be made by the Company to Consultant within ten (10) days of
submission to the Company of Consultant's statement(s) or receipt(s) or other
documentation reasonably satisfactory to the Company.
3. TERMINATION OF CONSULTANT.
Notwithstanding any provisions of this Agreement to the contrary,
Consultant's engagement hereunder shall terminate prior to the expiration of the
Consulting Period upon the occurrence of any of the following events: (i) the
agreement of the Company and Consultant; (ii) the Consultant's breach of any
term or condition of this Agreement; (iii) the failure of Consultant to perform
or his becoming unable to perform, by reason of death, disability or otherwise,
his duties and obligations hereunder; (iv) any act of gross negligence or
willful misconduct by Consultant; or (v) any act of theft, dishonesty or fraud
by Consultant. Upon such termination, all of the Company's obligations
hereunder, including all payment and compensation obligations, and all of
Consultant's obligations to provide services hereunder, shall immediately
terminate.
4. INDEPENDENT CONTRACTOR.
The Company hereby retains Consultant as an independent contractor and
nothing in this Agreement shall be deemed to create an employer/employee
relationship between the Company and Consultant. In that regard, and without
limiting the foregoing, Consultant shall be responsible for all taxes due as a
result of fees payable by the Company to Consultant in accordance with this
Agreement. Consultant shall have no right or authority, without the express
written consent of the Company, to bind or act on behalf of the Company with
respect to any matter whatsoever.
5. CONFIDENTIALITY.
Consultant expressly covenants and agrees that he will not at any time
from and after the date hereof, directly or indirectly, use or permit the use of
any Confidential Information (as defined below), and will not reveal, divulge,
publish or otherwise make known, such Confidential Information, to any person,
firm, association, corporation or other entity whatsoever, except (i) as may be
necessary in the performance of his duties hereunder in the best interests of
the Company and as may be authorized in writing by the Company; or (ii) as may
be compelled by a court order or similar governmental process; or (iii) where at
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the time of disclosure the specific item of Confidential Information is
generally known to the public through no fault of Consultant. As used herein,
"CONFIDENTIAL INFORMATION" shall mean any data, know-how, concepts, ideas,
plans, procedures and techniques in which the Company or any subsidiary or
affiliate of the Company has an interest, including such information relating to
the business, business plans, financial operations, employees, customers and
suppliers of the Company that Consultant knows, or reasonably should know, are
sufficiently unknown to third parties. Consultant shall promptly deliver to the
Company, upon termination or expiration of this Agreement, or at any time the
Company may so request, all Company memoranda, notes, records, reports, manuals,
computer software and all documents containing Confidential Information,
including all copies of such materials, which Consultant may then possess of
have under his control. Notwithstanding anything contained in this Agreement to
the contrary, this Section 5 shall survive the termination or expiration of this
Agreement.
6. NON-COMPETITION; NON-SOLICITATION.
A. In order to induce the Company to enter into this Agreement,
Consultant hereby expressly covenants and agrees that during the Consulting Term
and any Additional Years, and for a period of one (1) year thereafter (the
"RESTRICTED PERIOD"), he shall not, directly or indirectly, for his own account
or jointly with any other person, (i) own, manage, join, control, participate
in, consult with, render services for, or otherwise be connected with, as an
officer, employee, partner, stockholder, member, consultant, agent or otherwise
(whether paid or unpaid), any Competitor (as defined below), or in any manner
engage in activities competitive with the business of the Company, as such
business is currently conducted or as may be conducted in the future; or (ii)
intervene in or interfere with any relationships between the Company and its
customers or suppliers, prospective customers or suppliers or other business
relation of the Company; or (iii) solicit or induce or attempt to solicit or
induce any person employed by the Company or any subsidiary or affiliate of the
Company to leave such employment, whether or not such employment is pursuant to
a written contract with the Company or otherwise, or hire or attempt to hire any
person who was an employee of the Company at any time during the Restricted
Period. As used herein, "COMPETITOR" shall mean any individual, partnership,
firm, corporation or other entity or business venture that competes directly or
indirectly with the business of the Company, as currently conducted or as may be
conducted in the future by the Company.
B. If any court determines that any of the restrictive covenants
set forth in this Section 6, or any part hereof, is invalid or unenforceable,
the remainder of the restrictive covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions. If any court
determines that any of the restrictive covenants set forth in this Section 6, or
any part thereof, is unenforceable because of the duration or geographic scope
of such provision, such court shall have to power to reduce the duration or
scope of such provision, as the case may be, and in its reduced form, such
provision shall then be enforceable.
C. Notwithstanding anything contained in this Agreement to the
contrary, this Section 6 shall survive the termination or expiration of this
Agreement.
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7. REASONABLENESS OF RESTRICTIONS.
Consultant acknowledges and agrees that the restrictive covenants
contained herein are reasonable and are necessary for the proper protection of
the business interests of the Company. Consultant acknowledges that the Company
has agreed to the terms and conditions of the Letter of Intent, in part, in
reliance on the agreements and covenants of Consultant to abide by and be bound
by the terms and provisions of this Agreement.
8. REMEDIES.
It is expressly understood and agreed that the restrictive covenants
contained in this Agreement are necessary to induce the Company to consummate
the sale contemplated by the Letter of Intent; that in the event of any breach
or threatened breach by Consultant of any covenant, obligation or other
provision contained in this Agreement, the Company, any subsidiary or affiliate
of the Company, or their successors or assigns, as the case may be, shall be
entitled (in addition to any other remedy that may be available) to institute
and prosecute any proceedings in any court of competent jurisdiction, either in
law or equity, for such relief as the Company deems appropriate, including,
without limitation, any proceedings to obtain damages for any breach of this
Agreement, to enforce the specific performance hereof by Consultant or to obtain
an injunction restraining such breach or threatened breach.
