<PAGE> 1
PROXY STATEMENT
PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
GUNDLE ENVIRONMENTAL SYSTEMS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GUNDLE ENVIRONMENTAL SYSTEMS, INC.
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
<TABLE>
<CAPTION>
==================================================================================================
TITLE OF CLASS OF
SECURITIES AGGREGATE NUMBER OF PROPOSED MAXIMUM
TO WHICH TRANSACTION SECURITIES TO WHICH UNIT AGGREGATE VALUE OF
APPLIES TRANSACTION APPLIES PRICE(1) THE TRANSACTION FILING FEE(2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share...... 7,000,000 $5.625 $39,375,000 $7,875
==================================================================================================
</TABLE>
(1) Based on the market value of the Common Stock as quoted on the American
Stock Exchange as of May 2, 1995, in accordance with Rule 0-11 (a)(4).
(2) Calculated in accordance with Rule 0-11(c)(1)(i).
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing:
(1) Amount previously paid: $7,875
(2) Form, Schedule or Registration Statement Number: preliminary proxy
materials on Schedule 14A
(3) Filing Party: Registrant
(4) Date Filed: May 4, 1995
<PAGE> 2
[GUNDLE LOGO]
ENVIRONMENTAL SYSTEMS, INC.
19103 GUNDLE ROAD
HOUSTON, TEXAS 77073
June 27, 1995
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders (the
"Annual Meeting") of Gundle Environmental Systems, Inc. (the "Company") to be
held on Thursday July 27, 1995 at 11:00 a.m., Houston, Texas time, at the
Houston Marriott Hotel at Greenspoint, 255 North Sam Houston Parkway East,
Houston, Texas 77060.
At the Annual Meeting, you will be asked to (i) approve a Plan and
Agreement of Merger (the "Merger Agreement") between the Company and with SLT
Environmental, Inc. ("SLT") and the transactions contemplated therein (the
"Merger"), (ii) to consider and vote upon a proposal to amend and restate the
Certificate of Incorporation of the Company to increase the authorized number of
shares of preferred stock from the present 1,000 shares, no par value, to
1,000,000 shares, par value of $1.00 per share, undesignated as to series, (iii)
elect seven new directors of the Company and (iv) approve the Company's 1995
Incentive Stock Plan (the "1995 Plan"). Details of the proposed Merger Agreement
and the Merger, the amendment and restatement of the Certificate of
Incorporation of the Company, the election of directors and the 1995 Plan are
contained in the Proxy Statement being delivered with this letter.
If the Merger Agreement is approved by a majority of the stockholders of
the Company, SLT will be merged into the Company with the Company being the
surviving entity (the "Merger"). Upon any consummation of the Merger, three of
the directors elected at the Annual Meeting will be succeeded by SLT designees
as provided in the Merger Agreement. The Company's board of directors has
carefully considered and has unanimously approved the terms and conditions of
the Merger, and recommends that the stockholders adopt the Merger Agreement and
approve the Merger. In reaching this conclusion, the board considered, among
other things, the opinion of Smith Barney Inc., an investment banking firm
engaged by the Company, that the consideration to be paid by the Company in the
Merger is fair, from a financial point of view, to the Company.
In view of the importance of the actions to be taken at the Annual Meeting,
you are urged to read the accompanying Proxy Statement carefully, and regardless
of the number of shares you own, we request that you complete, sign, date and
return the enclosed Proxy Card promptly in the accompanying prepaid envelope.
You may, of course, attend the Annual Meeting and vote in person, even if you
have previously returned your Proxy Card. The board of directors recommends that
you vote For approval of the Merger Agreement, For each of the directors
nominated by the Company, For the amendment and restatement of the Certificate
of Incorporation of the Company, and For approval of the 1995 Plan.
Sincerely,
/s/ THOMAS L. CALTHRIDER
THOMAS L. CALTRIDER
President and Chief Executive Officer
<PAGE> 3
GUNDLE ENVIRONMENTAL SYSTEMS, INC.
19103 GUNDLE ROAD
HOUSTON, TEXAS 77073
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 27, 1995
Notice is hereby given that the annual meeting (the "Annual Meeting") of
stockholders of Gundle Environmental Systems, Inc., a Delaware corporation (the
"Company"), will be held at the Houston Marriott Hotel at Greenspoint, 255 North
Sam Houston Parkway East, Houston, Texas 77060, on Thursday, July 27, 1995, at
11:00 a.m., Houston, Texas time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Plan
and Agreement of Merger dated as of March 28, 1995 (the "Merger Agreement")
between the Company and SLT Environmental, Inc., a Delaware corporation
("SLT") and the transactions contemplated thereby, as more fully described
in the accompanying Proxy Statement;
2. To consider and vote upon a proposal to amend and restate the
Certificate of Incorporation of the Company to increase the authorized
number of shares of preferred stock from the present 1,000 shares, no par
value, to 1,000,000 shares, par value of $1.00 per share, undesignated as
to series.
3. To elect a board of seven directors;
4. To consider and vote upon a proposal to approve and adopt the
Company's 1995 Incentive Stock Plan; and
5. To transact such other business as may properly be presented at the
Annual Meeting.
A record of the stockholders has been taken as of the close of business on
June 16, 1995, and only those stockholders of record on that date will be
entitled to notice of and to vote at the Annual Meeting. A list of stockholders
will be available commencing July 17, 1995, and may be inspected before the
Annual Meeting during normal business hours at the offices of the Company, 19103
Gundle Road, Houston, Texas 77073.
Your participation in the Company's affairs is important. To ensure your
representation, if you do not expect to be present at the Annual Meeting in
person, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY in the
enclosed postage-prepaid envelope which has been provided for your convenience.
By Order of the Board of Directors,
/s/ ROGER J. KLATT
ROGER J. KLATT,
Secretary
June 27, 1995
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Proxy Statement....................... 1
Available Information................. 2
Incorporation of Certain Information
by Reference........................ 2
Summary............................... 3
Summary Financial Information......... 7
Certain Considerations................ 9
The Merger and Related Transactions... 10
General Description of the Merger... 10
Background.......................... 10
Reasons for the Merger.............. 13
Refinancing of Indebtedness......... 14
Amendment and Restatement of
Certificate of Incorporation..... 15
Amendment and Restatement of
Bylaws........................... 15
Registration Rights Agreement....... 16
Opinion of the Company's Financial
Advisor.......................... 16
Recommendation of the Company's
Board of Directors............... 20
Management.......................... 20
Interests of Certain Persons in the
Transactions..................... 21
Certain Federal Income Tax
Considerations................... 21
Accounting Treatment................ 22
Government and Regulatory
Approvals........................ 22
Vote Required for Approval.......... 23
Description of the Merger Agreement... 23
The Merger.......................... 23
Management.......................... 24
Representations and Warranties of
the Company and SLT.............. 24
Conditions to the Merger............ 24
Obligations of the Parties Pending
the Effective Date............... 25
Termination; Agreement Not to
Solicit Other Proposals.......... 26
Unaudited Pro Forma Financial
Statements.......................... 27
Description of SLT.................... 30
General............................. 30
History............................. 30
Products............................ 30
Manufacturing....................... 32
Quality Control..................... 32
Raw Materials....................... 32
Sales by Market Application......... 33
Installation........................ 33
Domestic Facilities................. 33
International Facilities............ 33
Employees........................... 34
Legal Proceedings................... 34
Market Price of and Dividends on
Common Stock..................... 34
Management's Discussion and Analysis
of SLT's Financial Condition and
Results of Operations............... 35
Increase in Authorized Preferred
Stock............................... 38
Election of Directors................. 39
Adoption of Proposed 1995 Incentive
Stock Plan.......................... 42
Other Information..................... 46
Index to SLT Environmental, Inc. and
Subsidiaries Consolidated Financial
Statements.......................... F-i
Report of Independent Auditors...... F-1
Exhibit A -- Plan and Agreement of
Merger.............................. A-1
Exhibit B -- Opinion of Smith Barney
Inc. ............................... B-1
</TABLE>
i
<PAGE> 5
GUNDLE ENVIRONMENTAL SYSTEMS, INC.
19103 GUNDLE ROAD
HOUSTON, TEXAS 77073
PROXY STATEMENT
This Proxy Statement is being mailed to stockholders commencing on or about
June 27, 1995, in connection with the solicitation by the board of directors of
Gundle Environmental Systems, Inc., a Delaware corporation (the "Company"), of
proxies to be voted at the annual meeting (the "Annual Meeting") of stockholders
to be held in Houston, Texas on July 27, 1995, and upon any adjournment thereof,
for the purposes set forth in the accompanying notice. Proxies will be voted in
accordance with the directions specified thereon and otherwise in accordance
with the judgment of the persons designated as the holders of the proxies.
Proxies marked as abstaining on any matter to be acted on by the stockholders
will be treated as present at the Annual Meeting for purposes of determining a
quorum but will not be counted as votes cast on such matters. Any proxy on which
no direction is specified will be voted: (i) for approval of the Plan and
Agreement of Merger (the "Merger Agreement") dated March 28, 1995 between the
Company and SLT Environmental, Inc., a Delaware corporation, and the
transactions contemplated therein; (ii) for the amendment of the Certificate of
Incorporation of the Company to increase the authorized number of shares of
Preferred Stock from 1,000 shares, no par value, to 1,000,000 shares, par value
$1.00 per share, undesignated as to series; (iii) for the election of each of
the nominees for director named herein; and (iv) for the adoption of the 1995
Incentive Stock Plan.
A stockholder may revoke a proxy by: (i) delivering to the Company written
notice of revocation, (ii) delivering to the Company a proxy signed on a later
date or (iii) voting in person at the Annual Meeting.
As of June 16, 1995, the record date for the determination of stockholders
entitled to vote at the Annual Meeting, there were outstanding and entitled to
vote 10,191,926 shares of the common stock of the Company (the "Common Stock").
Each share of Common Stock entitles the holder to one vote on each matter
presented to the stockholders.
IN CONSIDERING WHETHER TO APPROVE AND ADOPT THE MERGER AGREEMENT,
STOCKHOLDERS OF THE COMPANY SHOULD CAREFULLY EVALUATE THE MATTERS SET FORTH
UNDER "THE MERGER AND RELATED TRANSACTIONS -- CERTAIN CONSIDERATIONS".
<PAGE> 6
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Regional Offices of the Commission located at CitiCorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Company's Common
Stock is listed on the American Stock Exchange, and reports, proxy statements
and other information concerning the Company are available for inspection at the
offices of the American Stock Exchange, 86 Trinity Place, New York, New York
10006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Proxy Statement incorporates documents by reference that are not
presented herein or delivered herewith. These documents will be available upon
request from Roger J. Klatt, secretary and chief financial officer of the
Company, 19103 Gundle Road, Houston, Texas 77073, telephone number (713)
443-8564. In order to ensure timely delivery of the documents, any request
should be made by July 1, 1995.
The Company's Annual Report on Form 10-K for the Company's fiscal year
ended March 31, 1995, as amended by Form 10-K/A-1 dated June 20, 1995; and the
Company's Current Report on Form 8-K dated April 18, 1995, are incorporated by
reference in this Proxy Statement. A COPY OF THE COMPANY'S ANNUAL REPORT IS
ENCLOSED WITH THIS PROXY STATEMENT.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14, or
15(d) of the Exchange Act after the date of this Proxy Statement and before the
consummation of the Merger and related transactions shall be deemed to be
incorporated by reference in this Proxy Statement and to be a part hereof from
the date of filing of such documents. All information appearing in this Proxy
Statement is qualified in its entirety by the information and financial
statements (including notes thereto) appearing in the documents incorporated by
referenced herein.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be modified or superseded, for purposes
of this Proxy Statement, to the extent that a statement contained therein or in
any subsequently filed document that is deemed to be incorporated herein
modifies or supersedes any such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
2
<PAGE> 7
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. The information contained in this summary is qualified in
its entirety by and should be read in conjunction with the more detailed
information appearing elsewhere in this Proxy Statement and the documents
incorporated herein by reference. A copy of the Merger Agreement is attached
hereto as Exhibit A.
INTRODUCTION
This Proxy Statement relates to the 1995 annual meeting of stockholders
(the "Annual Meeting") of Gundle Environmental Systems, Inc., a Delaware
corporation (the "Company"). At the Annual Meeting, the stockholders of the
Company will consider and vote upon (i) a proposal to approve and adopt the Plan
and Agreement of Merger dated as of March 28, 1995 (the "Merger Agreement")
between the Company and SLT Environmental, Inc., a Delaware corporation ("SLT")
and the transactions contemplated therein (the "Merger"); (ii) a proposal to
amend and restate the Certificate of Incorporation of the Company to increase
the authorized number of shares of preferred stock from the present 1,000
shares, no par value, to 1,000,000 shares, par value $1.00 per share,
undesignated to series; (iii) the election of seven directors of the Company;
and (iv) a proposal to approve and adopt the 1995 Incentive Stock Plan of the
Company. A summary of each of the proposals to be considered at the Annual
Meeting is set forth below.
THE ANNUAL MEETING
The Company's Annual Meeting will be held at the Houston Marriott Hotel at
Greenspoint, 255 North Sam Houston Parkway East, Houston, Texas 77060, on
Thursday, July 27, 1995 at 11:00 a.m. Houston, Texas time. The record date for
stockholders of the Company entitled to notice of and to vote at the Annual
Meeting is June 16, 1995. Voting rights of the Company are vested in the holders
of the Company's common stock, par value $.01 per share (the "Common Stock"),
with each share entitled to one vote on each matter presented to the
stockholders.
THE MERGER
Merger of SLT into the Company. If the Merger Agreement is approved and
adopted by the stockholders of the Company and the transactions contemplated
therein are consummated, SLT will be merged into the Company with the Company
being the surviving corporation. Upon such consummation, by operation of law and
without further action on the part of the stockholders (i) the persons named in
the Merger Agreement will become directors of the Company on the effective date
of the Merger (the "Effective Date"); (ii) the Certificate of Incorporation of
the Company will be amended and restated to (a) increase the authorized number
of shares of the Company's Common Stock to 30,000,000 shares from the present
15,000,000 shares and (b) change the name of the Company to Gundle/SLT
Environmental, Inc.; and (iii) the Company's Bylaws will be amended and restated
to fix the number of directors of the Company at no less than five and no more
than seven and to require the affirmative vote of 60% of the entire board of
directors to expand or contract the board beyond the prescribed limits. See "The
Merger and Related Transactions -- General Description of the Merger".
If the Merger is consummated, all of the issued and outstanding common
stock of SLT will automatically be converted into an aggregate of 7,000,000
shares of the Company's Common Stock, and as a result, Wembley, Ltd., a British
Virgin Islands corporation ("Wembley"), the sole stockholder of SLT, will own
40.7% of the Company's issued and outstanding Common Stock. See "The Merger and
Related Transactions -- General Description of the Merger" and "Description of
SLT -- History". The issued and outstanding Common Stock of the Company before
the consummation of the Merger will remain issued and outstanding.
The Parties. The Company manufactures and installs synthetic lining
systems and products principally for the prevention of groundwater contamination
from municipal and industrial sources and for containment of water and
industrial liquids and solids. The Company markets its lining systems primarily
to waste management, industrial and mining companies, municipalities and other
governmental agencies that own or operate waste, material processing, water
treatment or containment facilities, as well as to engineering firms
3
<PAGE> 8
and construction contractors that serve these industries. The Company's
headquarters are located at 19103 Gundle Road, Houston, Texas 77073 and its
telephone number is (713) 443-8564.
SLT manufactures and installs engineered synthetic lining systems for
industrial and mining companies, government agencies and municipalities, among
other entities that own or operate waste processing treatment or containment
facilities. SLT's synthetic lining materials are manufactured at plants located
in Rechlin, Germany and Houston, Texas. SLT's headquarters are located at 200
South Trade Center Parkway, Conroe, Texas 77385 and its telephone number is
(713) 350-1813. See "Description of SLT -- General".
Reasons for the Merger. The Company and SLT are both engaged in the
business of manufacturing and installing synthetic lining systems and products
principally for the prevention of groundwater contamination from municipal and
industrial sources, and for containment of industrial liquids and solids. The
board of directors of the Company believes that the Merger will result in
significant benefits, including manufacturing efficiencies, management
synergies, expansion and improvement of the Company's installation business,
distribution efficiencies and enhanced sales and marketing opportunities,
including the potential to expand into additional markets. See "The Merger and
Related Transactions -- Reasons for the Merger".
Representations and Warranties. The obligations of the Company and SLT to
consummate the Merger and related transactions are subject to the accuracy of
certain representations and warranties of each party set forth in the Merger
Agreement. See "Description of the Merger Agreement -- Representations and
Warranties of the Company and SLT" and "-- Obligations of the Parties Pending
the Effective Date".
Conditions Precedent to Closing. The obligations of the Company and SLT to
consummate the Merger are subject to the satisfaction of certain conditions
including (i) the successful refinancing by the Company of SLT's debt before the
Effective Date of the Merger, (ii) the acquisition by the Company of extended
directors' and officers' liability insurance, (iii) the receipt by the Company
of the favorable opinion of Smith Barney Inc. ("Smith Barney") as to the
fairness, from a financial point of view, of the consideration to be paid by the
Company in the Merger (the "Merger Consideration"), which opinion has not been
withdrawn at the Effective Date, (iv) the receipt by the Company and SLT of
certain opinions of counsel and (v) certain other conditions customary in
transactions similar to the Merger. See "Description of the Merger Agreement --
Conditions to the Merger".
Regulatory Requirements. Consummation of the Merger is contingent upon
obtaining unconditional clearance for the Merger from federal antitrust
authorities under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Such
clearance was obtained on May 23, 1995. See "The Merger and Related
Transactions -- Government and Regulatory Approvals".
Termination; Break-Up Fee. The Merger Agreement may be terminated by
mutual consent of the parties, or by either the Company or SLT individually, if
(i) any condition precedent to the Merger has not been met by the other party;
(ii) there has been a material adverse change (as defined in the Merger
Agreement) in the business of the other party; (iii) any legal action regarding
the Merger has been brought by any federal or state governmental entity; or (iv)
the Merger has not been consummated by July 31, 1995. If the Merger Agreement is
terminated by the Company or SLT due to the consummation of a merger transaction
with another party or the solicitation of such a transaction, the party that
consummated or solicited the transaction must pay to the other party $3,000,000,
plus the expenses of the other party. See "Description of the Merger Agreement"
"-- Termination; Agreement Not to Solicit Other Proposals".
Management after the Merger. If the Merger is approved by the stockholders
of the Company and the Merger is consummated, the persons named as directors in
the Merger Agreement will be the directors of the Company until the next annual
meeting of stockholders or until their successors are elected and qualified.
After the Effective Date, four of the Company's seven directors will be persons
who currently are directors of the Company, and the additional three persons who
are to become directors on the Effective Date have been designated by SLT. Upon
consummation of the Merger, Samir T. Badawi (the current chairman of the board
of SLT) will become chairman of the board, Thomas L. Caltrider (the Company's
current president) will become vice chairman of the board, William P. Reid (the
current president and chief executive officer of SLT) will become president and
chief executive officer of the Company, and Roger J. Klatt will continue as
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<PAGE> 9
senior vice president and chief financial officer of the Company. The remaining
members of the Company's senior management are to be selected by the chief
executive officer, in consultation with the board, from the senior executives of
the two entities. After consummation of the Merger, the headquarters of the
surviving corporation will be located at 19103 Gundle Road, Houston, Texas
77073, and its telephone number will be (713) 443-8564. See "The Merger and
Related Transactions -- Management" and "Description of the Merger
Agreement -- Management".
Interests of Certain Persons in the Merger. Certain members of the board
of directors and management of the Company have interests separate from their
interests as holders of the Company's Common Stock. See "The Merger and Related
Transactions -- Interests of Certain Persons in the Merger".
Financial Opinion. Smith Barney has delivered an opinion, dated March 28,
1995, to the board of directors of the Company to the effect that, as of the
date of such opinion and based upon and subject to certain matters stated
therein, the Merger Consideration was fair, from a financial point of view, to
the Company. The full text of the written opinion of Smith Barney, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken, is attached to this Proxy Statement as Exhibit B, and should be read
carefully and in its entirety. See "The Merger -- Opinion of the Company's
Financial Advisor".
Federal Income Tax Consequences. The Merger will be tax free to the
Company, SLT and their respective stockholders under the United States Internal
Revenue Code. See "The Merger and Related Transactions -- Certain Federal Income
Tax Considerations".
Accounting Treatment. The Merger will be accounted for as a pooling of
interests. See "The Merger and Related Transactions -- Accounting Treatment".
Board Recommendations. The Company's board of directors has unanimously
approved the Merger Agreement and recommends the adoption of the Merger
Agreement by the Company's stockholders. In evaluating the Merger, the board of
directors of the Company considered many factors, including the factors set
forth above under "-- Reasons for the Merger". See "The Merger and Related
Transactions -- Recommendation of the Company's Board of Directors."
Effective Date. The Merger will become effective upon the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware. The
Certificate of Merger will be filed as soon as practicable after all conditions
to the obligations of the Company and SLT to consummate the Merger have been
satisfied or waived; however, neither party may waive any condition which would
have a material adverse effect upon the benefits intended to be realized by its
stockholders in the Merger.
Approval by SLT. The board of directors and stockholders of SLT have
previously approved the Merger Agreement. See "The Merger and Related
Transactions -- General Description of the Merger".
Registration Rights. If the Merger is approved by the stockholders of the
Company and consummated, the Company will enter into a registration rights
agreement (the "Registration Rights Agreement") obligating the Company to
register the shares issued in the Merger and the shares owned by the Company's
largest current stockholder for sale on the terms and subject to the conditions
set forth in the Registration Rights Agreement. See "The Merger and Related
Transactions -- Registration Rights Agreement".
Certain Considerations. In considering whether to approve and adopt the
Merger Agreement, stockholders of the Company should carefully evaluate the
matters set forth under "Certain Considerations". These matters include (i) the
increase in the Company's debt upon consummation of the Merger, (ii) the ability
of the Company to integrate the current management and operations of SLT into
the ongoing management of the Company; (iii) the inability of the Company to
assure that the current customers of the Company and SLT will respond favorably
to the Merger; (iv) the interests of certain members of the board of directors
and management of the Company that are separate from their interests as holders
of the Company's Common Stock; (v) the influence that the sole stockholder of
SLT will have over the election of the Company's board of directors and other
matters after the Merger; (vi) effect of the amendment and restatement of the
Company's Certificate of Incorporation to increase the number of shares of
Common Stock available for
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<PAGE> 10
issuance and (viii) the potential effect on the market price of the Company's
Common Stock upon the registration of the Common Stock that is registrable
pursuant to the Registration Rights Agreement.
INCREASE IN AUTHORIZED PREFERRED STOCK
The board of directors of the Company has proposed an amendment to the
Company's Certificate of Incorporation to increase the authorized number of
shares of preferred stock from the present 1,000 shares, no par value, to
1,000,000 shares, par value $1.00 per share, undesignated as to series. If such
proposal is approved by the stockholders of the Company, the board of directors
will be empowered, without the necessity of further action or authorization by
the Company's stockholders, to authorize the issuance of an increased number of
shares of preferred stock from time to time for any proper corporate purpose.
The authorization of the additional shares of preferred stock could have the
effect of delaying, deferring or preventing a change of control of the Company.
See "Increase in Authorized Preferred Stock," and "Certain Considerations --
Authorization of Additional Stock."
ELECTION OF DIRECTORS
Nominees. Seven persons have been nominated for election at the Annual
Meeting as directors to hold office until the next annual meeting of
stockholders or until the Merger is consummated. See "Election of
Directors -- Nominees."
Effect of Approval of the Merger. If the Merger is approved and
consummated, the persons named in the Merger Agreement will thereupon become the
directors of the Company for terms extending until the next annual meeting of
stockholders or until their successors are elected and qualified. See "The
Merger and Related Transactions -- Management" and "Description of the Merger
Agreement -- Management".
ADOPTION OF 1995 INCENTIVE STOCK PLAN
The board of directors of the Company has proposed the adoption of the
Company's 1995 Incentive Stock Plan (the "1995 Plan") which increases the number
of shares available for use in stock-based employee benefits by approximately
547,000 and permits the board of directors greater flexibility in granting stock
based compensation to key employees than is available under the Company's 1986
Stock Option Plan (the "1986 Plan"). The 1986 Plan does not allow participation
by the Company's chief executive officer, allows the issuance of only
non-qualified stock options, and allows little flexibility in establishing
vesting schedules or amending the terms of existing awards. The 1995 Plan would
allow the Company's chief executive officer to participate, would allow the
issuance of non-qualified and incentive stock options, restricted stock grants,
phantom stock, stock bonuses and similar stock based benefits, and allow the
board of directors to establish vesting schedules and amend the terms of
outstanding awards. If the 1995 Plan is adopted, no additional options will be
issued under the 1986 Plan and the terms of the 1995 Plan will not apply to
options previously granted under the 1986 Plan. See "Proposed Adoption of 1995
Incentive Stock Plan".
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to approve the Merger Agreement; the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock is
required to approve the amendment to the Company's Certificate of Incorporation
to increase the authorized number of shares of preferred stock; the seven
nominees for election as directors who receive the greatest number of votes for
election will serve for terms expiring at the earlier of the 1996 annual meeting
of stockholders or consummation of the Merger. Approval of the 1995 Plan
requires the affirmative vote of the holders of a majority of the shares present
at the Annual Meeting.
6
<PAGE> 11
SUMMARY FINANCIAL INFORMATION
The following historical consolidated financial information of the Company
and SLT has been derived from their respective historical consolidated financial
statements and should be read in conjunction with the separate consolidated
financial statements and the notes thereto located elsewhere in this Proxy
Statement or incorporated herein by reference. The Company's historical
information for each of the four fiscal years ended March 31, 1994 has been
restated to reflect a change in the Company's method of determining percentage
of completion for installation contracts from the units installed method to the
cost to cost method. The historical information is not necessarily indicative of
results to be expected after the Merger is consummated. The selected historical
consolidated financial information for each company corresponds to its
respective annual reporting period, which is the fiscal year ending March 31 for
the Company and December 31 for SLT. The Company has changed its fiscal year-end
to December 31, effective December 31, 1995.
GUNDLE ENVIRONMENTAL SYSTEMS, INC.
SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............................................. $133,124 $119,246 $113,845 $132,664 $129,111
Gross profit........................................... 22,852 26,145 21,359 35,612 27,229
Operating income....................................... 5,460 9,854 3,297 17,722 13,141
Interest expense, net.................................. 2,219 2,034 2,195 2,556 3,520
Income before income taxes............................. 3,240 7,753 506 14,403 9,358
Net income (loss)...................................... 1,397 4,943 (88) 9,374 6,188
Earnings (loss) per common share....................... 0.14 0.48 (0.01) 0.89 0.65
Book value per common share............................ 7.10
BALANCE SHEET DATA:
Working capital........................................ $ 45,662 $ 41,436 $ 38,263 $ 44,897 $ 31,122
Total assets........................................... 124,130 113,256 108,223 117,693 104,021
Long-term debt......................................... 26,383 25,000 25,000 28,981 37,499
Total debt............................................. 26,383 25,000 25,000 28,981 37,499
Stockholders' equity................................... 72,386 71,003 67,448 70,125 46,152
</TABLE>
SLT ENVIRONMENTAL, INC.
SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
UNAUDITED
INCOME STATEMENT DATA:
Net sales..................................... $ 21,347 $ 9,698 $ 90,813 $ 72,005 $ 71,598 $ 58,792 $ 53,345
Gross profit.................................. 4,339 1,740 20,467 12,186 14,378 13,714 7,642
Operating income (loss)....................... (65) (1,242) 7,441 86 3,064 5,050 (2,436)
Interest expense.............................. 687 649 2,454 2,666 2,091 2,392 2,153
Income (loss) before income taxes............. (1,019) (1,664) 5,545 (2,657) 1,252 2,604 (7,979)
Net income (loss)............................. (449) (852) 4,602 (37) 1,098 1,527 (9,209)
Earnings (loss) per common share.............. (4,495) (8,519) 46,017 (369) 10,975 15,272 (92,087)
Book value per common share................... 250,243 238,844
Equivalent pro forma earnings (loss) per
common share................................ (.06) (.12) .66 (.01) .16 .22 (1.32)
Equivalent pro forma book value per common
share....................................... 3.57 3.41
BALANCE SHEET DATA:
Working capital (deficit)..................... $ 14,861 $ 3,083 $ 16,043 $ 2,907 $ 8,495 $ 500 $ (6,407)
Total assets.................................. 86,589 60,378 80,937 60,656 58,317 52,186 46,810
Long-term debt................................ 21,913 22,883 21,959 23,269 22,831 14,915 11,434
Total debt.................................... 36,450 34,019 34,426 32,981 29,772 27,826 24,733
Stockholder's equity.......................... 25,024 10,950 23,884 10,062 10,221 9,379 5,622
</TABLE>
7
<PAGE> 12
The following table presents selected unaudited combined pro forma
consolidated historical financial information of the Company and SLT after
giving effect to the Merger under the "pooling of interests" method of
accounting as if the Merger had been consummated at the dates and the beginning
of each of the periods presented. The selected unaudited combined pro forma
consolidated historical financial information has been derived from the
unaudited pro forma financial statements appearing elsewhere in this Proxy
Statement and should be read in conjunction with those statements and the notes
thereto. The pro forma information is not necessarily indicative of the results
that would have been obtained if the Merger had been consummated on April 1,
1992, 1993 and 1994 (in the case of income statement items) or on March 31, 1995
(in the case of balance sheet items), or that may be obtained in the future.
THE COMPANY AND SLT COMBINED
SELECTED PRO FORMA CONSOLIDATED HISTORICAL FINANCIAL INFORMATION (A)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................................ $223,937 $191,251 $185,443
Gross profit..................................... 43,319 38,331 35,737
Operating income................................. 12,901 9,940 6,361
Interest expense, net............................ 4,673 4,700 4,286
Income before income taxes....................... 8,785 5,096 1,758
Net income....................................... 5,999 4,906 1,010
Pro forma earnings per common share(B)........... .35 .28 .06
Pro forma book value per common share............ 5.60
BALANCE SHEET DATA:
Working capital.................................. $ 60,955
Total assets..................................... 205,067
Long-term debt................................... 48,342
Total debt....................................... 60,809
Stockholders' equity............................. 96,270
</TABLE>
- ---------------
Notes:
(A) The combined income statement data relating to the Company is for the
three years ended March 31, 1995 and relating to SLT is for the three
years ended December 31, 1994. The combined balance sheet data includes
the balances of the Company at March 31, 1995 and SLT at December 31,
1994.
(B) Pro forma earnings per common share for each period is based on the
combined weighted average number of common shares outstanding, after
adjustment for the conversion of each outstanding SLT common share into
70,000 shares of the Company's Common Stock.
8
<PAGE> 13
CERTAIN CONSIDERATIONS
INCREASED INDEBTEDNESS
If the Merger is consummated, the Company will become subject to SLT's
outstanding indebtedness, which aggregated approximately $36,500,000 at March
31, 1995. After giving pro forma effect to the Merger, the Company's
consolidated indebtedness will be approximately $63,000,000. As a result of the
"assumption" of SLT's debt, an increased portion of the Company's net cash
provided by operations will be committed to the payment of the Company's debt
and will not be available for other purposes. In addition, the Company's ability
to obtain additional financing for working capital, capital expenditures and
acquisitions may be reduced accordingly. The Company also may become more highly
leveraged than certain of its competitors, which may place the Company at a
competitive disadvantage and limit the Company's flexibility in reacting to
changes in its business. See "The Merger and Related Transactions -- Refinancing
of Indebtedness".
POTENTIAL OBSTACLES TO INTEGRATION OF THE COMPANY
The success of the Company following the Merger will be dependent partially
upon the Company's ability to integrate the current management and operations of
SLT into the ongoing management and operations of the Company. Obstacles to such
integration may arise, and some of those obstacles could become major hindrances
to the ongoing operations of the Company and adversely effect the Company's
performance. There can be no assurance that the Company will be able to
effectively integrate its management and operations with those of SLT or that
administrative and operational efficiencies resulting from the Merger can be
attained. See "The Merger and Related Transactions -- Management".
CUSTOMER RESPONSE TO THE TRANSACTIONS
The Company believes that following the Merger it will be able to provide
its customers with a broader array of products and an increased ability to
service customer needs. However, there can be no assurance that the current
customers of the Company and SLT will respond favorably to the Merger. An
unfavorable customer response to the Merger would have an adverse effect upon
the ongoing operations of the Company.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Certain members of the board of directors and management of the Company
have certain interests separate from their interests as holders of the Company's
Common Stock. See "The Merger and Related Transactions -- Interests of Certain
Persons in the Transactions".
DILUTION OF VOTING POWER
The sole stockholder of SLT will receive 40.7% of the total issued and
outstanding voting securities of the Company after the Merger. Therefore,
current stockholders of the Company will face substantial dilution of their
voting power. As a result, the sole stockholder of SLT will have a significant
influence over the election of the Company's board of directors and other
matters pertaining to corporate governance and it will be more difficult for the
current stockholders to affect the composition of the board of directors.
AUTHORIZATION OF ADDITIONAL STOCK
If the Merger is consummated, the Certificate of Incorporation of the
Company will be amended and restated to increase the number of shares of Common
Stock available for issuance by the Company. In addition, the Company is seeking
independent approval of the amendment and restatement of the Certificate of
Incorporation to increase the number of shares of preferred stock available for
issuance. If any preferred stock is issued, it is likely to have rights which
are greater in certain situations than the rights of Common Stock. In addition,
the ability of the Company to issue additional shares of preferred stock and
Common Stock could allow the Company to discourage a change of control or an
attempt by a third party to effect a hostile takeover of the Company, such as
through the issuance to stockholders of rights to purchase additional shares
9
<PAGE> 14
of preferred stock and Common Stock at bargain prices. See "The Merger and
Related Transactions -- Amendment and Restatement of Certificate of
Incorporation"; and "Increase in Authorized Preferred Stock."
EFFECT OF EXERCISE OF REGISTRATION RIGHTS
On the Effective Date, the Company will enter into the Registration Rights
Agreement with Wembley and Odyssey Partners, L.P., a Delaware limited
partnership ("Odyssey"), pursuant to which Wembley and Odyssey may demand that
the Company register their shares of Common Stock for resale under the
Securities Act. See "The Merger and Related Transactions -- Registration Rights
Agreement." The exercise of such registration rights and the resale of the
Common Stock covered by the related registration statement could adversely
affect the market price of the Common Stock and the Company's ability to raise
funds in the public markets in the future.
THE MERGER AND RELATED TRANSACTIONS
The following discussion sets forth a description of certain material terms
and conditions of the Merger. The description of the Merger is qualified by, and
subject to, the more complete information set forth in the Merger Agreement,
which is attached hereto as Exhibit A and incorporated herein by reference.
GENERAL DESCRIPTION OF THE MERGER
On March 28, 1995, the Company entered into the Merger Agreement with SLT.
If the Merger is approved by the stockholders of the Company and is consummated,
SLT will be merged into the Company with the Company being the surviving
corporation. Upon such consummation, by operation of law and without further
action on the part of the stockholders (i) the persons named in the Merger
Agreement will become directors of the Company on the Effective Date; (ii) the
Certificate of Incorporation of the Company will be amended and restated to (a)
increase the authorized number of shares of the Company's Common Stock to
30,000,000 shares from the present 15,000,000 shares and (b) change the name of
the Company to Gundle/SLT Environmental, Inc.; and (iii) the Company's Bylaws
will be amended to authorize a board of five to seven members, as set by the
board from time to time, and to require the affirmative vote of 60% of the full
board to expand or contract the board beyond the prescribed limits. See
"-- Amendment and Restatement of Certificate of Incorporation", "-- Amendment
and Restatement of Bylaws" and "Description of the Merger Agreement -- The
Merger".
Upon consummation of the Merger, each of the 100 issued and outstanding
shares of SLT common stock ("SLT Common Stock") will be converted into 70,000
shares of the Common Stock of the Company. Wembley, Ltd., a British Virgin
Islands company ("Wembley"), owns all the outstanding shares of the SLT Common
Stock. Therefore, if the stockholders of the Company approve the Merger and the
Merger is consummated, Wembley will receive, in exchange for its SLT Common
Stock, 7,000,000 shares of the Company's Common Stock, which will constitute
40.7% of the issued and outstanding Common Stock of the Company after the
Merger. The issued and outstanding Common Stock of the Company before
consummation of the Merger will remain issued and outstanding. See "Description
of the Merger Agreement -- The Merger".
BACKGROUND
The Company has for several years been a leading worldwide supplier of
polyethylene lining systems used in the prevention of groundwater contamination
and environmental damage that otherwise could result from the seepage of waste
materials. The Company believes that there currently are approximately thirty
companies engaged in the production of synthetic liners worldwide, approximately
eight of which compete directly with the Company in the United States and
approximately 16 of which compete with the Company internationally. The
principal competitive factors within the synthetic liner industry traditionally
have been performance of the lining system, installation capability and price.
The Company has maintained its competitive position within the industry because
of the perceived performance advantages of the Company's lining systems over
other types of liners available, the convenience to the customer of having the
Company take sole responsibility for
10
<PAGE> 15
the manufacture, installation and testing of its lining systems, and by being
price-competitive. However, due to new entrants in the market, and the increased
sophistication of the production capabilities and worldwide marketing and
distribution systems of the Company's competitors, the business of producing and
installing synthetic liners has increasingly become a commodity-oriented
business, with price being the primary competitive factor.
During the last several years, the Company's primary competitors have
experienced the same economic pressures as the Company, and several have held
discussions with the Company concerning possible business combinations. However,
in each case the potential parties were unable to agree on the terms under which
the businesses might be combined.
In March 1994, SLT approached the Company with a general suggestion that
the Company and SLT should be merged into a single entity. Preliminary
discussions were initiated and continued for several months, but the parties
were unable to agree to the terms of any such transaction. On February 6, 1995,
discussions were renewed, and the parties then determined that any combination
of the two companies should be accomplished as a collaboration rather than as a
"take over" of SLT by the Company. After extensive negotiation, the parties
agreed to tentative terms under which the Company would acquire all of the
outstanding SLT Common Stock for 7,000,000 shares of the Company's Common Stock,
which had a then market value of approximately $37,000,000.
During the February 6, 1995, meeting, the parties also discussed the
post-Merger board and management structure, with a view to assuring the
continuity of management and business operations after completion of the Merger.
No agreement was reached with respect to the composition of the post-Merger
board of directors; however, the parties agreed that upon consummation of the
Merger, Samir T. Badawi, the current chairman of SLT, would be chairman of the
board of directors of the Company, Thomas L. Caltrider, the current president
and chief executive officer of the Company, would be vice chairman of the board
of directors of the Company, and William P. Reid, the current president and
chief executive officer of SLT, would be president and chief executive officer
of the Company. The remainder of the Company's senior executives were expected
to remain in substantially their present capacities, including Roger J. Klatt,
the Company's senior vice president and chief financial officer. The parties
also discussed whether the pooling of interests or purchase method of accounting
was appropriate with respect to the Merger, and whether registration rights
should be granted to the Company's largest stockholder after consummation of the
Merger, but no agreement was reached with respect to any of these issues.
