UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended September 30, 1994
Commission File Number 33-11479
SYNTHETIC INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-1049400
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
309 LaFayette Road, Chickamauga, Georgia 30707
(Address of principal executive offices) (Zip Code)
(706) 375-3121
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
State the aggregate market value of the voting stock held by non-affiliates
of the registrant at December 1, 1994.
Common Stock, $1.00 par value -- $0
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date:
Outstanding at
Class December 5, 1994
Common Stock, $1.00 par value 49.95
PART I
ITEM 1. BUSINESS
GENERAL
Synthetic Industries, Inc., a Delaware corporation (the "Company" or
"Synthetic"), manufactures and markets a wide range of polypropylene-based
industrial textile products. The Company is the second largest manufacturer of
polypropylene-based industrial textile fabrics in the United States.
The Company's principal product lines are carpet backing,
construction/civil engineering products and technical textiles. The Company's
carpet backing products consist of primary and secondary carpet backing, both of
which are sold to manufacturers of tufted broadloom carpets. The Company's
construction/civil engineering products consist of construction products
(principally a concrete reinforcement fiber sold under the trademark
FibermeshTM), geotextiles (permeable fabrics used primarily for landfill and
road construction) and erosion control fabrics. The Company's technical textile
products consist of specialty fabrics and industrial yarns and fibers.
Specialty fabrics are sold primarily to manufacturers of products with
applications in filtration, agriculture, recreation, defense and packaging.
Industrial yarns and fibers are sold to manufacturers of industrial textiles.
HISTORY
The Company was founded in 1969 to produce polypropylene-based primary
carpet backing. Following the acquisition of the Company in 1976 by a group of
private investors, it diversified into the manufacture and sale of polypropylene
- -based industrial fabrics and specialty yarns. The Company began manufacturing
and marketing geotextiles in 1981, FibermeshTM and certain other construction
products in 1983 and secondary carpet backing in 1985.
The Company was acquired by Synthetic Industries L.P., a Delaware limited
partnership (the "Partnership"), in December 1986. All of the issued and
outstanding capital stock of the Company is currently owned by the Partnership.
See "Security Ownership of Certain Beneficial Owners and Management."
In April 1993, Synthetic Management G.P. ("Synthetic G.P.") acquired the
general partner interest in S.I. Management L.P. ("Management L.P."), a Delaware
limited partnership which is the sole general partner of the Partnership.
Synthetic G.P. is a Georgia general partnership whose five partners are
controlled by certain members of the Company's senior management. See
"Directors and Executive Officers."
The Company's principal executive offices are located at 309 LaFayette
Road, Chickamauga, Georgia 30707 and its telephone number is (706) 375-3121.
MANUFACTURING PROCESS
Polypropylene, a chemically inert plastic derived from petroleum, is the
basic raw material used in the manufacture of substantially all of the Company's
products. The Company obtains polypropylene in pellet form and extrudes it into
various types of yarns and fibers.
Yarns are used by the Company to manufacture woven fabrics. The woven
fabric is produced by interlacing thousands of extruded yarns at right angles to
one another. The manner in which the yarns are interlaced determines the type
of weave. Woven fabrics are characterized by strength and dimensional
stability. The Company's woven fabric products include, among other things,
primary and secondary carpet backing, certain specialty fabrics and certain
kinds of geotextiles and erosion control fabrics. In addition, the Company
converts yarns which have been fibrillated into bundles of meshlike fibers to
produce FibermeshTM.
The Company uses fibers to produce yarns that are then used as a component
in weaving certain of the Company's woven fabrics, particularly secondary carpet
backing. The Company also uses fibers to manufacture nonwoven fabrics. The
nonwoven fabric is produced by first stacking several layers of webbed short
length fibers and then entangling the layers by "punching" barbed needles
throughout the layers. Nonwoven fabrics provide extensibility without rupture
and three dimensionality. The Company's nonwoven fabric products include, among
other things, furniture fabrics and certain kinds of geotextiles and erosion
control fabrics.
The Company maintains a complete rigorous quality control program centered
around statistical process control and customer key measures. Each stage of the
process from the raw material to the final product is monitored using standard
procedures and test methods which satisfy the quality control standards
established by the International Standards Organization ("ISO"). The Company's
Chickamauga and Chattanooga manufacturing facilities have been granted ISO 9002
certification.