9. NOTICES.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed, registered
or certified mail, return receipt requested, to the parties at the addresses (or
at such other address for a party as shall be specified by like notice) set
forth on the first page of this Agreement.
10. GOVERNING LAW.
The Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to principles of conflict of laws.
Consultant hereby irrevocably consents to the jurisdiction of the state or
federal courts located in the County of New York, State of New York, if any
dispute arises hereunder and hereby agrees to accept service of process in any
such proceedings by mail to his address set forth on the first page of this
Agreement.
11. COMPLETE AGREEMENT.
This Agreement constitutes the entire agreement of the parties hereto
and supersedes all prior agreements and proposals, oral and written, and all
other communications between the parties relating to the subject matter
contained herein.
12. MODIFICATION.
This Agreement may only be amended, varied or modified by a written
document executed by the parties hereto.
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13. SEVERABILITY.
If any provision of this Agreement is held invalid, such invalidity
shall not affect the other provisions hereof that can be given effect without
the invalid provision and, to this end, the provisions of this Agreement are
intended to be and shall be severable.
14. WAIVER.
No failure on the part of either party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of either
party in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof. Neither party shall be deemed to
have waived any claim arising out of this Agreement, or any power, right,
privilege or remedy under this Agreement, unless the waiver or such claim,
power, right, privilege or remedy is expressly set forth in a written instrument
duly executed and delivered on behalf of such party; and any such waiver shall
not be applicable or have any effect except in the specific instance in which it
is given.
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15. ASSIGNMENT AND SUCCESSORS IN INTEREST.
This Agreement and all rights and obligations of Consultant hereunder
are personal to Consultant and may not be transferred or assigned by Consultant
at any time. The Company may assign its rights and obligations under this
Agreement to any subsidiary or affiliate or the Company, or to any person or
entity that assumes the Company's obligations hereunder in connection with any
sale or transfer of all or a substantial portion of the Company's assets, or to
any subsidiary, affiliate or other entity into or with which the Company is
merged or consolidated.
16. BINDING NATURE.
Subject to Section 15 hereof, this Agreement shall be binding upon and
inure to the benefit of the Company and its successors and assigns and
Consultant and his heirs, executors, administrators and personal
representatives.
17. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall
constitute an original and, all of which when taken together shall constitute
one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
BLUMENTHAL/LANSING COMPANY
By: ____________________________
Name:
Title:
/s/ DAVID J. SCHOENFARBER
----------------------------
DAVID J. SCHOENFARBER
EMPLOYMENT AGREEMENT
AGREEMENT, dated February __, 1999 and made effective as of the 1st day
of January 1999, among Carlyle Industries, Inc., a Delaware corporation having
its principal office at One Palmer Terrace, Carlstadt, New Jersey 07072 (the
"Corporation"), and Robert Levinson residing at 1035 Fifth Avenue, New York, NY
10028 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Corporation wishes to employ the Executive and Executive
wishes to accept employment by the Corporation.
WHEREAS, this Agreement is intended to help assure a continuing
dedication by the Executive to his duties to the Corporation.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto, intending to be mutually bound, hereby
agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) The Corporation hereby employs the Executive, and the
Executive hereby agrees to serve, as the Chairman of the Board of Directors of
the Corporation ("Chairman") and to perform such duties as may from time to time
be appropriate to and consistent with the By-Laws of the Corporation and his
position as the Chairman of the Corporation.
(b) The Executive agrees to devote that portion of his
business time to the business and affairs of the Corporation as is reasonably
necessary for the performance of his duties hereunder.
(c) As used in this Agreement, the term "Affiliate" means a
person that directly or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with, the person referred to.
(d) The Executive agrees to accept the payments to be made to
him under this Agreement as full and complete compensation
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for the services required to be performed by him under this Agreement.
(e) The Executive shall not be required to relocate
permanently more than 60 miles from his current residence. The Executive
acknowledges, however, that significant domestic and international travel may be
required as part of his duties hereunder; and the Executive agrees to undertake
such travel as may be reasonably required by the business of the Corporation
from time to time.
2. TERM.
This Agreement shall commence on January 1, 1999 and shall
continue for a period of one year (the "Term of Employment"). The Term of
Employment shall be automatically renewed annually, unless the Executive or the
Corporation gives not less than thirty (30) days written notice to the other at
any time after December 1, 1999.
3. COMPENSATION.
(a) The Corporation agrees to pay the Executive a base salary
at the rate of One Hundred Fifty Thousand Dollars ($150,000) per annum (the
"Base Salary"), payable in accordance with the Corporation's payment practices
with respect to its executive officers as such practices may exist from time to
time, or in such other manner as mutually agreed upon by the parties hereto. The
Corporation agrees to review the Salary of the Executive on or about each
January 1 during the Term of Employment; but nothing herein shall be deemed to
obligate the Corporation to increase the Salary at any such time or at any other
time. In no event shall the Corporation decrease the Salary without the consent
of the Executive.
(b) All compensation pursuant to this Agreement shall be
subject to reduction by the amount of all applicable withholding, social
security and other similar Federal, state and local taxes and deductions.
(c) This Agreement shall not be deemed abrogated or terminated
if the Corporation, in its discretion, shall determine to increase the
compensation of the Executive for any period of time, or if the Executive shall
accept such increase, but nothing shall be deemed to obligate the Corporation to
make such increase.
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4. FRINGES.
(a) The Corporation shall reimburse the Executive for all
expenses reasonably incurred by him in connection with the performance of his
duties hereunder and the business of the Corporation, upon the submission to the
Corporation of appropriate vouchers therefor in accordance with the
Corporation's general practice.