An initial draft of the Merger Agreement containing proposed terms for the
transaction was circulated shortly after the February 6, 1995, meeting. At a
meeting on February 10, 1995, the Company's board of directors discussed the
terms of the proposed transaction and authorized further negotiations. Shortly
thereafter, Smith Barney was retained by the Company to provide financial
advisory services to the Company in connection with the transaction.
SLT responded to the draft Merger Agreement during the week of February 13,
1995, and indicated that a break-up fee should be payable if the Company's board
were to terminate the Merger Agreement in the exercise of its fiduciary duties.
In addition, SLT indicated that the post-Merger board of directors should be
composed of four existing Company directors and four persons designated by SLT.
During the week of February 13, 1995, the Company's board of directors
agreed in principle to the payment of a break-up fee. However, no agreement was
reached as to the amount of the break-up fee that should be payable, and the
Company did not agree to SLT's proposed composition of the Company's board of
directors after the Merger.
A revised draft of the Merger Agreement was delivered to the Company, SLT
and their respective boards of directors on February 20, 1995. The board of
directors of the Company considered the February 20, 1995 draft, along with
additional SLT proposals, at a meeting held on March 8, 1995. At that meeting,
the Company's management presented a comprehensive analysis of the proposed
transaction. The presentation included an overview of SLT including its founding
in 1972, its acquisition by Wembley in 1987, and its commencement of flat die
production in the United States in 1991 and in Germany in 1994, as well as other
11
<PAGE> 16
elements of its business, financial condition, and competitive position. The
board also discussed the anticipated business efficiencies that might be
realized from a combination with SLT, including manufacturing efficiencies,
management synergies, and enhanced opportunities for expansion and improvement
of the Company's business through distribution efficiencies and greater
marketing opportunities associated with the geographic distribution of the two
companies' present operations.
Mr. Badawi presented a detailed history of SLT's business and corporate
philosophy, and information concerning SLT's senior personnel, most notably a
detailed review of their success in significantly improving SLT's recent
operating results. Mr. Reid reviewed SLT's manufacturing operations, his
marketing philosophy, and the development of SLT's network of sales offices in
Singapore, Australia and Germany. He also emphasized that a significant
attraction of the Merger from SLT's standpoint would be the enhancement of
production capacity without additional capital expenditures by either company.
At the March 8th meeting, Smith Barney described the valuation
methodologies to be used in connection with its evaluation of the fairness, from
a financial point of view, of the consideration proposed to be paid by the
Company for SLT (the "Merger Consideration"). See "-- Opinion of the Company's
Financial Advisor." The board also conducted a lengthy review of the draft
Merger Agreement presented at the meeting, and separately discussed with SLT's
management and its counsel certain terms of the Merger Agreement which had not
previously been agreed upon. In the course of those discussions, the Company and
SLT agreed that the composition of the board of directors after the Merger would
consist of seven directors, four of whom would be existing members of the
Company's board of directors, with the remainder designated by SLT and to
include Messrs. Badawi and Reid. It was also agreed that Mr. Badawi would be
chairman of the board, Thomas L. Caltrider would become vice chairman of the
board, and Roger J. Klatt would continue as the Company's chief financial
officer. In addition, the parties tentatively agreed that both the Company and
SLT would be subject to the payment of a break-up fee of $4,000,000 if either
party failed to consummate the Merger because of the acceptance of a superior
transaction proposal or the breach of a contractual obligation not to negotiate
or consummate a transaction with another party.
The board also received a presentation from counsel concerning the board's
fiduciary responsibilities in considering the acquisition of SLT. Based upon the
advice of counsel, the board concluded that, under Delaware law, its
negotiations for the acquisition of SLT did not require the board of directors
of the Company to offer the Company for sale as a prerequisite to any
transaction with SLT, because (i) no "change of control" was to occur in the
proposed transaction since a majority of the Company's Common Stock would
continue to be held by the Company's pre-existing stockholders, (ii) present
directors of the Company would continue to constitute a majority of the board
after the Merger and (iii) the Company was not being sold.
The board indicated it was encouraged by the progress of negotiations, and
discussed at considerable length the procedural aspects of completing the
transaction. The board determined that it would defer formal action on the
proposed transaction until the completion of all diligence efforts. Certain
legal and business issues concerning SLT's German operations, its 1994 financial
statements (which had not yet received audit approval), and certain accounting
issues had not yet been completely reviewed.
On March 9, 1995, based on the agreements reached between the Company and
SLT contemporaneously with the March 8, 1995, board meeting, a revised draft of
the Merger Agreement was prepared and distributed to the Company, SLT and their
respective boards of directors. At a meeting held on March 16, 1995, the board
discussed all outstanding issues with respect to the Merger Agreement, which
included determining whether the Company would agree to a registration rights
agreement with the Company's largest stockholder and with Wembley, the status of
the negotiation of an employment agreement with William P. Reid, and a
determination of whether pooling or purchase accounting would be used in the
transaction. The board determined that a registration rights agreement could be
negotiated with SLT's sole stockholder, provided the agreement would not permit
an immediate resale of the Company's Common Stock issued in the Merger. The
board also determined that the Company would not execute the Merger Agreement
until Mr. Reid had entered into an employment agreement acceptable to the
Company and effective upon consummation of the Merger, and concluded that the
pooling of interests method of accounting would be more appropriate than
purchase accounting with respect to the Merger. The board also received a report
concerning all outstanding
12
<PAGE> 17
due diligence issues, including various legal due diligence matters relating to
the operation of SLT's German subsidiary.
At the March 16, 1995 meeting, the board also discussed the terms of the
break-up fee. Smith Barney advised that a lower break-up fee would be
appropriate based on break-up fees in transactions similar to the Merger, but no
formal action was taken on the proposed combination with of SLT.
The board met once again on March 27, 1995, and final due diligence reports
were presented to the board. In addition, Smith Barney made a financial
presentation and rendered an oral opinion to the board to the effect that, as of
such date and subject to certain matters (including a review of the final Merger
Agreement), the Merger Consideration was fair, from a financial point of view,
to the Company. The board was informed that the Merger Agreement had been
revised to provide for a break-up fee of $3,000,000, plus expenses, payable
under the terms and conditions set forth in the Merger Agreement. The board also
was advised that all of the terms and conditions of the Merger Agreement had
been agreed upon except for the terms of the registration rights agreement with
Wembley and the Company's largest stockholder (which was expected to be
completed shortly) and the consummation of Mr. Reid's employment contract. The
board of directors unanimously resolved to approve the Merger Agreement in the
form presented to the board contingent upon satisfactory finalization of the
terms of the registration rights agreement and the execution by Mr. Reid of his
requested employment agreement.
On March 28, 1995, the board of directors was informed of the proposed
final terms of the registration rights agreement and that Mr. Reid had executed
his employment agreement on the terms previously reviewed and informally
approved by the board; Smith Barney delivered to the board its written opinion
dated March 28, 1995 confirming its report of the previous day; and the Merger
Agreement was signed and delivered by the parties.
REASONS FOR THE MERGER
The Company and SLT both are engaged in the business of manufacturing and
installing synthetic lining systems and products principally for the prevention
of groundwater contamination from municipal and industrial sources and for
containment of industrial liquids and solids. The Company and SLT each market
lining systems primarily to waste management, industrial and servicing
companies, municipalities and other governmental agencies that own or operate
waste, material processing, water treatment or containment facilities, as well
as engineering firms and construction contractors that serve those industries.
The Company and SLT believe that the Merger will result in significant benefits
for each company, including manufacturing efficiencies; management synergies;
expansion and improvement of their installation businesses; and enhanced sales
and marketing opportunities, including the potential to expand into additional
markets. In addition, customers of the combined companies will have a greater
variety of products and services from which to choose.
Technology Comparison. The Company currently uses blown film extrusion
technology to produce liner. The Company operates seven extrusion lines at its
Houston, Texas plant, with an approximate annual production capacity of
135,000,000 pounds of polyethylene liner. Five of these lines also are equipped
to produce liner through a co-extrusion process which permits multiple layers of
dissimilar material to be bonded into a single membrane.
SLT operates two liner manufacturing plants, one in Houston, Texas and one
in Rechlin, Germany. Both use flat die extrusion technology, and each is capable
of an approximate annual output of 50,000,000 pounds of polyethylene liner.
SLT's German plant also is capable of producing liner through a co-extrusion
process.
The Company and SLT believe that the ability to use a combination of both
blown film and flat die technologies after the Merger will significantly enhance
the competitive position of the merged companies. Access to both technologies
will provide the Company and SLT the flexibility to match production with the
technology best suited to the manufacturing of each of their products. Blown
film technology is superior to flat die technology in the areas of: (i) gauge
changeover time, resulting in decreased down time and product waste; (ii) more
efficient production of thinner gauge product (e.g. 20-40 mils. thick); and
(iii) lower costs of
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<PAGE> 18
production for certain specialty products, such as textured liner, which have a
higher added value. Flat die lines have advantages over blown film lines in the
areas of: (i) superior gauge control, which reduces raw material cost; (ii)
higher output per line, which results in lower capital and labor costs per unit
produced; and (iii) a broader array of plastic resin products which may be
extruded, which allows greater raw material purchasing flexibility. The Company
and SLT believe that although neither technology is best for all products, the
ability to use both technologies will allow the merged companies to schedule
production more cost effectively, and permit the merged companies to provide
better customer service, especially during periods of increased customer demand.
Since SLT's flat die technology is capable of more output per line and at a
lower cost than the Company's blown film lines, a substantial portion of its
smooth sheet production is anticipated to be moved to SLT's flat die extruders.
Textured products are anticipated to be manufactured on the Company's blown film
extruders, thus avoiding the secondary process required to produce textured
polyethylene sheet from flat die extruders. Thin gauge production is anticipated
to be run on the Company's blown film extruders. Since blown film extruders can
be adjusted to produce different gauges of polyethylene sheet more easily, short
runs and specialty products would be manufactured on the Company's blown film
extruders.
Sales and Distribution. The Merger should provide a significant
enhancement to the Company's worldwide sales and distribution system. The
Company currently sells worldwide from its United States headquarters, and
maintains one sales manager in France. The acquisition of SLT would add sales
and distribution representation in Europe, Singapore and Australia. The Company
currently has a significant market position on the Pacific rim. This position,
when combined with SLT's Australian and Singapore based installation capability,
should enhance the Company's competitive position in the Southeast Asian market,
where both SLT and the Company have considered construction of a manufacturing
facility. The acquisition of SLT would allow the merged companies to construct a
single plant that would meet the needs of the combined enterprise.
The Company and SLT believe they also may achieve distribution efficiencies
through the use of SLT's German flat die production line. SLT's German facility
has not been used to full capacity. In addition, SLT's German facility is
capable of co-extrusion production. Therefore, the Company and SLT believe that
distribution efficiencies can be achieved by using SLT's German facility to its
capacity and through the manufacturing of co-extrusion products for use in
Europe, rather than producing such products in the United States. The Company
currently is required to pay a duty on all products it exports to Europe. The
use of SLT's German plant will permit the merged companies to manufacture a
substantial portion of their products in Europe, thus avoiding the payment of
the import duties, as well as eliminating shipping and related costs with
respect to those products.
Installation. The Company currently installs lining using over 50
installation crews in the United States and the United Kingdom. The combination
with SLT will provide the Company with additional installation operations in
Germany, the United Kingdom and other European countries, Singapore and
Australia. The Company believes that the expansion of its installation business,
when combined with the ability to improve installation techniques through access
to SLT's installation practices, will result in a material enhancement of the
Company's installation business.
If these expected efficiencies and savings can be attained, stockholders of
the merged companies will be able to participate in enhanced prospects for the
combined enterprise.
REFINANCING OF INDEBTEDNESS
In connection with the Merger, the Company expects to replace its existing
$20 million commercial bank revolving credit facility with a $35 million
revolving and term credit facility to be provided by a syndicate of commercial
banks (the "New Credit Facility") and to issue an additional $25 million of
senior notes (the "New Notes"), thus increasing the Company's credit
availability to $60 million from the present $20 million. Upon consummation of
the Merger, the Company expects to issue the New Notes and make borrowings under
the New Credit Facility in an amount sufficient to retire all SLT's outstanding
indebtedness, which aggregated approximately $36.5 million at March 31, 1995.
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<PAGE> 19
In general, the New Credit Facility and the New Notes will contain
restrictions with respect to the incurrence of additional indebtedness, the
payment of cash dividends or similar restricted payments, the ability of the
Company to consolidate or merge into another corporation or transfer or sell
assets, unless certain criteria are met. The New Credit Facility and the New
Notes will also require the maintenance of certain financial ratios and a
specified level of consolidated net worth.
AMENDMENT AND RESTATEMENT OF CERTIFICATE OF INCORPORATION
The Merger Agreement provides that upon consummation of the Merger, the
Certificate of Incorporation of the Company will be amended and restated as
described below. Since approval of the Merger Agreement will constitute approval
of the amendment and restatement to the Certificate of Incorporation,
stockholders who oppose any of the amendments will be able to record a negative
vote only by voting against approval and adoption of the Merger Agreement.
Additional Common Stock Authorization. The Company's Certificate of
Incorporation currently authorizes the issuance of up to 15,000,000 shares of
Common Stock. If the Merger is approved by the stockholders of the Company and
is consummated, the Certificate of Incorporation of the Company will be amended
and restated by operation of law and without further action on the part of the
stockholders, to increase the authorized number of shares of Common Stock to
30,000,000 shares. Since the Company currently has outstanding 10,191,926 shares
of Common Stock, the authorization of the additional shares of Common Stock is
necessary for the issuance of 7,000,000 shares upon consummation of the Merger.
In addition, if the Merger is completed, the additional shares being authorized
will be available for issuance under the proposed 1995 Incentive Stock Plan (the
"1995 Plan") and for effecting possible future transactions, including stock
dividends, stock splits, financing arrangements or acquisitions by the Company
of other businesses if favorable acquisitions were to become available. Except
with respect to the shares of Common Stock issuable in connection with the
Merger or in connection with stock-based employee benefit plans, the Company has
no present plans for any particular issuance of additional shares of Common
Stock.
The additional shares of Common Stock will be available for issuance at any
time in the future without further stockholder approval, unless such approval
were required by law, as in the case of consolidations and certain statutory
mergers, or by the rules of any securities exchanges on which the Common Stock
were then to be listed. In the absence of the additional authorization of Common
Stock, significant future issuances cannot be effected without the expense and
delay associated with further action by stockholders. Holders of Common Stock
have no preemptive right to purchase or otherwise acquire any shares of Common
Stock that the Company may issue in the future.
Under certain circumstances, an increase in the number of authorized shares
of Common Stock can provide corporate management with the means to discourage a
change of control, such as through the issuance to stockholders of rights to
purchase additional shares of Common Stock at bargain prices. As in the case of
other types of issuances, those intended to prevent or adversely affect changes
of control could be accomplished without further stockholder approval. However,
the board of directors has no present intention of using the additionally
authorized shares for such a purpose and is not aware that any takeover or
similar action is contemplated.
Change of Name. The board of directors of the Company believes that the
change of name to "Gundle/SLT Environmental, Inc." will provide the Company
increased name recognition in certain parts of the world and promote the sale of
Company products following the Merger.
AMENDMENT AND RESTATEMENT OF BYLAWS
The Merger Agreement provides that upon consummation of the Merger, the
Bylaws of the Company will be amended and restated as described below. Since
approval of the Merger Agreement will constitute approval of the Bylaw
amendments, shareholders who oppose the amendments will be able to record a
negative vote only by voting against approval and adoption of the Merger
Agreement.
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If the Merger is approved by the stockholders of the Company and is
consummated, the Company's Bylaws will be amended and restated by operation of
law and without further action on the part of the stockholders to authorize a
board of five to seven directors, as set by the board from time to time, and to
require the affirmative vote of 60% of the full board to expand or contract the
board beyond the prescribed limits. In negotiating the terms and conditions of
the Merger, the managements of the Company and of SLT determined that the board
of directors following the Merger would consist of seven persons, four of whom
would be existing Company directors and three of whom would be designated by
SLT. See "-- Background". The amendment and restatement of the Company's Bylaws
is intended to give effect to the agreement of the managements of the Company
and SLT, and to limit the ability of the directors initially designated by
either party to amend the Bylaws to increase the number of directors without the
approval of the directors initially designated by the other party.
REGISTRATION RIGHTS AGREEMENT
On the Effective Date, the Company will enter into a registration rights
agreement (the "Registration Rights Agreement") with Wembley and Odyssey.
Odyssey is to have one demand registration right with respect to all of its
Common Stock exercisable at any time after the Effective Date of the Merger
through the seventh anniversary of the Effective Date. Subject to certain
conditions, Wembley will have three demand registration rights exercisable at
any time beginning one year after the Effective Date through the seventh
anniversary of the Effective Date.
From the period beginning one year after the Effective Date through the
second anniversary of the Effective Date, Wembley can demand that the Company
register up to 1,400,000 shares of Common Stock. Beginning on the second
anniversary of the Effective Date, Wembley can demand registration of all its
shares of Common Stock, provided that no demand may be for more than 3,500,000
shares unless the board of directors of the Company approves the registration.
The Registration Rights Agreement affords to Odyssey and Wembley the right
to participate in registrations conducted by the Company or the other party.
Odyssey can register 100% of its shares on any registration statement filed by
the Company on its own behalf or upon a demand made by Wembley at any time after
the Effective Date through the seventh anniversary of the Effective Date.
Wembley can participate in any registration filed by the Company on its own
behalf or upon a demand made by Odyssey beginning on the first anniversary of
the Effective Date through the seventh anniversary of the Effective Date.
Wembley's right to participate in registrations during the period beginning on
the first anniversary of the Effective Date through the second anniversary of
the Effective Date is limited to an aggregate of 1,400,000 shares.
If Odyssey or Wembley participates in a Company registration, and the
underwriters advise that they will be unable to sell in an orderly fashion all
of the shares for which registration has been requested, the shares to be
registered for sale will be allocated first 100% to the Company, and then pro
rata to Odyssey and Wembley, based on the number of shares each requested to be
registered. If either Odyssey or Wembley participates in the other's demand
registration, and the underwriters advise that they will be unable to sell all
of the shares for which registration has been requested, then the shares will be
allocated first to the party that made the demand and then to the other
participating stockholder.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
Smith Barney was retained by the Company to provide certain financial
advisory services to the Company in connection with the Merger. In connection
with such engagement, the Company requested that Smith Barney evaluate the
fairness, from a financial point of view, to the Company of the consideration to
be paid by the Company in the Merger. On March 27, 1995, at a special meeting of
the board of directors held to evaluate the proposed Merger, Smith Barney
rendered an oral opinion (subsequently confirmed by delivery of a written
opinion dated March 28, 1995) to the board of directors of the Company to the
effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the Merger Consideration was fair, from a
financial point of view, to the Company.
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<PAGE> 21
In arriving at its opinion, Smith Barney reviewed the Merger Agreement and
held discussions with certain senior officers, directors and other
representatives and advisors of the Company and certain senior officers and
other representatives and advisors of SLT concerning the businesses, operations
and prospects of the Company and SLT. Smith Barney examined certain publicly
available business and financial information relating to the Company and certain
business and financial information relating to SLT as well as certain financial
forecasts and other data for the Company and SLT which were provided to Smith
Barney by the respective managements of the Company and SLT, including
information relating to certain strategic implications and operational benefits
anticipated from the Merger. Smith Barney reviewed the financial terms of the
Merger as set forth in the Merger Agreement in relation to, among other things:
current and historical market prices and trading volumes of the Company's Common
Stock; the historical and projected earnings of the Company and SLT; and the
capitalization and financial condition of the Company and SLT. Smith Barney
considered, to the extent publicly available, the financial terms of recent
similar transactions which it considered relevant in evaluating the Merger and
analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose businesses Smith
Barney considered relevant in evaluating the Company and SLT. Smith Barney also
evaluated the potential pro forma financial impact of the Merger on the Company.
In addition to the foregoing, Smith Barney conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as it deemed necessary to arrive at its opinion. Smith Barney noted that its
opinion was necessarily based upon information available, and financial, stock
market and other conditions and circumstances existing and disclosed to it as of
the date of its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information publicly available or furnished to or otherwise reviewed
by or discussed with Smith Barney. With respect to financial forecasts and other
information provided to or otherwise reviewed by or discussed with Smith Barney,
the managements of the Company and SLT advised Smith Barney that such forecasts
and other information were reasonably prepared on bases reflecting the best
information currently available and the judgments of the respective managements
of the Company and SLT as to the future financial performance of the Company and
SLT, and the strategic implications and operational benefits anticipated from
the Merger. Smith Barney assumed, with the consent of the board of directors of
the Company, that the Merger will be treated as a pooling of interests in
accordance with generally accepted accounting principles and as a tax-free
reorganization for federal income tax purposes. Smith Barney's opinion relates
to the relative values of the Company and SLT. Smith Barney did not express any
opinion as to what the value of the Company's Common Stock actually will be when
issued to SLT stockholders pursuant to the Merger or the price at which the
Company's Common Stock will trade after the Merger. In addition, Smith Barney
did not make or obtain an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company or SLT, nor did Smith
Barney make any physical inspection of the properties or assets of the Company
or SLT. Smith Barney did not participate in the negotiation or structuring of
the Merger, nor was it asked to consider, and its opinion does not address, the
relative merits of the Merger as compared to any alternative business strategies
that might exist for the Company or the effect of any other transaction in which
the Company might engage. In addition, although Smith Barney evaluated the
Merger Consideration from a financial point of view, Smith Barney was not asked
to and did not recommend the specific consideration payable in the Merger. No
other limitations were imposed by the Company on Smith Barney with respect to
the investigations made or procedures followed by Smith Barney in rendering its
opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED MARCH 28, 1995,
WHICH HAS BEEN INCLUDED IN THIS PROXY STATEMENT WITH THE CONSENT OF SMITH BARNEY
AND SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED HERETO AS EXHIBIT B AND IS INCORPORATED HEREIN BY
REFERENCE. THE COMPANY'S STOCKHOLDERS ARE URGED TO READ THIS OPINION CAREFULLY
IN ITS ENTIRETY. SMITH BARNEY'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE
MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW AND HAS BEEN PROVIDED FOR
THE USE OF THE BOARD OF DIRECTORS OF THE COMPANY IN ITS EVALUATION OF THE
MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR RELATED TRANSACTIONS
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE ANNUAL MEETING. THE
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<PAGE> 22
SUMMARY OF THE OPINION OF SMITH BARNEY SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion to the board of directors of the Company, Smith
Barney performed a variety of financial and comparative analyses, including
those described below. The summary of such analyses does not purport to be a
complete description of the analyses underlying Smith Barney's opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. In arriving at its opinion, Smith Barney did not attribute
any particular weight to any analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Smith Barney believes that its analyses must be
considered as a whole and that selecting portions of its analyses, without
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying such analyses and its opinion. In its analyses,
Smith Barney made numerous assumptions with respect to the Company, SLT,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of the
Company and SLT. The estimates contained in such analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by such analyses.
In addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty.
Selected Company Analysis. Using publicly available information, Smith
Barney analyzed, among other things, the market values and trading multiples of
the Company and the following selected public companies in the plastic
manufacturing industry: AEP Industries, Inc.; Carlisle Plastics, Inc.; Furon
Company; Liqui-Box Corporation; O'Sullivan Corporation; Ropak Corporation; and
Spartech Corporation (the "Selected Companies"), and compared such multiples
against the multiples of SLT implied by the Merger Consideration. Smith Barney
compared market values of, among other things, latest 12 months net income and
calendar 1994 and estimated calendar 1995 and 1996 earnings per share ("EPS"),
and adjusted market values (equity market value, plus total debt, less cash) as
multiples of, among other things, latest 12 months revenues, earnings before
interest, taxes, depreciation and amortization ("EBITDA") and earnings before
interest and taxes ("EBIT"). The ranges of multiples of latest 12 months net
income, calendar 1994 and estimated calendar 1995 and 1996 EPS and latest 12
months revenues, EBITDA and EBIT of the Selected Companies were as follows: (i)
net income: 11.7x to 16.2x (with a mean of 13.9x and a median of 14.3x); (ii)
calendar 1994 EPS; 10.3x to 22.9x (with a mean of 14.1x and a median of 12.2x);
(iii) estimated calendar 1995 and 1996 EPS: 9.3x to 11.8x (with a mean of 10.3x
and a median of 10.0x), and 8.3x to 8.7x (with a mean of 8.5x and a median of
8.5x), respectively; (iv) revenues: 0.3x to 1.3x (with a mean of 0.7x and a
median of 0.7x); (v) EBITDA: 4.1x to 6.5x (with a mean of 5.7x and a median of
5.9x); and (vi) EBIT: 5.2x to 11.7x (with a mean of 9.2x and a median of 10.2x).
The multiples of latest 12 months net income, calendar 1994 EPS, estimated
calendar 1995 and 1996 EPS and latest 12 months revenues, EBITDA and EBIT for
the Company were 20.3x, 20.3x, 29.9x, 9.5x, 0.5x, 5.6x and 10.1x, respectively.
The Merger Consideration, based on a closing sale price for the Company's Common
Stock on March 24, 1995 of $5.38, equated to implied multiples of latest 12
months net income, calendar 1994 EPS, estimated calendar 1995 and 1996 EPS and
latest 12 months revenues, EBITDA and EBIT for SLT of 12.1x, 12.1x, 10.5x, 6.8x,
0.8x, 6.2x and 8.9x, respectively. EPS projections for the Selected Companies
were analyzed based on the estimates of selected investment banking firms, and
EPS projections for the Company and SLT were analyzed based on internal
estimates of the managements of the Company and SLT. All multiples were based on
closing stock prices as of March 24, 1995.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney analyzed the purchase prices and implied
transaction multiples paid in the following selected merger and acquisition
transactions in the plastic manufacturing industry: Hercules
Incorporated-PFG/Applied Extrusion Technologies, Inc.; Constar International
Inc./Crown Cork & Seal Company, Inc.; Continental Plastic Containers,
Inc./Viatech, Inc.; Jaite Packaging/Sealright Co., Inc.; American Western
Corpora-
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<PAGE> 23
tion/Carlisle Plastics, Inc.; and Pantasote, Inc./Newsote, Inc. (the "Selected
Transactions"). Smith Barney compared the purchase prices in such transactions
as a multiple of, among other things, latest 12 months net income, and
transaction values as a multiple of, among other things, latest 12 months
revenues, EBITDA and EBIT, and then compared these multiples to similar
multiples for SLT implied by the Merger Consideration described above under
"Selected Company Analysis." All multiples for the Selected Transactions were
based on information available at the time of announcement of the transaction.
The ranges of multiples of latest 12 months net income, revenues, EBITDA and
EBIT for the Selected Transactions were as follows: (i) net income: 12.6x to
21.9x (with a mean of 16.3x and a median of 14.5x); (ii) revenues: 0.4x to 1.0x
(with a mean of 0.8x and a median of 0.8x); (iii) EBITDA: 4.0x to 9.2x (with a
mean of 7.3x and a median of 7.6x); and (iv) EBIT: 6.0x to 28.1x (with a mean of
15.6x and a median of 14.1x).
No company, transaction or business used in the selected company and
selected merger and acquisition transactions analyses as a comparison is
identical to the Company, SLT or the Merger. Accordingly, an analysis of the
results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the acquisition or
public trading value of the comparable companies or the business segment or
company to which they are being compared.
Contribution Analysis. Smith Barney analyzed the respective contributions
of the Company and SLT to, among other things, the revenues, EBITDA, EBIT and
net income of the pro forma combined entity (excluding cost savings and
potential cost synergies anticipated from the Merger) for the latest 12 months
and fiscal years 1995 and 1996 (with particular focus on fiscal years 1995 and
1996), based on projections provided by the respective managements of the
Company and SLT. This analysis indicated that (i) in fiscal year 1995, the
Company would contribute approximately 56.5% of revenues, 47.5% of EBITDA, 38.5%
of EBIT and 34.0% of net income, and SLT would contribute approximately 43.5% of
revenues, 52.5% of EBITDA, 61.5% of EBIT and 66.0% of net income and (ii) in
fiscal year 1996, the Company would contribute approximately 60.2% of revenues,
57.6% of EBITDA, 55.6% of EBIT and 61.0% of net income, and SLT would contribute
approximately 39.8% of revenues, 42.4% of EBITDA, 44.4% of EBIT and 39.0% of net
income. Based upon a closing sale price of the Company's Common Stock on March
24, 1995 of $5.38, the Company and SLT would constitute approximately 49.4% and
50.6%, respectively, of the total enterprise value of the combined company.
Immediately following consummation of the Merger, stockholders of the Company
and SLT would own approximately 59.3% and 40.7%, respectively, of the combined
company.
Discounted Cash Flow Analysis. Smith Barney performed a discounted cash
flow analysis of the projected free cash flow of SLT for the fiscal years ended
March 31, 1996 through 1999, based upon certain operating and financial
assumptions, forecasts and other information provided by the Company and SLT and
assuming, among other things, discount rates of 10%, 12.5% and 15% and terminal
multiples of EBITDA of 5.0x to 6.5x. Utilizing these assumptions, Smith Barney
arrived at an equity valuation reference range for SLT of $36.1 million to $66.7
million, as compared to the purchase price implied by the Merger Consideration
of $37.6 million (based on a closing price of the Company's Common Stock on
March 24, 1995 of $5.38).
Pro Forma Merger Analysis. Smith Barney analyzed certain pro forma effects
resulting from the Merger, including, among other things, the impact of the
Merger on the projected EPS of the Company for the fiscal years ended 1995
through 1999 (with particular focus on fiscal years 1996 and 1997). Based on
projections prepared by the managements of the Company and SLT, the results of
the pro forma merger analysis suggest that the Merger would be accretive to the
Company's EPS in each of the years analyzed assuming all cost savings
anticipated from the Merger were achieved. The actual results achieved by the
combined company may vary from projected results and the variations may be
material.
Other Factors and Comparative Analyses. In rendering its opinion, Smith
Barney considered certain other factors and conducted certain other comparative
analyses, including, among other things, a review of (i) the Company's and SLT's
historical and projected financial results; (ii) the history of trading prices
for the Company's Common Stock and the relationship between movements of such
Common Stock, movements of the common stock of comparable companies and
movements in the S&P 400 Index; and (iii) the pro forma ownership of the
combined company.
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Pursuant to the terms of Smith Barney's engagement, the Company has agreed
to pay Smith Barney for its services in connection with the Merger an opinion
fee of $300,000. The Company also has agreed to reimburse Smith Barney for
travel and other out-of-pocket expenses incurred by Smith Barney in performing
its services, including the fees and expenses of its legal counsel, and to
indemnify Smith Barney and related persons against certain liabilities,
including liabilities under the federal securities laws, arising out of Smith
Barney's engagement.
Smith Barney has advised the Company that, in the ordinary course of
business, it may actively trade the securities of the Company for its own
account or for the account of its customers and, accordingly, may at any time
hold a long or short position in such securities. Smith Barney has in the past
provided financial advisory and investment banking services to the Company
unrelated to the Merger, and has received compensation for the rendering of such
services.
Smith Barney is a nationally recognized investment banking firm and was
selected by the Company based on Smith Barney's experience and expertise. Smith
Barney regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
The board of directors of the Company recommends that the Company's
stockholders approve the Merger for the reasons set forth under "-- Background"
and "-- Reasons for the Merger". The Company believes that SLT is a respected
manufacturer and installer of products complementary to the Company's present
products, that each company has areas of strength that should complement the
other's strengths, and that significant growth and efficiencies may be more
readily attainable after the Merger, particularly in certain overseas markets.
On March 28, 1995, the Company's board of directors received a written opinion
from Smith Barney to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the Merger Consideration was
fair, from a financial point of view, to the Company. See "-- Opinion of the
Company's Financial Advisor". The board of directors of the Company believes
that the Merger is fair to and in the best interests of the Company and its
stockholders. At the board of directors meeting held on March 27, 1995
(following its deliberations of March 8 and 16), the board of directors
unanimously approved the Merger Agreement and the Merger, and recommended that
the holders of the Company's Common Stock vote for adoption and approval of the
Merger Agreement.
MANAGEMENT
Upon consummation of the Merger, the board of directors of the Company will
consist of four of the Company's current directors and three directors
designated by SLT. See "Description of the Merger Agreement -- Management". The
Company and SLT have agreed that upon consummation of the Merger, Mr. Badawi
will become the chairman of the board of directors of the Company, Mr. Reid will
become the president and chief executive officer of the Company and Roger J.
Klatt will continue as the chief financial officer of the Company. Thomas L.
Caltrider will become vice chairman of the Company and is to serve in an
executive capacity to ensure an orderly transition of management at the Company
until 90 days from the Effective Date, after which he will continue in a
limited, advisory role with the Company for an additional 15 months. See
" -- Interests of Certain Persons in the Transactions". The additional members
of the Company's senior management are expected to be selected from the
available management personnel of each company after consummation of the Merger.
Mr. Reid has entered into an employment agreement with SLT pursuant to
which, following the Merger, he will receive annual base compensation of
$275,000 and become eligible for incentive bonus compensation of up to 50% of
base compensation if certain financial goals and objectives (to be established
annually by the board) are attained. In addition, the board of directors is
required to consider additional bonus compensation if such financial goals and
objectives are exceeded. The employment agreement expires three years from the
Effective Date and is automatically renewed for a one year term upon the
expiration of the initial term. The
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employment agreement is terminable without further compensation before
expiration of the term only for cause. On the Effective Date, Mr. Reid is to
receive a 10-year, non-qualified stock option under the 1995 Plan to purchase
200,000 shares of the Company's Common Stock at an option price equal to $5.375
per share (the fair market value of the shares as of the close of business on
March 28, 1995, the date the Company and SLT executed the Merger Agreement). The
option will vest as to one-third of the shares covered on each of the first,
second and third anniversaries of the Effective Date.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Stockholders of the Company should be aware that certain members of the
board of directors and management of the Company have certain interests separate
from their interests as holders of the Company's Common Stock, which are
discussed below.
Beginning upon the Effective Date, Mr. Caltrider is to continue to serve in
an executive capacity until 90 days after the Effective Date, after which he
will continue in a limited, advisory role with the Company for an additional 15
months. Under the terms of his amended employment agreement, Mr. Caltrider is to
receive an aggregate of $365,000 from the Company during the 18 months following
the Effective Date. Of such amount, $100,000 will be paid on the Effective Date
and $40,000 will be paid 90 days after the Effective Date, with the remainder
payable in equal monthly installments. The Company has also agreed that upon Mr.
Caltrider's request following the Effective Date, the Company will use
reasonable efforts to cause all shares of the Company's Common Stock owned by
Mr. Caltrider, or purchasable by him upon exercise of outstanding stock options,
to be registered for resale under the Securities Act.
In March 1994, the Company entered into an agreement with Roger J. Klatt,
the Company's chief financial officer, that provides that the Company will
continue to pay Mr. Klatt for one year if his employment is terminated before
March 1997. The Company and SLT have also instituted severance policies pursuant
to which as many as 50 employees would receive compensation of up to one year's
base salary plus prorated bonuses if employment is terminated, or if the
responsibilities of such employees are substantially reduced, within six months
of the Effective Date.
The Merger Agreement requires that as a condition to closing the Company
will continue to carry directors' and officers' liability insurance containing
coverage at least equal to that currently maintained by the Company and insuring
for a period of at least six years after the Effective Date all persons who were
directors or officers of the Company before the Effective Date but who cease to
be directors or officers of the Company after the Effective Date. The retiring
directors and officers will be third party beneficiaries of that insurance
policy. See "Description of the Merger Agreement -- Conditions to the Merger".
Messrs. Young and Friedman, directors of the Company, are affiliates of
Odyssey, which owns 2,071,656 shares of the Company's Common Stock. On the
Effective Date, the Company will execute the Registration Rights Agreement
pursuant to which the Company will be obligated to register the shares of Common
Stock owned by Odyssey under the Securities Act under certain circumstances. See
"-- Registration Rights Agreement".
The board has determined to pay Mr. Young $50,000 to compensate him for
time and expense incurred in the negotiation of the Merger Agreement on behalf
of the Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain federal income tax consequences
associated with the merger. This summary does not discuss all of the aspects of
federal income taxation that may be relevant to a participant in light of such
participant's particular circumstances, or to certain types of participants
which are subject to special treatment under federal income tax laws (including
foreign corporations and persons who are not citizens or residents of the United
States). In addition, this summary does not describe any tax consequences under
state, local or foreign tax laws.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings and
pronouncements, and judicial decisions now in
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effect, all of which are subject to change at any time by legislative, judicial
or administrative action. Any such changes may be applied retroactively in a
manner that could adversely affect a participant.
While the Merger is structured to satisfy guidelines previously required
for obtaining a private letter ruling from the IRS, neither the Company nor SLT
have sought, or will seek, any ruling or opinion from the IRS or counsel with
respect to the matters discussed below. There can be no assurance that the IRS
will not take positions concerning the tax consequences of the Merger which are
different from those discussed herein.
PROSPECTIVE PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISERS WITH RESPECT
TO THE FEDERAL INCOME TAX CONSEQUENCES THAT MAY BE SPECIFIC TO THEM OF
PARTICIPATING IN THE MERGER, AS WELL AS THE APPLICATION TO THEM OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
The parties anticipate that the Merger will qualify as a reorganization
under Section 368(a)(1)(A) of the Code (a "Reorganization"). Assuming that the
Merger qualifies as a Reorganization, the following are the material federal
income tax consequences of the Merger to holders of the Company's and SLT's
Common Stock:
(i) the holders of the Company's Common Stock will not recognize any
gain or loss for federal income tax purposes as a result of the Merger.
Further, the tax basis and holding period of a stockholder of the Company's
Common Stock will remain unchanged after giving effect to the Merger;
(ii) holders of SLT Common Stock will not recognize gain or loss upon
receipt of the Company's Common Stock in exchange for SLT Common Stock;
(iii) except as described below, the tax basis of the shares of the
Company's Common Stock received by the holders of SLT Common Stock will
equal the tax basis of their SLT Common Stock exchanged therefor (less any
portion of such basis allocable to such fractional shares of the Company's
Common Stock);
(iv) the holding period of the Company's Common Stock in the hands of
holders of SLT Common Stock will include the holding period of their SLT
Common Stock exchanged therefor, assuming that the holder holds the SLT
Common Stock as a capital asset at the Effective Date; and
(v) no gain or loss will be recognized by the Company or SLT as a
result of the Merger.