The Company's weaving equipment is capable of manufacturing a variety of
woven products. Similarly, the Company's new nonwoven production equipment is
capable of manufacturing a variety of nonwoven products. This versatility
enables the Company to alter the product mix within its woven and nonwoven
product lines in response to market demand or to take advantage of profit
opportunities.
The Company generally orders polypropylene pellets on a quarterly basis and
receives several rail car shipments each week. The Company's plants are
generally run on a continuous 24-hour per day basis, seven days a week. Orders
are typically filled from inventory.
PRODUCTS AND MARKETING
The Company's three principal product lines are carpet backing,
construction/civil engineering products and technical textiles. The following
table sets forth the Company's net sales attributable to each product line, and
the percentage of total net sales represented by each, for the past five fiscal
years:
YEAR ENDED SEPTEMBER 30,
1994 1993 1992 1991 1990
(Thousands of dollars)
CARPET BACKING
$117,791 50.1% $106,406 50.5% $108,005 55.2% $113,905 60.4% $108,200 66.5%
CONSTRUCTION/CIVIL ENGINEERING
68,706 29.3 47,899 22.8 34,950 17.8 24,139 12.8 23,800
14.6
TECHNICAL TEXTILES
48,480 20.6 56,211 26.7 52,784 27.0 50,402 26.8 30,800
18.9
NET SALES
$234,977 100.0% $210,516 100.0% $195,739 100.0% $188,446100.0% $162,800 100.0%
CARPET BACKING
Products. The Company's carpet backing product line consist of woven primary
and secondary fabrics which are manufactured from polypropylene raw materials.
Carpet yarn is tufted into the primary carpet backing in the manufacture of
broadloom floorcoverings. Secondary carpet backing is then laminated to the
back of tufted broadloom carpet to insure both carpet integrity and dimensional
stability. Substantially all tufted broadloom carpets have secondary carpet
backing, with more than 90% of this secondary backing being made from
polypropylene. The Company produces a broad range of primary and secondary
backing in a variety of styles and widths.
Market and Marketing. The Company sells most of its carpet backing to United
States carpet manufacturers. In fiscal 1994, the Company's ten largest carpet
backing customers accounted for approximately 76% of its total net sales to the
carpet industry. In fiscal 1994, sales to Shaw Industries, Inc., the Company's
largest customer, accounted for approximately 36% of net carpet backing sales
and approximately 18% of the Company's total net sales. Shaw Industries, Inc.
is estimated to have 28% of the United States carpet market.
The Company markets its carpet backing from a central sales office in Calhoun,
Georgia that is located in close proximity to many of the major carpet industry
manufacturers. Synthetic employs five full-time salespersons, all of whom have
significant industry experience and who monitor ongoing product requirements,
styling changes and competitive trends affecting their customers. The Company's
carpet backing salespersons are paid on a salary-plus-commission basis. The
Company also retains four independent agents to assist its carpet backing
salespersons with respect to the small portion of the Company's carpet backing
sales made outside of the southeastern United States carpet manufacturing
region. The Company's carpet backing agents are paid on a commission basis.
Competition. In sales of carpet backing, the Company competes principally
with Amoco, which has the dominant position in the primary carpet backing market
worldwide and, to a lesser extent, Wayne-Tex Inc. Amoco has substantially
greater resources than the Company. In the United States, only Synthetic and
Amoco produce a broad range of primary and secondary carpet backing in a variety
of styles and widths. The Company competes in the carpet backing market
primarily on the basis of quality, service and product line variety, providing
carpet manufacturers with a reliable alternative source of supply to Amoco.
CONSTRUCTION/CIVIL ENGINEERING
Products. Construction and civil engineering products consist primarily of
FibermeshTM concrete reinforcing fibers, geotextiles and erosion control
products.
The addition of FibermeshTM to concrete while it is being mixed gives the
concrete increased crack resistance and improves impact strength. In concrete
construction, where nonstructural wire mesh is used, FibermeshTM provides a cost
- -effective replacement for the wire mesh in addition to improving the concrete's
durability. FibermeshTM complies with construction guidelines and specifications
issued by many of the national building code associations. The Company believes
it is the largest supplier of concrete reinforcement fibers in the United
States.
The Company's geotextile products consist of polypropylene woven and nonwoven
fabrics. Woven geotextiles are used at landfill and construction sites as soil
and liquid separators, liquid filters and temporary landfill covers. Nonwoven
geotextiles are used to reinforce and stabilize soils. Synthetic's geotextile
product line complies with certain guidelines issued by the Federal Highway
Works Administration with respect to the use of geotextiles in transportation
applications.