(b) The Corporation shall have the right from time to time to
purchase, modify or terminate insurance policies on the life of the Executive
for the benefit of the Corporation, in such amounts as the Corporation shall
determine in its sole discretion.
5. TERMINATION.
Notwithstanding any provision of this Agreement to the
contrary, the Executive's employment hereunder may be terminated prior to the
expiration of the Term of Employment under the following circumstances:
(i) In the event of the death or adjudicated
incompetency of the Executive during the Term of Employment, this Agreement and
all benefits payable hereunder shall terminate on the last day of the month in
which such death or adjudication of incompetency of the Executive shall occur.
(ii) If the Executive, because of illness, injury
or other incapacitating condition, is unable to perform the services required to
be performed by him under this Agreement for a period or periods aggregating
more than one hundred twenty (120) days in any twelve (12) consecutive months or
for a period of one hundred twenty (120) consecutive days during the Term of
Employment, then the Board of Directors of the Corporation, in its sole
discretion, may terminate this Agreement by giving notice thereof to the
Executive and this Agreement and all benefits payable hereunder shall terminate
upon the date of such notice.
(iii) The Corporation may terminate the
Executive's employment at any time for Cause. For purposes of this Agreement,
the term "Cause" shall mean: (v) gross negligence of the Executive in the
performance of his duties which has a material adverse effect on the
Corporation, (w) willful neglect of his duties, (x) dishonesty on the part of
the Executive, (y) willful disobedience
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or material breach by the Executive of any of the Corporation's written rules,
instructions or orders (as are consistent with generally accepted good corporate
practices and will not unreasonably interfere with the Executive's authority to
operate the Business as set forth in Section 1(a) hereof) or (z) the Executive's
willful and material breach of any of the covenants in Sections 1 and 9 hereof
contained. Any termination of the Executive's employment for Cause as defined in
the preceding clauses (w), (y) and (z) shall be on thirty (30) days prior
written notice and then only if within such thirty (30) days period the Cause
for such termination continues substantially unabated; provided, however, that
the Executive shall be entitled to only one such thirty (30) day notice for each
Cause specified in such notice. Nothing in this Agreement shall be deemed to
justify termination of the Executive's employment by the Corporation for Cause
solely because the Corporation is dissatisfied with the quality of the
Executive's performance of his duties hereunder. The Corporation shall in all
cases have the burden of proving all facts and circumstances sufficient to
justify termination for Cause.
(iv) Upon any termination of the Executive's
employment under paragraphs (i), (ii) or (iii) above, the Executive shall be
entitled to receive solely the amount to be paid or provided by the Corporation
under paragraph 3(a) of this Agreement up to the date of such termination.
6. TERMINATION WITHOUT CAUSE.
In the event that the Corporation terminates the Executive's
employment hereunder other than for Cause (in which event Section 5 shall
apply), the Corporation shall, notwithstanding such termination, in
consideration for all the undertakings and covenants of the Executive contained
herein, continue to pay the Executive the Base Salary for a period equal to the
remainder of the Term of Employment (assuming the Executive's employment had not
terminated) in accordance with the same payment schedule as would have been
applicable if Executive had been employed by the Corporation during such period.
7. PARACHUTE PAYMENT UPON CHANGE IN CONTROL.
In the event of a Change in Control of the Corporation
("Change in Control"), without the written consent of the Executive, at any time
during the Term of Employment and the
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executive's employment with the business now operated by the company terminates
for any reason other than "discharge for cause", whether voluntarily at the
election of the executive or for any other reason, including constructive
discharge within 180 days after date of the Change of Control, the Corporation
will pay to the Executive as compensation for services rendered, beginning not
later than the fifth business day following completion of the "Parachute
Procedure" (as hereinafter defined) if the Corporation elects to follow such
procedure and not later than the fifteenth day after the date of the termination
of employment otherwise:
(a) The Executive's Base Salary through the Date of the
Change in Control for the fiscal year in which the Change in Control occurs in
accordance with any arrangements then existing with the Executive and
proportionate to the period of the fiscal year which has expired prior to the
Change in Control; and
(b) A lump sum severance payment equal to 2.99 times the
Executive's average annual compensation during the Base Period (as hereinafter
defined) (subject to any applicable payroll or other taxes and charges required
to be withheld computed at the rate for supplemental payments) provided that in
no event shall "Total Payments" (as hereinafter defined) exceed 2.99 times the
Executive's "Base Amount," as such term is defined in Section 280G of the
Internal Revenue Code (the "Code"). The Executive's Base Amount shall be
determined in accordance with temporary or final regulations promulgated under
Section 280G of the Code then in effect, if any. In the absence of such
regulations, if the Executive was not employed by the Corporation (or any of its
subsidiaries and other Affiliates within the meaning of Section 1504 of the Code
or a predecessor of the Corporation) during the entire five calendar years (the
"Base Period") preceding the calendar year in which the Change in Control of the
Corporation occurred, the Executive's average annual compensation for the
purposes of such determination shall be the lesser of (1) the average of the
Executive's annual compensation for the complete calendar years during the Base
Period during which the Executive was so employed or (2) the average of the
Executive's annual compensation for both complete and partial calendar years
during the Base Period during which the Executive was so employed, determined by
annualizing any compensation (other than nonrecurring items) includible in the
Executive's gross income for any partial calendar year or (3) the annual average
of the Executive's total compensation for the Base Period during which the
Executive was so employed, determined by dividing such total
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<PAGE>
compensation by the number of whole and fractional years included in the Base
Period. Compensation payable to the Executive by the Corporation or any
subsidiary or Affiliate or predecessor of the Corporation shall include every
type and form of compensation includible in the Executive's gross income in
respect of the Executive's employment by the Corporation or any subsidiary or
Affiliate or predecessor of the Corporation, including compensation income
recognized as a result of the Executive's exercise of stock options or sale of
the stock so acquired, except to the extent otherwise provided in temporary or
final regulations promulgated under Section 280G of the Code and any temporary
or final regulation promulgated thereunder, subject to the limitation stated in
Section 7 (c) below; and
(c) (i) Notwithstanding anything to the contrary contained
herein, in the event that any portion of the aggregate payments and benefits
(the "Total Payments") received or to be received by the Executive, whether paid
or payable pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Corporation, a subsidiary or any other person
or entity, would not be deductible in whole or in part by the Corporation, a
subsidiary or by such other person or entity in the calculation of its Federal
income tax by reason of Section 280G of the Code, the Total Payments payable
shall be reduced by the least amount necessary so that no portion of the Total
Payments would fail to be deductible by reason of being an "excess parachute
payment."