The discussion set forth above is included for general information only. In
addition, this discussion reflects a number of significant assumptions,
including (i) the consummation of the Merger in accordance with the terms of the
Merger Agreement; and (ii) the accuracy of certain additional representations
received from the officers of the Company and SLT and holders of the SLT Common
Stock.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a pooling of interests for
accounting and financial reporting purposes. Under the pooling of interests
method of accounting, the recorded assets and liabilities of the Company and SLT
will be aggregated to the consolidated financial statements of the surviving
corporation at their current recorded amounts, the consolidated earnings of the
Company will include earnings of the Company and SLT for the entire fiscal year
in which the Merger occurs and the reported operating results and financial
position of the Company and SLT for prior periods will be combined and restated
as if both the companies had been merged during all periods presented. See
"Unaudited Pro Forma Financial Statements." The Company has been advised by its
independent public accountant, Arthur Andersen LLP ("Arthur Andersen"), that the
Merger should qualify for treatment as a pooling of interests in accordance with
generally accepted accounting principles based on the understanding of Arthur
Andersen of the terms and conditions of the Merger Agreement.
GOVERNMENT AND REGULATORY APPROVALS
Antitrust Considerations. The Merger is subject to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), which requires
prior notification to the United States Federal Trade
22
<PAGE> 27
Commission (the "FTC") and the Department of Justice (the "Department of
Justice") of certain mergers before the consummation of the merger to allow the
FTC and the Department of Justice an opportunity to review the proposed merger,
and, if deemed necessary, to oppose it for any anti-competitive effect.
Following notification, the parties are subject to a minimum of 30 days waiting
period during which the FTC and the Department of Justice review the proposed
merger and may request additional information. The Company and SLT filed all
required notifications with the FTC and the Department of Justice on April 10,
1995, and early termination of the waiting period was granted on May 23, 1995.
Business Combinations With Interested Persons. Section 203 of the Delaware
General Corporation Law limits business combinations (as therein defined)
between corporations and interested persons (as therein defined), which
definition would include Wembley with respect to the Company following the
consummation of the Merger. However, the statute exempts business combinations
with interested stockholders who become stockholders in a transaction approved
by the board of directors. The board of directors of the Company approved the
Merger on March 27, 1995. Accordingly, this statute will not apply to Wembley in
connection with the Merger.
VOTE REQUIRED FOR APPROVAL
Approval of the Merger and the related transactions requires an affirmative
vote of a majority of the issued and outstanding shares of the Company's Common
Stock. On March 27, 1995 the board of directors unanimously approved the Merger
Agreement and recommends that stockholders vote "FOR" approval of the Merger.
DESCRIPTION OF THE MERGER AGREEMENT
The following summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is attached hereto as
Exhibit A.
THE MERGER
The Merger will be effective as of the date of the filing by the Company of
a Certificate of Merger with the Secretary of State of the State of Delaware
(the "Effective Date"). On the Effective Date, the Certificate of Incorporation
and Bylaws of the Company, as amended and restated, will continue to be the
governing documents of the Company. See "The Merger and Related
Transactions -- Amendment and Restatement of Certificate of Incorporation" and
"-- Amendment and Restatement of Bylaws"; and "Increase in Authorized Preferred
Stock." In all other respects the identity, existence, purposes, powers, rights,
and immunities of the Company will continue unaffected by the Merger, the
corporate identity, existence, purposes, powers, rights, and immunities of SLT
will be merged into the Company, and the Company, from that time on, will be
fully vested therewith. Accordingly, on the Effective Date, the separate
existence of SLT shall cease.
All of the rights, privileges, powers, immunities and franchises of each of
the Company and SLT, and all the property and any debts due on whatever account,
and any and all interests of any nature whatsoever of either of the Company or
SLT shall be transferred to, and shall be vested in, the Company. Any and all
rights of creditors and all liens upon properties of each of the Company and SLT
shall also be preserved unimpaired and shall attach to the Company. The Company
may be substituted in place of SLT in connection with any action or proceeding
previously pending against SLT and any action or proceeding previously pending
against the Company may be prosecuted as if the Merger had not taken place. SLT
must execute and deliver or cause to be executed and delivered all such deeds,
conveyances, assignments, permits, licenses and other instruments as the Company
may deem necessary or desirable to carry out the intent and purposes of the
Merger Agreement.
On the Effective Date, each share of SLT Common Stock shall automatically
be converted into 70,000 fully paid and nonassessable shares of the Common Stock
of the Company. Upon surrender of a certificate representing shares of SLT
Common Stock by the holder thereof, such holder shall be entitled to receive a
new certificate representing the number of shares of the Company's Common Stock
into which the number of
23
<PAGE> 28
shares of SLT Common Stock represented by the surrendered certificate has been
converted. The issued and outstanding Common Stock of the Company before
consummation of the Merger will remain issued and outstanding, and will continue
to be represented by previously outstanding stock certificates. See "The Merger
and Related Transactions -- General Description of the Merger".
Holders of certificates representing shares of SLT Common Stock will be
ineligible to receive dividends or other distributions declared regarding the
Company's Common Stock until such certificates are surrendered and exchanged. As
of the Effective Date, the stock transfer books of SLT will be closed and no
transfer of any certificates representing shares of SLT Common Stock, other than
the exchange of SLT Common Stock for the Company's Common Stock, will be made.
MANAGEMENT
On the Effective Date, the persons named in the Merger Agreement will
constitute the board of directors of the Company and hold office until the next
annual meeting of stockholders or their successors are elected and qualified.
Thomas L. Caltrider, Brian D. Young, Hugh L. Rice and T. William Porter, each a
current director of the Company, are to continue as directors following the
Merger. For information concerning the backgrounds of Messrs. Caltrider, Young,
Rice and Porter, see "Election of Directors -- Nominees". If the Merger
Agreement is approved, the remaining three directors will be Samir T. Badawi,
William P. Reid and Ahmed Yousif Khalawi. Certain information concerning Messrs.
Badawi, Reid and Khalawi is set forth below:
Samir T. Badawi, age 55, has been the chairman of the board of SLT and the
President of Wembley, its sole stockholder, since December 1993. Since October
of 1993, Mr. Badawi has been a financial advisor to a group of private
investors. Before becoming a personal financial advisor, Mr. Badawi was a
certified public accountant with Ernst & Young for more than 25 years, most
recently as a managing partner in the State of Bahrain.
William P. Reid, age 45, joined SLT in November of 1989 as president and
chief executive officer. Before joining SLT, he was president of Sperry Sun
Drilling Services, a division of Baroid Corp., from 1986 to 1989.
Ahmed Yousif Khalawi, age 59, has been an attorney in private practice in
Jeddah, Saudi Arabia, for more than the last five years. Mr. Khalawi has been a
member of the advisory committee representing Wembley and its shareholders since
1989.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SLT
In the Merger Agreement, the Company and SLT have made various
representations and warranties relating to, among other things, their respective
businesses and financial condition, the satisfaction of certain legal
requirements for the Merger, the absence of undisclosed liabilities, and
material litigation. The representations and warranties of each of the Company
and SLT will expire upon consummation of the Merger.
CONDITIONS TO THE MERGER
The obligations of the Company and SLT to consummate the Merger and the
related transactions are subject to satisfaction of certain conditions or the
waiver thereof, including (i) the representations and warranties of the Company
and SLT must be true as of the Effective Date, and the Company and SLT must have
complied with their respective covenants set forth in the Merger Agreement; (ii)
no action or proceeding may be pending or threatened before any court or other
governmental entity in connection with the Merger which might result in a
material adverse change (as defined in the Merger Agreement) in the Company or
SLT; (iii) the Company and SLT shall have received opinions of counsel covering
such matters as are customarily covered in opinions delivered in transactions of
the type contemplated by the Merger Agreement, (iv) the Merger Agreement and the
related transactions must have been approved by a majority of the stockholders
of the Company and SLT on or before the Effective Date and such approval may not
have been modified or rescinded on or before the Effective Date; (v) all waiting
periods required by the HSR Act must have expired with respect to the
transactions contemplated by the Merger Agreement, or early termination
24
<PAGE> 29
with respect thereto must have been obtained, without the imposition of any
governmental request or order requiring the sale or disposition or holding
separate of particular assets or businesses of the Company or SLT; (vi) the
American Stock Exchange must have agreed that on the Effective Date it will list
all of the shares of the Company's Common Stock to be issued on the Effective
Date; (vii) the holders of any material indebtedness of the Company and SLT and
the parties to any other material agreements to which the Company or SLT is a
party must have consented to the Merger; (viii) the Company must have executed
and delivered the Registration Rights Agreement; (ix) the Company must have
consummated a refinancing of SLT's debt, subject to the terms of the Merger
Agreement; (x) on or before the execution of the Merger Agreement, William P.
Reid must have executed an employment agreement in form and substance
satisfactory to the Company, such agreement to take effect on the Effective
Date; (xi) the Company must have purchased directors' and officers' liability
insurance containing coverage at least equal to that currently maintained by the
Company with respect to matters occurring before the Effective Date, and
insuring for a period of at least six years following the Effective Date, all
persons who were directors or officers of the Company before the Effective Date,
but who cease to be directors or officers of the Company after the Effective
Date; and (xii) the Company must have received a favorable opinion from Smith
Barney as to the fairness, from a financial point of view, of the consideration
to be paid by the Company in the Merger, which opinion has not been withdrawn at
the Effective Date.
OBLIGATIONS OF THE PARTIES PENDING THE EFFECTIVE DATE
Each of the Company and SLT has agreed that (i) before the Effective Date,
it will continue its present business in the usual, regular, and ordinary manner
so as to preserve its present business organization; (ii) it will comply in all
material respects with all laws applicable to it or the conduct of its business;
(iii) it will permit the other party to inspect its records and consult with its
officers, employees, attorneys and agents for the purpose of determining the
accuracy of the representations and warranties contained in the Merger
Agreement; (iv) it will hold information regarding the other party in confidence
and will not use such information or disclose such information to others except
to the extent such information is or becomes public knowledge; (v) it will file
such materials as are required under the HSR Act with respect to the Merger and
will cooperate with the other party to the extent necessary to assist in the
preparation of such filings; (vi) it will cooperate in the preparation and
filing of this Proxy Statement to obtain the required approval of the Merger by
the stockholders of the Company pursuant to the Merger Agreement; and (vii) it
will promptly notify the other party in writing of any material adverse change
(as defined in the Merger Agreement) in the financial condition, business or
affairs of such party, whether or not occurring in the ordinary course of
business. A material adverse change, as used in the Merger Agreement, means any
change or event, circumstance or condition which, when considered with all other
changes, would reasonably be expected to result in a loss having the effect of
so fundamentally adversely affecting the business or financial prospects of the
Company or SLT, as the case may be, that the benefits reasonably expected to be
obtained by such party as a result of the Merger would be jeopardized with
relative certainty. However, a change in the trading price of the Company's
Common Stock on the American Stock Exchange, in and of itself, shall not
constitute a material adverse change.
Each of the Company and SLT has also agreed that at December 31, 1994 it
has, and/or until the Effective Date it will: (i) not enter into any employment
contracts which cannot be terminated on notice of 14 days or less or provide for
any severance payments or benefits extending for a period beyond the termination
date for such employment, other than those approved by the other party or except
as may be required by applicable law; (ii) not incur any borrowings except the
refinancing of indebtedness now outstanding or additional borrowings under
existing revolving credit facilities, the prepayment by customers of amounts due
for goods sold or services rendered, trade payables or other borrowings incurred
in the ordinary course of business, or as otherwise approved in writing by the
other party; (iii) not enter into any commitments which would require capital
expenditures or incur any contingent liability which would exceed $375,000 in
the aggregate except as may be necessary for the maintenance of facilities or
equipment in the ordinary course of its business, as may be required by law, or
as otherwise approved in writing by the other party; (iv) not sell, dispose of,
or encumber, any property or assets except in the ordinary course of business or
as approved in writing by the other party; (v) maintain insurance upon all of
its respective properties and with respect to the
25
<PAGE> 30
conduct of its respective businesses of such kinds and amounts as is customary
in the type of business in which it is engaged; (vi) except as otherwise
provided by the Merger Agreement, not amend its certificate of incorporation or
bylaws or other material organizational documents or merge or consolidate with
any other corporation or change in any manner the rights of its capital stock or
the character of its business; (vii) not issue or sell, directly or indirectly,
or enter into any contract to issue or sell, any shares of its capital stock or
in any way subdivide, combine or reclassify any shares of its capital stock, or
acquire, or agree to acquire, any shares of its capital stock; and (viii) not
declare or pay any dividend on shares of its capital stock or make any other
distribution of assets to its stockholders.
TERMINATION; AGREEMENT NOT TO SOLICIT OTHER PROPOSALS
The Merger Agreement may be terminated by mutual consent of the parties or
by either the Company or SLT individually if (i) any condition precedent to the
Merger has not been met by the other party, (ii) there has been a material
adverse change in the business of the other party, (iii) any legal action
regarding the Merger has been brought by any federal or state governmental
entity, (iv) the Merger has not been consummated by July 31, 1995, or (v) the
terminating party, in the sole opinion of its board of directors, receives a
Superior Transaction Proposal (as defined below). If the Merger is terminated
due to the failure by either the Company or SLT to obtain the approval of its
stockholders for the Merger, the party that failed to obtain the approval of its
stockholders must pay all expenses of the other party.
The Merger Agreement provides that each of the Company and SLT may not, nor
may it authorize or permit any of its respective agents to: (i) solicit or take
any other action to facilitate any inquiry or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any acquisition or
purchase of a substantial amount of assets of, or any equity interest in, the
Company or SLT or any merger, consolidation, business combination, sale of
substantially all assets, sale of securities, recapitalization, liquidation,
dissolution or similar transaction involving the Company or SLT (other than the
transactions contemplated by the Merger Agreement) or any other material
corporate transaction, the consummation of which would or could reasonably be
expected to impede the Merger (collectively, "Transaction Proposals"), or agree
to or endorse any Transaction Proposal or (ii) propose, enter into or
participate in any discussions or negotiations regarding any of the foregoing,
or furnish to another person any information with respect to its business,
provided however, that the foregoing clauses (i) and (ii) do not prohibit the
Company or SLT from (A) furnishing information pursuant to an appropriate
confidentiality letter to a third party who has made a Superior Transaction
Proposal, (B) engaging in discussions or negotiations with such a third party
who has made a Superior Transaction Proposal or (C) following receipt of a
Superior Transaction Proposal, taking and disclosing to its stockholders a
position with respect thereto or changing the recommendation by its board of
directors or the vote of its stockholders in favor of the Merger Agreement, but
in each case referred to in the foregoing clauses (A) through (C) only after the
board of directors of the Company or SLT concludes in good faith following
advice of its outside counsel that such action is reasonably necessary for the
board of directors to comply with its fiduciary obligations to stockholders
under applicable law. A "Superior Transaction Proposal" is a bona fide
Transaction Proposal that the board of directors of the Company or SLT
determines in good faith after consultation with (and based in part on the
advice of) its independent financial advisors to be more favorable to its
stockholders than the Merger, is reasonably capable of being financed and is not
subject to any material contingencies relating to financing. If (i) (A) the
Merger Agreement is terminated by the Company or SLT, (B) the Company or SLT
violates the covenant not to solicit Transaction Proposals, or (C) the Company
or SLT modifies or withdraws its board of directors' recommendation or
stockholders' vote in favor of the transactions contemplated by the Merger
Agreement or (ii) the Company or SLT enters into an agreement which provides for
Another Transaction or Another Transaction is consummated (with any third party
which before termination of the Merger Agreement has communicated to it for the
purpose of making a Transaction Proposal), in either case within twelve months
after the date of termination of the Merger Agreement, then, in any such event,
such company shall pay to the other party a break-up fee in an amount equal to
$3,000,000, plus transaction expenses, including legal fees.
26
<PAGE> 31
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The Unaudited Pro Forma Financial Statements are based on the historical
consolidated financial statements of the Company and SLT included elsewhere or
incorporated by reference in this Proxy Statement, and should be read in
conjunction with those consolidated financial statements and related notes.
These Unaudited Pro Forma Financial Statements are not necessarily indicative of
the operating results that would have been achieved had the Merger been in
effect as of the beginning of the periods presented and should not be construed
as representative of future operations.
UNAUDITED PRO FORMA BALANCE SHEET
The following unaudited pro forma balance sheet presents the combined
financial position of the Company and SLT. Such unaudited pro forma combined
information is based on the historical consolidated balance sheets of the
Company as of March 31, 1995 and SLT as of December 31, 1994 after giving effect
to the proposed Merger using the pooling of interests method of accounting and
to the pro forma adjustments as described in the notes to Unaudited Pro Forma
Financial Statements.
<TABLE>
<CAPTION>
GUNDLE SLT PRO FORMA
MARCH 31, 1995 DECEMBER 31, 1994 ADJUSTMENTS PRO FORMA
-------------- ----------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 13,227 $ 1,876 $ 0 $ 15,103
Accounts receivable:
Trade................................ 29,524 32,766 0 62,290
Other................................ 277 898 0 1,175
Costs and estimated earnings in excess
of billings on contracts in
progress............................. 3,664 4,264 0 7,928
Inventory............................... 17,887 10,127 0 28,014
Prepaid expenses and other.............. 2,818 595 0 3,413
Deferred income taxes................... 0 446 0 446
-------------- ----------------- ----------- ---------
Total current assets............ 67,397 50,972 0 118,369
Property, plant and equipment, net........ 32,744 23,336 0 56,080
Excess of purchase price over fair value
of net assets acquired, net............. 23,787 4,744 0 28,531
Deferred income taxes..................... 0 912 0 912
Other assets.............................. 202 973 0 1,175
-------------- ----------------- ----------- ---------
Total assets.................... $124,130 $80,937 $ 0 $ 205,067
=========== ============= ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable........................... $ 0 $10,209 $ 0 $ 10,209
Accounts payable and accrued
liabilities.......................... 21,356 17,534 750(A) 39,640
Billings in excess of costs and
estimated earnings on contracts in
progress............................. 91 446 0 537
Notes payable to Stockholder............ 0 2,258 0 2,258
Current portion of long-term debt....... 96 2,044 0 2,140
Income taxes payable.................... 192 911 0 1,103
Deferred income taxes................... 0 1,527 0 1,527
-------------- ----------------- ----------- ---------
Total current liabilities....... 21,735 34,929 750 57,414
Deferred income taxes..................... 3,722 417 0 4,139
Long-term debt............................ 26,287 19,915 0 46,202
Accrued pension expenses.................. 0 1,042 0 1,042
Accrued warranty and other liabilities.... 0 750 (750)(A) 0
</TABLE>
(Table continued on following page)
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
27
<PAGE> 32
<TABLE>
<CAPTION>
GUNDLE SLT PRO FORMA
MARCH 31, 1995 DECEMBER 31, 1994 ADJUSTMENTS PRO FORMA
-------------- ----------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Stockholders' equity:
Preferred Stock......................... 0 0 0 0
Common Stock............................ 107 0 70(B) 177
Additional paid-in capital.............. 40,802 27,521 (70)(B) 68,253
Cumulative foreign currency translation
adjustments.......................... (51) 1,978 0 1,927
Retained earnings (deficit)............. 35,795 (5,615) 0 30,180
-------- ------- ----- ---------
76,653 23,884 0 100,537
Treasury Stock............................ (4,267) 0 0 (4,267)
-------- ------- ----- ---------
Total stockholders' equity...... 72,386 23,884 0 96,270
-------- ------- ----- ---------
Total liabilities and equity.... $124,130 $80,937 $ 0 $ 205,067
======== ======= ===== =========
</TABLE>
UNAUDITED PRO FORMA STATEMENTS OF INCOME
The following unaudited pro forma statements of income give effect to the
proposed Merger by combining the results of continuing operations for each of
the three years ended March 31, 1995 for the Company and December 31, 1994 for
SLT using the pooling of interests method of accounting, as if the companies had
been combined since inception.
<TABLE>
<CAPTION>
GUNDLE SLT
YEAR ENDED YEAR ENDED PRO FORMA
MARCH 31, 1995 DECEMBER 31, 1994 ADJUSTMENTS PRO FORMA
-------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales................................. 133,124 90,813 0 223,937
Cost of sales............................. 110,272 70,346 0 180,618
-------- ------- ----- ---------
Gross profit.............................. 22,852 20,467 0 43,319
Selling, general and administrative
expenses................................ 15,842 12,795 0 28,637
Amortization of goodwill.................. 700 183 0 883
Merger expenses........................... 850 48 0 898
-------- ------- ----- ---------
Operating income.......................... 5,460 7,441 0 12,901
Other expense (income):
Interest expense, net................... 2,219 2,454 0 4,673
Foreign exchange loss................... 0 188 0 188
(Gain) loss on sale/retirement of
assets............................... 0 (563) (563)
Other, net.............................. 1 (184) 0 (183)
-------- ------- ----- ---------
Income before income taxes................ 3,240 5,546 0 8,786
Provision for income taxes................ 1,843 944 0 2,787
-------- ------- ----- ---------
Net income................................ $ 1,397 $ 4,602 $ 0 $ 5,999
======== ======= ===== =========
Earnings per common share................. $ 0.14 0 $ 0.35
======== ===== =========
Weighted average common
shares outstanding...................... 10,186 7,000(C) 17,186
======== ===== =========
</TABLE>
(Table continued on following page)
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
28
<PAGE> 33
<TABLE>
<CAPTION>
GUNDLE SLT
YEAR ENDED YEAR ENDED PRO FORMA
MARCH 31, 1994 DECEMBER 31, 1993 ADJUSTMENTS PRO FORMA
-------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................. 119,246 72,005 0 191,251
Cost of sales.............................. 93,101 59,819 0 152,920
-------- ------- ----- -------
Gross profit............................... 26,145 12,186 0 38,331
Selling, general and administrative
expenses................................. 15,603 11,977 0 27,580
Amortization of goodwill................... 688 123 0 811
-------- ------- ----- -------
Operating income........................... 9,854 86 0 9,940
Other expense (income):
Interest expense, net.................... 2,034 2,666 0 4,700
Foreign exchange loss.................... 0 153 0 153
Gain on sale/retirement of assets........ 0 (89) (89)
Other, net............................... 67 13 0 80
-------- ------- ----- -------
Income before income taxes................. 7,753 (2,657) 0 5,096
Provision for income taxes................. 2,810 (2,620) 0 190
-------- ------- ----- -------
Net income (loss).......................... $ 4,943 $ (37) $ 0 $ 4,906
======== ======= ===== =========
Earnings per common share.................. $ 0.48 $ 0 $ 0.28
======== ===== =========
Weighted average common shares
outstanding.............................. 10,260 7,000(C) 17,260
======== ===== =========
</TABLE>
<TABLE>
<CAPTION>
GUNDLE SLT
YEAR ENDED YEAR ENDED PRO FORMA
MARCH 31, 1993 DECEMBER 31, 1992 ADJUSTMENTS PRO FORMA
-------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................. 113,845 71,598 0 185,443
Cost of sales.............................. 92,486 57,220 0 149,706
-------- ------- ----- ---------
Gross profit............................... 21,359 14,378 0 35,737
Selling, general and administrative
expenses................................. 17,374 11,193 0 28,567
Amortization of goodwill................... 688 121 0 809
-------- ------- ----- ---------
Operating income........................... 3,297 3,064 0 6,361
Other expense (income):
Interest expense, net.................... 2,195 2,091 0 4,286
Foreign exchange gain.................... 0 (21) 0 (21)
Gain on sale/retirement of assets........ 0 (47) (47)
Other, net............................... 596 (211) 0 385
-------- ------- ----- ---------
Income before income taxes................. 506 1,252 0 1,758
Provision for income taxes................. 594 154 0 748
-------- ------- ----- ---------
Net income (loss).......................... $ (88) $ 1,098 $ 0 $ 1,010
======== ======= ===== =========
Earnings (loss) per common share........... $ (0.01) $ 0 $ 0.06
======== ===== =========
Weighted average common shares
outstanding.............................. 10,455 7,000(C) 17,455
======== ===== =========
</TABLE>
- ---------------
(A) Certain reclassifications have been made to conform SLT's financial
statement presentation to that used by the Company.
(B) The stockholders' equity accounts of the Company as of March 31, 1995 have
been adjusted to reflect the assumed issuance of 7,000,000 shares of the
Company's Common Stock in exchange for all of the issued and outstanding
SLT Common Stock (based upon the conversion rate of 70,000 shares of the
Company's Common Stock for each issued and outstanding share of SLT Common
Stock).
(C) Pro forma earnings per common share for each period is based on the combined
weighted average number of common shares outstanding, after adjusting the
Company's historical shares outstanding for the conversion of 70,000 shares
of the Company's Common Stock for each share of SLT Common Stock.
29
<PAGE> 34
DESCRIPTION OF SLT
GENERAL
SLT manufactures polyolefin geomembrane and installs containment liner
systems. These systems prevent seepage of hazardous materials and protect the
environment and groundwater from contamination by hazardous wastes produced in
industrial operations, mines, municipalities and other government entities.
SLT currently has two manufacturing facilities; one in Houston, Texas, and
one in Rechlin, Germany, opened in July 1991 and April 1994, respectively. Both
facilities are used for the manufacture of containment liner systems. The
primary component of SLT's liner systems is polyethylene containment liner
membrane which SLT manufactures from polyolefins commonly known as "High Density
Polyethylene" ("HDPE"). SLT's annual production capacity is in excess of 100
million pounds of polyolefin based geomembrane. "HyperFlex(R)" membrane is SLT's
largest volume product. In fiscal 1994, SLT had 476 customers, with no customer
accounting for more than 10% of total revenue earned.
SLT generates revenue from the direct sale of geomembranes to its
customers, as well as from the construction and installation of liner systems
which incorporate the geomembrane and other products manufactured by or
distributed through SLT. Its other products include drainage nets, fabric,
composites, clay products, anchor profiles, vertical curtain walls, geo-grids
and specialty co-extruded material.
SLT sells and installs its products through its worldwide distribution
system consisting of SLT's direct and indirect subsidiaries and independent
distributors.
SLT's 1994 revenue was derived equally from United States and foreign
operations. Total sales breakdown was as follows: 22%-U.S. geomembrane sales;
28%-U.S. construction services; 15%-Mid-East, Australia, Singapore; and
35%-Europe.
The corporate headquarters and executive offices of SLT's principal
operating United States subsidiary, SLT North America, Inc., is located at 200
South Trade Center Parkway, Conroe, Texas 77385, and its telephone number is
(713) 350-1813.
HISTORY
In 1987, Wembley purchased the stock of Schlegel Lining Technology, Inc.
("Schlegel") from Schlegel Corporation, a New York corporation, and thereafter
renamed the corporation "SLT Environmental, Inc." Schlegel, through its German
subsidiary, Schlegel Lining Technology GmbH, was one of the earliest developers
of wide cast HDPE sheets by means of its Extru-Weave technology. As early as
1971, Schlegel had developed patented technology to produce uniform sheets of
HDPE using a special geomembrane grade resin. Schlegel built a manufacturing
facility in Conroe, Texas in 1980.
Under Wembley, SLT expanded its United States production by opening a new
production facility in Houston, Texas in 1991 with capacity in excess of 50
million pounds of polyethylene sheet per year. Operations at the Conroe facility
have been gradually phased out and will cease altogether in 1995. Operations at
SLT's wholly owned German subsidiary, SLT Lining Technology GmbH, were
restructured and expanded in 1992 with the purchase of real estate in Rechlin,
Germany, where its new geomembrane manufacturing plant became operational in
April 1994. The plant has capacity in excess of 50 million pounds of
polyethylene sheet per year. SLT's two plants, fitted with state-of-the-art
machinery and equipment, combined with a world-wide distribution and
installation network, enable SLT to compete successfully internationally.
PRODUCTS
SLT manufactures, acquires for resale and acts as a distribution agent for
a wide range of associated products necessary to complement and support the
liner systems used in storage facilities, landfills, mining, secondary
containment and industrial applications. These products are installed primarily
to prevent leakage and groundwater contamination. The geomembrane liner systems
successfully provide effective segregation of hydrocarbons, chemical media and
other unsafe or undesirable materials from the soil, water, concrete or
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atmosphere to be protected. The geomembranes may also provide corrosion
protection, enhance hydraulic flow, confine gases or odors and prevent
evaporation.
The most popular SLT product is HyperFlex(R) HDPE geomembrane. This and
other SLT membrane products can be either smooth or textured and each may be
sold separately or in connection with a containment liner installation. The SLT
geomembranes are manufactured from various specially designed or selected
polyolefin resins more commonly known as polyethylene and polypropylene and
frequently referred to by acronyms such as HDPE, LLDPE, VLDPE, and PP. The
finished product formulations also commonly include pigments (carbon black),
anti-oxidants and stabilizers in accordance with proprietary formulas to extend
the life of the product.
The thickness of the smooth membrane manufactured by SLT ranges from 30 mil
(0.75mm) to 240 mil (6.0mm), and the thickness of textured membranes commonly
ranges from 30 mil (0.75mm) to 100 mil (2.5mm). One mil equals 1/1000 of an
inch. The width of SLT membranes ranges up to 25 feet. Length is limited only by
the weight that can be bundled and transported. Commonly manufactured lengths
vary with thickness and generally do not exceed 1,200 feet. Panels of the sheet
manufactured by SLT require fewer welded seams than smaller panels, thereby
enhancing the integrity of the liner system.
SLT's line of polyethylene geomembranes provide a range of environmental
lining options to suit virtually any application. The types of sheet plastic,
sold under a variety of trade names, are described below.
HyperFlex(R) is SLT's premier grade HDPE lining material. It is produced
from virgin polyethylene resin specially formulated for geomembrane
applications, and exhibits significant chemical and environmental stress crack
resistance, dimensional stability and thermal aging characteristics.
HyperFlex(R) is especially suitable for applications requiring superior chemical
and ultra-violet resistance, such as municipal landfills, leach pads and
secondary containment of petroleum and chemical storage.
UltraFlex(R) is a premium grade flexible membrane liner with significant
elasticity and flexibility. Its high uni-axial and multi-axial elongation
characteristics make it suitable for applications where differential or
localized settlement may occur.
FrictionFlex(R) is SLT's patented, textured HDPE geomembrane texturing
process. FrictionFlex(R) texture may be applied to most types of polyolefin
geomembranes and provides several key advantages compared to other textured
geomembranes. First, FrictionFlex(R) is the only textured material which has the
same strength and chemical properties as smooth membrane of similar thickness.
Second, the FrictionFlex(R) process assures that the minimum thickness
requirement for the geomembrane liner is maintained. Third, FrictionFlex(R)
texture provides maximum assurance of containment integrity in case of
settlement, earthquake or other ground movement, due to its superior physical
properties.
SLT is capable of extruding large size geomembranes up to 240 mil (6.0 mm)
thick. These liners are typically used in industrial applications where strength
and long life is required. SLT also has the ability to manufacture geomembranes
in any color desired, an example of which is the manufacture by SLT of
geomembrane in several shades of blue to create an aesthetically appealing
effect in swimming pools and aquariums.
To complement SLT's line of geomembranes, SLT also produces PolyLock(R),
which is a concrete embedment manufactured from polyethylene resin. When
embedded during new concrete construction, PolyLock(R) provides a point of
attachment to which lining materials can be welded. SLT has used PolyLock(R) in
conjunction with pipe penetrations, and to attach or support liners in concrete
tanks and on concrete walls.
SLT also manufactures, resells or distributes other products used in
association with containment liner installations. Examples are:
HyperNet(R) -- Manufactured by SLT to provide a drainage (flow) path
for liquids and gates to enable removal of leachate and/or detection of
leaks.
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GeoTextiles -- Numerous types and varieties of special textiles are
manufactured by others to provide cushions over rough substrates,
filtration, drainage and soil reinforcement. SLT distributes these
materials to complement the line of geosynthetic products utilized in
containment liner applications.
Textile/Net Composites -- A combination of HyperNet(R) heat-bonded to
any of a variety of geotextiles to provide a protective cushion and/or
enhance drainage where the net might become filled with transient solids or
debris.
BentoLiner(R) -- A geotextile blanket filled with special clay
compounds commonly referred to as bentonite, that provides the equivalent
resistance to permeation as one or more feet of common natural clays. This
product is manufactured by others to SLT specifications and marketed by
SLT.
CurtainWall(R) -- A combination of SLT membranes and a patented
interlocking mechanical joint that allows SLT to fabricate a vertical
membrane barrier that can be installed at depths up to 125 feet to prevent
the horizontal flow of contaminants or contaminated groundwater into or
through an aquifer.
Specialty Sheet and Membrane -- For example, sheet with attachments
for embedment in new concretes, sheet stock for forming or fabrication into
other products and specialized roofing.
MANUFACTURING
SLT uses a flat die extrusion process which involves controlled quenching
techniques to help relieve residual and heat-induced manufacturing stress and
may involve specially designed resins and proprietary formulations. As a result,
SLT believes Hyperflex(R) and other SLT geomembranes have enhanced long-term
performance capabilities compared to many similar products.
QUALITY CONTROL
Quality control of geomembrane production is critical during the process of
manufacturing. SLT manufacturing is continuously monitored as part of SLT's
Statistical Process Control/Statistical Quality Control program (the "Quality
Control Program"). SLT's geomembrane Quality Control Program commences upon the
selection of resin used for manufacturing, and continues through the stage in
which geomembrane panels produced from such resins are installed pursuant to a
customer's specifications. The typical stages of the Quality Control Program are
as follows:
Upon delivery, the resin and other raw materials are sampled and tested to
ensure they meet the strict requirements for geomembrane grade products
specified by SLT prior to acceptance and unloading. SLT's test results are
compared against the certification of each lot of materials supplied by the
resin manufacturer.
During the manufacturing process, SLT's quality control team monitors the
finished product. SLT has installed sophisticated pinhole detection, continuous
scanning of thickness gauges, and recording equipment to monitor, adjust and
record all operating parameters on the membrane manufacturing lines. Samples of
finished product are promptly taken to SLT's laboratory and tested for
conformity to SLT's physical property requirements and customer specifications.
A certification record of these values and parameters is maintained for all
finished products.
As the liner is installed, trained technicians undertake a three-step
quality control procedure to ensure quality welds. First, the weld seams are
visibly inspected. Second, the technicians test all of the seams to verify there
are no pinholes in the seams. Third, the technicians take random coupon samples
of completed welds and perform peel and tear testing (destructive tests) to
ensure the weld complies with the customer's and SLT's specified seam
properties. Welding conditions and parameters can be recorded whenever necessary
or appropriate.
RAW MATERIALS
The primary raw material of SLT's products is high-grade, specially
designed, polyethylene resin which is a byproduct of the production of natural
gas. This resin is purchased from a limited number of suppliers.
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SLT's principal domestic resin supplier is Mobil Corporation; however, SLT has
used other resin suppliers from time to time.
SALES BY MARKET APPLICATION (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 % 1993 % 1992 %
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Hazardous Waste Containment.................... $ 4,970 5.5 $ 4,507 6.2 $ 4,128 5.8
Solid Waste Containment........................ 55,769 61.4 48,157 66.9 47,865 66.9
Liquid Containment............................. 7,740 8.5 5,476 7.6 3,774 5.3
Mining......................................... 10,130 11.2 1,409 2.0 4,556 6.4
Other Applications............................. 12,204 13.4 12,456 17.3 11,275 15.6
------- ----- ------- ----- ------- -----
Totals............................... $90,813 100.0 $72,005 100.0 $71,598 100.0
======= ===== ======= ===== ======= =====
</TABLE>
INSTALLATION
In addition to direct sales of its products through a dealer organization,
SLT installs liner systems on the basis of construction contracts for which it
competitively bids. In response to a customer's specification of a proposed
liner system, SLT submits its bid based upon contract costs which are estimates
of the direct and indirect material costs and labor costs necessary to install
the proposed liner system. SLT typically enters into fixed-price contracts
related to the sale and installation of its products and, in connection with
such contracts, usually posts bid and performance bonds covering the amount of
the contract. SLT may provide the customer with warranties for these
installation services, which typically are one year in duration.
DOMESTIC FACILITIES
SLT's domestic operations are conducted through its subsidiary, SLT North
America, Inc., which has manufacturing facilities in Houston, Texas and
corporate headquarters in Conroe, Texas. SLT has approximately 240 employees in
the United States.
The Conroe facility occupies 2.2 acres with 9,400 square feet of office
space. SLT is currently phasing out manufacturing, and will be using the
facility only for corporate administration.
The West Hardy site in Houston, Texas occupies 16.9 acres with 3,300 square
feet of office space and 83,000 square feet of manufacturing facilities. SLT
operates a continuous flow polyethylene membrane extrusion line on this site, as
well as geonet, composite and texturing lines.
INTERNATIONAL FACILITIES
Germany. The administrative offices of SLT Lining Technology GmbH, SLT's
German subsidiary, are located in Hamburg. The manufacturing facility, which
supplies HDPE sheet to customers in Europe and the Middle East, is located in
Rechlin, Germany, on 8.2 acres. SLT operates a continuous flow polyethylene
membrane extrusion line and two texturing lines on this site. SLT closed its
administrative and manufacturing facility on Pollhorweg 17 in Hamburg, Germany
in 1994. SLT's European operations also have a sales and installation office in
Great Britain.
Other. SLT also maintains installation and sales offices in leased premises
located in Singapore and Sydney, Australia.
In connection with contracts performed outside of the United States, SLT
routinely bids fixed-price contracts which are denominated in currencies
different than the functional currency of the applicable subsidiary performing
the work. SLT management recognizes that such bidding practices, in the context
of international operations, are subject to the risk of foreign currency
fluctuations not present in domestic operations. Management has not engaged in
hedging or other measures for reducing the effect of fluctuating exchange rates
and currency losses to date have not been material to SLT's operations as a
whole.
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EMPLOYEES
At December 31, 1994, SLT had approximately 315 full-time employees, of
whom approximately 75 were executive, marketing, administrative and accounting
personnel, 91 were engaged in manufacturing positions, and the remainder in
installation activities. The full-time employees of SLT's domestic subsidiary,
SLT North America, Inc., are not unionized and such subsidiary has never
experienced a strike or any similar work stoppage. SLT also employs union labor
on a contract basis for specific installation projects where required. SLT
considers its relations with employees to be satisfactory.
LEGAL PROCEEDINGS
SLT's German subsidiary, SLT Lining Technology, GmbH, has been named in
legal proceedings by Containerkaai, a Belgian consortium, for sub-contractor
services that SLT Lining Technology GmbH provided Containerkaai in connection
with the construction of a wharf at a harbor owned by the Flemish Province in
Antwerp, Belgium. Containerkaai posted a performance bond of $7.5 million with
the Flemish Province in connection with its obligations under its contract. Upon
completion of construction, the Flemish Province refused to release the full
amount of the performance bond, claiming that the construction was partially
defective. Containerkaai filed a suit against the Flemish Province, demanding
the remainder of the performance bond (approximately $2.5 million) and joined
SLT who, in turn, joined its sub-contractors in the suit. The case is currently
before a court of first instance in Antwerp, Belgium. Although the outcome of
the litigation is uncertain, SLT believes, based upon a preliminary assessment
of counsel for SLT in Belgium, that its liability exposure in connection with
this litigation is not material.
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK
SLT, a privately-held company incorporated in Delaware, has 1,000
authorized shares of common stock, par value of $1.00 per share, of which 100
shares are issued, outstanding and held by Wembley. There is no established
public trading market for the capital stock of SLT and no competitive market
data is available.
For information regarding distributions to the shareholder of SLT, see
"Selected Financial Data" and the Consolidated Financial Statements of SLT and
Subsidiaries and Notes thereto appearing in this Proxy Statement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF SLT'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of SLT and the notes thereto contained
elsewhere in this Proxy Statement.
QUARTER ENDED MARCH 31, 1995 VERSUS QUARTER ENDED MARCH 31, 1994
SLT's net sales increased $11.6 million, or 120.1%, in the first quarter of
1995 as compared with the first quarter of 1994 the United States contributing
$8.0 million, Germany $2.5 million, Australia $600,000 and Singapore $500,000,
due to rising demand in the marketplace. In the United States the increase was
attributed primarily to customer price increases based on resin cost increases
carried forward from 1994 and several major contracts within the mining and
utility markets. These contracts were responsible for $6.2 million of the 1995
first quarter sales increase. Further, a mild winter for the 1994-95 season
allowed many construction projects in the United States to proceed through the
winter months rather than being shut down or delayed until better weather
conditions returned. Additionally, aggressive marketing in the South American
mining market led to substantial sheet sales to dealers. Increased demand in
Europe was met by the increased capacity from its facility in Rechlin, Germany
(the "German facility") which was opened in April 1994.
Gross profit increased $2.6 million, or 149.4%, for the first quarter of
1995 as compared to the first quarter of 1994 as a result of higher sales volume
and pricing and correspondingly higher utilization of SLT's United States
manufacturing facilities. In the United States gross margins increased $2.5
million during the first quarter of 1995 as compared to the first quarter of
1994. Of this increase, $2.0 million related to certain contracts in the mining
and utility markets. Gross margins in Germany, Australia and Singapore were
comparable to the prior corresponding quarter. SLT provided $408,000 during the
period for contracts expected to incur future losses.
Selling, general and administrative expenses and other operating expenses
increased $1.4 million, or 47.7%, in the first quarter of 1995 as compared to
the first quarter of 1994. As a percentage of sales, selling, general and
administrative and other operating expenses decreased to 20.6% from 30.8% in the
first quarter of 1995 from the first quarter of 1994. This decrease was
primarily due to higher sales volume without a corresponding increase in both
German and domestic, selling, general and administrative expenses. The increase
in these expenses was caused by Merger expenses, reimbursement to Wembley of
certain professional fees and the strengthened value of the German Mark, which
is the functional currency of SLT's German operations. A writedown of $398,000
was taken in the first quarter of 1995 for the anticipated disposal of the
Conroe facility to record the facility at its expected net realizable value.
Interest expense of $687,000 in the first quarter of 1995 represents an
increase of $39,000 from the first quarter of 1994. The increase was primarily
caused by higher United States interest rates which increased interest expense
by $115,000. The increase was offset by the capital infusion in April 1994,
which reduced borrowing and interest expense in Germany.
SLT's other expense increased by $494,000 during the first quarter of 1995
as compared to the first quarter of 1994 primarily due to foreign exchange
losses due to the weakening United States dollar.
SLT's benefit from income taxes was $570,000 and $812,000 for the first
quarter of 1995 and 1994, respectively. The decrease in the benefit from income
taxes was caused by a lower loss before income taxes.
YEAR ENDED DECEMBER 31, 1994 VERSUS YEAR ENDED DECEMBER 31, 1993
SLT's net sales increased $18.8 million, or 26.1%, in fiscal 1994 as
compared with fiscal 1993 due to rising demand in the market place. SLT's sales
from the United States increased $8.8 million in 1994 as compared to 1993. This
increase in sales was primarily driven by volume increases. The enforcement of
the Resource Conservation and Recovery Act ("RCRA") ensured further demand for
SLT's synthetic plastic liner products as RCRA mandated the use of liner
products in sanitary landfill applications. Further, during 1994 the price of
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gold and copper increased causing greater related mining activity which
increased the demand for SLT's products within the mining sector. Additionally,
the fourth quarter of 1994 saw a rise in resin prices which were passed on in
the form of price increases to SLT's customers. The German operation increased
sales by $5.7 million primarily due to increased volume resulting from improved
economic conditions in Europe. The increased volume was met with an increase in
capacity from the new German manufacturing facility. In Australia, sales
increased by $3.8 million in 1994 as compared to 1993. The primary reason for
the sales increase in Australia was due to major competitor withdrawing from the
Australian market. Further, there were price increases in copper thereby
increasing the demand for SLT's products in the mining sector. The increase in
demand within the mining sector was approximately $2.1 million of the 1994 sales
increase in Australia. Singapore's net sales increase was $500,000 in 1994
compared to 1993.
Gross profit increased $8.3 million, or 68.0%, in 1994 as compared to 1993
as a result of increased sales volume, reduced unit conversion costs of the
German Facility and improvements in margins in the United States (including
sales to South America) and Australian markets. SLT avoided significant losses
on projects in Europe and the United States as a result of changes in personnel,
monitoring programs and the management of field installation activities. In the
United States gross margins increased by $4.1 million during 1994 as compared to
1993. The majority of the increase was contributed by the construction services
group where an improved bidding process increased gross margins by over $3.0
million. With the introduction of the new German manufacturing facility,
production rose dramatically, and therefore, decreased the per unit
manufacturing cost of material being produced. Additionally, a decrease in
expenses associated with shipping product from SLT's manufacturing facility in
the United States to European markets was experienced by meeting European demand
with the increased capacity at the German facility.
Selling, general and administrative expenses and other operating expenses
increased $927,000, or 7.7%, in 1994 as compared to 1993. As a percentage of
sales, selling, general and administrative and other operating expenses
decreased to 14.3% from 16.8% from 1994 to 1993. This decrease was primarily due
to increased volume at the German facility without a corresponding increase in
the German facility's selling, general and administrative expenses and
aggressive administrative cost containment in SLT's domestic operations.
Interest expense of $2.5 million in fiscal 1994 represents a reduction of
$212,000 from 1993. The reduction was primarily due to a capital infusion of
$7.7 million in April 1994 which reduced borrowing requirements and interest
expense in Germany by $424,000 as compared to 1993. Interest rate increases in
the United States increased SLT's United States interest expense by $212,000
during 1994.
SLT's other income increased by $636,000 during 1994 as compared to 1993
primarily due to foreign exchange gains and gains of $563,000 on the sale or
retirement of assets including gains of $456,000 from the sale of fully
depreciated assets from the abandoned manufacturing plant in Hamburg, Germany.
SLT's provision for (benefit from) income taxes was $944,000 and ($2.6
million) for fiscal 1994 and 1993, respectively. The 1994 provision used
substantially all of the net operating loss carry forwards available under
United States and Australian law which were previously not recognized due to SLT
recording a valuation allowance against the deferred tax assets related to those
net operating loss carryforwards in prior years.
YEAR ENDED DECEMBER 31, 1993 VERSUS YEAR ENDED DECEMBER 31, 1992
SLT's net sales increased $407,000, or 0.6%, in fiscal 1993 as compared
with fiscal 1992. Aggressive marketing and pricing by SLT increased sales in the
United States by $7.6 million. This increase was primarily due to new product
lines being introduced by SLT resulting in $4.5 million of the increase. The
remaining increase was attributed to additional capacity made available through
lower sales to an SLT affiliate. In Europe, sales declined approximately $8.0
million during 1993 versus 1992. This decline was due primarily to the severe
European recession which resulted in decreased demand for SLT's products during
the second half of 1993. Sales in Australia and Singapore increased $607,000 and
$187,000, respectively.
Gross profit decreased $2.2 million or 15.2% in 1993 from 1992 as a result
of severe worldwide price competition which drove prices down and generally
reduced margins. In the United States, gross margins were
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adversely affected by bidding construction services projects with margins based
on unattainable cost levels resulting in $1.0 million of losses. Additionally,
the announcement of the closing of SLT's Hamburg manufacturing facility caused
decreased productivity and substantially higher unit costs in that operation
resulting in approximately $1.0 million reduction in gross profits.
Selling, general and administrative expenses and other operating expenses
increased $786,000, or 7.0%, in 1993 as compared to 1992. As a percentage of
sales, selling, general and administrative and other operating expenses
increased to 16.8% from 15.8% comparing 1993 to 1992. This increase was
primarily due to decreased volume of revenue generated from European sales
without a corresponding decrease in the German facility's selling, general and
administrative expenses. The German facility's selling, general and
administrative expenses remained high due to the administrative costs of
building the German facility while closing the existing manufacturing facility
in Hamburg, Germany.
Interest expense of $2.7 million in fiscal 1993 represents an increase of
$575,000 from 1992. The increase was primarily due to increased borrowing
requirements of the German facility to finance its operations during the
economic downturn.
SLT's other expenses increased $356,000 in 1993 from 1992 due to compliance
with costly lease termination provisions related to the closure of the Hamburg
manufacturing facility. Also, the increase was due to foreign exchange losses
due to the weaker Australian Dollar compared to the United States dollar.
SLT's provision for (benefit from) income taxes was ($2.6 million) and
$154,000 for fiscal 1993 and 1992, respectively. The benefit for 1993 was
created by the recognition of the future benefit of a $4.1 million net operating
loss carry forward arising in Germany. In the United States, SLT used $1.4
million of previously unrecognized net operating loss carry forward to reduce
the 1993 income tax provision.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995 and December 31, 1994, SLT had working capital of $14.9
million and $16.0 million, respectively, of which $2.4 million and $1.9 million,
respectively, were cash and cash equivalents. SLT's cash, inventory and
receivable balances fluctuate from quarter to quarter due to the seasonality of
sales. Sales decrease during the late fourth quarter and continue through the
first quarter due to traditionally inclement weather. Reductions in cash caused
by this condition are supplemented by bank lines of credit. Production during
the seasonally slow period remains constant to prepare for the coming peak
season. SLT's capital structure consisted of $36.4 million and $34.4 million in
debt and $25.0 million and $23.9 million in stockholder's equity at March 31,
1995 and December 31, 1994, respectively.
The accounts receivable balance has increased $13.2 million or 64.7% in
1994 from 1993. Sales have increased $18.8 million or 26.1% in 1994 from 1993.
The accounts receivable balance has increased at a greater rate than the
increase in sales for the period as a result of sales in the fourth quarter
ended December 31, 1994 increasing $15.6 million or 115.5% over sales in the
fourth quarter ended December 31, 1993. The fourth quarter is traditionally
seasonally slow, and this slow down has historically allowed SLT to collect
receivable balances associated with sales in the second and third quarter. With
fourth quarter 1994 sales remaining consistent with sales in the third quarter,
this trend did not continue. SLT has experienced a consistent collection period
in 1994 and 1993 and this relationship had no impact on SLT's liquidity.
SLT has several revolving lines of credit which provide for borrowing of up
to approximately $14.7 million. The revolving domestic line of credit is secured
by accounts receivable and inventory of SLT North America, Inc. The foreign
revolving lines of credit are secured by accounts receivable, inventory, and
equipment of SLT Lining Technology GmbH. At March 31, 1995 and December 31,
1994, the outstanding indebtedness was $12.2 million and $10.2 million,
respectively.
Wembley had posted bank letters of credit in the amount of $12.0 million
securing SLT's domestic bank financing. Additionally, Wembley had posted standby
letters of credit totaling $3.9 million for domestic bid and performance bonding
purposes.
SLT is increasing its presence in the European, Mideast and African markets
through the German facility and increasing its production capacity for textured
sheet in the domestic market. The new capacity will result in reduced production
costs allowing SLT to be more competitive.
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SLT believes its current working capital balance, cash generated by
operations and the balance available under its credit lines are adequate to meet
foreseeable cash requirements during fiscal 1995.
Pricing for SLT's products and services are principally driven by worldwide
manufacturing capacity in the industry and raw material pricing. In fiscal 1994,
worldwide manufacturing capacity increased significantly as a result of the
addition of capacity by one of SLT's primary competitors and the entrance by two
new competitors into the international market. SLT's primary raw material
occasionally is in short supply and is subject to substantial price fluctuation
in response to market demand. Any additional increase in worldwide manufacturing
capacity, interruption in raw material supply or abrupt raw material price
increase could have an adverse effect upon SLT's operations in fiscal 1995.
Inflation has not had a significant impact on SLT's operations.
INCREASE IN AUTHORIZED PREFERRED STOCK
The Company's Certificate of Incorporation currently authorizes the
issuance of up to 1,000 shares of preferred stock without par value. The board
of directors of the Company has proposed an amendment to the Certificate of
Incorporation to increase the authorized number of shares of the Company's
preferred stock to 1,000,000 shares, par value $1.00 per share, undesignated as
to series. If such amendment is approved by the stockholders of the Company, the
board of directors would be empowered, without the necessity of further action
or authorization by the Company's stockholders (unless required in a specific
case by applicable laws or regulations or stock exchange rules), to authorize
the issuance of an increased number of shares of preferred stock from time to
time in one or more series, and to fix by resolution or resolutions, the
designations, preferences, limitations and relative rights of each such series.
Each series of preferred stock would likely rank senior to the Company's Common
Stock with respect to dividends and redemption and liquidation rights. Holders
of the Company's Common Stock have no preemptive right to purchase or otherwise
acquire any preferred stock that may be issued in the future.
The preferred stock will be available for issuance from time to time, as
determined by the board of directors for any proper corporate purpose. Such
purposes might include, without limitation, issuance in public or private sales
for cash as a means of obtaining additional capital for use in the Company's
business and operations, and issuance as part or all of the consideration
required to be paid by the Company for acquisitions of other businesses or
properties. The Company does not at present have any agreements, understandings
or arrangements that would result in the issuance of any shares of preferred
stock.
The precise effect of the authorization of the additional shares of
preferred stock upon the rights of holders of the Company's Common Stock cannot
be determined until the board of directors determines the respective
preferences, limitations and relative rights of the holders of one or more
series of the preferred stock. However, such effects might include (i) reduction
of the amount of cash otherwise available for payment of dividends on Common
Stock to the extent dividends are payable on any issued shares of preferred
stock; (ii) restrictions on dividends on Common Stock if dividends on preferred
stock are in arrears; and (iii) subordination of the rights of the holders of
Common Stock to share in the Company's assets upon liquidation until
satisfaction of any liquidation preference granted to the preferred stock. In
addition, the issuance of shares of preferred stock or the issuance of rights to
acquire such shares could have the effect of delaying, deferring or preventing a
change of control of the Company and could make more difficult a merger, tender
offer or proxy contest involving the Company, even if such events would be
beneficial to the interests of the Company's stockholders. As in the case of
other types of issuances, those intended to prevent or adversely affect changes
of control could be accomplished without further stockholder approval. However,
the board of directors has no present intention of using the additionally
authorized shares of preferred stock for such a purpose and is not aware that
any takeover or similar action is contemplated.
VOTE REQUIRED FOR APPROVAL
Approval of the amendment to the Company's Certificate of Incorporation to
increase the number of shares of preferred stock requires the affirmative vote
of a majority of the outstanding shares of Common Stock. The board of directors
recommends a vote "FOR" the approval of the increase in the authorized shares of
Preferred Stock.
38
<PAGE> 43
ELECTION OF DIRECTORS
Seven persons have been nominated for election as directors of the Company
at the Annual Meeting to serve until the next annual meeting of the stockholders
or until their successors have been elected and qualified. The persons named in
the accompanying proxy have been designated by the board of directors and,
unless authority is withheld, they intend to vote for the election of the
nominees named below to the board of directors. Each of the nominees has
previously been elected by the stockholders. If any nominee should become
unavailable for election, the proxy may be voted for a substitute nominee
selected by the persons named in the proxy, or the board may be reduced
accordingly; however, the board of directors is not aware of any circumstances
likely to render any nominee unavailable.
If the Merger Agreement and the transactions contemplated thereby are
approved by the Company's stockholders, the persons named in the Merger
Agreement as directors of the Company will become directors upon consummation of
the Merger. See "Description of the Merger Agreement -- Management".
NOMINEES
Certain information concerning the nominees for election as directors at
the Annual Meeting is set forth below:
<TABLE>
<CAPTION>
NAME POSITIONS HELD AGE DIRECTOR SINCE
----------------------------------------- ---------------------- --- --------------
<S> <C> <C> <C>
Brian D. Young(1)........................ Chairman of the Board 40 1986
Thomas L. Caltrider...................... Director, 44 1993
President, and Chief
Executive Officer
Steven M. Friedman....................... Director 40 1986
George J. McNally(2)..................... Director 59 1994
William P. O'Connell(2).................. Director 54 1990
T. William Porter(1)..................... Director 53 1988
Hugh L. Rice(1)(2)....................... Director 48 1990
</TABLE>
- ---------------
(1) Member, compensation committee of the board of directors.
(2) Member, audit committee of the board of directors.
Brian D. Young is a general partner and co-founder of Eos Partners, L.P., a
New York based investment banking concern ("Eos"). Before co-founding Eos in
January 1994, he served as a general partner of Odyssey Partners, L.P., a
Delaware limited partnership ("Odyssey"), from February 1986. Mr. Young is a
director of Archer Resources Ltd., The Caldor Corporation ("Caldor"), MICOM
Communications Corp. ("MICOM") and Black Box Corporation ("Black Box").
Thomas L. Caltrider was appointed president and chief executive officer of
the Company on July 2, 1993. Before joining the Company, Mr. Caltrider was
employed in a series of progressively more responsible positions with the
petrochemical and plastics operations of Borg-Warner Chemicals, Inc. for 16
years and General Electric Company for five years. While at General Electric, he
served as general manager of petrochemicals at GE Plastics for three years and
as vice president of polymers for GE Plastics Pacific for two years.
Steven M. Friedman is a general partner and co-founder of Eos. Before
co-founding Eos in January 1994, he served as a general partner of Odyssey from
April 1988 and, before that time, he served as a principal of Odyssey for
approximately five years. Mr. Friedman is a director of Forstmann & Company,
Inc., The Leslie Fay Companies, Inc., Eagle Food Centers, Inc., Caldor, MICOM
and Black Box.
George J. McNally retired as chief executive officer and president of
Borg-Warner Chemicals, Inc. in November 1988, a position he held from 1984 until
his retirement.
39
<PAGE> 44
William P. O'Connell is currently president of AIM Inc., a privately held
distributor of industrial materials handling equipment, a position he has held
since 1987. He has also acted as president of William P. O'Connell Interests, a
private investment concern, since 1984.
T. William Porter has been a partner of Porter & Hedges, L.L.P., a Houston,
Texas law firm that serves as the Company's principal outside counsel, for more
than 10 years.
Hugh L. Rice is currently senior vice president of FMI Corporation, and in
that capacity, provides services relating to corporate stock valuation, business
planning and mergers and acquisitions. Before becoming senior vice president of
FMI Corporation, he served in various capacities with that company beginning in
1972.
BOARD AND COMMITTEE ACTIVITY, STRUCTURE AND COMPENSATION
During fiscal year 1995, the board of directors convened four regularly
scheduled meetings and six special meetings. Committees of the board held
meetings as follows: (i) audit committee, three meetings and (ii) compensation
committee, three meetings. Messrs. Caltrider, Porter and McNally attended all of
the meetings of the board and of each committee on which they served during the
year. No other director missed more than one meeting of the board or one meeting
of each committee on which such director served during the year.
The Company's operations are managed under the broad supervision and
direction of the board of directors, which has the ultimate responsibility for
the establishment and implementation of the Company's general operating
philosophy, objectives, goals and policies. Pursuant to delegated authority,
certain board functions are discharged by the standing committees of the board.
The compensation committee is responsible for the formulation and adoption of
all executive compensation, benefit and insurance programs, subject to full
board approval where legally required or in those instances where the underlying
benefit philosophy might be at variance with preexisting board policies, and
supervises the administration of all executive compensation and benefit
programs, including the establishment of specific criteria against which all
annual performance based benefits are to be measured. The audit committee
assists the board in assuring that the accounting and reporting practices of the
Company are in accordance with all applicable requirements. See "Other
Information -- Auditors". The board of directors does not presently maintain
executive or nominating committees; stockholders who may wish to suggest
individuals for possible future consideration for board positions should direct
recommendations to the board of directors at the Company's principal offices.
Directors not employed by the Company receive an annual retainer of $15,000
and a fee of $1,000 per meeting. Board members are not separately compensated
for service on board committees. Compensation paid to all non-employee directors
during fiscal 1995 for service in all board capacities aggregated $126,000.
EXECUTIVE OFFICER TENURE AND IDENTIFICATION
The executive officers serve at the pleasure of the board of directors and
are subject to annual appointment by the board at its first meeting following
the annual meeting of stockholders. Certain information concerning those
executive officers of the Company who are not also members of the board of
directors is set forth below:
David J. Connolly, age 50, joined the Company in January 1992 as a vice
president and has primary responsibility for the sales and marketing of the
Company's products. Before joining the Company, he was executive vice president
of Turex, Inc., a privately-held plastics manufacturer, for four years. Mr.
Connolly spent the previous 12 years with Chevron Chemical Company, where he was
most recently a national sales manager for four years.
Roger J. Klatt, age 56, has served as senior vice president, secretary,
treasurer and chief financial officer of the Company since March 1994. During
the four preceding years, Mr. Klatt served as vice president and chief financial
officer of Cabot Oil and Gas.
40
<PAGE> 45
Michael C. Mathieson, age 47, has served in various capacities for the
Company since 1986, and as a vice president of the Company since May 1989. He is
the executive responsible for manufacturing operations.
James T. Steinke, age 48, served as general manger of installation services
for more than five years until his promotion to vice president of the Company in
November 1993. He is the executive with primary responsibility for installation
operations.
Friedrich Struve, age 52, has served as a vice president of the Company
since August 1986. He is the executive with primary responsibility for
engineering and technology.
MANAGEMENT STOCKHOLDINGS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock at March 31, 1995, by (i) all directors
and nominees for director of the Company, (ii) the chief executive officer and
the four other most highly compensated executive officers (collectively, the
"Named Executives") and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME OF PERSON OF OF
OF IDENTITY OF GROUP SHARES(1) CLASS
----------------------------------------------------------------- --------- -------
<S> <C> <C>
Thomas L. Caltrider.............................................. 110,100 1.1%
Steven M. Friedman............................................... 2,071,656(2) 20.3%
George J. McNally................................................ 5,000 *
William P. O'Connell............................................. 10,000 *
T. William Porter................................................ 17,500 *
Hugh L. Rice..................................................... 10,000 *
Brian D. Young................................................... 2,071,656(2) 20.3%
David J. Connolly................................................ 41,000 *
Roger J. Klatt................................................... 45,000 *
Michael C. Mathieson............................................. 58,250 *
Friedrich Struve................................................. 64,551 *
All directors and executive officers as a group (12 persons)..... 2,461,174(3) 24.2%
</TABLE>
- ---------------
* Less than one percent.
(1) Includes shares underlying outstanding stock options as follows: Mr.
Caltrider -- 100,000; Mr. McNally -- 5,000; Mr. O'Connell -- 10,000; Mr.
Porter -- 12,500; Mr. Rice -- 10,000; Mr. Connolly -- 40,000; Mr.
Klatt -- 45,000; Mr. Mathieson -- 58,250; and Mr. Struve -- 58,000.
(2) Messrs. Friedman and Young, as representatives of Odyssey, may be deemed to
beneficially own the shares of Common Stock owned by Odyssey. These shares
include 113,765 shares owned by Mr. Friedman, but as to which Odyssey
retains the voting rights. Each of such persons hereby expressly disclaims
any such beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) which exceeds the proportionate interest in the Common Stock
which he may be deemed to own as a representative of Odyssey.
(3) Includes (without duplication) all shares referred to in notes (1) and (2)
above.
EMPLOYMENT AGREEMENTS
Mr. Caltrider has an employment agreement with the Company pursuant to
which he receives annual base compensation of $225,000 and is eligible for a
bonus if earnings above a minimum threshold level are attained. The employment
agreement expires June 30, 1996, and is cancelable without further compensation
payments before expiration of the three-year term only for cause. Mr. Caltrider
also received a ten year, nonqualified stock option to purchase 100,000 shares
of Common Stock at an exercise price of $6.50 per share, which was the fair
market value of the Common Stock on the day before the date of grant. The option
vests as to one-third of the shares covered on the first, second and third
anniversaries of the date of grant and is
41
<PAGE> 46
exercisable (to the extent vested) following one year from the date of grant.
The terms of Mr. Caltrider's employment agreement will be amended if the Merger
is consummated. See "The Merger and Related Transactions -- Management".
VOTE REQUIRED FOR ELECTION
The seven nominees for election as directors at the Annual Meeting who
receive the greatest number of votes cast for election by the holders of Common
Stock of record shall be the duly elected directors upon completion of the vote
tabulation at the Annual Meeting. Votes will be tabulated by Chemical
Shareholder Services Group, Inc., the transfer agent and registrar for the
Common Stock, and the results will be certified by election inspectors who are
required to resolve impartially any interpretive questions as to the conduct of
the vote.
ADOPTION OF PROPOSED 1995 INCENTIVE STOCK PLAN
DESCRIPTION OF THE PLAN
Since 1986, the Company has used its 1986 Stock Option Plan (the "1986
Plan") as a vehicle to give stock-based compensation to its key personnel. The
1986 Plan currently authorizes the issuance of up to 850,000 shares of Common
Stock to eligible employees, 546,258 shares of which have been issued or are
reserved for issuance pursuant to existing option agreements. Therefore, only
303,742 shares of Common Stock are available for award under the 1986 Plan. The
board of directors believes an increase in the number of shares available for
stock-based employee benefits would be desirable in light of the substantial
increase in personnel which is to occur as a result of the proposed merger with
SLT.
The 1986 Plan limits the flexibility of the board of directors in granting
stock based compensation because the 1986 Plan does not allow participation by
the Company's chief executive officer, allows the issuance of only non-qualified
stock options, and allows little flexibility in establishing vesting schedules
or amending the terms of outstanding awards. If approved by the stockholders,
the 1995 Incentive Stock Plan (the "1995 Plan") would permit the grant of
Incentive Awards (defined below) covering up to 1,250,000 shares of Common
Stock, allow the Company's chief executive officer to participate, permit the
issuance of non-qualified and incentive stock options, restricted stock grants,
phantom stock, stock bonuses and similar stock based benefits, and allow the
board of directors to establish vesting schedules and to amend the terms of
existing awards. Therefore, the board of directors has adopted the 1995 Plan and
has proposed the 1995 Plan for approval by the Company's stockholders.
The 1995 Plan will give the board of directors a sufficient number of
shares of Common Stock to provide a larger number of key employees with
incentive compensation commensurate with their positions and responsibilities,
and will provide the board of directors additional forms of incentive awards to
grant to such employees. The board of directors believes that the 1995 Plan will
allow the Company to continue to emphasize equity-based compensation in
structuring compensation packages for officers and key employees. The board of
directors also believes that an emphasis on equity-based compensation will yield
the greatest benefit for the stockholders, as the employee's compensation is
directly dependent on the return on stockholders' investments.
If the 1995 Plan is adopted, no additional options will be issued under the
1986 Plan and the terms of the 1995 Plan will not apply to awards granted under
the 1986 Plan.
The 1995 Plan provides for the grant of (i) non-qualified stock options,
(ii) incentive stock options, (iii) shares of restricted stock, (iv) shares of
phantom stock and (v) stock bonuses (collectively, "Incentive Awards"). In
addition, the 1995 Plan permits the grant of cash bonuses payable when a
participant is required to recognize income for federal income tax purposes in
connection with the vesting of shares of restricted stock or the grant of a
stock bonus. Key employees, including officers (whether or not they are
directors), of the Company and its subsidiaries will be eligible to participate
in the 1995 Plan.
42
<PAGE> 47
The 1995 Plan will be administered by the compensation committee of the
board of directors. The committee will determine which officers and key
employees are to receive grants of Incentive Awards, the types of Incentive
Awards granted and the number of shares subject to each Incentive Award. The
1995 Plan does not prescribe any specific factors to be considered by the
committee in determining who is to receive Incentive Awards and the amount of
such awards.
Subject to the terms of the 1995 Plan, the committee will also determine
the prices, expiration dates and other material features of the Incentive Awards
granted under the 1995 Plan. The committee may, in its absolute discretion, (i)
accelerate the date on which an option granted under the 1995 Plan becomes
exercisable, (ii) accelerate the date on which a share of restricted stock or
phantom stock vests and waive any conditions imposed by the committee on the
vesting of a share of restricted stock, (iii) grant Incentive Awards to a
participant on the condition that the participant surrender to the Company for
cancellation such other Incentive Awards (including, without limitation,
Incentive Awards with higher exercise prices) as the committee specifies and
(iv) determine the vesting of options, restricted stock and phantom stock upon
the occurrence of a Change in Control (as defined) of the Company.
The committee will have the authority to interpret and construe any
provision of the 1995 Plan and to adopt such rules and regulations for
administering the 1995 Plan as it deems necessary. All decisions and
determinations of the committee are final and binding on all parties. The
Company will indemnify each member of the committee against any cost, expense or
liability arising out of any action, omission or determination relating to the
1995 Plan, unless such action, omission or determination was taken or made in
bad faith and without reasonable belief that it was in the best interests of the
Company.
The board of directors may at any time amend the 1995 Plan in any respect;
provided, that without the approval of the Company's stockholders no amendment
may (i) increase the number of shares of Common Stock that may be subject to
Incentive Awards under the 1995 Plan, (ii) materially increase the benefits
accruing to individuals holding Incentive Awards, or (iii) materially modify the
requirements as to eligibility for participation in the 1995 Plan.
A summary of the most significant features of the Incentive Awards, and the
tax consequences to the recipients and the Company, follows:
Non-Qualified and Incentive Stock Options. Except in certain limited
cases, the exercise price of each incentive stock option ("ISO") granted under
the 1995 Plan is the fair market value (as defined) of a share of Common Stock
on the date on which such ISO is granted. The exercise price of each
non-qualified stock option ("NQO") granted under the 1995 Plan will be
determined by the committee. NQOs and ISOs are referred to herein as "Options."
ISOs may be granted only to employees of the Company. Each ISO and NQO is
exercisable for a period not to exceed five years and ten years, respectively;
provided, however, no Option is exercisable before six months from the date of
grant. For each Option, the Committee will establish (i) the term of each Option
and (ii) the time or period of time in which the Option will vest. The exercise
price shall be paid in cash or, subject to the approval of the committee, in
shares of Common Stock valued at their fair market value on the date of
exercise.
Except in the event of the death or permanent and total disability (as
defined) of an optionee or the termination of the employment of an optionee for
cause (as defined), Options are exercisable only while an optionee is employed
by the Company or within 90 days after such employment has terminated to the
extent that such Options were exercisable on the last day of employment and had
not expired by their terms. In the event of the death or disability of an
optionee, Options are exercisable within one year after such death or permanent
and total disability to the extent that such Options were exercisable on the
last day of employment and had not expired by their terms. In the event of the
termination of the employment of an optionee for cause, all Options held by such
optionee terminate immediately. Options are not transferable other than by will
or by the laws of descent and distribution.
On a Change in Control of the Company (as defined), the committee (as
constituted immediately before such Change in Control) determines, in its
absolute discretion, whether all Options become immediately exercisable, or
whether such Options will vest according to their respective terms. The 1995
Plan defines
43
<PAGE> 48
Change in Control to mean (i) a "change in control" as that term is defined in
the federal securities laws, (ii) the acquisition by any person, after the
effective date of the 1995 Plan, of 20% or more of the shares of voting
securities of the Company (unless the board, as constituted immediately before
such Change in Control, determines otherwise), (iii) certain changes in the
composition of the board of directors as a result of a contested election for
positions on the board of directors or (iv) any other event which the board of
directors determines to constitute a Change in Control.
An optionee will not recognize any income for federal tax purposes at the
time an NQO is granted, nor will the Company be entitled to a deduction at that
time. However, when any part of an NQO is exercised, the optionee will recognize
ordinary income in an amount equal to the difference between the fair market
value of the shares received and the exercise price of the NQO, and the Company
will generally recognize a tax deduction in the same amount.
A participant will not recognize any income at the time an ISO is granted,
nor on a qualified exercise of an ISO. If a participant does not dispose of the
shares acquired by exercise of an ISO within two years after the grant of the
ISO and one year after the exercise of the ISO, the exercise is qualified and
the gain or loss (if any) on a subsequent sale will be a long-term capital gain
or loss. Such gain or loss will be equal to the difference between the sales
proceeds and the exercise price for the stock sold. The Company is not entitled
to a tax deduction as the result of the grant or qualified exercise of an ISO.
However, if shares acquired upon the exercise of an ISO are disposed of before
the one-year and two-year holding periods, the exercise is not qualified and
special rules apply that require the participant to recognize ordinary income at
the time of the disposition to the extent the fair market value of the shares at
the time of exercise exceeds the exercise price (or the gain on sale, if less).
The remainder of any gain or disposition would be treated as a capital gain. The
Company is generally entitled to a deduction at the same time and in the same
amount as the ordinary income recognized by the participant from such
disposition.
Although the qualified exercise of an ISO will not produce ordinary taxable
income to the participant, it will produce an increase in the participant's
alternative minimum taxable income and may result in an alternative minimum tax
liability.
Restricted Stock. A grant of shares of restricted stock represents the
promise of the Company to issue shares of Common Stock of the Company on a
predetermined date (the "Issue Date") to a participant, provided the participant
is continuously employed by the Company until the Issue Date. Vesting of the
shares occurs on a second predetermined date (the "Vesting Date"), if the
participant has been continuously employed by the Company until that date.
Before the Vesting Date, the shares are not transferable by the participant and
are subject to a substantial risk of forfeiture. The committee may, at the time
shares of restricted stock are granted, impose additional conditions to the
vesting of the shares, such as, for example, the achievement of specified
performance goals. Vesting of some portion, or all, of the shares of restricted
stock may occur on the termination of the employment of a participant, other
than for cause, before the Vesting Date. If vesting does not occur, shares of
restricted stock are forfeited.
On the occurrence of a Change in Control, the committee (as constituted
immediately before such Change in Control) determines, in its absolute
discretion, whether all shares of restricted stock which have not vested or been
forfeited will immediately vest, or whether such shares will continue to vest
according to their respective terms.
A participant will not recognize any income for federal tax purposes at the
time shares of restricted stock are granted or issued, nor will the Company be
entitled to a tax deduction at that time. However, when either the transfer
restriction or the forfeiture risk lapses, such as on vesting, the participant
will recognize ordinary income in an amount equal to the fair market value of
the shares of restricted stock on the date on which they vest. A participant may
file an appropriate election under Section 83(b) of the Code with the IRS within
30 days of the Issue Date of the restricted stock (the "Election"), which
results in the participant's receipt of deemed ordinary income in an amount
equal to the fair market value of the shares of restricted stock on the date on
which they are issued. However, if a participant files an Election and the
restricted stock is subsequently forfeited, such participant is not allowed a
tax deduction for the amount previously reported as ordinary income due to the
Election.
44
<PAGE> 49
Gain or loss (if any) from a disposition of restricted stock after the
participant recognizes any ordinary income (whether by vesting or an Election)
will generally constitute short or long-term capital gain or loss. The Company
will generally be entitled to a tax deduction at the time the participant
recognizes ordinary income on the restricted stock, whether by vesting or an
Election.
Phantom Stock. A share of phantom stock represents the right to receive
the economic equivalent of a grant of restricted stock. Shares of phantom stock
are subject to the same vesting requirements as are shares of restricted stock.
On vesting of a share of phantom stock, the holder is entitled to receive cash
in an amount equal to the sum of (i) the fair market value of a share of Common
Stock as determined on the vesting date and (ii) the aggregate amount of cash
dividends paid in respect of a share of Common Stock during the period
commencing on the date of grant and ending on the vesting date. The cash payment
for phantom stock is treated the same as a cash bonus for federal income tax
purposes and generally creates a deduction to the Company when paid. The
committee may not grant any cash bonus in connection with the grant of shares of
phantom stock.
On the occurrence of a Change in Control, the committee (as constituted
immediately before such Change in Control) determines, in its absolute
discretion, whether shares of phantom stock which have not vested will
immediately vest or whether such shares will continue to vest according to their
respective terms.
Stock and Cash Bonuses. Bonuses payable in stock may be granted by the
committee and may be payable at such times and subject to such conditions as the
committee determines. On the receipt of a stock bonus, a participant will
recognize ordinary income for federal tax purposes in an amount equal to the
fair market value of the stock at the time it is received. The committee may
grant, in connection with a grant of shares of restricted stock, a cash "tax"
bonus, payable when an employee is required to recognize income for federal
income tax purposes with respect to such shares. The tax bonus may not be
greater than the value of the shares of restricted stock at the time the income
is required to be recognized. Any such bonus will result in ordinary income to
the employee and generally a deduction to the Company. The grant of a cash bonus
will not reduce the number of shares of Common Stock with respect to which
Options, shares of restricted stock, shares of phantom stock or stock bonuses
may be granted pursuant to the 1995 Plan.
General. If any outstanding Option expires, terminates or is canceled for
any reason, the shares of Common Stock subject to the unexercised portion of
such Option will again be available for grant under the 1995 Plan. If any shares
of restricted stock or any shares of Common Stock granted as a stock bonus are
forfeited or canceled for any reason, such shares will again be available for
grant under the 1995 Plan. Shares of Common Stock issued as a stock bonus or on
the exercise of Options or on the vesting of a grant of restricted stock are not
available for future issuance under the 1995 Plan.
The 1995 Plan provides for an adjustment in the number of shares of Common
Stock available to be issued under the 1995 Plan, the number of shares subject
to Incentive Awards, and the exercise prices of Options on a change in the
capitalization of the Company, a stock dividend or split, a merger or
combination of shares and certain other similar events. The 1995 Plan also
provides for the termination of Incentive Awards on the occurrence of certain
corporate events.
The 1995 Plan provides that participants may elect to satisfy certain
federal income tax withholding requirements by remitting cash to the Company. In
addition, the 1995 Plan provides that, at the election of a participant, an
unrelated broker-dealer acting on behalf of the participant may exercise Options
granted to the participant and immediately sell the shares acquired on account
of the exercise to raise funds to pay the exercise price of the Option and the
amount of any withholding tax which may be due on account of the exercise.
VOTE REQUIRED FOR APPROVAL
Approval of the 1995 Plan requires the affirmative vote of a majority of
votes cast, provided a majority of the outstanding shares of Common Stock as of
the record date are present in person or by proxy at the Annual Meeting. The
board of directors recommends a vote "FOR" the approval of the 1995 Plan.
45
<PAGE> 50
OTHER INFORMATION
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock at March 31, 1995, by each stockholder
who is known by the Company to own beneficially more than 5% of the outstanding
Common Stock.