(ii) At the option of the Corporation, no
payments shall be made pursuant to this section until the procedure described in
this Section 7 (c) (ii) is completed (the "Parachute Procedure"). If the
Corporation elects to comply with such procedure, the Corporation shall cause
its independent auditors to deliver to the Executive, within fifteen (15) days
after the Date of the Change in Control, a statement which shall indicate
whether payment to the Executive of the Total Payments would cause any portion
of the Total Payment not to be deductible in whole or part in the calculation of
Federal income tax by reason of Section 280G of the Code, or would cause,
directly or indirectly, an "excess parachute payment" to exist within the
meaning of Section 280G of the Code. Such statement shall set forth the value,
calculated in accordance with the principles of Section 280G of the Code and any
temporary or final regulations promulgated thereunder, of any non-cash benefits
or any deferred or contingent payment or benefit payable pursuant to the terms
of this Agreement or any other plan,
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arrangement or benefit, together with sufficient information to enable the
Employer to determine the payments that may be made to the Executive without
resulting in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code. The Corporation warrants to the Executive the accuracy of all information
and calculation supplied to the Executive in such statement. If such statement
indicates that payment of the Total Payments would result in a loss of a
deduction by reason of Section 280G of the Code or would cause an "excess
parachute payment" to exist within the meaning of Section 280G of the Code, the
Executive shall, within thirty (30) days after receipt of the statement, deliver
to the Corporation a statement indicating which of the payments and benefits
specified in such auditor's statement the Executive elects to receive; provided,
however, that the payments and benefits selected by the Executive shall not
result in a loss of deduction under Section 280G of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 280G of the
Code and, provided, further, however, that if the Corporation does not comply
with the Parachute Procedure, it shall deliver the payments required by this
Section 7 within fifteen (15) days after the Date of the Change in Control.
Delivery of the statement by the Executive to the Corporation shall constitute
completion of the Parachute Procedures; and
(d) The Corporation shall contest any improper assessment
of an excise or other tax imposed as a result of determination that an "excess
parachute payment" has been made to the Executive within the meaning of Section
280G of the Code. If it is established pursuant to a final determination of a
court of competent jurisdiction or an Internal Revenue Service proceeding that
an "excess parachute payment" does in fact exist, within the meaning of Section
280G of the Code, then the Executive shall pay to the Corporation, upon demand,
an amount not to exceed the sum of (i) the excess of the aggregate Total
Payments over the aggregate Total Payments that would have been paid without any
portion of such payment being deemed an "excess parachute payment" within the
meaning of Section 280G of the Code and (ii) interest on the amount set forth in
clause (i) above at the applicable federal rate specified in Section 1274(d) of
the Code from the date of receipt by the Executive of such excess until the date
of such repayment.
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(e) For purposes hereof, a "Change in Control" of the
Corporation shall be deemed to have occurred upon and only upon the occurrence
of any of the following events:
(i) A change in control of the direction and
administration of the Corporation's business of a nature that if any securities
of the Corporation were registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), would be required to be reported in response to
(a) Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange
Act, or (b) Item 1(a) of Form 8-K under the Exchange Act as each is in effect on
the date hereof and any successor provision of such regulations under the
Exchange Act, whether or not the Corporation is then subject to such reporting
requirements provided that a distribution by Noel of the Corporation's preferred
stock owned by it to is stockholders, or any other disposition of such preferred
stock by Noel Group, Inc. ("Noel"), as described in Section 7(e)(iv) shall not
be deemed a Change in Control; or
(ii) Any "person" or "group" not including the
Executive or members of his family (as such term is used in connection with
Section 13(d) and 14(d)(2) of the Exchange Act) but excluding any employee
benefit plan of the Corporation or any "affiliate" or "associate" of the
Corporation (as defined in Regulation 12b-2 under the Exchange Act) (A) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing
fifty percent (50%) or more of the combined voting power of the Corporation's
outstanding securities then entitled ordinarily (and apart from rights accruing
under special circumstances) to vote for the election of directors or (B)
acquires by proxy or otherwise 50% or more of the combined voting securities of
the Corporation having the right to vote for the election of directors of the
Corporation, for any merger or consolidation of the Corporation, for the
election of Directors, or for any other matter; or
(iii) During any period of twenty-four (24)
consecutive months, the individuals who at the beginning of such period
constitute the Board of Directors of the Corporation or any individuals who
would be "Continuing Directors" (as hereinafter defined) cease for any reason to
constitute at least a majority thereof; or
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(iv) Noel shall sell, transfer or assign to, or
enter into an agreement to sell, transfer or assign, with any person, not an
affiliate of Noel Group, Inc. that number of shares of the Corporation's
preferred stock which constitutes more than fifty percent (50%) of the combined
voting rights of the Corporation's preferred stock and common stock; or
(v) There shall be consummated (A) any
consolidation, merger or recapitalization of the Corporation or any similar
transaction involving the Corporation, whether or not the Corporation is the
continuing or surviving corporation, pursuant to which shares of the
Corporation's common stock, par value $.01 per share ("Common Stock"), would be
converted into cash, securities or other property, other than a merger of the
Corporation in which the holders of Common Stock immediately prior to the merger
have the same proportion and ownership of common stock of the surviving
corporation immediately after the merger, (B) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Corporation or (C) the adoption of a
plan of complete liquidation of the Corporation (whether or not in connection
with the sale of all or substantially all of the Corporation's assets ) or a
series of partial liquidations of the Corporation that is DE JURE or DE FACTO
part of a plan of complete liquidation of the Corporation; provided, that the
divestiture of less than substantially all of the assets of the Corporation in
one transaction or a series of related transactions, whether effected by sale,
lease, exchange, spin-off, sale of the stock or merger of a subsidiary or
otherwise, or a transaction solely for the purpose of reincorporating the
Corporation in another jurisdiction, shall not constitute a "Change in Control";
or
(vi) The Board of Directors of the Corporation
shall approve any merger, consolidation or like business combination or
reorganization of the Corporation, the consummation of which would result in the
occurrence of any event described in Section 8 (e) (i), (ii) or (v) above.