<TABLE>
<CAPTION>
NAME OF PERSON NUMBER OF PERCENT OF
OR IDENTITY OF GROUP SHARES CLASS
--------------------- ---------- ----------
<S> <C> <C>
Odyssey Partners, L.P.(1)
31 West 52nd Street
New York, New York 10019..................................... 2,071,656 20.3%
The TCW Group, Inc.
865 South Figueroa Street
Los Angeles, California 90017................................ 656,000 6.4%
Grace & White, Inc.
515 Madison Avenue, Suite 1700
New York, New York 10022..................................... 651,606 6.4%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401............................... 593,212 5.8%
</TABLE>
- ---------------
(1) Leon Levy, Jack Nash, Joshua Nash and Stephen Berger, by virtue of being
general partners of Odyssey, share voting and dispositive power with respect
to the Common Stock owned by Odyssey and, accordingly, may each be deemed to
own beneficially the Common Stock owned by Odyssey. Each of the aforesaid
persons has expressly disclaimed any such beneficial ownership (within the
meaning of Exchange Act Rule 13d-3(d)(1)) which exceeds the proportionate
interest in the Common Stock which he may be deemed to own as a general
partner of Odyssey. The address of each of the general partners of Odyssey
is the address of Odyssey.
EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to the
Company for the three years ended March 31, 1995, 1994 and 1993 of the Company's
chief executive officer and the Named Executives.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
STOCK
OPTION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (SHARES)
- --------------------------- ---- -------- ------- ------------
<S> <C> <C> <C> <C>
Thomas L. Caltrider(1)................................ 1995 $235,700 -- --
President and chief executive officer 1994 $172,950 $75,000 100,000
1993 -- -- --
Roger J. Klatt(2)..................................... 1995 $167,300 $20,000 10,000
Senior vice president and chief financial officer 1994 $ 20,600 $ 7,500 35,000
1993 -- -- --
Friedrich Struve...................................... 1995 $163,000 -- 10,000
Vice president 1994 $154,800 $23,400 5,000
1993 $151,800 $20,300 --
David J. Connolly..................................... 1995 $163,600 -- 10,000
Vice president 1994 $155,100 $23,400 5,000
1993 $149,800 $20,300 --
Michael C. Mathieson.................................. 1995 $142,900 -- 10,000
Vice president 1994 $127,000 $23,400 5,000
1993 $115,900 $20,300 --
</TABLE>
- ---------------
(1) Began employment in July 1993.
(2) Began employment in March 1994. Mr. Klatt received a pre-negotiated bonus in
1995 and 1994.
46
<PAGE> 51
OPTION GRANTS
The following table sets forth certain information with respect to stock
options granted to the chief executive officer and the Named Executives during
the fiscal year ended March 31, 1995. All options were granted under the
Company's 1986 Stock Option Plan.
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
PERCENTAGE OF ANNUAL RATES OF STOCK
TOTAL OPTIONS EXERCISE PRICE APPRECIATION
GRANTED TO OR BASE FOR OPTION TERM(3)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ---------------------
NAME GRANTED FOR 1995 SHARE(1) DATE(2) 5% 10%
- ---------------------------------- ------- ------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. Caltrider............... -- 0% N/A N/A N/A N/A
Roger J. Klatt.................... 10,000 14.2% $5.25 11/9/04 $33,000 $83,700
Friedrich Struve.................. 10,000 14.2% $5.25 11/9/04 $33,000 $83,700
David J. Connolly................. 10,000 14.2% $5.25 11/9/04 $33,000 $83,700
Michael C. Mathieson.............. 10,000 14.2% $5.25 11/9/04 $33,000 $83,700
</TABLE>
- ---------------
(1) All options were granted at an exercise price equal to the closing price of
the Common Stock on the American Stock Exchange on the day before the grant.
(2) The options expire ten years after the date of grant. The options vest as to
one-third of the shares covered on the third, fourth and fifth anniversaries
of the date of grant. If before exercise or expiration of an option a
"change of control" occurs, the entire option generally becomes exercisable,
and the optionee is permitted to surrender an option for cancellation and
receive cash equal to the excess, if any, of the then fair market value of
the shares subject to the option over its exercise price.
(3) As permitted by applicable rules of the Commission, potential values stated
are based upon the hypothesis that the Company's Common Stock will
appreciate in value from the date of grant to the end of the option term at
the stated annualized rates (total appreciation of 63% and 159%,
respectively); such assumed rates of appreciation and potential realizable
values are not necessarily indicative of the appreciation, if any, which may
be realized in future periods.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to the unexercised
options to purchase shares of Common Stock for the chief executive officer and
each of the Named Executives and held by them at March 31, 1995. None of the
Named Executives exercised any stock options during fiscal 1995.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED,
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS HELD AT YEAR END OPTIONS AT YEAR END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas L. Caltrider.............................. 33,333 66,667 -- --
Roger J. Klatt................................... 7,000 38,000 -- $ 6,300
Friedrich Struve................................. 31,667 26,333 $15,000 $21,300
David J. Connolly................................ 8,332 31,688 -- $ 6,300
Michael C. Mathieson............................. 31,917 26,333 $ 8,600 $14,900
</TABLE>
- ---------------
(1) Represents the difference between the closing price for the Common Stock on
the American Stock Exchange on March 31, 1995 ($5 7/8 per share), and any
lesser exercise price.
COMPENSATION COMMITTEE REPORT
The compensation committee of the board of directors has furnished the
following report on executive compensation for fiscal 1995:
Under the supervision of the compensation committee, the Company has sought
to maintain and enhance its profitability, and thus the value of its Common
Stock, by relating executive compensation and stock-based
47
<PAGE> 52
benefits to the Company's financial performance. In general, executive financial
rewards may be segregated into the following significant components: base
compensation, bonus, and stock option and other benefit plans.
Base compensation for senior executives (including the chief executive
officer and the other Named Executives) is intended to be competitive with that
paid in comparably situated industries, with a reasonable degree of financial
security and flexibility afforded to those individuals who are regarded by the
board of directors as acceptably discharging the levels and types of
responsibility implicit in the various senior executive positions. In the course
of considering annual executive salary increases, appropriate consideration is
given to the credentials, age and experience of the individual senior
executives, as viewed in the compensation committee's collective best judgment,
which necessarily involves subjective as well as objective elements. Should the
committee be persuaded that an executive has not met expectations for a
protracted period, a recommendation to the board of directors that the executive
be terminated would be a more likely eventuality than a reduction in his base
compensation. Using the criteria set forth above, no general pay increase for
executive officers was authorized during fiscal 1995, nor was any raise
authorized for the chief executive officer during fiscal 1995, inasmuch as his
$225,000 base compensation is covered by an employment agreement expiring in
June 1996.
Annual bonuses reflect a policy of requiring a minimum level of Company
financial performance for the year before any bonuses are earned by senior
executives, with bonuses for achieving higher levels of performance directly
related to the level achieved. In setting such performance criteria, the
committee considers the total compensation payable or potentially available to
the Named Executives and other senior executives. While the development of any
business necessarily involves factors other than profitability, the emphasis of
the committee in recent years (with board concurrence) has been on encouraging
management to maintain the Company's profitability. Although this program was
unchanged from that employed for more than five years, the program was changed
beginning in fiscal year 1995 for all senior executives (including the chief
executive officer) to require the achievement of a "threshold" level of
profitability before any bonuses can be earned for fiscal 1995 and subsequent
years. No bonuses were paid in fiscal year 1995 because the threshold level of
profitability was not achieved for that year.
The board of directors is of the view that if properly designed and
administered, stock-based incentives for senior executives closely align the
executives' economic interests with those of stockholders and provide a direct
and continuing focus upon the goal of increasing long-term stockholder value.
For several years, the Company sought to encourage such value building for
stockholders through the infrequent award of large stock options; however, this
program was abandoned in fiscal 1995 and replaced with a new program under which
it is intended that senior executives are to be the recipients of annual option
grants. Although it was originally intended that such grants would involve a
number of shares sufficient to result in a pre-tax profit to each senior
executive equal to his grant-year base pay if the market price for the Company's
Common Stock were to double during the five-year life of the option, the
compensation committee ultimately concluded that the number of shares required
to fund such a program could not be justified at recently prevailing prices for
the Common Stock. The committee ultimately determined to grant options covering
10,000 shares to each senior executive during fiscal 1995 (other than the chief
executive officer, who had received a 100,000 share option during the preceding
year) at an exercise price of $5.25 per share, the then market price for the
Common Stock. The committee intends that this program be continued for fiscal
1996 or modified or abandoned, as warranted by general economic conditions and
the Company's performance through the summer, when option grants are routinely
considered in each year.
The compensation committee intends, with any necessary concurrence of the
board of directors, to continue to consider alternate forms of stock-based
incentives with a view to affording the maximum possible long-term performance
based benefits to senior executives at the least possible cost and the greatest
attainable economic efficiency to the Company, with such benefits designed as
nearly as practicable to directly align the economic interests of professional
managers with those of the Company's stockholders. In that regard, the board of
directors has approved the Company's 1995 Incentive Stock Plan, and has proposed
such plan for approval by the Company's stockholders at the 1995 Annual Meeting.
48
<PAGE> 53
Pursuant to applicable rules of the Commission, non-management members of
the compensation committee of the board are deemed to own beneficially (without
duplication for any "shared" ownership) an aggregate of 2,099,156 shares, or
20.6%, of the Company's outstanding Common Stock.
The Company also maintains a voluntary 401(k) employee retirement plan
under which employees may contribute up to 15% of their pre-tax compensation to
the plan. A graduated percentage of each participant's contribution is matched
by the Company, based upon the employee's years of service to the Company. The
only variances in annual credits to individual employee accounts are
attributable to employees' individual contributions and years of service with
the Company.
THE COMPENSATION COMMITTEE
T. William Porter, Chairman
Hugh L. Rice
Brian D. Young
COMMON STOCK PERFORMANCE GRAPH
The following graph illustrates the yearly percentage change in the
cumulative total shareholder return on the Company's Common Stock, compared with
the cumulative total return on (i) the Standard & Poor's 500 Stock Index and
(ii) the Smith Barney Solid Waste Pollution Control Index (the "Smith Barney
Index"), for the five years ended March 31, 1995:
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Measurement Period Smith Barney S&P 500 Stock
(Fiscal Year Covered) Gundle Index Index
<S> <C> <C> <C>
3/31/90 100.00 100.00 100.00
3/31/91 128.16 108.26 114.36
3/31/92 136.89 97.10 126.94
3/31/93 61.17 90.23 146.22
3/31/94 50.49 71.30 148.38
3/31/95 45.68 88.98 171.43
</TABLE>
In all cases, the cumulative total return assumes, as contemplated by the
Commission's rules, that any cash dividends on the Common Stock of each entity
included in the data presented above were reinvested in that security.
AUDITORS
Arthur Andersen LLP ("Arthur Andersen"), a certified public accounting
firm, has served as the independent auditor of the Company for several years. No
formal action is proposed to be taken at the Annual Meeting with respect to the
continued employment of Arthur Andersen inasmuch as no such action is legally
49
<PAGE> 54
required. Representatives of Arthur Andersen plan to attend the Annual Meeting
and will be available to answer appropriate questions. Its representatives also
will have an opportunity to make a statement at the meeting if they so desire,
although it is not expected that any statement will be made.
The audit committee of the board of directors assists the board in assuring
that the accounting and reporting practices of the Company are in accordance
with all applicable requirements. The committee reviews with the auditors the
scope of the proposed audit work and meets with the auditors to discuss matters
pertaining to the audit and any other matter which the committee or the auditors
may wish to discuss. In addition, the audit committee would recommend the
appointment of new auditors to the board of directors if future circumstances
were to indicate that such action is desirable.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes of
ownership with the Commission. Executive officers, directors and greater than
10% stockholders are required to furnish the Company with copies of all Section
16(a) reports they file.
Based solely on its review of the forms received by it, the Company
believes that during the year ended March 31, 1995 all filing requirements
applicable to the Company's executive officers, directors and greater than 10%
stockholders were met.
MISCELLANEOUS MATTERS
Any stockholder who wishes to submit a proposal for action to be included
in the proxy statement and form of proxy relating to the Company's 1996 annual
meeting of stockholders is required to submit such proposal to the Company on or
before February 9, 1996. The Company has engaged Morrow & Co. to solicit proxies
with an anticipated cost of $5,000. The cost of soliciting proxies in the
accompanying form will be borne by the Company. In addition to solicitations by
mail, several regular employees of the Company may, if necessary to assure the
presence of a quorum, solicit proxies in person or by telephone. The persons
designated as to proxies to vote shares at the meeting intend to exercise their
judgment in voting such shares on other matters that may properly come before
the meeting. Management does not expect that any matters other than those
referred to in this proxy statement will be presented for action at the meeting.
By Order of the Board of Directors
/s/ ROGER J. KLATT
ROGER J. KLATT,
Secretary
June 27, 1995
50
<PAGE> 55
INDEX
SLT ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors................................. F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets -- March 31, 1995 (unaudited),
December 31, 1994 and 1993................................... F-2
Consolidated Statements of Operations -- Three Months Ended
March 31, 1995 (unaudited) and 1994 (unaudited) and Years
Ended December 31, 1994, 1993 and 1992....................... F-3
Consolidated Statements of Changes in Stockholder's
Equity -- Three Months Ended March 31, 1995 (unaudited) and
Years Ended December 31, 1994, 1993 and 1992................. F-4
Consolidated Statements of Cash Flows -- Three Months Ended
March 31, 1994 (unaudited) and 1995 (unaudited) and Years
Ended December 31, 1994, 1993 and 1992....................... F-5
Notes to Consolidated Financial Statements..................... F-6
</TABLE>
F-i
<PAGE> 56
REPORT OF INDEPENDENT AUDITORS
SLT Environmental, Inc.
We have audited the accompanying consolidated balance sheets of SLT
Environmental, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, changes in stockholder's equity,
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 SLT
Environmental, Inc. and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
March 14, 1995
F-1
<PAGE> 57
SLT ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------
1995 1994 1993
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 2,433,598 $ 1,876,153 $ 835,114
Accounts receivable (Notes 2 and 5)................. 32,540,567 33,664,107 20,439,146
Contracts in progress (Note 3)...................... 4,896,622 4,264,300 3,209,243
Inventories (Note 5):
Finished goods and supplies...................... 9,223,366 7,295,267 7,463,646
Raw materials.................................... 4,771,966 2,831,882 1,894,221
Prepaid expenses.................................... 666,253 594,625 721,317
Deferred income taxes (Note 7)...................... 445,617 445,617 --
----------- ----------- ------------
Total current assets........................ 54,977,989 50,971,951 34,562,687
Property, plant, and equipment (Note 5):
Land................................................ 1,121,028 1,167,583 1,124,285
Buildings and improvements.......................... 1,863,308 2,261,743 2,261,752
Machinery and equipment............................. 26,722,217 25,409,751 18,372,206
Furniture and fixtures.............................. 962,356 1,055,459 892,233
Construction in progress............................ 7,055,745 5,610,276 6,215,052
----------- ----------- ------------
37,724,654 35,504,812 28,865,528
Less accumulated depreciation....................... 13,376,524 12,168,936 9,977,004
----------- ----------- ------------
24,348,130 23,335,876 18,888,524
Goodwill, less accumulated amortization of $2,225,247
at March 31, 1995, $2,187,621 in 1994 and $2,005,013
in 1993............................................. 4,903,791 4,744,201 4,679,691
Other assets (Note 4)................................. 958,020 973,137 1,172,290
Deferred income taxes (Note 7)........................ 1,002,403 911,478 1,352,947
----------- ----------- ------------
Total assets................................ $86,190,333 $80,936,643 $ 60,656,139
=========== =========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable (Note 5).............................. $12,216,033 $10,208,403 $ 9,712,111
Accounts payable.................................... 11,477,454 10,151,813 7,333,673
Accrued expenses.................................... 8,806,288 7,382,244 6,319,442
Advance billings on contracts (Note 3).............. 698,162 446,204 519,312
Notes payable to stockholder (Note 5)............... 2,321,139 2,258,100 --
Current portion of long-term debt (Note 5).......... 2,542,299 2,044,340 5,660,608
Income taxes payable................................ 882,680 910,764 326,320
Deferred income taxes (Note 7)...................... 774,165 1,527,280 1,784,258
----------- ----------- ------------
Total current liabilities................... 39,718,220 34,929,148 31,655,724
Long-term debt (Note 5)............................... 19,370,680 19,914,716 17,608,130
Deferred income taxes (Note 7)........................ 149,426 417,271 112,395
Accrued pension expenses (Note 9)..................... 1,177,745 1,041,073 867,846
Accrued warranty and other liabilities................ 750,000 750,000 350,000
Commitments and contingencies (Notes 6 and 8)
Stockholder's equity:
Common stock, $1 par value, 100 shares issued and
outstanding...................................... 100 100 100
Additional paid-in capital.......................... 27,521,408 27,521,408 19,790,208
Accumulated deficit................................. (6,064,055) (5,614,583) (10,216,281)
Cumulative foreign currency translation
adjustments...................................... 3,566,809 1,977,510 488,017
----------- ----------- ------------
Total stockholder's equity.................. 25,024,262 23,884,435 10,062,044
----------- ----------- ------------
Total liabilities and stockholder's
equity.................................... $86,190,333 $80,936,643 $ 60,656,139
=========== =========== ============
</TABLE>
See accompanying notes.
F-2
<PAGE> 58
SLT ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------
1995 1994 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales................... 21,346,993 9,698,132 90,813,136 72,005,115 71,598,312
Cost of sales............... 17,008,264 7,958,272 70,345,957 59,818,839 57,220,188
Gross profit................ 4,338,729 1,739,860 20,467,179 12,186,276 14,378,124
Selling, general and
administrative............ 3,721,588 2,946,655 12,794,900 11,976,849 11,193,052
Amortization of goodwill.... 37,626 35,080 182,608 123,239 121,436
Loss on anticipated disposal
of facility............... 398,435 -- -- -- --
Merger costs................ 245,893 -- 49,167 -- --
---------- ---------- ---------- ---------- ----------
Operating income (loss)..... (64,813) (1,241,875) 7,440,504 86,188 3,063,636
Other (income) expense:
Interest expense.......... 687,436 648,919 2,454,171 2,666,474 2,091,083
Foreign exchange loss
(gain)................. 183,070 (69,320) 188,057 152,927 (21,249)
Gain on sale/retirement
of assets.............. -- -- (562,758) (89,231) (47,311)
Other (income) expense.... 84,160 (157,594) (184,208) 13,479 (210,477)
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes..................... (1,019,479) (1,663,880) 5,545,242 (2,657,461) 1,251,590
Income tax expense (benefit)
(Note 7).................. (570,007) (811,934) 943,544 (2,620,585) 154,072
---------- ---------- ---------- ---------- ----------
Net income (loss)........... $ (449,472) $ (851,946) $4,601,698 $ (36,876) $1,097,518
========== ========== ========== ========== ==========
Net income (loss) per common
share..................... $ (4,495) $ (8,519) $ 46,017 $ (369) $ 10,975
========== ========== ========== ========== ==========
Shares used to compute net
income (loss) per share... 100 100 100 100 100
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 59
SLT ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL EXCHANGE
COMMON PAID-IN TRANSLATION ACCUMULATED
STOCK CAPITAL ADJUSTMENTS DEFICIT TOTAL
------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1992...... $100 $19,790,208 $ 865,264 $(11,276,923) $ 9,378,649
Net income.................... -- -- -- 1,097,518 1,097,518
Unrealized translation loss... -- -- (255,094) -- (255,094
---- ----------- ---------- ------------ -----------
Balance at December 31, 1992.... 100 19,790,208 610,170 (10,179,405) 10,221,073
Net loss...................... -- -- -- (36,876) (36,876)
Unrealized translation loss... -- -- (122,153) -- (122,153)
---- ----------- ---------- ------------ -----------
Balance at December 31, 1993.... 100 19,790,208 488,017 (10,216,281) 10,062,044
Net income.................... -- -- -- 4,601,698 4,601,698
Capital contributions......... -- 7,731,200 -- -- 7,731,200
Unrealized translation gain... -- -- 1,489,493 -- 1,489,493
---- ----------- ---------- ------------ -----------
Balance at December 31, 1994.... 100 27,521,408 1,977,510 (5,614,583) 23,884,435
Net income (unaudited)........ -- -- -- (449,472) (449,472)
Unrealized translation gain
(unaudited)................ -- -- 1,589,299 -- 1,589,299
---- ----------- ---------- ------------ -----------
Balance at March 31, 1995
(unaudited)................... $100 $27,521,408 $3,566,809 $ (6,064,055) $25,024,262
==== =========== ========== ============ ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 60
SLT ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ------------------------------------------
1995 1994 1994 1993 1992
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............. $ (449,472) $ (851,946) $4,601,698 $ (36,876) $ 1,097,518
Adjustments to reconcile net
income (loss) to net cash
used in operating activities:
Depreciation and
amortization.............. 834,363 822,786 3,539,428 3,060,366 2,701,001
Provision (benefit) for
deferred income taxes..... (1,111,885) 7,949 91,263 (3,053,224) (320,663)
Loss on anticipated disposal
of facility............... 398,435 -- -- -- --
Gain on sale of assets....... -- -- (562,758) (89,231) (47,311)
Changes in operating assets
and liabilities:
Accounts receivable....... 2,539,220 4,614,464 (9,944,067) 692,877 (5,988,357)
Contracts in progress..... (411,606) (1,678,461) (864,947) (1,238,180) (157,083)
Inventory................. (3,405,708) (3,485,292) (271,544) 9,468 (2,613,454)
Prepaid expenses.......... (71,373) (96,175) 127,438 (438,097) (199,853)
Other assets.............. 33,997 (16,110) 23,326 (70,222) 1,701,815
Accounts payable.......... 1,129,003 (893,161) 984,703 583,935 2,854,988
Accrued expenses.......... 967,448 (1,186,459) 1,043,753 1,710,652 1,028,466
Advance billings on
contracts............... 230,197 1,116,639 (96,123) (1,057,417) 774,586
Income taxes payable...... (28,084) (865,800) 568,978 (378,368) 205,139
---------- ---------- ---------- ----------- -----------
Net cash provided by (used in)
operating activities......... 654,535 (2,511,566) (758,852) (304,317) 1,036,792
INVESTING ACTIVITIES
Capital expenditures........... (1,161,079) (796,011) (6,265,788) (5,057,396) (8,094,057)
Proceeds from sale of
equipment.................... -- -- 624,522 98,264 222,180
---------- ---------- ---------- ----------- -----------
Net cash used in investing
activities................... (1,161,079) (796,011) (5,641,266) (4,959,132) (7,871,877)
FINANCING ACTIVITIES
Principal payments under debt
agreements................... (2,141,281) (225,524) (7,675,389) (10,874,804) (20,670,252)
Proceeds from debt issuance.... 2,984,182 797,379 7,712,453 14,815,849 23,254,919
Subsidies received from
governmental agencies........ -- -- -- 1,084,742 1,820,378
Capital contribution........... -- 1,175,641 7,761,200 225,600 --
---------- ---------- ---------- ----------- -----------
Net cash provided by financing
activities................... 842,901 1,747,496 7,798,264 5,251,387 4,405,045
Effect of exchange rate changes
on cash...................... 221,088 130,676 (357,107) (150,293) (16,821)
---------- ---------- ---------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents......... 557,445 (1,429,405) 1,041,039 (162,355) (2,446,861)
Cash and cash equivalents at
beginning of year............ 1,876,153 835,114 835,114 997,469 3,444,330
---------- ---------- ---------- ----------- -----------
Cash and cash equivalents at
end of year.................. $2,433,598 $ (594,291) $1,876,153 $ 835,114 $ 997,469
========== ========== ========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 61
SLT ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND DECEMBER 31, 1994
(INFORMATION PERTAINING TO THE THREE MONTHS ENDING MARCH 31, 1995 AND 1994 IS
UNAUDITED)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
SLT Environmental, Inc. (the "Company"), and its wholly owned subsidiaries, SLT
North America, Inc. and SLT Lining Technology GmbH. All significant intercompany
accounts and transactions have been eliminated in consolidation.
BUSINESS
The Company, a wholly owned subsidiary of Wembley, Ltd., manufactures and
sells a synthetic liner (the "product") which is installed in certain storage
facilities to prevent leakage and ground water contamination. Generally, the
Company sells the product under fixed-price contracts which include the related
installation.
SLT North America, Inc., manufactures and installs the Company's product
throughout North America and, through its wholly owned subsidiaries, Lining
Technology (Far East) Pte. Ltd. and Advanced Lining Technology Pty. Ltd.,
distributes and installs the product throughout the Far East and Australia,
respectively. SLT Lining Technology GmbH manufactures and installs the product
throughout Europe and the Middle East.
ACCOUNTING FOR CONTRACTS
The Company enters into fixed-price contracts related to the sale and
installation of the product. For contracts in excess of $50,000, the Company
recognizes revenue using the percentage-of-completion method, measured by the
cost-to-cost method. For contracts with a contract price less than $50,000,
generally short-term contracts, the Company uses the completed-contract method
of accounting.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as depreciation and
indirect labor. Selling, general, and administrative costs are charged to
expense as incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined.
The Company routinely bids fixed-price contracts which are denominated in
currencies different than the functional currency of the applicable subsidiary
performing the work. Losses in 1994 and 1993 were not significant. Losses
totaling $681,751 and $1.1 million are included in cost of goods sold for three
months ended March 31, 1995 and the year ended December 31, 1992.
CASH EQUIVALENTS
Cash equivalents consist of investments in highly liquid debt instruments
with maturities of less than three months. These investments are valued at cost,
which approximates market.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost, which includes
material, labor, and overhead, is determined by the first-in, first-out method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Cost of additions, major
renewals, and improvements are capitalized, whereas maintenance and repairs
which do not improve or extend the life of the asset are charged to expense as
incurred. Interest costs incurred in construction of assets are capitalized and
depreciated
F-6
<PAGE> 62
SLT ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
over the useful lives of the assets. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
TRADEMARKS
Trademarks relate to the manufacturing and installation of the product. The
trademarks are being amortized over their useful lives of 13 years using the
straight-line method.
GOODWILL
The excess of the acquisition cost over the fair value of net assets
acquired is being amortized on a straight-line basis over 40 years.
DEFERRED FINANCING COSTS
Debt issuance costs are amortized using the straight-line method over the
term of the related debt.
WARRANTY COSTS
The Company warrants products sold and installed for various periods,
ranging from 1 to 20 years. Provision for warranty costs are made based on the
Company's experience of the amount of claims actually made.
INCOME TAXES
Effective January 1, 1993, to comply with the issuance in February 1992 of
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes," the Company changed its method of accounting for income taxes. Under
Statement 109, the liability method is used in accounting for income taxes.
Prior to the adoption of Statement 109, income tax expense was determined using
the liability method prescribed by Statement 96, which was superseded by
Statement 109. Among other changes, Statement 109 changes the recognition and
measurement criteria for deferred tax assets included in Statement 96. This
change in accounting method had no effect on the Company's accounting for income
taxes in 1993. As permitted by the Statement, prior year financial statements
have not been restated to reflect this change in accounting method.
FOREIGN CURRENCY TRANSLATION
Balances related to operations outside of the United States are translated
into United States dollars using the exchange rate at year-end (for the balance
sheet, except equity), the average exchange rate for the period (for the income
statement and statement of cash flows), and historic exchange rates (for equity
accounts).
EARNING (LOSS) PER SHARE
Earnings (loss) per share is calculated based on the common shares
outstanding for each year.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The accompanying financial information as of March 31, 1995 and for the
three months ended March 31, 1995 and 1994 are unaudited and, in the opinion of
management, reflect all adjustments that are necessary for a fair presentation
of financial position as of such dates and results of operations and cash flows
for the periods then ended. All such adjustments are of a normal and recurring
nature, except for an accrual for the loss from the anticipated disposal of the
Company's facility located in Conroe, Texas. The disposal of the Conroe facility
will be the final step in consolidating the Company's manufacturing and
administrative facilities at the West
F-7
<PAGE> 63
SLT ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Hardy location in Houston, Texas. In May 1995, the Company entered into a
contract with a commercial real estate broker to list and sell the Conroe, Texas
facility. In the first quarter of calendar 1995, the Company wrote down the
value of the facility by $398,435 to its expected net realizable value.
RECLASSIFICATIONS
Certain balances from 1993 and 1992 have been reclassified to be consistent
with 1994 classifications.
2. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 -------------------------
1995 1994 1993
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Trade receivables................. $32,190,097 $34,020,076 $20,291,863
Retainage......................... 343,211 164,859 420,054
Other............................. 1,318,193 897,870 681,303
----------- ----------- -----------
33,851,501 35,082,805 21,393,220
Less allowance for doubtful
accounts........................ 1,310,934 1,418,698 954,074
----------- ----------- -----------
$32,540,567 $33,664,107 $20,439,146
=========== =========== ===========
</TABLE>
3. ACCOUNTING FOR INSTALLATION CONTRACTS
The following summarizes installation contracts in progress:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 -------------------------
1995 1994 1993
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Costs incurred on contracts in
progress........................ $19,700,288 $17,485,651 $19,904,459
Estimated earnings, net of
losses.......................... 5,512,008 4,340,003 3,772,192
----------- ----------- -----------
25,212,296 21,825,654 23,676,651
Less applicable billings.......... 21,013,836 18,007,558 20,986,720
----------- ----------- -----------
$ 4,198,460 $ 3,818,096 $ 2,689,931
=========== =========== ===========
</TABLE>
This amount is included in the accompanying consolidated balance sheets as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 -------------------------
1995 1994 1993
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Contracts in progress............. $4,896,622 $4,264,300 $3,209,243
Advance billings on contracts..... (698,162) (446,204) (519,312)
---------- ---------- ----------
$4,198,460 $3,818,096 $2,689,931
========== ========== ==========
</TABLE>
F-8
<PAGE> 64
4. OTHER ASSETS
Other assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 -----------------------
1995 1994 1993
-------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Deposit................................... $130,224 $175,447 $ 250,000
Trademarks, less accumulated amortization
of $400,844 at March 31, 1995, $382,404
at December 31, 1994 and $284,755 at
December 31, 1993....................... 427,711 446,151 455,614
Deferred financing costs, less accumulated
amortization of $395,560 at March 31,
1995, $370,124 at December 31, 1994 and
$219,977 at December 31, 1993........... 273,669 299,105 317,481
Other..................................... 126,416 52,434 149,195
-------- -------- ----------
$958,020 $973,137 $1,172,290
======== ======== ==========
</TABLE>
5. DEBT
The notes payable to stockholder consist of two notes payable to the
Company's parent company, Wembley, Ltd. The notes are payable on demand and are
non-interest bearing. One note is in the amount of $1,650,000 at March 31, 1995
and December 31, 1995 and the other note is in the amount of $671,139 at March
31, 1995 and $608,100 at December 31, 1994 and is denoted in German Marks.
The Company has several revolving lines of credit which provide for
borrowings of up to approximately $14,673,000 at March 31, 1995, $14,350,000 in
1994 and $13,900,000 in 1993. Approximately $2,454,000, $3,992,000 and
$4,188,000 were available for borrowing or letter of credit use at March 31,
1995, December 31, 1994 and 1993, respectively. The revolving domestic line of
credit bears interest at prime plus 1% (9.5% at December 31, 1994) and is
secured by accounts receivable and inventory of SLT North America, Inc. The
foreign revolving lines of credit bear interest at rates ranging from 10.875% to
11.125% and are secured by accounts receivable, inventory, and equipment of SLT
Lining Technology GmbH.
The Company also has standby letters of credit totaling $3,920,000 for bid
and performance bonding purposes. These letters of credit extend through July
1995.
F-9
<PAGE> 65
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ---------------------------
1995 1994 1993
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to a bank with interest payable
monthly and principal maturing in August
1996, secured by a letter of credit from a
bank, interest at LIBOR plus 7/8%........ $12,000,000 $12,000,000 $12,000,000
Note payable to a bank, principal payments
of $10,208 plus interest payable monthly,
with principal maturing in June 1998,
secured by property and plant, interest at
prime plus 1%............................. 1,194,375 1,225,000 --
Note payable to a bank, principal payments
of $35,417 plus interest payable monthly,
with principal maturing in December 1998,
secured by certain equipment, interest at
prime plus 1/2%.......................... 1,629,166 1,700,000 --
Note payable to financial institution,
principal payments of $75,000 plus
interest payable monthly through August
1997, secured by certain equipment,
interest at LIBOR plus 3%................. 2,175,000 2,400,000 3,300,000
Revenue bonds, payable semiannually, with
the principal balance maturing serially on
April 15 through 2000, secured by property
and plant, interest at 7.75%.............. 580,000 580,000 670,000
Installment loans, denominated in German
marks, interest and principal payable to
banks semiannually, maturity dates through
September 1998, interest rates ranging
from 7.5% to 8.0%......................... 4,334,438 4,054,056 6,574,112
Note payable to bank, denominated in German
marks, due in quarterly installments of
$181,157 plus interest through October
1994, interest at 7.8%.................... -- -- 724,626
----------- ----------- -----------
21,912,979 21,959,056 23,268,738
Less current portion........................ 2,542,299 2,044,340 5,660,608
----------- ----------- -----------
$19,370,680 $19,914,716 $17,608,130
=========== =========== ===========
</TABLE>
The aggregate principal payments required on long-term debt for years
subsequent to December 31, 1994 are:
<TABLE>
<S> <C>
Year ending December 31
1995.......................................... $ 2,044,340
1996.......................................... 14,044,340
1997.......................................... 1,744,340
1998.......................................... 1,144,340
1999.......................................... 719,340
Thereafter.................................... 2,262,356
-----------
$21,959,056
===========
</TABLE>
Interest expense for 1994 amounts are net of $75,991 of interest
capitalized on qualifying assets. Total interest paid during 1994, 1993, and
1992 was $2,376,332, $2,656,600, and $1,960,830, respectively. Interest paid
during the three months ended March 31, 1995 and 1994 was $687,437 and $308,495,
respectively.
F-10
<PAGE> 66
6. LEASES
The Company leases motor vehicles, office space, and office equipment under
operating leases. Minimum future rental payments under noncancelable operating
leases as of December 31, 1994 are as follows:
<TABLE>
<S> <C>
Year ending December 31
1995.......................................... $ 847,572
1996.......................................... 463,814
1997.......................................... 255,791
1998.......................................... 204,138
1999.......................................... 207,930
Thereafter.................................... 1,181,362
-----------
$ 3,160,607
==========
</TABLE>
Total rental expense under operating leases for the years ended December
31, 1994, 1993, and 1992 was $888,781, $778,603, and $739,826, respectively.
Rental expense for the three months ended March 31, 1995 and 1994 was $155,495
and $167,526, respectively.
7. INCOME TAXES
A significant amount of earnings (losses) from consolidated operations
before income taxes is from foreign sources as reflected in the table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1994 1993 1992
---------- ----------- ----------
<S> <C> <C> <C>
Domestic.............................. $3,653,678 $ 477,220 $2,015,486
Foreign............................... 1,891,564 (3,134,681) (763,896)
---------- ----------- ----------
Total....................... $5,545,242 $(2,657,461) $1,251,590
========= ========== =========
</TABLE>
Components of the provision for income taxes are as follows:
<TABLE>
<S> <C> <C> <C>
Current expense:
Federal............................. $ 289,208 $ 34,061 $ 33,581
Foreign............................. 363,455 57,707 67,600
State............................... 199,618 340,871 57,030
---------- ----------- ----------
Total current............... 852,281 432,639 158,211
Deferred expense (benefit):
Federal............................. (424,812) 18,507 --
Foreign............................. 512,956 (3,027,534) (53,619)
State............................... 3,119 (44,197) 49,480
---------- ----------- ----------
Total deferred.............. 91,263 (3,053,224) (4,139)
---------- ----------- ----------
$ 943,544 $(2,620,585) $ 154,072
========= ========== =========
</TABLE>
At December 31, 1994, the Company has net operating loss carryforwards of
$1,239,960 for U.S. income tax purposes that expire in 2005. The 1994 U.S.
current tax provision for income taxes is net of approximately $1,574,000 of tax
benefit due to the utilization of net operating loss carryforwards of
$4,629,587. At December 31, 1993, the Company recorded a valuation allowance of
$1,653,517 to offset the deferred tax assets related to net operating loss
carryforwards at December 31, 1993. The Company has not recorded a valuation
allowance against the remaining deferred tax assets related to net operating
loss carryforwards at December 31, 1994 as management believes the net operating
loss carryforwards will be fully utilized in future years.
At December 31, 1994, the Company has for German income tax purposes net
operating loss carryforwards of approximately $1,630,221 which do not expire.
The 1994 German current tax provision for
F-11
<PAGE> 67
income taxes is net of approximately $726,000 of tax benefit due to the
utilization of net operating loss carryforwards of $1,251,902.
The difference between the income tax provision computed at the statutory
federal income tax rate and the financial statement provision for taxes is
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- ---------
<S> <C> <C> <C>
Provision at U.S. statutory rate..... $ 1,885,378 $ (903,537) $ 425,541
Increase in tax expense resulting
from:
Amortization of goodwill and other
permanent differences........... 269,283 99,998 --
Utilization of net operating
carryforwards................... -- -- (685,265)
Decrease in valuation allowance.... (1,653,515) (308,701)
State taxes, net of federal
benefit......................... 221,002 3,823 --
Different tax rates for foreign
operations...................... 140,858 (1,430,943) 331,567
Other.............................. 80,538 (81,225) 82,229
----------- ----------- ---------
Income tax expense/(benefit)......... $ 943,544 $(2,620,585) $ 154,072
=========== =========== =========
</TABLE>
Taxes paid in 1994, 1993, and 1992 were $27,327, $824,084, and $276,364,
respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Property, plant, and equipment.................. $(1,342,273) $(1,093,467)
Intangible assets............................... (117,200) (108,707)
Long-term contracts............................. (1,445,818) (1,263,260)
Other........................................... (393,401) (587,108)
----------- -----------
Total deferred tax liabilities.................. (3,298,692) (3,052,542)
Deferred tax assets:
Nondeductible reserves.......................... 673,550 472,393
Other........................................... 251,888 285,101
Net operating loss and other carryforwards...... 1,785,798 3,404,857
----------- -----------
Total deferred tax assets....................... 2,711,236 4,162,351
Valuation allowance............................... -- (1,653,515)
----------- -----------
Net deferred tax assets........................... 2,711,236 2,508,836
----------- -----------
Net deferred tax assets (liabilities)............. $ (587,456) $ (543,706)
=========== ===========
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $14.8 million at December 31, 1994. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. federal
and state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries. Determination of the
amount of unrecognized deferred U.S. income taxes liability is not practicable
because of the complexities associated with its hypothetical calculation.
F-12
<PAGE> 68
8. COMMITMENTS AND CONTINGENCIES
When required, the Company has posted bid and performance bonds related to
work to be performed under certain fixed-price contracts. The Company has
$6,881,759 of performance bonds which are set to expire by December 1995.