(vii) For purposes of Section 8 (e) (iii),
"Continuing Directors" shall mean the directors of the Corporation in office on
the date hereof and any successor to any such director and any additional
director who after the date hereof (A) was nominated or selected by a majority
of the Continuing Directors in office at the time of his nomination or selection
and
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(B) who is not an "affiliate" or "associate" (as defined in Regulation 12b-2
under the Exchange Act) of any person who is the beneficial owner, directly or
indirectly, of securities representing ten percent (10%) or more of the combined
voting power of the Corporation's outstanding securities then entitled
ordinarily to vote for the election of directors.
8. EXECUTIVE'S COVENANTS.
(a) The Executive acknowledges that (i) the Business
involves researching, designing, developing, acquiring, assembling, packaging,
selling and distributing buttons and a variety of other products; (ii) the
Business is conducted in the United States and marketed in the United States and
elsewhere, and (iii) his work for the Corporation has heretofore given him, and
will continue to give him, trade secrets of and confidential information
concerning the Business and the Corporation; (iv) the agreements and covenants
contained in this Section 8 are essential to protect the Business and goodwill
of the Corporation; and (v) he has means to support himself and his dependents
other than by engaging in the Business and the provisions of this Section 8 will
not impair such ability. Accordingly, the Executive covenants and agrees, as
follows:
(i) During the Term of Employment (as defined
below), the Executive shall not in the United States or elsewhere, directly or
indirectly, (i) engage in any business competitive with the Business or market
any products or services competitive with any products or services which were in
development, developed, manufactured and/or sold by the Business within five
years prior to the date hereof or any product or services which are in
development, developed, manufactured and/or sold by the Business at any time
during that portion of the Term of Employment that the Executive is employed by
the Corporation (the "Competitive Products") for his own account; (ii) enter the
employ of, or render any services to, any person engaged in such activities; or
(iii) become interested in any such person in any capacity, including, without
limitation, as an individual, partner, shareholder, officer, director,
principal, agent, trustee or consultant; provided, however, he may own, directly
or indirectly, solely as an investment, securities of any person traded on any
national securities exchange if he is not a controlling person of, or a member
of a group which controls, such person and does not, directly or indirectly, own
1% or more of any class of securities of such person.
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(ii) During and after the Term of Employment, the
Executive shall keep secret and retain in strictest confidence, and shall not
use for the benefit of himself or others, all confidential matters of the
Corporation and its subsidiaries and other Affiliates, including, without
limitation, "know-how", trade secrets, customer lists, details of client or
consultant contracts, pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans, business acquisition plans,
new personnel acquisition plans, methods of manufacture, technical processes,
designs and design projects, inventions and research projects of the Corporation
or any of their Affiliates in connection with the Business, learned by him
heretofore or hereafter, unless such confidential matters become known to the
public through no fault of the Executive; nor may he exploit for his own benefit
or the benefit of others personal relationships with customers or suppliers of
the Corporation or any of their Affiliates in connection with the Business,
formed heretofore or hereafter in connection with any product competitive with
the Competitive Products. Notwithstanding the foregoing, customer lists of the
Corporation and their subsidiaries and other Affiliates cease to be confidential
information upon the termination of the Executive's employment by the
Corporation without cause prior to the expiration of the Term of Employment.
(iii) All memoranda, notes, lists, records and
other documents or papers (and all copies thereof), including such items stored
in computer memories, on microfiche or by any other means, made or compiled by
or on behalf of the Executive, or made available to him relating to the
Corporation or the Business, are and shall be the property of the Corporation
and shall be delivered to the Corporation promptly upon the termination of his
employment with the Corporation or at any other time on request.
(iv) During the Term of Employment and for a
period of one year thereafter, the Executive shall not, directly or indirectly,
hire or solicit any employee of the Corporation, any one who was an employee of
the Corporation or any of their Affiliates in connection with the Business, at
any time during the Term of Employment or the two years immediately preceding
the termination of the Term of Employment, or encourage any current employee of
the Corporation to leave such employment.
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(v) During the Term of Employment, the Executive
shall not, directly or indirectly, hire or solicit in connection with any
Competitive Product any consultant or sales representative then, or at any time
during the Term of Employment or two years immediately preceding the termination
of the Term of Employment, doing business with the Corporation or any of their
Affiliates in connection with the Business, or encourage any such current
consultant or sales representative to terminate such relationship.
(b) If such Executive breaches, or threatens to commit a
breach of, any of the provisions of Section 8 (a) (the "Restrictive Covenants"),
the Corporation shall have the following rights and remedies, each of which
rights and remedies shall be independent of the others and severally
enforceable, and each of which is in addition to, and not in lieu of, any other
rights and remedies available to the Corporation under law or in equity:
(i) The right and remedy to have the Restrictive
Covenants specifically enforced by any court of competent jurisdiction, it being
agreed that any breach or threatened breach of the Restrictive Covenants would
cause irreparable injury to the Corporation and that money damages would not
provide an adequate remedy to the Corporation.
(ii) The right and remedy to require the
Executive to account for and pay over to the Corporation all compensation,
profits or other benefits derived or received by him as the result of any
transactions constituting a breach of the Restrictive Covenants.
(iii) The Term of Employment shall be extended for
a period equal to the period Executive has been found by a court of competent
jurisdiction or arbitrator to have been in violation of the applicable
Restrictive Covenant which extension shall begin to run after the date of entry
of final judgment enforcing such provision and the time for appeal has lapsed.
(c) The Executive acknowledges and agrees that the
Restrictive Covenants are reasonable and valid in geographical and temporal
scope and in all other respects. The Executive acknowledges and agrees that the
Restrictive Covenants are intended to be supplemental and additional to, and not
in derogation of, any property rights the Corporation may have. If any court
determines that any of the Restrictive Covenants, or any
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part thereof, is invalid or unenforceable, the remainder of the Restrictive
Covenants shall not thereby be affected and shall be given full effect, without
regard to the invalid portions.
(d) If any court determines that any of the Restrictive
Covenants, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
(e) The Executive intends to and hereby confers
jurisdiction to enforce the Restrictive Covenants upon the courts of any
jurisdiction within the geographical scope of such Covenants. If the courts of
any one or more of such jurisdictions hold the Restrictive Covenants
unenforceable by reason of the breadth of such scope or otherwise, it is the
intention of the Corporation and the Executive that such determination not bar
or in any way affect the Corporation's right to the relief provided above in the
courts of any other jurisdiction within the geographical scope of such
Covenants, as to breaches of such Covenants in such other respective
jurisdictions, such Covenants as they relate to each jurisdiction being, for
this purpose, severable into diverse and independent covenants.
9. NOTICES.
All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given if the same shall be in
writing and shall be delivered or sent by registered or certified mail, postage
prepaid, and addressed as set forth below:
(a) If to Corporation: Carlyle Industries, Inc.
One Palmer Terrace
Carlstadt, New Jersey 07072
Attention: Ed Cooke, CFO
(b) with a copy to: Bryan Cave LLP
245 Park Avenue
New York, New York 10167
Attention: Peter A. Eisenberg
(c) If to Executive: Robert Levinson
1035 Fifth Avenue
New York, NY 10028
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Any such notice shall be effective upon receipt. Either party may change the
address to which notices are to be addressed by giving the other party notice in
the manner herein set forth.
10. ENTIRE AGREEMENT.
This Agreement embodies the entire agreement of the parties
with respect to the subject matter hereof. It may not be changed except by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
11. WAIVERS.
The waiver by the Corporation of a breach of any provision of
this Agreement by the Executive shall not operate or be construed as a waiver of
any other or subsequent breach by the Executive.
12. GOVERNING LAW.
This Agreement shall be subject to, and be governed by, the
internal laws of the State of New York applicable to agreements made and to be
performed entirely within such State, without giving effect to conflicts of laws
principles thereof.
13. BINDING EFFECT.
The rights and obligations of the Corporation under this
Agreement shall inure to the benefit of and shall be binding upon any successor
to the Corporation or to the Business. Neither this Agreement nor any rights or
obligations of the Executive hereunder shall be transferable or assignable by
the Executive.
14. ATTORNEYS' FEES.
If there is any litigation or arbitration arising out of this
Agreement, the non-prevailing party shall reimburse the prevailing party for its
reasonable attorneys' fees and expenses and court costs incurred in such
litigation or arbitration.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
14
<PAGE>
The payment and performance of all of the Corporation's obligations
hereunder are hereby fully and unconditionally guaranteed by the Corporation.
CARLYLE INDUSTRIES, INC.
By
--------------------------------
Chief Financial Officer
AGREED TO AND ACCEPTED as of the date of the signature below.
/s/ ROBERT LEVINSON
------------------------------
Robert Levinson, Executive
Dated:________________________
15
FIRST AMENDMENT
to
CREDIT AGREEMENT
FIRST AMENDMENT dated as of December 16, 1998 (the
"Amendment") between CARYLE INDUSTRIES, INC., a Delaware corporation (the
"Borrower"), and FLEET BANK, N.A., a national banking association (the "Bank")
to the Credit Agreement (as hereinafter defined). Capitalized terms used but not
defined herein shall have the meanings given to such terms in the Credit
Agreement.
WHEREAS, the Bank and the Borrower are parties to a Credit
Agreement dated as of June 23, 1998, pursuant to which the Bank made loans to,
and established credit facilities for, the Borrower (as the same may be further
amended, modified or supplemented from time to time, the "Credit Agreement");
WHEREAS, the Borrower wishes to amend the Credit Agreement to
permit the Borrower to use loan proceeds to fund the acquisition of certain of
the assets of Streamline Industries, Inc., a ____________ corporation
("Streamline") by Blumenthal, in the manner and on the terms and conditions set
forth below.