In the normal course of business, the Company becomes a party to legal
proceedings and claims. In the opinion of management, the outcome of these
matters will not have a material adverse effect on the financial position of the
Company.
In January 1995, the Company entered into a settlement agreement with the
City of Houston with regard to its litigation over the City's sewer lines. The
estimated cost of the settlement has been recorded in the financial statements.
9. PENSION PLAN
The Company's German subsidiary has an unfunded pension plan providing
benefits to three present employees and three former employees. The plan
provides fixed minimum pension payments at retirement age. There are no assets
held in outside funds.
The Company has adopted FAS 87, "Employers' Accounting for Pensions";
however, to the extent pension costs under German law exceed amounts computed
under FAS 87, those additional amounts are recorded by the Company. Pension
expense for the years ended December 31, 1994, 1993, and 1992 was $70,020,
$199,446, and $105,390, respectively. Pension expense for the three months ended
March 31, 1995 and 1994 was $28,763 and $23,952, respectively. The actuarial
present value of accumulated benefits was $1,041,235 at December 31, 1994,
$895,901 at December 31, 1993. The projected benefit obligation for service
rendered to date, net of unrecognized prior service cost, was $1,092,779 and
$705,967 as of December 31, 1994 and 1993, respectively.
The computation assumed a discount rate on benefit obligations of 7.5%,
annual salary increase of 5%, and annual benefit increase of 3%.
10. RELATED PARTY TRANSACTIONS
During 1994, the Company paid $400,000 in selling, general, and
administrative expenses to its parent company, Wembley, Ltd., for reimbursement
of such on its behalf. In the three months ended March 31, 1995 the Company paid
$150,000 to Wembley, Ltd. for reimbursements.
F-13
<PAGE> 69
11. GEOGRAPHIC INFORMATION
Summary geographic financial information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States..................................... $47,697,158 $38,870,916 $31,224,840
Far East.......................................... 4,529,926 4,056,163 3,869,344
Australia......................................... 6,374,895 2,562,258 1,955,298
Europe............................................ 32,211,157 26,514,760 34,548,830
Intercompany sales between geographic areas
(eliminated in consolidation):
United States..................................... -- -- --
Far East.......................................... 2,140,568 672,662 2,180,600
Australia......................................... 3,995,380 1,361,379 925,765
Europe............................................ 3,239,549 3,187,414 5,294,028
Operating profit:
United States..................................... 5,022,510 1,774,942 3,731,794
Far East.......................................... 104,020 169,249 189,842
Australia......................................... 851,498 141,443 72,357
Europe............................................ 1,462,476 (1,999,446) (930,357)
Identifiable assets:
United States..................................... 42,405,970 27,274,070 27,867,951
Far East.......................................... 2,983,703 1,819,994 2,411,629
Australia......................................... 4,375,643 1,638,047 1,366,656
Europe............................................ 31,171,327 29,924,028 26,670,596
</TABLE>
Included in the United States sales to unaffiliated customers are export
sales to countries generally located in North, Central and South America
comprising less than 10% of consolidated sales.
F-14
<PAGE> 70
NOTE 12. SUMMARIZED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
------------------------------------------- -------------------------------------------
QUARTER QUARTER
------------------------------------------- -------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 9,698 $22,340 $29,587 $29,188 $10,257 $22,926 $25,277 $13,546
Gross profit................... 1,740 4,668 7,032 7,027 1,665 5,434 4,966 121
Income (loss) before income
taxes........................ (1,664) 1,195 3,094 2,920 (1,164) 1,714 1,301 (4,509)
Net income..................... (852) 1,087 2,469 1,898 (639) 1,476 1,343 (2,216)
</TABLE>
F-15
<PAGE> 71
EXHIBIT A
PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER, dated as of March 28, 1995, by and among
Gundle Environmental Systems, Inc., a Delaware corporation ("Gundle" or the
"Surviving Corporation") and SLT Environmental, Inc., a Delaware corporation
("SLT"). Gundle and SLT are hereinafter collectively referred to as the "Merging
Corporations."
WITNESSETH:
WHEREAS, Gundle is a corporation duly organized and validly existing under
the laws of the State of Delaware, with its registered office at 1209 Orange
Street, Wilmington, Delaware 19801 and its principal executive office at 19103
Gundle Road, Houston, Texas 77073;
WHEREAS, the authorized capital stock of Gundle consists of 1,000 shares of
preferred stock, no par value, of which at December 31, 1994, no shares were
issued or outstanding; and 15,000,000 shares of common stock, par value $.01 per
share ("Gundle Common Stock"), of which at December 31, 1994, 10,184,568 shares
were issued and outstanding, and an additional 494,539 shares were reserved for
issuance in conjunction with various employee benefit plans; at the same date,
500,000 shares of Common Stock were held in Gundle's treasury;
WHEREAS, SLT is a corporation duly organized and validly existing under the
laws of the State of Delaware, with its registered office at 1209 Orange Street,
Wilmington, Delaware 19801 and the principal executive office of its primary
North American subsidiary located at 200 South Trade Center Parkway, Conroe,
Texas 77385;
WHEREAS, the authorized capital stock of SLT consists of 1,000 shares of
common stock, par value $1 per share (the "SLT Common Stock"), of which at
December 31, 1994, 100 shares were issued and outstanding; at the same date, no
shares were reserved for issuance or held in SLT's treasury; and
WHEREAS, the respective boards of directors of Gundle and SLT deem it
desirable and in the best interests of their respective corporations and their
respective stockholders that SLT be merged into Gundle, pursuant to the
provisions of Section 251 of the General Corporation Law of the State of
Delaware, in exchange for the consideration herein provided for, and have
proposed, declared advisable, and approved such merger pursuant to this Plan and
Agreement of Merger (the "Agreement"), which Agreement has been duly approved by
resolutions of the respective boards of directors of Gundle and SLT;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, and in order to set forth the terms
and conditions of the merger, the mode of carrying the same into effect, the
manner and basis of converting the presently outstanding shares of SLT Common
Stock into shares of Gundle Common Stock, and such other details and provisions
as are deemed necessary or proper, the parties hereto agree as follows:
ARTICLE I
MERGER
1.1. Surviving Corporation. Subject to the adoption and approval of this
Agreement by the requisite vote of the stockholders of each of the Merging
Corporations and to the other conditions hereinafter set forth, Gundle and SLT
shall be, upon the Effective Date of the merger as defined in Section 1.3
hereof, merged into a single surviving corporation, which shall be Gundle, one
of the Merging Corporations, which shall continue its corporate existence and
remain a Delaware corporation governed by and subject to the laws of that state.
A-1
<PAGE> 72
1.2. Stockholder Approval. This Agreement shall be submitted for adoption
and approval by the stockholders of each of the Merging Corporations in
accordance with their respective certificates of incorporation and the
applicable laws of the State of Delaware, at separate meetings called and held
for such purpose.
1.3. Effective Date. The merger shall become effective upon the filing by
Gundle of a Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with Section 251(c) of the General Corporation Law of the
State of Delaware. The date upon which the merger shall become effective is
referred to in this Agreement as the "Effective Date."
1.4. Name and Continued Corporate Existence of Surviving Corporation
1.4.1. Name and Existence. On the Effective Date, the Certificate of
Incorporation of Gundle, the corporation whose corporate existence is to
survive the merger and continue thereafter as the surviving corporation,
shall be amended and restated in its entirety [reference to omitted
appendix] (the "Restated Certificate of Incorporation"). In all other
respects the identity, existence, purposes, powers, objects, franchises,
rights, and immunities of Gundle, the surviving corporation of the merger,
shall continue unaffected and unimpaired by the merger, and the corporate
identity, existence, purposes, powers, objects, franchises, rights, and
immunities of SLT shall be wholly merged into Gundle, the Surviving
Corporation, and Gundle shall be fully vested therewith. Accordingly, on
the Effective Date, the separate existence of SLT, except insofar as
continued by statute, shall cease.
1.4.2. Federal Income Tax Treatment of Merger. The merger is intended
to qualify as and, subject to the requirements of sec. 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"), shall be
characterized as a tax-free merger transaction described in sec.
368(a)(1)(A) of the Code.
1.5. Governing Law and Certificate of Incorporation of Surviving Corporation
1.5.1. Delaware Law Governs and Gundle Certificate of Incorporation, as
Amended and Restated, Survives. The laws of Delaware shall continue to govern
the Surviving Corporation. On the Effective Date, the Restated Certificate of
Incorporation shall be the certificate of incorporation of Gundle until further
amended in the manner provided by law.
1.6. Bylaws of Surviving Corporation
1.6.1. Gundle Bylaws Survive. Effective as of the Effective Date, the
bylaws of Gundle shall be amended and restated in their entirety [reference to
omitted appendix] (the "Restated Bylaws"), and the Restated Bylaws shall be the
bylaws of the Surviving Corporation until altered, amended, or repealed, or
until new bylaws shall be adopted in accordance with the provisions of law, the
Restated Certificate of Incorporation and the Restated Bylaws.
A-2
<PAGE> 73
1.7. Directors and Officers of Surviving Corporation
1.7.1. Directors of Surviving Corporation. The names and addresses of the
persons who, upon the Effective Date, shall constitute the board of directors of
the Surviving Corporation, and who shall hold office until the first annual
meeting of stockholders of the Surviving Corporation next following the
Effective Date, are as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
- ----------------------------------- ----------------------------
<S> <C>
Samir T. Badawi, Chairman 27 Rue du Bois de Boulogne
92200 Neuilly/Seine France
Thomas L. Caltrider, Vice Chairman 19103 Gundle Road
Houston, Texas 77073
Hugh L. Rice 90 Madison Street
Suite 600
Denver, Colorado 80206
Brian D. Young 520 Madison Avenue
New York, New York 10022
T. William Porter 700 Louisiana Street
Suite 3500
Houston, Texas 77002
William P. Reid 23 Misty Grove Circle
The Woodlands, Texas 77381
</TABLE>
and one additional nominee to be selected by SLT before the mailing by Gundle of
a proxy statement relating to a shareholder vote with respect to the merger
contemplated by this Agreement.
1.7.2. Vacancies. On or after the Effective Date, if a vacancy shall exist
for any reason in the board of directors or in any of the offices of the
Surviving Corporation, such vacancy shall be filled in the manner provided in
the Restated Certificate of Incorporation and/or Restated Bylaws of the
Surviving Corporation.
1.8. Capital Stock of Surviving Corporation
1.8.1. Capital Stock of Surviving Corporation. The authorized number of
shares of capital stock of the Surviving Corporation, and the par value,
designations, preferences, rights, and limitations thereof, and the express
terms thereof, shall be as set forth in the Restated Certificate of
Incorporation.
1.9. Conversion of Securities upon Merger
1.9.1. General. The manner and basis of converting the issued and
outstanding shares of the capital stock of SLT into shares of the capital stock
of Gundle shall be as hereinafter set forth in this Section 1.9.
1.9.2. Conversion of SLT Common Stock. On the Effective Date, each share of
SLT Common Stock then issued and outstanding, without any action on the part of
the holders thereof, shall automatically become and be converted into the right
to receive certificates evidencing 70,000 fully paid and nonassessable shares of
issued and outstanding Gundle Common Stock (the "Gundle Shares") upon surrender,
in accordance with Section 1.9.3 hereof, of certificates theretofore evidencing
shares of SLT Common Stock. The Gundle Shares are hereinafter referred to
collectively as the "Merger Consideration."
1.9.3. Exchange of SLT Common Stock Certificates. Commencing on the
Effective Date, each holder of an outstanding certificate or certificates
theretofore representing shares of SLT Common Stock may surrender the same to an
exchange agent designated by Gundle, and such holder shall be entitled upon such
surrender to receive in exchange therefor a certificate or certificates
representing the number of whole Gundle Shares into which the shares of SLT
Common Stock theretofore represented by the certificate or certificates so
surrendered shall have been converted as aforesaid. However, before surrender,
each outstanding certificate representing issued and outstanding SLT Common
Stock shall be deemed, for all purposes, only to evidence
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ownership of the number of whole Gundle Shares into which such shares have been
so converted. Unless and until such outstanding certificates formerly
representing SLT Common Stock are so surrendered, no dividend payable to holders
of record of Gundle Common Stock as of any date after the Effective Date shall
be paid to the holders of such outstanding certificates in respect thereof. Upon
surrender of such outstanding certificates, however, there shall be paid to the
holders of the certificates of Gundle Shares issued in partial exchange therefor
the amount of dividends, if any, which theretofore (but after the Effective
Date) became payable with respect to such full Gundle Shares. No interest shall
be payable with respect to the payment of such dividends on surrender of
outstanding certificates. The holder of fractional share interests, as such,
shall not be entitled to any dividends or to any distribution in the event of
liquidation or to any voting or other privileges of a stockholder of Gundle.
1.9.4. Gundle Fractional Shares. No certificates for fractional share
interests of Gundle Common Stock will be issued, but, in lieu thereof, Gundle
will settle all such fractional share interests in cash on the basis of the
closing price for Gundle Common Stock on the American Stock Exchange on the last
trading day before the Effective Date.
1.9.5. SLT's Transfer Books Closed. Upon the Effective Date, the stock
transfer books of SLT shall be deemed closed, and no transfer of any
certificates theretofore representing shares of SLT shall thereafter be made or
consummated.
1.10. Assets and Liabilities
1.10.1. Assets and Liabilities of Merging Corporations Become Those of
Surviving Corporation. On the Effective Date, all rights, privileges, powers,
immunities, and franchises of each of the Merging Corporations, both of a public
and private nature, and all property, real, personal, and mixed, and all debts
due on whatever account, as well as stock subscriptions and all other choses or
things in action, and all and every other interest of or belonging to or due to
either of the Merging Corporations, shall be taken by and deemed to be
transferred to and shall be vested in the Surviving Corporation without further
act or deed, and all such rights, privileges, powers, immunities, and
franchises, property, debts, choses or things in action, and all and every other
interest of each of the Merging Corporations shall be thereafter as effectually
the property of the Surviving Corporation as they were of the respective Merging
Corporations, and the title to any real or other property, or any interest
therein, whether vested by deed or otherwise, in either of the Merging
Corporations, shall not revert or be in any way impaired by reason of the
merger, provided, however, that all rights of creditors and all liens upon any
properties of each of the Merging Corporations shall be preserved unimpaired,
and all debts, liabilities, restrictions, obligations, and duties of the
respective Merging Corporations, including without limitation all obligations,
liabilities and duties as lessee under any existing lease, shall thenceforth
attach to the Surviving Corporation and may be enforced against and by it to the
same extent as if such debts, liabilities, duties, restrictions and obligations
had been incurred or contracted by it. Any action or proceeding pending by or
against either of the Merging Corporations may be prosecuted to judgment as if
the merger had not taken place, or the Surviving Corporation may be substituted
in place of either of the Merging Corporations.
1.10.2. Conveyances to Surviving Corporation. The Merging Corporations
hereby agree, respectively, that from time to time, as and when requested by the
Surviving Corporation, or by its successors and assigns, they will execute and
deliver or cause to be executed and delivered, all such deeds, conveyances,
assignments, permits, licenses and other instruments, and will take or cause to
be taken such further or other action as the Surviving Corporation, its
successors or assigns, may deem necessary or desirable to vest or perfect in or
confirm to the Surviving Corporation, its successors and assigns, title to and
possession of all the property, rights, privileges, powers, immunities,
franchises, and interests referred to in this Section 1.10.2 and otherwise carry
out the intent and purposes of this Agreement.
1.10.3. Accounting Treatment. The assets and liabilities of the Merging
Corporations shall be taken up on the books of the Surviving Corporation in
accordance with generally accepted accounting principles, and the capital
surplus and retained earnings accounts of the Surviving Corporation shall be
determined, in accordance with generally accepted accounting principles, by the
board of directors of the Surviving Corporation. Nothing
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herein shall prevent the board of directors of the Surviving Corporation from
making any future changes in its accounts in accordance with law.
1.10.4. Unclaimed Merger Consideration; No Escheat. Subject to any contrary
provision of governing law, all consideration deposited with the exchange agent
or held by Gundle for the payment of the consideration into which the
outstanding shares of SLT Common Stock shall have been converted, and remaining
unclaimed for one year after the Effective Date, shall be paid or delivered to
Gundle; and the holder of any unexchanged certificate or certificates which
before the Effective Date represented shares of SLT Common Stock shall
thereafter look only to Gundle for exchange or payment thereof upon surrender of
such certificate or certificates to Gundle.
1.10.5. Dissenting Stockholders of SLT. SLT (or Gundle on behalf of SLT)
agrees that, if the merger contemplated hereby becomes effective, it will
promptly pay to any dissenting stockholder of SLT the amount, if any, to which
such holder is entitled under the provisions of Section 262 of the Delaware
General Corporation Law, provided such dissenter acts in strict compliance with
such provisions.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SLT
2.1. Representations and Warranties of SLT. SLT represents and warrants as
follows:
2.1.1. Organization and Standing. SLT is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has full requisite corporate power and authority to carry on its business as it
is currently conducted, and to own and operate the properties currently owned
and operated by it, and is duly qualified or licensed to do business and is in
good standing as a foreign corporation authorized to do business in all
jurisdictions in which the character of the properties owned or the nature of
the business conducted by it would make such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
have a material adverse effect on the financial condition, properties or
business of SLT.
2.1.2. Agreement Authorized and its Effect on Other Obligations. This
Agreement has been approved by the requisite majority of the stockholders of
SLT. The consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of SLT, and
this Agreement is a valid and binding obligation of SLT enforceable against SLT
(subject to normal equitable principles) in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, debtor
relief or similar laws affecting the rights of creditors generally. At the
Effective Date, the consummation of the merger contemplated by this Agreement
will not conflict with or result in a violation or breach of any term or
provision of, nor constitute a default under (i) the certificate of
incorporation or bylaws of SLT or (ii) any obligation, indenture, mortgage, deed
of trust, lease, contract or other agreement to which SLT or any of its
subsidiaries is a party or by which any of them or their properties are bound,
other than such violations, breaches or defaults as would not result in any
material adverse change in the financial condition, properties or businesses of
SLT and its subsidiaries taken as a whole.
2.1.3. Capitalization. The authorized capitalization of SLT consists of
1,000 shares of common stock, par value $1 per share (the "SLT Common Stock"),
of which at December 31, 1994, 100 shares were issued and outstanding; at the
same date, no shares were reserved for issuance or held in SLT's treasury. There
exist no outstanding options, subscriptions, warrants, calls, or similar
commitments to purchase, issue or sell or to convert any securities or
obligations into any of the authorized or issued capital stock of SLT or any
securities or obligations convertible into or exchangeable for such capital
stock.
2.1.4. Subsidiaries. Schedule 2.1.4 [omitted], lists the subsidiary
corporations of SLT existing at December 31, 1994, and shows as to each of such
subsidiary corporations the percentage of the total outstanding stock thereof
which is owned by SLT. All outstanding shares of stock of the subsidiary
corporations owned by SLT are validly issued, fully paid, and nonassessable, and
SLT has good and marketable title thereto free and clear of any mortgage,
pledge, lien, charge, security interest, option, right of
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first refusal, preferential purchase right, defect, encumbrance or other right
or interest of any other person (collectively, an "Encumbrance"). Each such
subsidiary is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction under which it is incorporated and
has full requisite corporate power and authority to own its property and carry
on its business as presently conducted by it and is, or on the Effective Date
will be, duly qualified or licensed to do business and is, or on the Effective
Date will be, in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
have a material adverse effect on the financial condition, properties or
business of such subsidiary. As hereinafter used in this Article II, the term
"SLT" also includes any and all of its directly and indirectly held
subsidiaries, except where the context indicates to the contrary.
2.1.5. Financial Statements. SLT has delivered to Gundle copies of SLT's
audited consolidated balance sheet and related statements of income, retained
earnings, and cash flows, with appended notes which are an integral part of such
statements, as at and for SLT's fiscal years ended December 31, 1989, 1990,
1991, 1992, 1993 and 1994. Such financial statements are complete in all
material respects, present fairly the financial condition of SLT as at the dates
indicated, and the results of operations for the respective periods indicated,
and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, except as noted therein. The accounts
receivable reflected in the December 31, 1994 audited consolidated balance
sheet, or which have been thereafter acquired by SLT, have been collected or are
current and collectible at the aggregate recorded amounts thereof less
applicable reserves computed in accordance with generally accepted accounting
principles, which reserves are adequate. The inventories of SLT reflected in the
December 31, 1994 audited consolidated balance sheet, or which have thereafter
been acquired by it, consist of items of a quality and quantity usable and
salable in the normal course of SLT's business, and the values at which
inventories are carried are in accordance with generally accepted accounting
principles.
2.1.6. Liabilities. SLT does not have any liabilities or obligations,
either accrued, absolute, contingent, or otherwise, or have any knowledge of any
potential liabilities or obligations, which would materially adversely affect
the value and conduct of the business of SLT, other than those (i) reflected or
reserved against in the December 31, 1994 audited consolidated balance sheet of
SLT, (ii) incurred in the ordinary course of business since December 31, 1994 or
(iii) set forth on Schedule 2.1.6 hereto [omitted].
2.1.7. Additional SLT Information. Attached as Schedule 2.1.7 [omitted] are
true, complete and correct lists of the following items (which will be
periodically updated by SLT and delivered to Gundle through the Effective Date),
and SLT agrees that upon the request of Gundle, it will furnish to Gundle true,
complete and correct copies of any documents referred to in such lists:
2.1.7.1. Real Estate. All real property and structures thereon owned,
leased or subject to a contract of purchase and sale, or lease commitment,
by SLT, with a description of the nature and amount of any Encumbrances
thereto;
2.1.7.2. Machinery and Equipment. All machinery, transportation
equipment, tools, equipment, furnishings, and fixtures (excluding such
items as did not have a cost basis of $1,000 or more at their respective
dates of acquisition by SLT) owned, leased or subject to a contract of
purchase and sale, or lease commitment, by SLT with a description of the
nature and amount of any Encumbrances thereon;
2.1.7.3. Inventory. All inventory items or groups of inventory items
owned by SLT, together with the amount of any Encumbrances thereon;
2.1.7.4. Receivables. All accounts and notes receivable of SLT,
together with (i) aging schedules by invoice date and due date, (ii) the
amounts provided for as an allowance for bad debts, (iii) the identity and
location of any asset in which SLT holds a security interest to secure
payment of the underlying indebtedness, and (iv) a description of the
nature and amount of any Encumbrances on such accounts and notes
receivable;
2.1.7.5. Payables. All accounts and notes payable of SLT, together
with an appropriate aging schedule;
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2.1.7.6. Insurance. All insurance policies or bonds currently
maintained by SLT, including title insurance policies, with respect to SLT,
including those covering SLT's properties, buildings, machinery, equipment,
fixtures, employees and operations, as well as a listing of any premiums,
audit adjustments or retroactive adjustments due or pending on such
policies or any predecessor policies;
2.1.7.7. Material Contracts. All contracts (including purchase and
sale contracts, representative contracts and construction contracts) made
not in the ordinary course of business, including leases under which SLT is
lessor or lessee, which are to be performed in whole or in part after the
Effective Date, and which involve or may involve aggregate payments by or
to SLT of $50,000 or more after such date;
2.1.7.8. Employee Compensation Plans. All bonus, incentive
compensation, deferred compensation, profit-sharing, retirement, pension,
welfare, group insurance, death benefit, or other fringe benefit plans,
arrangements or trust agreements of SLT, together with copies of the most
recent reports with respect to such plans, arrangements, or trust
agreements filed with any governmental agency and all Internal Revenue
Service determination letters that have been received with respect to such
plans (collectively, "Employee Plans");
2.1.7.9. Certain Salaries. The names and salary rates of all present
officers and employees of SLT whose current regular annual salary rate is
$50,000 or more, together with any bonuses paid or payable to such persons
for the fiscal year ended December 31, 1994, or since that date, and, to
the extent existing on the date of this Agreement, all arrangements with
respect to any bonuses to be paid to them from and after the date of this
Agreement;
2.1.7.10. Bank Accounts. The name of each bank in which SLT has an
account and the names of all persons authorized to draw thereon;
2.1.7.11. Employee Agreements. Any collective bargaining agreements of
SLT with any labor union or other representative of employees, including
amendments, supplements, and written or oral understandings, and all
employment and consulting agreements of SLT;
2.1.7.12. Patents. All patents, trademarks, copyrights and other
intellectual property rights owned, licensed, or used by SLT;
2.1.7.13. Trade Names. All trade names and fictitious names used or
held by SLT, whether and where such names are registered and where used;
2.1.7.14. Promissory Notes. All long-term and short-term promissory
notes, installment contracts, loan agreements, credit agreements, and any
other agreements of SLT relating thereto or with respect to collateral
securing the same;
2.1.7.15. Guaranties. All indebtedness, liabilities and commitments of
others and as to which SLT is a guarantor, endorser, co-maker, surety, or
accommodation maker, or is contingently liable therefor (excluding
liabilities as an endorser of checks and the like in the ordinary course of
business) and all letters of credit, whether stand-by or documentary,
issued by any third party;
2.1.7.16. Financial Statements. Financial statements (which may be in
summary form) containing the information described in Paragraphs 2.1.5 and
Paragraph 4.3.10, prepared in the manner described in such Paragraphs;
2.1.7.17. Reserves and Accruals. All accounting reserves and accruals
maintained in the SLT financial statements as of December 31, 1994,
including a report on the status of all unresolved warranty claims in
existence on such date;
2.1.7.18. Material Leases. All material leases to which SLT is a
party; and
2.1.7.19. Environment. All environmental permits, approvals,
certifications, licenses, registrations, orders and decrees applicable to
current operations conducted by SLT and all environmental audits,
assessments, investigations and reviews conducted within the last five
years on any property owned or used by SLT.
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Schedule 2.1.7 [omitted] shall be true, complete and correct as of the
Effective Date, except for items contained in Paragraphs 2.1.7.1; 2.1.7.2;
2.1.7.4; 2.1.7.5; and 2.1.7.16; and 2.1.7.17, which are true, complete and
correct as of December 31, 1994; and the items contained in Paragraph 2.1.7.3,
which are true, complete and correct as of March 31, 1995. The items contained
in Paragraph 2.1.7.3 may be provided to Gundle after the date of the execution
of this Agreement but before the Effective Date.
2.1.8. No Undisclosed Defaults. Except as may be specified in Schedule
2.1.8 [omitted], SLT is not a party to, or bound by, any material contract or
arrangement of any kind to be performed after the Effective Date, nor is SLT in
default in any material obligation or covenant on their part to be performed
under any material obligation, lease, contract, order, plan or other arrangement
except as identified in Schedule 2.1.8.
2.1.9. Absence of Certain Changes and Events. Except as set forth in
Schedule 2.1.9 [omitted] hereto, other than as a result of the transactions
contemplated by this Agreement, since December 31, 1994, there has not been:
2.1.9.1. Financial Change. Any material adverse change in the
financial condition, backlog, operations, assets, liabilities or business
of SLT;
2.1.9.2. Property Damage. Any material damage, destruction, or loss to
the business or properties of SLT (whether or not covered by insurance);
2.1.9.3. Dividends. Any declaration, setting aside, or payment of any
dividend or other distribution in respect of the common stock of SLT, or
any direct or indirect redemption, purchase or any other acquisition by SLT
of any such stock;
2.1.9.4. Capitalization Change. Any change in the capital stock or in
the number of shares or classes of SLT's authorized or outstanding capital
stock as described in Paragraph 2.1.3;
2.1.9.5. Labor Disputes. Any labor dispute (other than routine
grievances); or
2.1.9.6. Other Material Changes. Any other event or condition known to
SLT particularly pertaining to and adversely affecting the operations,
assets or business of SLT (other than events or conditions which are of a
general or industry-wide nature and of general public knowledge) which
would constitute a material adverse change.
2.1.10. Taxes. Except as set forth in Schedule 2.1.10 [omitted], and except
with respect to failures which, in the aggregate, would not result in a material
adverse change to SLT, proper and accurate Federal, state and local income,
value added, sales, use, franchise, gross revenue, turnover, excise, payroll,
property, employment, customs duties and any and all other tax returns, reports,
and estimates have been filed with appropriate governmental agencies, domestic
and foreign, by SLT for each period for which any returns, reports, or estimates
were due (taking into account any extensions of time to file before the date
hereof); all taxes shown by such returns to be payable and any other taxes due
and payable have been paid other than those being contested in good faith by
SLT; and the tax provision reflected in SLT's financial statements as of
December 31, 1994 is adequate, in accordance with generally accepted accounting
principles, to cover liabilities of SLT at the date thereof for all taxes,
including any interest, penalties and additions to taxes of any character
whatsoever applicable to SLT or its assets or business. Except as set forth on
Schedule 2.1.10 [omitted], no waiver of any statute of limitations executed by
SLT with respect to federal or state income or other tax is in effect for any
period. The Federal income tax returns of SLT have never been examined by the
Internal Revenue Service. There are no tax liens on any assets of SLT except for
taxes not yet currently due and those which could not reasonably be expected to
result in a material adverse change to SLT. The net operating loss and other tax
carryovers available to SLT and each of its subsidiaries reflected on its most
recently filed Federal income tax return as of the date hereof are as set forth
on Schedule 2.1.10 [omitted], and except as set forth on Schedule 2.1.10
[omitted]. or resulting from the transactions contemplated by this Agreement,
the ability of SLT and each of its subsidiaries to use such carryovers will not
have been affected by Sections 382, 383 or 384 of the Code or by the SRLY or
CRCO limitations of Treasury Regulations Sections 1.1502-21 or 1.1502-22.
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2.1.11. Intellectual Property. Except as set forth in Schedule 2.1.11
[omitted], SLT owns or possesses licenses to use all patents, patent
applications, trademarks and service marks (including registrations and
applications therefor), trade names, copyrights and written know-how, trade
secrets and all other similar proprietary data and the goodwill associated
therewith (collectively, the "Intellectual Property") that are either material
to the business of SLT or that are necessary for the manufacture, use or sale of
any products manufactured, used or sold by SLT, including all such Intellectual
Property listed in Schedule 2.1.7 [omitted]. The Intellectual Property is owned
or licensed by SLT free and clear of any Encumbrance other than such
Encumbrances as are listed in Schedule 2.1.11 [omitted]. Except as otherwise
indicated in such Schedule, SLT has not granted to any other person any license
to use any Intellectual Property. SLT has not received any notice of
infringement, misappropriation, or conflict with, the intellectual property
rights of others in connection with the use by SLT of the Intellectual Property.
2.1.12. Title to Properties. With minor exceptions which in the aggregate
are not material, and except for merchandise and other property sold, used or
otherwise disposed of in the ordinary course of business for fair value, SLT has
good and marketable title to all its properties, interests in properties and
assets, real and personal, reflected in the December 31, 1994 financial
statements referred to in Paragraph 2.1.5 or in Schedule 2.1.7 [omitted], free
and clear of any Encumbrance of any nature whatsoever, except (i) liens and
Encumbrances reflected in the balance sheet of SLT dated December 31, 1994
referred to in Paragraph 2.1.5 or in Schedule 2.1.7 [omitted], (ii) liens for
current taxes not yet due and payable, and (iii) such imperfections of title,
easements and Encumbrances, if any, as are not substantial in character, amount,
or extent and do not and will not materially detract from the value, or
interfere with the present use, of the property subject thereto or affected
thereby, or otherwise materially impair business operations. All leases pursuant
to which SLT leases (whether as lessee or lessor) any substantial amount of real
or personal property are in good standing, valid, and effective; and there is
not, under any such leases, any existing or prospective default or event of
default or event which with notice or lapse of time, or both, would constitute a
default by SLT and in respect to which SLT has not taken adequate steps to
prevent a default from occurring. The buildings and premises of SLT that are
used in its business are in good operating condition and repair, subject only to
ordinary wear and tear. All major items of equipment of SLT are in good
operating condition and in a state of reasonable maintenance and repair,
ordinary wear and tear excepted, and are free from any known defects except as
may be repaired by routine maintenance and such minor defects as to not
substantially interfere with the continued use thereof in the conduct of normal
operations.
2.1.13. Litigation. Except to the extent set forth in Schedule 2.1.13
[omitted], there is no suit, action, or legal, administrative, arbitration, or
other proceeding or governmental investigation pending to which SLT is a party
or, to the knowledge of SLT, might become a party or which particularly affects
SLT, nor is any change in the zoning or building ordinances directly affecting
the real property or leasehold interests of SLT, pending or, to the knowledge of
SLT, threatened.
2.1.14. Environmental Compliance. Except as set forth in Schedule 2.1.14
[omitted];
2.1.14.1. Environmental Conditions. There are no environmental
conditions or circumstances, such as the presence or release of any
hazardous substance, on any property presently or previously owned by SLT
that could result in a material adverse change to SLT.
2.1.14.2. Permits, etc. SLT has in full force and effect all
environmental permits, licenses, approvals and other authorizations
required to conduct its operations and is operating in compliance
thereunder.
2.1.14.3. Compliance. SLT's operations and use of its assets do not
violate any applicable federal, state or local law, statute, ordinance,
rule, regulation, order or notice requirement pertaining to (a) the
condition or protection of air, groundwater, surface water, soil, or other
environmental media, (b) the environment, including natural resources or
any activity which affects the environment, or (c) the regulation of any
pollutants, contaminants, waste, substances (whether or not hazardous or
toxic), including, without limitation, the Comprehensive Environmental
Response Compensation and Liability Act (42 U.S.C. sec. 9601 et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. sec. 1801 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. sec. 1609 et seq.), the
Clean Water Act (33 U.S.C. 1251 et seq.), the Clean Air Act (42 U.S.C. sec.
7401 et seq.), the Toxic Substances Control Act
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(17 U.S.C. sec. 2601 et seq.), the Federal Insecticide Fungicide and
Rodenticide Act (7 U.S.C. sec. 136 et seq.), the Safe Drinking Water Act
(42 U.S.C. sec. 201 and sec. 300f et seq.), the Rivers and Harbors Act (33
U.S.C. sec. 401 et seq.), the Oil Pollution Act (33 U.S.C. sec. 2701 et
seq.) and analogous state and local provisions, as any of the foregoing may
have been amended or supplemented from time to time (collectively the
"Applicable Environmental Laws"), except for violations which, either
singly or in the aggregate, would not result in a material adverse change
to SLT.
2.1.14.4. Past Compliance. None of the operations or assets of SLT has
ever been conducted or used in such a manner as to constitute violation of
any of the Applicable Environmental Laws, except for violations which,
either singly or in the aggregate, would not result in a material adverse
change to SLT.
2.1.14.5. Environmental Claims. No notice has been served on SLT from
any entity, governmental agency or individual regarding any existing,
pending or threatened investigation or inquiry related to alleged
violations under any Applicable Environmental Laws, or regarding any claims
for remedial obligations or contribution under any Applicable Environmental
Laws, other than any of the foregoing which, either singly or in the
aggregate, would not result in a material adverse change to SLT.
2.1.14.6. Renewals. SLT does not know of any reason Gundle would not
be able to renew any of the permits, licenses, or other authorizations
required pursuant to any Applicable Environmental Laws to operate and use
any of SLT's assets for their current purposes and uses.
2.1.14.7. Asbestos and PCBs. No asbestos or polychlorinated biphenyls
("PCB") are currently being used or have ever been used by SLT in its
operations or on its properties.
2.1.15. Compliance with Other Laws. Except as set forth in Schedule 2.1.15
[omitted], SLT is not in violation of or in default with respect to, or in
alleged violation of or alleged default with respect to, the Occupational Safety
and Health Act (29 U.S.C. sec.sec. 651 et seq.) as amended ("OSHA"), or any
other applicable law or any applicable rule, regulation, or any writ or decree
of any court or any governmental commission, board, bureau, agency, or
instrumentality, or delinquent with respect to any report required to be filed
with any governmental commission, board, bureau, agency or instrumentality,
except for violations which, either singly or in the aggregate, do not and are
not expected to result in a material adverse change in the financial condition,
properties or business of SLT.
2.1.16. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by SLT and its counsel
directly with Gundle and its counsel, without the intervention of any other
person as the result of any act of SLT, and so far as is known to SLT, without
the intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder's fee
or any similar payments.
2.1.17. Compliance with ERISA. Each benefit plan set forth on Schedule
2.1.17 [omitted] (the "Benefit Plans") complies currently, and has complied in
the past, in form and operation, with the applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Internal
Revenue Code of 1986, as amended (the "Code"), and other applicable laws. All
contributions required to be made to each Benefit Plan under the terms of such
Benefit Plans, ERISA or other applicable laws have been timely made.
2.1.17.1. Prohibited Transactions. SLT has not engaged in any
transaction in connection with which it could be subject (either directly
or indirectly) to a material liability for either a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code.
2.1.17.2. Plan Termination; Material Liabilities. There has been no
termination of an "employee pension benefit plan" as defined in ERISA which
is subject to Title IV of ERISA (a "Statutory Plan") or trust created under
any Statutory Plan that would give rise to a material liability to the
Pension Benefit Guaranty Corporation ("PBGC") on the part of SLT. All
Statutory Plans intended to be tax-qualified under Section 401(a) or 403(a)
of the Code have complied in the past, both in form and operation, with
every provision of the Code, every regulation promulgated pursuant thereto,
and every ruling, notice or announcement issued by the Internal Revenue
Service necessary to maintain the qualified status of such
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Statutory Plans. No material liability to the PBGC has been or is expected
to be incurred with respect to any Statutory Plan. The PBGC has not
instituted proceedings to terminate any Statutory Plan. There exists no
condition or set of circumstances which presents a material risk of
termination or partial termination of any Statutory Plan by the PBGC.
2.1.17.3. Accumulated Funding Deficiency. Full payment has been made
of all amounts which are required under the terms of each Statutory Plan,
ERISA or other applicable laws, domestic and foreign, to have been paid as
contributions to such Statutory Plan as of December 31, 1994, and no
accumulated funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, exists with respect to any
Statutory Plan or, other than as set forth on Schedule 2.1.17.3 [omitted],
with respect to any foreign employee pension benefit plan maintained by SLT
or any of its subsidiaries.
2.1.17.4. Relationship of Benefits to Pension Plan Assets. The current
value of all accrued benefits, both vested and unvested, under all
Statutory Plans does not exceed the current value of the assets of such
Statutory Plans allocable to such accrued benefits, except as disclosed in
the financial statements described in Paragraph 2.1.5. For purposes of the
representation in this Paragraph 2.1.17.4, the term "current value" has the
meaning specified in Section 4062(b)(1)(A) of ERISA, the term "accrued
benefit" has the meaning specified in Section 3 of ERISA and "current
value" is based upon the same actuarial assumptions used by SLT for
funding.
2.1.17.5. Execution of Agreements. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will
not involve any transaction which is subject to the prohibitions of Section
406 of ERISA or in connection with which a tax could be imposed pursuant to
Section 4975 of the Code.
2.1.17.6. Fiduciary Liability. There have been no acts, failures to
act, omissions or transactions involving a Statutory Plan or the assets
thereof which could result in imposition on SLT (whether direct or
indirect) of damages or liability in actions brought under Section 502 or
Sections 404 through 409 of ERISA.
2.1.17.7. Pending Claims. There are no claims, pending or threatened,
involving any of the Benefit Plans by any current or former employee (or
beneficiary thereof) of SLT which allege any violation of ERISA or the
terms of the Benefit Plans, nor is there any reasonable basis to anticipate
any claims involving such Benefit Plans which would likely be successfully
maintained against SLT.
2.1.17.8. Multiemployer Plans. Except as set forth in Schedule
2.1.17.8 [omitted], neither SLT nor any trade or business (whether or not
incorporated) which together with SLT would be deemed to be a "single
employer" within the meaning of Section 4001(b) of ERISA or Subsections
414(b), (c), (m) or (o) of the Code sponsors, maintains, or contributes to,
or has at any time in the six-year period preceding the date of this
Agreement sponsored, maintained or contributed to, any plan (not exempt
from the provisions of ERISA), including, but not limited to, any plan
which is a "multiemployer plan" as such term is defined in Section 3(37) or
4001(a)(3) of ERISA.
2.1.17.9. No Reportable Event. There has been no "reportable event"
(within the meaning of Section 4043(b) of ERISA with respect to a Statutory
Plan) or any "prohibited transaction" (as such term is defined in Section
406 of ERISA and Section 4975(c) of the Code) with respect to any of the
Employee Plans. All reporting and disclosure requirements under Title I of
ERISA have been met.
2.1.18. Investigations; Litigation. Except as required pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1978 and the rules and
regulations promulgated thereunder (collectively, "HSR") and any applicable
comparable foreign laws and regulations, (i) no investigation or review by any
governmental entity with respect to SLT or any of the transactions contemplated
by this Agreement is pending or, to the best of SLT's knowledge, threatened, nor
has any governmental entity indicated to SLT an intention to conduct the same,
and (ii) there is no action, suit or proceeding pending or, to the best of SLT's
knowledge, threatened against or affecting SLT at law or in equity, or before
any federal, state, municipal or other governmental
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department, commission, board, bureau, agency or instrumentality, which either
individually or in the aggregate, does or is likely to result in any material
adverse change in the financial condition, properties or businesses of SLT.
2.1.19. Product Warranty. There are no existing liabilities or, to the
knowledge of SLT, potential liabilities, arising from claims regarding the
performance or design of the products sold by SLT either in the past or at
present that in the aggregate would constitute a material adverse change.
2.1.20. Information for Gundle Proxy Statement. All information and data
(including financial statements) concerning SLT which is or will be included in
the proxy statement (the "Proxy Statement") to be used by Gundle in connection
with the transactions contemplated by this Agreement will be furnished by SLT
for inclusion therein and will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained therein not misleading.
2.1.21. Compliance with Export Laws. All exports by SLT of equipment,
software and other technology have been made in compliance with all federal and
other applicable laws, rules and regulations and in connection therewith, SLT
has obtained all required approvals of the U.S. Department of Commerce and
Department of Treasury.
2.1.22. FIRPTA; Investment Company. SLT is not a United States real
property holding corporation within the meaning of sec. 897(c)(2) of the Code
during the applicable period specified in sec. 897(c)(1)(A)(ii) of the Code, nor
is it an "investment company," or an "affiliated person of" or "promoter" or
"principal underwriter" of an investment company, as those terms are defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GUNDLE
3.1. Representations and Warranties of Gundle. Gundle represents and
warrants as follows:
3.1.1. Organization and Standing. Gundle is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has full requisite corporate power and authority to carry on its business as it
is currently conducted, and to own and operate the properties currently owned
and operated by it, and is duly qualified or licensed to do business and is in
good standing as a foreign corporation authorized to do business in all
jurisdictions in which the character of the properties owned or the nature of
the business conducted by it would make such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
have a material adverse effect on the financial condition, properties or
business of Gundle.
3.1.2. Agreement Authorized and its Effect on Other Obligations. Upon
approval of this Agreement by the stockholders of Gundle, the consummation of
the transactions contemplated hereby will have been duly and validly authorized
by all necessary corporate action on the part of Gundle, and this Agreement will
be a valid and binding obligation of Gundle enforceable against Gundle (subject
to normal equitable principles) in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, debtor
relief or similar laws affecting the rights of creditors generally. At the
Effective Date, the consummation of the merger contemplated by this Agreement
will not conflict with or result in a violation or breach of any term or
provision of, nor constitute a default under (i) the certificate of
incorporation or bylaws of Gundle or (ii) any obligation, indenture, mortgage,
deed of trust, lease, contract or other agreement to which Gundle or any of its
subsidiaries is a party or by which any of them or their properties are bound,
other than such violations, breaches or defaults as would not result in any
material adverse change in the financial condition, properties or business of
Gundle and its subsidiaries taken as a whole.
3.1.3. Capitalization. The capitalization of Gundle consists of 1,000
shares of preferred stock, no par value, of which at December 31, 1994 no shares
were issued or outstanding; and 15,000,000 shares of Gundle Common Stock, of
which at December 31, 1994, 10,184,568 shares were issued and outstanding and
494,539
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shares were reserved for issuance in connection with various employee benefit
plans; at the same date, 500,000 shares of Gundle Common Stock were held in
Gundle's treasury.
3.1.4. Subsidiaries. All outstanding shares of stock of the subsidiary
corporations owned by Gundle are validly issued, fully paid, and nonassessable,
and Gundle has good and marketable title thereto free and clear of any
Encumbrance. Each such subsidiary is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction under which it
is incorporated and has full requisite corporate power and authority to own its
property and carry on its business as presently conducted by it and is, or on
the Effective Date will be, duly qualified or licensed to do business and is, or
on the Effective Date will be, in good standing as a foreign corporation
authorized to do business in all jurisdictions in which the character of the
properties owned or the nature of the business conducted makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed would not have a material adverse effect on the financial
condition, properties or business of such subsidiary. As hereinafter used in
this Article III, the term "Gundle" also includes any and all of its directly
and indirectly held subsidiaries, except where the context indicates to the
contrary.
3.1.5. Reports and Financial Statements. Gundle has previously furnished to
SLT true and complete copies of (a) all annual reports filed with the Securities
and Exchange Commission (the "Commission") pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), since December 31, 1991, (b)
Gundle's quarterly and other reports filed with the Commission since December
31, 1992, (c) all definitive proxy solicitation materials filed with the
Commission since December 31, 1991, and (d) any registration statements declared
effective by the Commission since December 31, 1991. The consolidated financial
statements of Gundle and its subsidiaries included in Gundle's most recent
report on Form 10-K and most recent report on Form 10-Q, and any other reports
filed with the Commission by Gundle under the Exchange Act (the "Reports") were,
or will be, prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved and fairly present, or
will present, the consolidated financial position for Gundle and its
subsidiaries as of the dates thereof and the consolidated results of their
operations and changes in financial position for the periods then ended; and the
Reports did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Since December 31, 1991, Gundle has filed with the
Commission all reports required to be filed by Gundle under the Exchange Act and
the rules and regulations of the Commission.
3.1.6. Liabilities. Gundle does not have any liabilities or obligations,
either accrued, absolute, contingent, or otherwise, or have any knowledge of any
potential liabilities or obligations, which would materially adversely affect
the value and conduct of the business of Gundle, other than those (i) disclosed
in the Reports or (ii) set forth on Schedule 3.1.6 hereto [omitted].
3.1.7. Additional Gundle Information. Attached as Schedule 3.1.7 [omitted]
are true, complete and correct lists of the following items, other than such
items as are contained or disclosed in the Reports (and the Exhibits filed
pursuant thereto) (all of which will be periodically updated by Gundle and
delivered to SLT through the Effective Date), and Gundle agrees that upon the
request of SLT, it will furnish to SLT true, complete and correct copies of any
documents referred to in such lists:
3.1.7.1. Real Estate. All real property and structures thereon owned,
leased or subject to a contract of purchase and sale, or lease commitment,
by Gundle, with a description of the nature and amount of any Encumbrances
thereto;
3.1.7.2. Machinery and Equipment. All machinery, transportation
equipment, tools, equipment, furnishings, and fixtures (excluding such
items as did not have a cost basis of $1,000 or more at their respective
dates of acquisition by Gundle) owned, leased or subject to a contract of
purchase and sale, or lease commitment, by Gundle with a description of the
nature and amount of any Encumbrances thereon;
3.1.7.3. Inventory. All inventory items or groups of inventory items
owned by Gundle, together with the amount of any Encumbrances thereon;
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3.1.7.4. Receivables. All accounts and notes receivable of Gundle,
together with (i) aging schedules by invoice date and due date, (ii) the
amounts provided for as an allowance for bad debts, (iii) the identity and
location of any asset in which Gundle holds a security interest to secure
payment of the underlying indebtedness, and (iv) a description of the
nature and amount of any Encumbrances on such accounts and notes
receivable;
3.1.7.5. Payables. All accounts and notes payable of Gundle, together
with an appropriate aging schedule;
3.1.7.6. Insurance. All insurance policies or bonds currently
maintained by Gundle, including title insurance policies, with respect to
Gundle, including those covering Gundle's properties, buildings, machinery,
equipment, fixtures, employees and operations, as well as a listing of any
premiums, audit adjustments or retroactive adjustments due or pending on
such policies or any predecessor policies;
3.1.7.7. Material Contracts. All contracts (including purchase and
sale contracts, representative contracts and construction contracts) made
not in the ordinary course of business, including leases under which Gundle
is lessor or lessee, which are to be performed in whole or in part after
the Effective Date, and which involve or may involve aggregate payments by
or to Gundle of $50,000 or more after such date;
3.1.7.8. Employee Compensation Plans. All Employee Plans;
3.1.7.9. Certain Salaries. The names and salary rates of all present
officers and employees of Gundle whose current regular annual salary rate
is $50,000 or more, together with any bonuses paid or payable to such
persons for the fiscal year ended March 31, 1994, and, to the extent
existing on the date of this Agreement, all arrangements with respect to
any bonuses to be paid to them from and after the date of this Agreement;
3.1.7.10. Employee Agreements. Any collective bargaining agreements of
Gundle with any labor union or other representative of employees, including
amendments, supplements, and written or oral understandings, and all
employment and consulting agreements of Gundle;
3.1.7.11. Patents. All patents, trademarks, copyrights and other
intellectual property rights owned, licensed, or used by Gundle;
3.1.7.12. Trade Names. All trade names and fictitious names used or
held by Gundle, whether and where such names are registered and where used;
3.1.7.13. Promissory Notes. All long-term and short-term promissory
notes, installment contracts, loan agreements, credit agreements, and any
other agreements of Gundle relating thereto or with respect to collateral
securing the same;
3.1.7.14. Guaranties. All indebtedness, liabilities and commitments of
others and as to which Gundle is a guarantor, endorser, co-maker, surety,
or accommodation maker, or is contingently liable therefor (excluding
liabilities as an endorser of checks and the like in the ordinary course of
business) and all letters of credit, whether stand-by or documentary,
issued by any third party;
3.1.7.15. Reserves and Accruals. All accounting reserves and accruals
maintained in the Gundle financial statements as of December 31, 1994,
including a report on the status of all unresolved warranty claims in
existence on such dates.
3.1.7.16. Material Leases. All material leases to which Gundle is a
party.
3.1.7.17. Environment. All environmental permits, approvals,
certifications, licenses, registrations, orders and decrees applicable to
current operations conducted by Gundle and all environmental audits,
assessments, investigations and reviews conducted within the last five
years on any property owned or used by Gundle.
Schedule 3.1.7 [omitted] shall be true, complete and correct as of the
Effective Date, except for items contained in Paragraphs 3.1.7.1; 3.1.7.2;
3.1.7.4; 3.1.7.5; and 3.1.7.17, which are true, complete and correct as of
December 31, 1994; and the items contained in Paragraph 3.1.7.3, which are true,
complete and correct as
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of December 31, 1994. In addition, the items contained in Paragraph 3.1.7.3 may
be provided to SLT after the date of the execution of this Agreement but before
the Effective Date. In addition, Gundle shall, on SLT's request, furnish SLT
copies of all Reports filed by Gundle with the Commission after the date hereof
through the Effective Date.
3.1.8. No Undisclosed Defaults. Except as may be specified in the Reports
or in Schedule 3.1.8 [omitted], Gundle is not a party to, or bound by, any
material contract or arrangement of any kind to be performed after the Effective
Date, nor is Gundle in default in any material obligation or covenant on its
part to be performed under any material obligation, lease, contract, order, plan
or other arrangement except as identified in the Reports or in Schedule 3.1.8.
3.1.9. Absence of Certain Changes and Events in Gundle. Except as set forth
in Schedule 3.1.9 [omitted] hereto, other than as a result of the transactions
contemplated by this Agreement, since December 31, 1994, there has not been:
3.1.9.1. Financial Change. Any material adverse change in the
financial condition, operations, assets or business of Gundle;
3.1.9.2. Property Damage. Any material damage, destruction, or loss to
the business or properties of Gundle (whether or not covered by insurance);
3.1.9.3. Dividends. Any declaration, setting aside, or payment of any
dividend or other distribution in respect of any dividend or other
distribution in respect of Gundle's capital stock, or any direct or
indirect redemption, purchase or any other acquisition of such stock;
3.1.9.4. Capitalization Change. Any change in the capital stock or in
the number of shares or classes of Gundle's authorized or outstanding
capital stock as described in Paragraph 3.1.3;
3.1.9.5. Labor Disputes. Any labor dispute (other than routine
grievances); or
3.1.9.6. Other Material Changes. Any other event or condition known to
Gundle particularly pertaining to and adversely affecting the operations,
assets or business of Gundle (other than events or conditions which are of
a general or industry-wide nature and of general public knowledge) which
would constitute a material adverse change.
3.1.10. Taxes. Except as set forth in Schedule 3.1.10 [omitted], and except
with respect to failures which in the aggregate, would not result in a material
adverse change on Gundle, proper and accurate Federal, state and local income,
value added, sales, use, franchise, gross revenue, turnover, excise, payroll,
property, employment, customs duties and any and all other tax returns, reports,
and estimates have been filed with appropriate governmental agencies, domestic
and foreign, by Gundle for each period for which any returns, reports, or
estimates were due (taking into account any extensions of time to file before
the date hereof); all taxes shown by such returns to be payable and any other
taxes due and payable have been paid other than those being contested in good
faith by Gundle; and the tax provision reflected in Gundle's financial
statements as of December 31, 1994 is adequate, in accordance with generally
accepted accounting principles, to cover liabilities of Gundle at the date
thereof for all taxes, including any interest, penalties and additions to taxes
of any character whatsoever applicable to Gundle or its assets or business.
Except as set forth on Schedule 3.1.10 [omitted], no waiver of any statute of
limitations executed by Gundle with respect to Federal or state income or other
tax is in effect for any period. The Federal income tax returns of Gundle have
never been examined by the Internal Revenue Service. There are no tax liens on
any assets of Gundle except for taxes not yet currently due and those which
could not reasonably be expected to result in a material adverse change to
Gundle.
3.1.11. Intellectual Property. Except as set forth in Schedule 3.1.11
[omitted], Gundle owns or possesses licenses to use all Intellectual Property
that is either material to the business of Gundle or that is necessary for the
manufacture, use or sale of any products manufactured, used or sold by Gundle,
including all such Intellectual Property listed in the Reports. The Intellectual
Property is owned or licensed by Gundle free and clear of any Encumbrance other
than such Encumbrances as are listed in Schedule 3.1.11 [omitted]. Except as
otherwise indicated in such Schedule, Gundle has not granted to any other person
any license to use any
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Intellectual Property. Gundle has not received any notice of infringement,
misappropriation, or conflict with, the intellectual property rights of others
in connection with the use by Gundle of its Intellectual Property.
3.1.12. Title to Properties. With minor exceptions which in the aggregate
are not material, and except for merchandise and other property sold, used or
otherwise disposed of in the ordinary course of business for fair value, Gundle
has good and marketable title to all its properties, interests in properties and
assets, real and personal, reflected in the December 31, 1994 financial
statements contained in the Reports, free and clear of any Encumbrance of any
nature whatsoever, except (i) liens and Encumbrances reflected in the balance
sheet of Gundle dated December 31, 1994 included in the Reports, (ii) liens for
current taxes not yet due and payable, and (iii) such imperfections of title,
easements and Encumbrances, if any, as are not substantial in character, amount,
or extent and do not and will not materially detract from the value, or
interfere with the present use, of the property subject thereto or affected
thereby, or otherwise materially impair business operations. All leases pursuant
to which Gundle leases (whether as lessee or lessor) any substantial amount of
real or personal property are in good standing, valid, and effective; and there
is not, under any such leases, any existing or prospective default or event of
default or event which with notice or lapse of time, or both, would constitute a
default by Gundle and in respect to which Gundle has not taken adequate steps to
prevent a default from occurring. The buildings and premises of Gundle that are
used in its business are in good operating condition and repair, subject only to
ordinary wear and tear. All major items of equipment of Gundle are in good
operating condition and in a state of reasonable maintenance and repair,
ordinary wear and tear excepted, and are free from any known defects except as
may be repaired by routine maintenance and such minor defects as to not
substantially interfere with the continued use thereof in the conduct of normal
operations.
3.1.13. Litigation. Except to the extent set forth in the Reports or in
Schedule 3.1.13 [omitted], there is no suit, action, or legal, administrative,
arbitration, or other proceeding or governmental investigation pending to which
Gundle is a party or, to the knowledge of Gundle, might become a party or which
particularly affects Gundle, nor is any change in the zoning or building
ordinances directly affecting the real property or leasehold interests of
Gundle, pending or, to the knowledge of Gundle, threatened.
3.1.14. Environmental Compliance. Except as set forth in Schedule 3.1.14
[omitted];
3.1.14.1. Environmental Conditions. There are no environmental
conditions or circumstances such as the presence or release of any
hazardous substance on any property presently or previously owned by Gundle
that could result in a material adverse change to Gundle.
3.1.14.2. Permits, etc. Gundle has in full force and effect all
environmental permits, licenses, approvals and other authorizations
required to conduct its operations and is operating in compliance
thereunder.
3.1.14.3. Compliance. Gundle's operations and use of its assets do not
violate any Applicable Environmental Laws, except for violations which,
either singly or in the aggregate, would not result in a material adverse
change to Gundle.
3.1.14.4. Past Compliance. None of the operations or assets of Gundle
has ever been conducted or used in such a manner as to constitute violation
of any of the Applicable Environmental Laws except for violations which,
either singly or in the aggregate, would not result in a material adverse
change to Gundle.
3.1.14.5. Environmental Claims. No notice has been served on Gundle
from any entity, governmental agency or individual regarding any existing,
pending or threatened investigation or inquiry related to alleged
violations under any Applicable Environmental Laws, or regarding any claims
for remedial obligations or contribution under any Applicable Environmental
Laws, other than any of the foregoing which, either singly or in the
aggregate, would not result in a material adverse change to Gundle.
3.1.14.6. Renewals. Gundle does not know of any reason Gundle would
not be able to renew any of the permits, licenses, or other authorizations
required pursuant to any Applicable Environmental Laws to operate and use
any of Gundle's assets for their current purposes and uses.
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3.1.14.7. Asbestos and PCBs. No asbestos or polychlorinated biphenyls
("PCB") are currently being used or have ever been used by Gundle in its
operations or on its properties.
3.1.15. Compliance with Other Laws. Except as set forth in the Reports or
in Schedule 3.1.15 [omitted], Gundle is not in violation of or in default with
respect to, or in alleged violation of or alleged default with respect to, OSHA
or any other applicable law or any applicable rule, regulation, or any writ or
decree of any court or any governmental commission, board, bureau, agency, or
instrumentality, or delinquent with respect to any report required to be filed
with any governmental commission, board, bureau, agency or instrumentality,
except for violations which, either singly or in the aggregate, do not and are
not expected to result in a material adverse change in the financial condition,
properties or business of Gundle.
3.1.16. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Gundle and its counsel,
directly with SLT or its counsel, without the intervention of any other person
as the result of an act of Gundle and, so far as known to Gundle, without the
intervention of any other person in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission, finder's
fee, or any similar payments, other than financial advisory fees to be paid by
Gundle to Smith Barney Inc. ("Smith Barney") for the rendition of a fairness
opinion in connection with the merger contemplated by this Agreement.
3.1.17. ERISA. Gundle does not now maintain, sponsor or contribute to, and
never has maintained, sponsored or contributed to, any program or arrangement
that is an "employee pension benefit plan" or a "multiemployer plan" as such
terms are defined in Sections 3(2) and 3(37) respectively, of ERISA. Gundle does
not maintain or contribute, now or at anytime previously, to a "defined benefit
plan", as defined in Section 3(35) of ERISA.
3.1.18. Investigations; Litigation. Except as required pursuant to HSR and
any applicable comparable foreign laws and regulations, (i) no investigation or
review by any governmental entity with respect to Gundle in connection with any
of the transactions contemplated by this Agreement is pending or, to the best of
Gundle's knowledge, threatened, nor has any governmental entity indicated to
Gundle an intention to conduct the same and (ii) there is no action, suit or
proceeding pending or, to the best of Gundle's knowledge, threatened against or
affecting Gundle or its subsidiaries at law or in equity, or before any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, which either individually or in the aggregate, does
or is likely to have a material adverse affect in its financial condition,
properties or business taken as a whole.
3.1.19. Product Warranty. There are no existing liabilities or, to the
knowledge of Gundle, potential liabilities, arising from claims regarding the
performance or design of the products sold by Gundle either in the past or at
present that in the aggregate would constitute a material adverse change.
3.1.20. Information for Proxy Statement. All information and data
(including financial statements) concerning Gundle which is or will be included
in the Proxy Statement to be used by Gundle in connection with the transactions
contemplated by this Agreement will be furnished by Gundle for inclusion therein
and will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained therein not
misleading.
3.1.21. Compliance with Export Laws. All exports by Gundle of equipment,
software and other technology have been made in compliance with all federal and
other applicable laws, rules and regulations and in connection therewith, Gundle
has obtained all required approvals of the U.S. Department of Commerce and
Department of Treasury.
3.1.22. FIRPTA; Investment Company. Gundle is not a United States real
property holding corporation within the meaning of sec. 897(c)(2) of the Code
during the applicable period specified in sec. 897(c)(1)(A)(ii) of the Code, nor
is it an "investment company," or an "affiliated person of" or "promoter" or
"principal underwriter" of an investment company, as those terms are defined in
the Investment Company Act.
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ARTICLE IV
OBLIGATIONS PENDING EFFECTIVE DATE
4.1. Agreements of Gundle and SLT. Each of Gundle and SLT agrees that from
the date hereof to the Effective Date, it will (and unless otherwise indicated
by the context, since December 31, 1994, it has):
4.1.1. Maintenance of Present Business. Other than as contemplated by
this Agreement, operate its business only in the usual, regular, and
ordinary manner so as to maintain the goodwill it now enjoys and, to the
extent consistent with such operation, use all reasonable efforts to
preserve intact its present business organization, keep available the
services of its present officers and employees, and preserve its
relationships with customers, suppliers, jobbers, distributors, and others
having business dealings with it;
4.1.2. Maintenance of Properties. At its expense, maintain all of its
property and assets in customary repair, order, and condition, reasonable
wear and use and damage by fire or unavoidable casualty excepted;
4.1.3. Maintenance of Books and Records. Maintain its books of account
and records in the usual, regular, and ordinary manner, in accordance with
generally accepted accounting principles applied on a consistent basis;
4.1.4. Compliance with Law. Duly comply in all material respects with
all laws applicable to it and to the conduct of its business; and
4.1.5. Inspection of Each Merging Corporation. Permit the other party
hereto, and their officers and authorized representatives, during normal
business hours, to inspect its records and to consult with its officers,
employees, attorneys, and agents for the purpose of determining the
accuracy of the representations and warranties hereinabove made and the
compliance with covenants contained in this Agreement. Gundle and SLT each
agrees that it and its officers and representatives shall hold all data and
information obtained with respect to the other party hereto in confidence
and each further agrees that it will not use such data or information or
disclose the same to others, except to the extent such data or information
either are, or become, published or a matter of public knowledge.
4.2. Additional Agreements of Gundle and SLT. Gundle and SLT agree to take
the following actions after the date hereof:
4.2.1. Hart-Scott-Rodino. Each party shall file such materials as are
required under the HSR Act with respect to the transaction contemplated hereby
and shall cooperate with the other party to the extent necessary to assist the
other party in the preparation of such filings.
4.2.2. Proxy Statement. Gundle and SLT shall cooperate in the
preparation and prompt filing of a Proxy Statement with the Commission
under the Exchange Act with respect to the meeting of Gundle's stockholders
called for the purpose of, among other things, securing stockholder
approval of the merger contemplated by this Agreement. Each of Gundle and
SLT shall use all reasonable efforts to have the Proxy Statement cleared by
the Commission.
4.2.3. Notice of Material Developments. Each of Gundle and SLT will
promptly notify the other party in writing of any "material adverse change"
in, or any changes which, in the aggregate, could result in a "material
adverse change" in, the consolidated financial condition, business or
affairs of such party, whether or not occurring in the ordinary course of
business. As used in this Agreement, the term "material adverse change"
means any change, event, circumstance or condition (collectively, a
"Change") which when considered with all other Changes would reasonably be
expected to result in a "loss" having the effect of so fundamentally
adversely affecting the business or financial prospects of Gundle or SLT,
as the case may be, that the benefits reasonably expected to be obtained by
such party as a result of the merger contemplated by this Agreement would
be jeopardized with relative certainty. In no event shall a change in the
trading price of the Gundle Common Stock on the American Stock Exchange
between the date hereof and the Effective Date, in and of itself,
constitute a material adverse change. The term "loss" shall mean any and
all direct or indirect payments, obligations, assessments, losses, loss of
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income, liabilities, fines, penalties, costs and expenses paid or incurred
or more likely than not to be paid or incurred, or diminutions in value of
any kind or character (whether or not known or unknown, conditional or
unconditional, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent or otherwise) that are more likely
than not to occur, including without limitation penalties, interest on any
amount payable to a third party as a result of the foregoing and any legal
or other expenses reasonably incurred or more likely than not to be
incurred in connection with investigating or defending any demands, claims,
actions or causes of action that, if adversely determined, would likely
result in losses, and all amounts paid in settlement of claims or actions;
provided, however, that losses shall be net of any insurance proceeds
entitled to be received from a nonaffiliated insurance company on account
of such losses (after taking into account any costs incurred in obtaining
such proceeds and any increase in insurance premiums as a result of a claim
with respect to such proceeds);
4.3. Additional Agreements of SLT. SLT agrees that from December 31, 1994
it has not, and from the date hereof to the Effective Date, it will:
4.3.1. Prohibition of Certain Employment Contracts. Not enter into any
contracts of employment which (i) cannot be terminated on notice of 14 days
or less or (ii) provide for any severance payments or benefits covering a
period beyond the termination date (other than those which Gundle has
previously approved) except as may be required by law;
4.3.2. Prohibition of Certain Loans. Not incur any borrowings except
(i) the refinancing of indebtedness now outstanding or additional
borrowings under its existing revolving credit facilities, (ii) the
prepayment by customers of amounts due or to become due for goods sold or
services rendered or to be rendered in the future, (iii) trade payables
incurred in the ordinary course of business, (iv) other borrowings incurred
in the ordinary course of business to finance normal operations or (v) as
is otherwise agreed to in writing by Gundle;
4.3.3. Prohibition of Certain Commitments. Not enter into commitments
of a capital expenditure nature or incur any contingent liability which
would exceed $375,000, in the aggregate, except (i) as may be necessary for
the maintenance of existing facilities, machinery and equipment in good
operating condition and repair in the ordinary course of business, (ii) as
may be required by law or (iii) as is otherwise agreed to in writing by
Gundle;
4.3.4. Disposal of Assets. Not sell, dispose of, or encumber, any
property or assets, except (i) in the ordinary course of business or (ii)
as is otherwise agreed to in writing by Gundle;
4.3.5. Maintenance of Insurance. Maintain insurance upon all its
properties and with respect to the conduct of its business of such kinds
and in such amounts as is customary in the type of business in which it is
engaged, but not less than that presently carried by it, which insurance
may be added to from time to time in its discretion; provided, that if
during the period from the date hereof to and including the Effective Date
any of its property or assets are damaged or destroyed by fire or other
casualty, the obligations of Gundle and SLT under this Agreement shall not
be affected thereby (subject, however, to the provision that the coverage
limits of such policies are adequate in amount to cover the replacement
value of such property or assets and loss of profits during replacement,
less commercially reasonable deductible, if of material significance to the
assets or operations of SLT) but it shall promptly notify Gundle in writing
thereof and proceed with the repair or restoration of such property or
assets in such manner and to such extent as may be approved by Gundle, and
upon the Effective Date all proceeds of insurance and claims of every kind
arising as a result of any such damage or destruction shall remain the
property of Surviving Corporation;
4.3.6. SLT Acquisition Proposals. Not directly or indirectly:
4.3.6.1. No Solicitation. Authorize or permit any of its respective
agents to: (i) solicit, initiate, encourage (including by way of
furnishing information) or take any other action to facilitate, any
inquiry or the making of any proposal which constitutes, or may
reasonably be expected to lead to, any acquisition or purchase of a
substantial amount of assets of, or any equity interest in, SLT or any
merger, consolidation, business combination, sale of substantially all
assets, sale of securities,
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recapitalization, liquidation, dissolution or similar transaction
involving SLT (other than the transactions contemplated by this
Agreement) or any other material corporate transaction the consummation
of which would or could reasonably be expected to impede, interfere
with, prevent or materially delay the merger contemplated by this
Agreement (collectively, "SLT Transaction Proposals") or agree to or
endorse any SLT Transaction Proposal or (ii) propose, enter into or
participate in any discussions or negotiations regarding any of the
foregoing, or furnish to another person any information with respect to
its business, properties or assets or any of the foregoing, or otherwise
cooperate in any way with, or assist or participate in, facilitate or
encourage, an effort or attempt by any other person to do or seek any of
the foregoing, provided, however, that the foregoing clauses (i) and
(ii) shall not prohibit SLT from (A) furnishing information pursuant to
an appropriate confidentiality letter concerning SLT and its businesses,
properties or assets to a third party who has made a Superior SLT
Transaction Proposal (as defined below), (B) engaging in discussions or
negotiations with such a third party who has made a Superior SLT
Transaction Proposal or (C) following receipt of a Superior SLT
Transaction Proposal, taking and disclosing to its shareholders a
position with respect thereto or changing the recommendation by SLT's
board of directors or the vote of SLT's shareholders in favor of this
Agreement or the merger contemplated hereby, but in each case referred
to in the foregoing clauses (A) through (C) only after the board of
directors of SLT concludes in good faith following advice of its outside
counsel that such action is reasonably necessary for the board of
directors of SLT to comply with its fiduciary obligations to
stockholders under applicable law. If the board of directors of SLT
receives an SLT Transaction Proposal, then SLT shall immediately inform
Gundle of the terms and conditions of such proposal and the identity of
the person making it and shall keep Gundle fully informed of the status
and details of any such SLT Transaction Proposal and of all steps it is
taking in response to such SLT Transaction Proposal; provided that
nothing contained in this Paragraph 4.3.6.1 shall prohibit SLT or its
board of directors from making such disclosure to SLT's stockholders
which, in the good faith judgment of SLT's board of directors, may be
required under applicable law. For purposes of this Agreement, the term
"Superior SLT Transaction Proposal" shall mean a bona fide SLT
Transaction Proposal that the board of directors of SLT determines in
good faith after consultation with (and based in part on the advice of)
its independent financial advisors to be more favorable to SLT's
stockholders than the merger contemplated by this Agreement, is
reasonably capable of being financed and is not subject to any material
contingencies relating to financing.
4.3.6.2. Acceptance of Superior SLT Transaction Proposals. If (i)
(A) this Agreement is terminated by SLT pursuant to Paragraph 6.1.7
hereof, (B) SLT shall violate the covenant set forth in Paragraph
4.3.6.1 hereof, or (C) SLT modifies or withdraws its board of directors'
recommendation or stockholders' vote in favor of the transactions
contemplated by this Agreement or (ii) SLT enters into an agreement
which provides for Another SLT Transaction (as defined below) or Another
SLT Transaction is consummated (with any third party which before
termination of this Agreement has communicated to it for the purpose of
making an SLT Transaction Proposal), in either case within twelve months
after the date of termination of this Agreement, then, in any such
event, SLT shall pay to Gundle within two days after demand by Gundle in
the case of the occurrence of any of the events specified in clause (i)
above, and immediately upon the first to occur of the entering into an
agreement providing for, or the consummation of, Another SLT Transaction
in the case of clause (ii) above (by wire transfer of immediately
available funds to an account designated by Gundle for such purpose), a
Break-Up Fee (the "Break-Up Fee") in an amount equal to $3,000,000, plus
transaction expenses, including legal fees. SLT agrees that the Break-Up
Fee is a reasonable determination, in light of the uncertainty and
difficulty of ascertaining the exact amount thereof, of the loss that
Gundle would actually sustain in respect of one of the events described
in this Paragraph 4.3.6.2. For purposes of this Paragraph 4.3.6.2, the
term "Another SLT Transaction" shall mean any transaction pursuant to
which (i) any person, entity or group (within the meaning of Section
13(d)(3) of the Exchange Act) (each, a "Third Party") acquires 50% or
more of the outstanding SLT Common Stock, (ii) a Third Party acquires
25% or more of the total assets of SLT taken as a whole, (iii) a Third
Party merges, consolidates or combines in any other way with SLT
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other than in a transaction in which holders of SLT Common Stock
continue to own at least 75% of the equity of the surviving corporation,
or (iv) SLT distributes or transfers to its stockholders, by dividend or
otherwise, assets constituting 25% or more of the market value or
earning power of SLT on a consolidated basis (it being understood that
stock of subsidiaries constitute assets of SLT for purposes of this
Paragraph 4.3.6.2). Notwithstanding anything contained in this Agreement
to the contrary, Gundle agrees that if Gundle terminates this Agreement
because SLT has violated the covenant set forth in Paragraph 4.3.6.1
hereof and SLT pays the Break-Up Fee to Gundle in accordance with this
Paragraph 4.3.6.2 solely because SLT shall have violated the covenant
set forth in Paragraph 4.3.6.1 hereof, then following such payment SLT
shall have no further liability to Gundle under this Agreement. Gundle
further agrees that in all other circumstances where it has been paid
the Break-Up Fee by SLT, such Break-Up Fee will be credited against any
other damages for which SLT may be found liable to Gundle in connection
with this Agreement. SLT shall only be obligated to pay the Break-Up Fee
once, notwithstanding that it may have more than one obligation to do so
under this Paragraph 4.3.6.2.
4.3.7. No Amendment to Certificate of Incorporation, etc. Not amend
its certificate of incorporation or bylaws or other organizational
documents or merge or consolidate with or into any other corporation or
change in any manner the rights of its capital stock or the character of
its business;
4.3.8. No Issuance, Sale, or Purchase of Securities. Not issue or
sell, or issue options or rights to subscribe to, or enter into any
contract or commitment to issue or sell (upon conversion or otherwise), any
shares of its capital stock or subdivide or in any way reclassify any
shares of its capital stock, or acquire, or agree to acquire, any shares of
its capital stock;
4.3.9. Prohibition on Dividends. Not declare or pay any dividend on
shares of its capital stock or make any other distribution of assets to the
holders thereof;
4.3.10. Supplemental Financial Statements. Deliver to Gundle, within
45 days after the end of each fiscal quarter of SLT beginning March 31,
1995 and through the Effective Date, unaudited consolidated balance sheets
and related unaudited statements of income, retained earnings and cash
flows as of the end of each fiscal quarter of SLT, and as of the
corresponding fiscal quarter of the previous fiscal year. SLT hereby
represents and warrants that such unaudited consolidated financial
statement shall (i) be complete in all material respects except for the
omission of notes and schedules contained in audited financial statements,
(ii) present fairly the financial condition of SLT as at the dates
indicated and the results of operations for the respective periods
indicated (iii) shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis, except as
noted therein and (iv) shall contain all adjustments which SLT considers
necessary for a fair presentation of its results for each respective fiscal
period.