WHEREAS, the Borrower has requested that the Bank consent to
the amendments as herein provided and, subject to the terms and conditions
provided herein, the Bank is willing to agree to such amendments;
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) On and after the Amendment Effective Date (as
hereinafter defined), the Preliminary Statement in the Credit
Agreement is hereby amended by replacing it in its entirety
with the following:
"The Borrower has requested that the Lender Parties
lend to the Borrower up to $14,000,000 in order to finance the
acquisition of substantially all of the assets of Westwater
Enterprises, L.P., to finance the acquisition by Blumenthal of
certain of the assets of Streamline Industries, Inc. (the
("Streamline Acquisition"), to use up to $10,000,000 toward
the redemption of $12,500,000 of Preferred Stock of the
Borrower, to pay transaction fees and expenses in connection
with the transactions contemplated hereby and to provide for
the short term working capital requirements of the Borrower.
The Lender Parties have indicated their willingness to agree
to lend such amounts on the terms and conditions of this
Agreement."
<PAGE>
(b) On and after the Amendment Effective Date, the
definition of Acquisition Documents in Section 1.01 of the
Credit Agreement is hereby deleted in its entirety and the
following new definition inserted in lieu thereof:
"ACQUISITION DOCUMENTS" means all documents executed and
delivered in connection with the Acquisition, including
without limitation the Asset Purchase Agreement, to be
executed on a date not later than July 31, 1998 between the
Borrower or Westwater Inc. and Westwater and all documents
executed and delivered in connection with the Streamline
Acquisition, including, without limitation the Purchase and
Sale Agreement dated as of December __,1998 (the "Streamline
Acquisition Documents") each in form and substance
satisfactory to the Agent."
(c) On and after the Amendment Effective Date,
Section 2.15 of the Credit Agreement is hereby deleted in its
entirety and the following inserted in lieu thereof:
"SECTION 2.15. USE OF PROCEEDS. The proceeds of the Advances
shall be available (and the Borrower agrees that it shall use
such proceeds) solely (i) an amount not to exceed $3,000,000,
to partially fund the Acquisition, including the satisfaction
of certain Debt of Westwater; (ii) to use up to $10,000,000
toward the redemption of $12,500,000 of Preferred Stock of the
Borrower, it being understood that as of the Closing Date
Borrower will redeem shares of Preferred Stock of the Borrower
having an aggregate value of $12,500,000; (iii) to pay
transaction fees and expenses in connection with the
transactions contemplated hereby; (iv) an amount not to exceed
$2,500,000, to partially fund the Streamline Acquisition; and
(v) to provide for the short term working capital requirements
of the Borrower, Westwater, Inc. (after the occurrence of the
Acquisition) and Blumenthal. Issuances of Letters of Credit
shall be available (and the Borrower agrees that it shall use
such Letters of Credit) solely for the benefit of foreign
suppliers of Inventory to the Borrower, Westwater Inc. (after
the occurrence of the Acquisition) and Blumenthal ."
(d) Section 8.02 of the Credit Agreement is hereby
amended to provide that notices to the Bank shall be delivered
to Beth Goodman.
2. CONDITIONS PRECEDENT TO EXECUTION OF AMENDMENT. The
obligation of the Bank to execute and deliver this Amendment and to make any
Loan after the Amendment Effective Date under the Credit Agreement as amended
hereby is subject to the condition that on or before the Amendment Effective
Date the Bank shall have received each of the following documents and
instruments in form and substance satisfactory to the Bank and dated as of the
-2-
<PAGE>
Amendment Effective Date or other evidence of compliance with the following
conditions satisfactory to the Bank:
(a) The Amendment executed and delivered by an authorized
officer of the Borrower.
(b) the representations and warranties contained in each Loan
Document are correct on and as of the Amendment Effective
Date, before and after giving effect to such Borrowing or
issuance and to the application of the proceeds therefrom, as
though made on and as of such date other than any such
representations or warranties that, by their terms, refer to a
specific date other than the date of such Borrowing, in which
case as of such specific date;
(c) no event shall have occurred and be continuing, or would
result from such Borrowing or issuance or from the application
of the proceeds therefrom, that constitutes a Default;
(d) The Lenders shall be satisfied that the assets and
earnings of the Borrower immediately following the Streamline
Acquisition contemplated hereby will be sufficient to support
the Obligations of the Borrower under this Agreement and the
Notes, the Loan Documents and the Acquisition Documents and
the timely amortization of all Indebtedness and other
Obligations of the Borrower.
(e) The Streamline Acquisition shall have been consummated
strictly in accordance with the terms of the Acquisition
Documents, without any waiver or amendment of any term,
provision or condition set forth therein not consented to by
the Lenders and in compliance with all applicable laws.
(f) The Agent shall have received on or before the date of the
Borrowing, each of even date therewith (unless otherwise
specified), in form and substance satisfactory to the Lenders
(unless otherwise specified) and in sufficient copies for each
Lender and Agent and Lender's counsel and in the case of (i)
through (vi) below to the extent reasonably necessary to
evidence the Borrowing to fund the Streamline Acquisition, the
addition of any Guarantor and to perfect the first priority
security interest of the Lender Parties and Agent in the
assets of the Borrower and its Subsidiaries:
i. any Collateral Documents (including without
limitation any additional UCC-1 financing
statements and amendments to existing UCC-1
financing statements and assignments and
grants of security interests in patents,
trademarks and copyrights);
-3-
<PAGE>
ii. Amended schedules to the Credit Agreement
and Collateral Documents;
iii. the Blocked Account Letters and Lockbox
Agreements;
iv. Certified copies of the resolutions of the
Board of Directors of the Borrower approving
the Streamline Acquisition, all other
transactions contemplated thereby, and of
all documents evidencing other necessary
corporate action and governmental approvals,
if any, with respect to the Streamline
Acquisition and the Acquisition Documents
related thereto.
v. Original counterparts of the Streamline
Acquisition Documents, each duly and validly
executed by each party thereto.
vi. Such financial, business and other
information regarding the Streamline
Acquisition as the Lenders shall have
reasonably requested.
vii. A certificate, in substantially the form of
Exhibit I to the Credit Agreement, attesting
to the Solvency of the Borrower and its
Subsidiaries, taken as a whole, immediately
after giving effect to the Streamline
Acquisition from its president or vice
president and chief financial officer.