4.4. Additional Agreements of Gundle. Gundle agrees that from December 31,
1994 it has not, and from the date hereof to the Effective Date, it will:
4.4.1. Prohibition of Certain Employment Contracts. Not enter into any
contracts of employment which (i) cannot be terminated on notice of 14 days
or less or (ii) provide for any severance payments or benefits covering a
period beyond the termination date (other than those to which SLT has
previously been approved) except as may be required by law;
4.4.2. Prohibition of Certain Loans. Except as contemplated by
Paragraph 4.4.14, not incur any borrowings except (i) the refinancing of
indebtedness now outstanding or additional borrowings under its existing
revolving credit facilities, (ii) the prepayment by customers of amounts
due or to become due for goods sold or services rendered or to be rendered
in the future, (iii) trade payables incurred in the ordinary course of
business, (iv) other borrowings incurred in the ordinary course of business
to finance normal operations or (v) as is otherwise agreed to in writing by
SLT;
4.4.3. Prohibition of Certain Commitments. Not (a) enter into
commitments of a capital expenditure nature or incur any contingent
liability which would exceed $375,000, in the aggregate, except (i) as may
be necessary for the maintenance of existing facilities, machinery and
equipment in good operating
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condition and repair in the ordinary course of business, (ii) as may be
required by law or (iii) as is otherwise agreed to in writing by SLT or (b)
enter into any agreement with any affiliate of Gundle without SLT's written
consent;
4.4.4. Disposal of Assets. Not sell, dispose of, or encumber, any
property or assets, except (i) in the ordinary course of business or (ii)
as is otherwise agreed to in writing by SLT;
4.4.5. Maintenance of Insurance. Maintain insurance upon all its
properties and with respect to the conduct of its business of such kinds
and in such amounts as is customary in the type of business in which it is
engaged, but not less than that presently carried by it, which insurance
may be added to from time to time in its discretion; provided, that if
during the period from the date hereof to and including the Effective Date
any of its property or assets are damaged or destroyed by fire or other
casualty, the obligations of Gundle and SLT under this Agreement shall not
be affected thereby (subject, however, to the provision that the coverage
limits of such policies are adequate in amount to cover the replacement
value of such property or assets and loss of profits during replacement,
less commercially reasonable deductible, if of material significance to the
assets or operations of Gundle) but it shall promptly notify SLT in writing
thereof and proceed with the repair or restoration of such property or
assets in such manner and to such extent as may be approved by SLT, and
upon the Effective Date all proceeds of insurance and claims of every kind
arising as a result of any such damage or destruction shall remain the
property of Surviving Corporation;
4.4.6. Acquisition Proposals. Not directly or indirectly:
4.4.6.1. No Solicitation. Authorize or permit any of its respective
agents to: (i) solicit, initiate, encourage (including by way of
furnishing information) or take any other action to facilitate, any
inquiry or the making of any proposal which constitutes, or may
reasonably be expected to lead to, any acquisition or purchase of a
substantial amount of assets of, or any equity interest in, Gundle or
any tender offer (including a self tender offer) or exchange offer,
merger, consolidation, business combination, sale of substantially all
assets, sale of securities, recapitalization, liquidation, dissolution
or similar transaction involving Gundle (other than the transactions
contemplated by this Agreement) or any other material corporate
transaction the consummation of which would or could reasonably be
expected to impede, interfere with, prevent or materially delay the
merger contemplated by this Agreement (collectively, "Gundle Transaction
Proposals") or agree to or endorse any Gundle Transaction Proposal or
(ii) propose, enter into or participate in any discussions or
negotiations regarding any of the foregoing, or furnish to another
person any information with respect to its business, properties or
assets or any of the foregoing, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, an effort or
attempt by any other person to do or seek any of the foregoing,
provided, however, that the foregoing clauses (i) and (ii) shall not
prohibit Gundle from (A) furnishing information pursuant to an
appropriate confidentiality letter concerning Gundle and its businesses,
properties or assets to a third party who has made a Superior Gundle
Transaction Proposal (as defined below), (B) engaging in discussions or
negotiations with such a third party who has made a Superior Gundle
Transaction Proposal or (C) following receipt of a Superior Gundle
Transaction Proposal, taking and disclosing to its shareholders a
position contemplated by Rule 14e-2(a) under the Exchange Act or
changing the recommendation by Gundle's board of directors of this
Agreement or the merger contemplated hereby, but in each case referred
to in the foregoing clauses (A) through (C) only after the board of
directors of Gundle concludes in good faith following advice of its
outside counsel that such action is reasonably necessary for the board
of directors of Gundle to comply with its fiduciary obligations to
stockholders under applicable law. If the board of directors of Gundle
receives a Gundle Transaction Proposal, then Gundle shall immediately
inform SLT of the terms and conditions of such proposal and the identity
of the person making it and shall keep SLT fully informed of the status
and details of any such Gundle Transaction Proposal and of all steps it
is taking in response to such Gundle Transaction Proposal; provided that
nothing contained in this Paragraph 4.4.6.1 shall prohibit Gundle or its
board of directors from disclosing to the Gundle stockholders a position
with respect to a tender offer by a third party pursuant to Rule 14d-9
and 14e-2 promulgated under the Exchange Act or from making
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such disclosure to Gundle's stockholders which, in the good faith
judgment of Gundle's board of directors may be required under applicable
law. For purposes of this Agreement, the term "Superior Gundle
Transaction Proposal" shall mean a bona fide Gundle Transaction Proposal
that the board of directors of Gundle determines in good faith after
consultation with (and based in part on advice of) its independent
financial advisors to be more favorable to Gundle's stockholders than
the merger contemplated by this Agreement, is reasonably capable of
being financed and is not subject to any material contingencies relating
to financing.
4.4.6.2. Acceptance of Superior Transaction Proposals. If (i) (A)
this Agreement is terminated by Gundle pursuant to Paragraph 6.1.4
hereof, (B) Gundle shall violate the covenant set forth in Paragraph
4.4.6.1 hereof, or (C) Gundle modifies or withdraws its recommendation
that the Gundle stockholders vote their Gundle Common Stock in favor of
the transactions contemplated by this Agreement or (ii) Gundle enters
into an agreement which provides for Another Gundle Transaction (as
defined below) or Another Gundle Transaction is consummated (with any
third party which before termination of this Agreement has communicated
to it for the purpose of making a Gundle Transaction Proposal), in
either case within twelve months after the date of termination of this
Agreement, then, in any such event, Gundle shall pay to SLT within two
days after demand by SLT in the case of the occurrence of any of the
events specified in clause (i) above, and immediately upon the first to
occur of the entering into an agreement providing for, or the
consummation of, Another Gundle Transaction in the case of clause (ii)
above (by wire transfer of immediately available funds to an account
designated by SLT for such purpose), a Break-Up Fee in an amount equal
to $3,000,000, plus transaction expenses, including legal fees. Gundle
agrees that the Break-Up Fee is a reasonable determination, in light of
the uncertainty and difficulty of ascertaining the exact amount thereof,
of the loss that SLT would actually sustain in respect of one of the
events described in this Paragraph 4.4.6.2. For purposes of this
Paragraph 4.4.6.2, the term "Another Gundle Transaction" shall mean any
transaction pursuant to which (i) any Third Party acquires 50% or more
of the outstanding Gundle Common Stock, (ii) a Third Party acquires 25%
or more of the total assets of Gundle taken as a whole, (iii) a Third
Party merges, consolidates or combines in any other way with Gundle
other than in a transaction in which holders of Gundle Common Stock
continue to own at least 75% of the equity of the surviving corporation,
or (iv) Gundle distributes or transfers to its stockholders, by dividend
or otherwise, assets constituting 25% or more of the market value or
earning power of Gundle on a consolidated basis (it being understood
that stock of subsidiaries constitute assets of Gundle for purposes of
this Paragraph 4.4.6.2). Notwithstanding anything contained in this
Agreement to the contrary, SLT agrees that if SLT terminates this
Agreement because Gundle has violated the covenant set forth in
Paragraph 4.4.6.1 hereof and Gundle pays the Break-Up Fee to SLT in
accordance with this Paragraph 4.4.6.2 solely because Gundle shall have
violated the covenant set forth in Paragraph 4.4.6.1 hereof, then
following such payment Gundle shall have no further liability to SLT
under this Agreement. SLT further agrees that in all other circumstances
where it has been paid the Break-Up Fee by Gundle, such Break-Up Fee
will be credited against any other damages for which Gundle may be found
liable to SLT in connection with this Agreement. Gundle shall only be
obligated to pay the Break-Up Fee once, notwithstanding that it may have
more than one obligation to do so under this Paragraph 4.4.6.2.
4.4.7. No Amendment to Certificate of Incorporation, etc. Except as
otherwise provided herein, not amend its certificate of incorporation or
bylaws or other organizational documents or merge into any other
corporation or change in any manner the rights of its Common Stock;
provided, that nothing in this Paragraph shall restrict or prohibit the
issuance by Gundle of shares of Gundle Common Stock under presently
outstanding obligations pursuant to existing employee benefit plans;
4.4.8. No Issuance, Sale, or Purchase of Securities. Not issue or
sell, or issue options or rights to subscribe to, or enter into any
contract or commitment to issue or sell (upon conversion or otherwise), any
shares of its capital stock or subdivide or in any way reclassify any
shares of its capital stock, or acquire, or agree to acquire, any shares of
its capital stock;
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4.4.9. Prohibition on Dividends. Not declare or pay any dividend on
shares of its capital stock or make any other distribution of assets to the
holders thereof;
4.4.10. Stockholders' Meeting. Promptly call and hold a meeting of
stockholders for the purpose of considering and acting upon proposals to
(i) approve the merger contemplated by this Agreement, (ii) elect the board
of directors set forth in Section 1.7.1., (iii) increase the authorized
number of shares of its preferred stock from the present 1,000 shares of
preferred stock, no par value, to 1,000,000 shares of preferred stock, par
value $1 per share, undesignated as to series, (iv) increase the authorized
number of shares of Gundle Common Stock to 30,000,000 shares from the
present 15,000,000, and (v) change the name of the Surviving Corporation to
Gundle/SLT Environmental, Inc.;
4.4.11. Issuance of Gundle Common Stock. Gundle shall take all action
it deems reasonably necessary to insure that the issuance of Gundle Common
Stock to the shareholders of SLT in connection with the merger contemplated
by this Agreement should be made pursuant to an exemption from registration
under the Securities Act of 1933, as amended. Gundle also shall take any
action reasonably required to be taken under state blue sky or securities
laws in connection with the issuance of the Gundle Common Stock pursuant to
the merger;
4.4.12. Listing of Gundle Stock. Take such steps as are required to
accomplish, as of the Effective Date, the listing on the American Stock
Exchange of the shares of Gundle Common Stock to be issued pursuant to this
Agreement;
4.4.13. Notice of Material Developments. Promptly furnish to SLT
copies of all communications from Gundle to its stockholders and all
reports filed by it with the Commission and the American Stock Exchange,
and relating to periodic or other material developments concerning Gundle's
financial condition, business, or affairs; and
4.4.14. Refinancing of Outstanding Indebtedness. Use all reasonable
commercial efforts to arrange for the payment or assumption by it of all
outstanding debt of SLT on the Effective Date on such terms as are
reasonably satisfactory to Gundle, including (i) the borrowing by Gundle of
up to an additional $35,000,000 to fund any such repayment and (ii) the
amendment or refunding of its present long-term and revolving indebtedness,
in either such case on terms acceptable to it in its sole discretion;
provided that any such assumption or refinancing shall provide for the
release, as of the Effective Date, of any outstanding guaranties or other
forms of credit support presently provided to SLT by its stockholders,
except for letters of credit aggregating not more than $4,000,000
guaranteed by such stockholders, which shall remain outstanding until the
maturity of the bonds secured by such letters of credit or December 31,
1995, whichever is first to occur (the "Refinancing"). Gundle shall permit
members of SLT's senior management to participate in the negotiation of the
terms and conditions of the Refinancing, provided, however, that Gundle
shall not be obligated to consummate the Refinancing on terms other than
those it believes to be in the best interests of Gundle and its
shareholders.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1. Conditions Precedent to Obligations of SLT. The obligations of SLT to
consummate and effect the merger hereunder shall be subject to the satisfaction
of the following conditions, or to the waiver thereof by SLT in the manner
contemplated by Section 6.4 before the Effective Date or closing date:
5.1.1. Representations and Warranties of Gundle True at Effective
Date. The representations and warranties of Gundle herein contained shall
be, in all material respects, true as of and at the Effective Date with the
same effect as though made at such date, except as affected by transactions
permitted or contemplated by this Agreement; Gundle shall have performed
and complied with all covenants required by this Agreement to be performed
or complied, in all material respects, with by Gundle before the Effective
Date; and Gundle shall have delivered to SLT a certificate, dated the
Effective Date and signed
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by its chairman of the board or its president, and by its chief financial
or accounting officer, and its secretary, to both such effects.
5.1.2. No Material Litigation. No suit, action, or other proceeding
shall be pending, or to Gundle's knowledge, threatened, before any court or
governmental agency in which it will be, or it is, sought to restrain or
prohibit or to obtain damages or other relief in connection with this
Agreement or the consummation of the merger contemplated hereby or which
might result in a material adverse change in the value of the consolidated
assets and business of Gundle.
5.1.3. Opinion of Gundle Counsel. SLT shall have received a favorable
opinion, dated as of the Effective Date, from Porter & Hedges, L.L.P.,
counsel for Gundle, in form and substance satisfactory to SLT, to the
effect that (i) Gundle has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware;
(ii) all corporate proceedings required to be taken by or on the part of
Gundle to authorize the execution of this Agreement and the Registration
Rights Agreement in the form of Appendix III hereto [omitted] (the
"Registration Rights Agreement") and the implementation of the merger
contemplated hereby have been taken; (iii) the shares of Gundle Common
Stock which are to be delivered in accordance with this Agreement will,
when issued, be validly issued, fully paid and nonassessable outstanding
securities of Gundle; (iv) this Agreement and the Registration Rights
Agreement have been duly executed and delivered by, and are the legal,
valid and binding obligations of Gundle and are enforceable against Gundle
in accordance with their respective terms, except as enforceability may be
limited by (a) equitable principles of general applicability or (b)
bankruptcy, insolvency, reorganization, fraudulent conveyance or similar
laws affecting the rights of creditors generally and except that no opinion
need be expressed as to the enforceability of any indemnification
provisions of this Agreement or of the Registration Rights Agreement; and
(v) except as specified by such counsel (such exceptions to be acceptable
to SLT) such counsel does not know of any material litigation, proceedings,
or governmental investigation pending or threatened against or relating to
Gundle, any of its subsidiaries, or their respective properties or
businesses in which it is sought to restrain, prohibit or otherwise affect
the consummation of the transactions contemplated by this Agreement or the
Registration Rights Agreement. Such opinion also shall cover such other
matters incident to the transactions herein contemplated as SLT and its
counsel may reasonably request. In rendering such opinion, such counsel may
rely upon (i) certificates of public officials and of officers of Gundle as
to matters of fact and (ii) the opinion or opinions of other counsel, which
opinions shall be reasonably satisfactory to SLT, as to matters other than
federal or Texas law.
5.1.4. Stockholder Approval. The approval of a majority of the
stockholders of SLT of the merger contemplated by this Agreement on or
before the date of this Agreement, and such approval shall not have been
amended, modified or rescinded on or before the Effective Date.
5.1.5. Hart-Scott-Rodino, etc. All waiting periods required by HSR
shall have expired with respect to the transactions contemplated by this
Agreement, or early termination with respect thereto shall have been
obtained without the imposition of any governmental request or order
requiring the sale or disposition or holding separate (through a trust or
otherwise) of particular assets or businesses of Gundle, its affiliates or
any component of SLT or other actions as a precondition to the expiration
of any waiting period or the receipt of any necessary governmental approval
or consent. In addition, any approvals required under any state or foreign
laws comparable to HSR shall have been obtained.
5.1.6. Listing of Gundle Common Stock. The American Stock Exchange
shall have agreed that on the Effective Date it will list the shares of
Gundle Common Stock issuable at the Effective Date of this Agreement.
5.1.7. Consent of Certain Parties in Privity With Gundle. The holders
of any material indebtedness of Gundle, the lessors of any material
property leased by Gundle, and the other parties to any other material
agreements to which Gundle is a party shall, when and to the extent
necessary in the reasonable opinion of SLT, have consented to the merger
contemplated hereby.
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5.1.8. Registration Rights Agreement. Gundle shall have executed and
delivered to SLT the Registration Rights Agreement.
5.1.9. Ancillary Matters. Gundle shall have concluded the Refinancing,
subject only to consummation of the merger contemplated by this Agreement.
5.2. Conditions Precedent to Obligations of Gundle. The obligations of
Gundle to consummate and effect the merger hereunder shall be subject to the
satisfaction of the following conditions, or to the waiver thereof by Gundle in
the manner contemplated by Section 6.4 before the Effective Date or closing
date.
5.2.1. Representations and Warranties of SLT True at Effective Date.
The representations and warranties of SLT herein contained shall be, in all
material respects, true as of and at the Effective Date with the same
effect as though made at such date, except as affected by transactions
permitted or contemplated by this Agreement; SLT shall have performed and
complied with all covenants required by this Agreement to be performed or
complied with, in all material respects, by it before the Effective Date;
and SLT shall have delivered to Gundle a certificate, dated the Effective
Date and signed by its chairman of the board or its president, and by its
chief financial or accounting officer, and by its secretary to both such
effects.
5.2.2. No Material Litigation. No suit, action, or other proceeding
shall be pending, or to SLT's knowledge, threatened, before any court or
governmental agency in which it will be, or it is, sought to restrain or
prohibit or to obtain damages or other relief in connection with this
Agreement or the consummation of the merger contemplated hereby or which
might result in a material adverse change in the value of the assets and
business of SLT.
5.2.3. Opinion of SLT's Counsel. Gundle shall have received a
favorable opinion, dated the Effective Date, from Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel, counsel to SLT, in form and substance satisfactory
to Gundle, to the effect that (i) SLT has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
State of Delaware; (ii) all outstanding shares of the SLT Common Stock have
been validly issued and are fully paid and nonassessable; (iii) all
corporate or other proceedings required to be taken by or on the part of
SLT to authorize the execution of this Agreement and the implementation of
the merger contemplated hereby have been taken; (iv) this Agreement has
been duly executed and delivered by, and is the legal, valid and binding
obligation of SLT and is enforceable against SLT in accordance with its
terms, except as the enforceability may be limited by (a) equitable
principles of general applicability or (b) bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting the rights
of creditors generally and except that no opinion need be expressed as to
the enforceability of any indemnification provisions of this Agreement; and
(v) except as specified by such counsel (such exceptions to be acceptable
to Gundle) such counsel does not know of any material litigation,
proceedings or governmental investigation, pending or threatened against or
relating to SLT or its properties or businesses in which it is sought to
restrain, prohibit or otherwise affect consummation of the transactions
contemplated by this Agreement. Such opinion shall also cover such other
matters incident to the transactions herein contemplated as Gundle and its
counsel may reasonably request. In rendering such opinion, such counsel may
rely upon (i) certificates of public officials and of officers of SLT as to
matters of fact and (ii) on the opinion or opinions of other counsel, which
opinions shall be reasonably satisfactory to Gundle, as to matters other
than federal or New York law.
5.2.4. Stockholder Approval. At the meeting of stockholders of Gundle
to be held before the Effective Date, the holders of the requisite majority
of the outstanding shares of Gundle Common Stock shall have approved the
merger contemplated by this Agreement.
5.2.5. Hart-Scott-Rodino, etc. All waiting periods required by HSR
shall have expired with respect to the transactions contemplated by this
Agreement, or early termination with respect thereto shall have been
obtained without the imposition of any governmental request or order
requiring the sale or disposition or holding separate (through a trust or
otherwise) of particular assets or businesses of Gundle, its affiliates or
any component of SLT or other actions as a precondition to the expiration
of any waiting
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period or the receipt of any necessary governmental approval or consent. In
addition, any approvals required under any state or foreign laws comparable
to HSR shall have been obtained.
5.2.6. Consent of Certain Parties in Privity with SLT. The holders of
any material indebtedness of SLT, the lessors of any material property
leased by SLT, and the other parties to any other material agreements to
which SLT is a party shall, when and to the extent necessary in the
reasonable opinion of Gundle, have consented to the merger contemplated
hereby.
5.2.7. Employment Agreement With William P. Reid. On or before the
date of execution of this Agreement, William P. Reid will have executed an
employment agreement in form and substance satisfactory to Gundle, such
agreement to take effect on the Effective Date, and to be in full force and
effect on the Effective Date.
5.2.8. Insurance. Gundle shall have purchased directors and officers
liability insurance containing coverage at least equal to that currently
maintained by Gundle with respect to matters occurring before the Effective
Date, and insuring all persons for a period of at least six years following
the Effective Date who were directors or officers of Gundle before the
Effective Date, but who cease to be directors or officers of Gundle after
the Effective Date (the "Retiring Directors and Officers"). The Retiring
Directors and Officers shall be third party beneficiaries to such insurance
policy.
5.2.9. Ancillary Matters. Gundle shall have concluded the Refinancing,
subject only to consummation of the merger contemplated by this Agreement,
and it shall have received a favorable opinion from Smith Barney for
inclusion in the Proxy Statement as to the fairness, from a financial point
of view, to Gundle of the consideration to be paid by Gundle in the merger,
which opinion shall not have been withdrawn at the Effective Date.
ARTICLE VI
TERMINATION AND ABANDONMENT
6.1. Termination. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the merger contemplated
hereby abandoned at any time (whether before or after the approval and adoption
thereof by the stockholders of SLT or Gundle) before the Effective Date:
6.1.1. By Mutual Consent. By mutual consent of Gundle and SLT.
6.1.2. By Gundle Because of Dissenting Stockholders. By Gundle, if the
holders of any shares of SLT Common Stock elect to exercise the right to
dissent under applicable provisions of Delaware law in connection with the
merger contemplated by this Agreement.
6.1.3. By Gundle Because of Conditions Precedent. By Gundle, if any
condition set forth in Paragraph 5.2 hereof has not been met and has not
been waived.
6.1.4. By Gundle Due to a Superior Gundle Transaction Proposal. By
Gundle if, before the Effective Date, Gundle's board of directors shall
have withdrawn or modified in a manner adverse to SLT its approval or
recommendation of this Agreement or the merger contemplated hereby under
the terms, conditions and procedures set forth in Paragraph 4.4.6.2.
6.1.5. By Gundle Because of Material Adverse Change. By Gundle, if
there has been a material adverse change in the financial condition or
business of SLT since the date of the most recent financial statements
referred to in Paragraph 2.1.5.
6.1.6. By SLT Because of Conditions Precedent. By SLT, if any
condition set forth in Paragraph 5.1 hereof has not been met and has not
been waived.
6.1.7. By SLT Due to a Superior SLT Transaction Proposal. By SLT if,
before the Effective Date, SLT's stockholders or board of directors shall
have withdrawn or modified in a manner adverse to Gundle their approval of
this Agreement or the merger contemplated hereby under the terms,
conditions and procedures set forth in Paragraph 4.3.6.2.
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6.1.8. By SLT Because of Material Adverse Change. By SLT, if there has
been a material adverse change in the financial condition or business of
Gundle since the date of the financial statements contained in the most
recent Report referred to in Paragraph 3.1.5 filed with the Commission
under the Exchange Act.
6.1.9. By Gundle or SLT Because of Legal Proceedings. By either Gundle
or SLT if any suit, action, or other proceeding shall be pending or
threatened by the federal or a state government before any court or
governmental agency, in which it is sought to restrain, prohibit, or
otherwise affect the consummation of the merger contemplated hereby.
6.1.10. By Gundle or SLT if Merger not Effective by July 31, 1995. By
either Gundle or SLT, if the merger shall not have become effective on or
before July 31, 1995.
6.2. Termination by Board of Directors. An election of Gundle to terminate
this Agreement and abandon the merger as provided in Paragraph 6.1 shall be
exercised on behalf of Gundle by its board of directors. An election of SLT to
terminate this Agreement and abandon the merger as provided in Paragraph 6.1
shall be exercised on behalf of SLT by its board of directors.
6.3. Effect of Termination. In the event of the termination and abandonment
of this Agreement pursuant to and in accordance with the provisions of Paragraph
6.1 hereof, this Agreement shall become void and have no effect, without any
liability on the part of any party hereto (or its stockholders or controlling
persons or directors or officers), except as otherwise provided in this
Agreement; provided, however, that no party hereto shall waive any term or
condition hereof, unless in the judgment of the board of directors taking the
action, such waiver will not have a materially adverse effect on the benefits
intended under this Agreement to the stockholders of its corporation.
6.4. Waiver of Conditions. Subject to the requirements of any applicable
law, any of the terms or conditions of this Agreement may be waived at any time
by the party which is entitled to the benefit thereof, by action taken by its
board of directors, the executive committee of its board of directors, or its
chief executive officer.
6.5. Expense on Termination. If the merger contemplated hereby is abandoned
pursuant to and in accordance with the provisions of Paragraph 6.1 hereof, all
expenses will be paid by the party incurring them, provided, however, that if
either Gundle or SLT abandons this Agreement due to the failure of the other
party to obtain the requisite approval of a majority of its stockholders, then
the party that failed to obtain such shareholder approval shall pay all of the
other party's reasonable costs and expenses, including legal fees and expenses,
incurred in connection with the negotiation and implementation of this
Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. Indemnification by SLT as to Proxy Statement. SLT agrees to indemnify
and hold harmless Gundle and its officers and directors and each person who
controls Gundle within the meaning of Section 15 of the Securities Act of 1933,
as amended (the "Securities Act") or Section 20 of the Exchange Act against any
and all losses, claims, damages, or liabilities, joint or several, to which any
of them may become subject under the Securities Act, the Exchange Act or any
other statute or common law, and to reimburse them for any legal or other
expenses incurred by them in connection with investigating any claims and
defending any actions, to the extent such losses, claims, damages, liabilities,
or actions arise out of or are based upon (i) any false, misleading or untrue
statement or alleged false, misleading or untrue statement of a material fact,
insofar as it relates to SLT, contained in the Proxy Statement in the form
mailed to the stockholders of Gundle, or (ii) the omission or alleged omission
to state in the Proxy Statement a material fact required to be stated therein or
necessary to make the statements therein not misleading, and insofar as the same
relates to SLT.
7.2. Indemnification by Gundle as to Proxy Statement. Gundle agrees to
indemnify and hold harmless SLT and its officers and directors and each person
who controls SLT within the meaning of Section 15 of the
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Securities Act or Section 20 of the Exchange Act against any and all losses,
claims, damages, or liabilities, joint or several, to which any of them may
become subject under the Securities Act, the Exchange Act or any other statute
or common law, and to reimburse them for any legal or other expenses incurred by
them in connection with investigating any claims and defending any actions, to
the extent such losses, claims, damages, liabilities, or actions arise out of or
are based upon (i) any false, misleading or untrue statement or alleged false,
misleading or untrue statement of a material fact, insofar as it relates to
Gundle contained in the Proxy Statement in the form mailed to the stockholders
of Gundle or (ii) the omission or alleged omission to state in the Proxy
Statement a material fact required to be stated therein or necessary to make the
statements therein not misleading, and insofar as the same relates to Gundle.
7.3. Undertaking to File Reports and Cooperate in Rule 144 and Rule 145
Transactions. For as long as any stockholders of SLT who are subject to Rule 144
or Rule 145 of the Securities Act continue to hold the shares of Gundle Common
Stock issued pursuant to the terms hereof, Gundle will use reasonable commercial
efforts to timely file all annual, quarterly and other reports required to be
filed by it under Section 13 or 15(d) of the Exchange Act and the rules and
regulations of the Commission thereunder, as amended from time to time. If any
such stockholder proposes to sell any Gundle Common Stock pursuant to Rule 144
and 145, Gundle shall cooperate with such stockholders so as to enable such
sales to be made in accordance with applicable laws, rules and regulations, the
requirements of Gundle's transfer agent, and the reasonable requirements of the
broker through which the sales are proposed to be executed. Without limiting the
generality of the foregoing, Gundle shall, upon request, furnish with respect to
each such sale (i) a written statement certifying that Gundle has complied with
the public information requirements of Rule 144 and 145 and (ii) an opinion of
Gundle's counsel regarding such matters as Gundle's transfer agent or such
stockholder's broker may reasonably desire to confirm.
7.4. Gundle Investment Suitability and Related Matters. Gundle acknowledges
that (i) through its own operations, it is knowledgeable in operations of the
type conducted by SLT, (ii) SLT has made available to Gundle extensive legal,
financial, accounting and other business records for examination by Gundle,
(iii) SLT has made its principal executive and operating personnel available for
consultation with the designated representatives of Gundle, (iv) through its
employees, counsel and other representatives, Gundle has made an extensive
investigation of SLT's assets and liabilities, business and financial affairs,
and operations, (v) it is aware of the risks associated with ownership of SLT,
(vi) it is capable of bearing the financial risks associated with such
ownership, and (vii) while recognizing that it cannot efficaciously waive the
protections afforded to it under the Securities Act, Gundle regards itself as an
entity of such financial capacity, sophistication,and prudence that it does not
require the protections afforded to it by the Securities Act, and is relying
upon its own investigation of SLT in making its decision to "purchase" SLT.
ARTICLE VIII
Miscellaneous
8.1. Entirety. This Agreement and embodies the entire agreement between the
parties with respect to the subject matter hereof, and all prior agreements
between the parties with respect thereto are hereby superseded in their
entirety.
8.2. Counterparts. Any number of counterparts of this Agreement may be
executed and each such counterpart shall be deemed to be an original instrument,
but all such counterparts together shall constitute but one instrument.
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8.3. Notices and Waivers. Any notice or waiver to be given to any party
hereto shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid.
IF TO GUNDLE
<TABLE>
<S> <C>
Addressed to: With a copy to:
Gundle Environmental Systems, Inc. Porter & Hedges, L.L.P.
19103 Gundle Road 700 Louisiana, 35th Floor
Houston, Texas 77073 Houston, Texas 77210-4744
Attention: Thomas L. Caltrider Attention: T. William Porter
Facsimile: (713) 230-2504 Facsimile: (713) 228-1331
IF TO SLT
Addressed to: With a copy to:
SLT Environmental, Inc. Kramer, Levin, Naftalis,
200 South Trade Center Parkway Nessen, Kamin & Frankel
Conroe, Texas 77385 919 Third Avenue, 40th Floor
Attention: William P. Reid New York, New York 10022
Facsimile: (409) 273-3808 Attention: Ezra G. Levin
Facsimile: (212) 715-8000
</TABLE>
Any communication so addressed and mailed by first-class registered or
certified mail, postage prepaid, shall be deemed to be received on the third
business day after so mailed, and if delivered by courier or facsimile to such
address, upon delivery during normal business hours on any business day.
8.4. Termination of Representations, Warranties, etc. The respective
representations and warranties contained in Articles II and III shall expire
with, and be terminated and extinguished by, the merger pursuant to this
Agreement at the time of the consummation thereof on the Effective Date. This
Paragraph 8.4 shall have no effect upon any other right or obligation of the
parties in connection with this Agreement or otherwise, whether to be exercised
or performed before or after the Effective Date.
8.5. Table of Contents and Captions. The table of contents and captions
contained in this Agreement are solely for convenient reference and shall not be
deemed to affect the meaning or interpretation of any article, section, or
paragraph hereof.
8.6. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
8.7. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
8.8. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas (except to the extent
that the form and content of the Certificate of Merger and the consequences of
the filing thereof shall be governed by the general corporation law of the State
of Delaware).
8.9. Public Announcements. The parties agree that before the Effective Date
that they shall consult with each other before the making of any public
announcement regarding the existence of this Agreement, the contents hereof or
the transactions contemplated hereby, and to obtain the prior approval of the
other party as to the content of such announcement, which approval shall not be
unreasonably withheld. However, the foregoing shall not apply to any
announcement or written statement which, upon the written advice of counsel, is
required by law to be made, except that the party required to make such
announcement shall, whenever
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practicable, consult with and solicit prior approval from such other party
concerning the timing and content of such legally required announcement or
statement before it is made.
8.10. Definitions. The following terms are defined in the paragraphs
indicated:
<TABLE>
<CAPTION>
TERM SECTION
-------------------------------------------------------------- ---------------------
<S> <C>
Another Gundle Transaction.................................... 4.4.6.7
Another SLT Transaction....................................... 4.3.6.2
Applicable Environmental Laws................................. 2.1.14.3
Benefit Plans................................................. 2.1.17
Break-Up Fee.................................................. 4.3.6.2; 4.4.6.2
Code.......................................................... 1.4.2
Commission.................................................... 3.1.5
Effective Date................................................ 1.3
Employee Plans................................................ 2.1.7.8
Encumbrance................................................... 2.1.4
Environmental Laws............................................ 2.1.14
ERISA......................................................... 2.1.17
Exchange Act.................................................. 3.1.5
Existing Gundle Directors..................................... 7.4.6
Gundle Common Stock........................................... 3.1.3
Gundle Restricted Shares...................................... 7.4.2
Gundle Shares................................................. 1.9.2
Gundle Transaction Proposal................................... 4.4.6.1
HSR........................................................... 2.1.18
Intellectual Property......................................... 2.1.11
Investment Company Act........................................ 2.1.22
Material adverse change....................................... 4.2.3
Merger Consideration.......................................... 1.9.2
Merging Corporations.......................................... 1.1
OSHA.......................................................... 2.1.15
PBGC.......................................................... 2.1.17.2
PCB........................................................... 2.1.14
Proxy Statement............................................... 2.1.20
Refinancing................................................... 4.4.14
Registration Rights Agreement................................. 5.1.3
Reports....................................................... 3.1.5
Restated Certificate of....................................... 1.4.1
Incorporation SLT Common Stock................................ 2.1.3
SLT Transaction Proposal...................................... 4.3.6.1
Securities Act................................................ 7.1
Statutory Plan................................................ 2.4.17.2
Superior Gundle Transaction Proposal.......................... 4.4.6.1
Superior SLT Transaction Proposal............................. 4.3.6.1
Third Party................................................... 4.2.6.2; 4.3.6.2
Transaction Proposal.......................................... 4.4.6.1
</TABLE>
8.11. Accounting Treatment. The parties hereto intend that the merger
contemplated by this Agreement be accounted for by Gundle, the Surviving
Corporation, using the pooling of interests method of accounting.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed in their respective corporate names by their respective duly authorized
representatives, all as of the day and year first above written.
THE PARTIES TO THE MERGER CONTEMPLATED BY THIS AGREEMENT:
SLT ENVIRONMENTAL, INC.
By: /s/ WILLIAM P. REID
---------------------------------
William P. Reid, President
GUNDLE ENVIRONMENTAL SYSTEMS, INC.
By: /s/ THOMAS L. CALTRIDER
----------------------------------
Thomas L. Caltrider, President
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EXHIBIT B
[SMITH BARNEY LETTERHEAD]
March 27, 1995
The Board of Directors
Gundle Environmental Systems, Inc.
19103 Gundle Road
Houston, Texas
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Gundle Environmental Systems, Inc. ("Gundle") of the consideration to
be paid by Gundle pursuant to the terms and subject to the conditions set forth
in the Plan and Agreement of Merger, dated as of March 27, 1995 (the "Merger
Agreement"), by and between Gundle and SLT Environmental, Inc. ("SLT"). As more
fully described in the Merger Agreement, (i) SLT will be merged with and into
Gundle (the "Merger") and (ii) each outstanding share of the common stock, par
value $1.00 per share, of SLT (the "SLT Common Stock") will be converted into
the right to receive 70,000 shares of the common stock, par value $0.01 per
share, of Gundle (the "Gundle Common Stock" and the number of shares of Gundle
Common Stock for which each outstanding share of SLT Common Stock is to be
converted, the "Merger Consideration").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Gundle and certain senior officers and other representatives and
advisors of SLT concerning the businesses, operations and prospects of Gundle
and SLT. We examined certain publicly available business and financial
information relating to Gundle and certain business and financial information
relating to SLT as well as certain financial forecasts and other data for Gundle
and SLT which were provided to us by the respective managements of Gundle and
SLT, including information relating to certain strategic implications and
operational benefits anticipated from the Merger. We reviewed the financial
terms of the Merger as set forth in the Merger Agreement in relation to, among
other things: current and historical market prices and trading volumes of the
Gundle Common Stock; the historical and projected earnings of Gundle and SLT;
and the capitalization and financial condition of Gundle and SLT. We also
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected which we considered relevant in
evaluating the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations we considered relevant in evaluating Gundle and SLT. We also
evaluated the potential pro forma financial impact of the Merger on Gundle. In
addition to the foregoing, we conducted such other analyses and examinations and
considered such other financial, economic and market criteria as we deemed
necessary to arrive at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise reviewed by or
discussed with us. With respect to financial forecasts and other information
provided to or otherwise reviewed by or discussed with us, we have been advised
by the managements of Gundle and SLT that such forecasts and other information
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of Gundle and SLT as to
the expected future financial performance of Gundle and SLT and the strategic
implications and operational benefits anticipated from the Merger. We also have
assumed with your consent, that the Merger will be treated as a
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pooling of interests in accordance with generally accepted accounting principles
and as a tax-free reorganization for federal income tax purposes. Our opinion,
as set forth herein, relates to the relative values of Gundle and SLT. We are
not expressing any opinion as to what the value of the Gundle Common Stock
actually will be when issued to SLT stockholders pursuant to the Merger or the
price at which the Gundle Common Stock will trade subsequent to the Merger. We
have not made or been provided with an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of Gundle or SLT nor have we
made any physical inspection of the properties or assets of Gundle or SLT. We
did not participate in the negotiation or structuring of the Merger, nor have we
been asked to consider, and our opinion does not address, the relative merits of
the Merger as compared to any alternative business strategies that might exist
for Gundle or the effect of any other transaction in which Gundle might engage.
Our opinion is necessarily based upon information available to us, and
financial, stock market and other conditions and circumstances existing and
disclosed to us, as of the date hereof.
Smith Barney has been engaged to render financial advisory services to Gundle in
connection with this opinion and will receive a fee for our services, a
significant portion of which is contingent upon the delivery of this opinion. In
the ordinary course of our business, we may actively trade the securities of
Gundle for our own account or for the account of our customers and, accordingly,
may at any time hold a long or short position in such securities. We have in the
past provided investment banking services to Gundle unrelated to the Merger, and
have received compensation for the rendering of such services.
Our advisory services and the opinion expressed herein are provided for the use
of the Board of Directors of Gundle in its evaluation of the proposed Merger,
and our opinion is not intended to be and does not constitute a recommendation
to any stockholder as to how such stockholder should vote on the proposed
Merger. Our opinion may not be published or otherwise used or referred to, nor
shall any public reference to Smith Barney be made, without our prior written
consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Merger Consideration is fair, from a
financial point of view, to Gundle.
Very truly yours,
/s/ Smith Barney, Inc.
SMITH BARNEY INC.
B-2
<PAGE> 105
PROXY GUNDLE ENVIRONMENTAL SYSTEMS, INC.
19103 GUNDLE ROAD
HOUSTON, TEXAS 77073
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON JULY 27, 1995
The undersigned stockholder of Gundle Environmental Systems, Inc. (the
"Company") hereby appoints each of Thomas L. Caltrider and Roger J. Klatt
attorneys and proxies of the undersigned, with full power of substitution, to
vote on behalf of the undersigned at the Annual Meeting of Stockholders of the
Company to be held at the Houston Marriott North at Greenspoint, 255 North Sam
Houston Parkway East, Houston, Texas 77060 on July 27, 1995, at 11:00 a.m.,
Houston, Texas time, and at any adjournments thereof, all of the shares of
Common Stock which the undersigned may be entitled to vote.
The board of directors recommends a vote FOR the nominees and each of
the proposals on the reverse side and if no specification is made, the shares
will be voted FOR approval of the Merger Agreement and Related Transactions FOR
approval of the Amendment and Restatement of the Certificate of Incorporation,
FOR election of the nominees named herein and FOR approval of the 1995 Incentive
Stock Plan. The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and the Proxy Statement furnished herewith.
PLEASE SIGN AND RETURN IN THE ENVELOPE ENCLOSED
CONTINUED ON OTHER SIDE
<PAGE> 106
"PLEASE MARK INSIDE BLUE BOXES SO THAT DATA
PROCESSING EQUIPMENT WILL RECORD YOUR VOTES"
1. APPROVAL OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE CERTIFICATE OF
INCORPORATION OF THE COMPANY TO ALLOW THE ISSUANCE OF UP TO
1,000,000 SHARES OF PREFERRED STOCK, UNDESIGNATED AS TO SERIES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. ELECTION OF DIRECTORS.
FOR all nominees listed WITHHOLD AUTHORITY
herein (except as marked to vote for all nominees
to the contrary listed herein
[ ] [ ]
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below)
_______________________________________________________________________________
Thomas L. Caltrider, Steven M. Friedman, George J. McNally,
William P. O'Connell, T. William Porter, Huge L. Rice, Brian D. Young
4. APPROVAL OF THE 1995 INCENTIVE STOCK PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, upon such other matters as may properly come
before the meeting; hereby revoking any proxy or proxies regarding
such matters heretofore given by the undersigned.
Signature should agree with name printed
hereon. If stock is held in the name
of more than one person, EACH joint owner
should sign. Executors, administrators,
trustees, guardians, and attorneys should
indicate the capacity in which they sign.
Attorneys should submit powers of attorney.
Dated ______________________________ , 1995
___________________________________________
Signature(s)
___________________________________________
Signature, if held jointly