(g) The Streamline Acquisition shall occur by no later than
______________.
(h) An opinion of counsel to the Borrower in form and
substance satisfactory to the Agent as to such matters as the
Agent or its counsel may reasonably request, including without
limitation the due authorization, execution and delivery of
the Streamline Acquisition Documents and the Amendment and the
enforceability thereof.
3. FEES. The Borrower agrees to pay on or before the date
hereof, a fee in the amount of $5,000 to the Bank and all costs and expenses
incurred by the Bank (including, without limitation, the fees and disbursements
of counsel for the Bank) in connection with the preparation and execution of
this Amendment.
-4-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES.
In order to induce the Bank to enter into this Amendment, the
Borrower represents and warrants to the Bank as follows:
viii. that no Default exists under the Credit
Agreement on the date hereof, both before
and after giving effect to this Amendment;
ix. repeats and reaffirms, on and as of the
Amendment Effective Date, each of the
representations, warranties and agreements
contained in Article IV of the Credit
Agreement after giving effect to this
Amendment;
x. the execution, delivery and performance by
the Borrower of the Amendment and the taking
by it of all actions contemplated thereby
are within the Borrower's corporate powers,
have been duly authorized by all necessary
corporate action and do not contravene (x)
the Borrower's charter or by-laws, or (y)
any law or any contractual restriction
binding on or affecting the Borrower;
xi. no authorization, approval or other action
by, and no notice to or filing with, any
governmental authority or regulatory body is
required for the due execution, delivery and
performance by the Borrower of the Amendment
or for the taking by it of any action
contemplated hereby or thereby to be taken
by it; and
xii. the Amendment constitutes the valid and
binding obligations of the Borrower,
enforceable against the Borrower in
accordance with its terms.
5. MISCELLANEOUS.
(a) This Amendment shall become effective on the
date (the "Amendment Effective Date") when the Borrower and the Bank shall have
signed a copy of this Amendment (whether the same or different counterpart) and
the Borrower shall have delivered the same to the Bank (including by way of
facsimile device).
(b) THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(c) The Borrower hereby irrevocably and
unconditionally:
-5-
<PAGE>
(i) submits for itself and its property
in any legal action or proceeding
relating to this Amendment, or for
recognition and enforcement of any
judgment in respect thereof, to the
nonexclusive general jurisdiction of
the State of New York, the courts of
the United States of America for the
Southern District of New York, and
appellate courts from any thereof;
(ii) consents that any such action or
proceeding may be brought in such
courts, and waives any objection
that it may now or hereafter have to
the venue of any such action or
proceeding in any such court or that
such action or proceeding was
brought in an inconvenient court and
agrees not to plead or claim the
same;
(iii) agrees that service of process in
any such action or proceeding may be
effected by mailing a copy thereof
by registered or certified mail (or
any substantially similar form of
mail), postage prepaid, to the
Borrower at its address set forth in
Section 8.02 of the Credit Agreement
or at such other address of which
the Bank has been notified pursuant
thereto;
(iv) agrees that nothing herein shall
affect the right to effect service
of process in any other manner
permitted by law or shall limit the
right to sue in any other
jurisdiction; and
(v) waives trial by jury in any legal
action or proceeding referred to in
paragraphs (i) through (iv) of this
Section 5(c).
(e) This Amendment may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
(f) This Amendment is limited as specified and
shall not constitute a modification, acceptance or waiver of any other provision
of the Credit Agreement or any other Loan Document. Except as otherwise provided
herein, all terms and conditions of the Credit Agreement and every other Loan
Document, respectively, and all obligations of the Borrower and rights of the
Bank thereunder shall remain in full force and effect.
(g) This Amendment amends the terms of the
Credit Agreement and does and shall be deemed to form a part of, and shall be
construed in connection with and as part of, the Credit Agreement for any and
all purposes. Any reference to the Credit Agreement, following the execution and
delivery of this Amendment, shall be deemed a reference to such Credit Agreement
as hereby amended.
-6-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this
Amendment as of the date first above written.
CARYLE INDUSTRIES, INC.
By:
-------------------------------------
Name:
Title:
FLEET BANK, N.A., as Agent, Issuing Bank
and Lender
By: /s/ BETH GOODMAN
-------------------------------------
Name: Beth Goodman
Title: Vice President
-7-
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<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000011027
<NAME> Carlyle Industries, Inc.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 55
<SECURITIES> 0
<RECEIVABLES> 4,701
<ALLOWANCES> 0
<INVENTORY> 4,592
<CURRENT-ASSETS> 12,213
<PP&E> 2,751
<DEPRECIATION> 922
<TOTAL-ASSETS> 17,824
<CURRENT-LIABILITIES> 3,025
<BONDS> 0
0
13,629
<COMMON> (17,285)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,824
<SALES> 23,801
<TOTAL-REVENUES> 23,801
<CGS> 12,852
<TOTAL-COSTS> 12,852
<OTHER-EXPENSES> 5,613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 309
<INCOME-PRETAX> 5,027
<INCOME-TAX> (1,867)
<INCOME-CONTINUING> 3,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,021
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
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