Erosion control products consist of polypropylene woven fabrics, yarns and
nonwoven fabrics. These products are used to restrain the gradual or sudden
wearing away of soils, regulate the amount of sediment which enters and flows
through waterways and assist in the revegetation of soils. The specifications
of the fabrics and related fibers manufactured and sold by the Company for
erosion control vary depending upon specific site conditions, including such
factors as slope angles, water flow velocities, climate, runoff, soil profile
and ultimate land use. The Company's erosion control products comply with most
of the state agency guidelines applicable to erosion control fabrics which have
been issued to date.
Market and Marketing. FibermeshTM is sold by the Company's salespersons to
and through ready-mix concrete companies and precast concrete product
manufacturers located primarily in the United States, Canada and the United
Kingdom. FibermeshTM is currently sold by 55 salespersons operating out of
divisional offices in Austin, Denver, Chattanooga and Chesterfield, England.
The Company's construction product salespersons are paid on a salary-plus-
commission basis. In addition, the Company sells FibermeshTM to construction
industry product distributors worldwide in those areas where the Company does
not have a direct sales presence. Synthetic also markets FibermeshTM through
advertising in trade journals and at trade shows and seminars. In fiscal 1994,
the ten largest FibermeshTM customers accounted for only 14% of the Company's
total net sales of FibermeshTM.
Synthetic's geotextiles and erosion control fabrics are sold primarily in
North America to regional and national geotextile distributors, installers of
landfill liners and various governmental transportation departments, port
authorities and waterway commissions. In fiscal 1994, the ten largest
geotextile and erosion control product customers accounted for approximately 29%
of its total net sales of geotextiles and erosion control products.
The Company's geotextiles and erosion control fabrics are marketed by six full
- -time salespersons with expertise in civil engineering and agronomy who are
directed from a central office in Chattanooga, Tennessee. These salespersons
often provide field engineering and consulting services to their customers. The
Company's geotextile and erosion control fabric salespersons are paid on a
salary-plus-commission basis.
Competition. The primary direct competitor in the concrete fiber
reinforcement business is W.R. Grace & Co., which markets but does not
manufacture concrete reinforcement fibers. The Company competes in the concrete
reinforcement fiber market primarily on the basis of product design and
technical service. In some applications, FibermeshTM also competes with welded
wire fabric. FibermeshTM competes with welded wire fabric on the basis of
product performance and cost.
The primary direct competitors in the geotextile business are Amoco and
Nicolon Corporation. The Company has numerous competitors in the erosion
control fabric business. Synthetic competes in the geotextile business and the
erosion control business on the basis of product line quality, service and
variety. The Company believes it has the broadest civil engineering/erosion
control product line in North America.
TECHNICAL TEXTILES
Products. The Company's technical textiles consist of specialty fabrics,
industrial yarns and fibers. The specialty fabrics in the Company's line of
technical textiles are manufactured primarily from polypropylene and, to a minor
extent, other synthetic fibers for specific end uses. These products are
manufactured in a variety of widths and dimensional configurations. Synthetic's
customers use these fabrics to manufacture products having applications in
filtration (e.g., wastewater treatment, air purifiers, chemical separators and
fuel filters), agriculture (e.g., shade cloths and insect screening), and
recreation (e.g., tennis windscreens and trampoline covers).
All of the Company's industrial yarns and fibers are manufactured from
polypropylene. The Company sells its industrial yarns and fibers directly to
weavers and knitters who produce niche market products, such as automobile
upholstery, coat linings, geotextiles, air filters and water filtration media.
Market and Marketing. Synthetic sells its specialty fabrics to a diverse
group of approximately 400 manufacturers located primarily in North America.
The Company sells its industrial yarns and fibers to a diverse group of
approximately 100 manufacturers located in North America and Europe. In fiscal
1994, the Company's ten largest technical textile customers accounted for
approximately 32% of its total net sales of technical textiles.
The Company's technical textiles are marketed by seventeen full-time
salespersons with sales offices in Atlanta, Georgia, Calhoun, Georgia and
Chesterfield, England. These salespersons monitor the ongoing product
requirements, styling changes and competitive trends affecting their customers.
The Company's technical textile salespersons are paid on a salary-plus-
commission basis.
Competition. Synthetic's competitors vary depending upon the specific market.
The Company competes in the technical textile market primarily on the basis of
service, quality, innovation and product line variety.
RESEARCH AND DEVELOPMENT
The Company's research and development is focused primarily on development
rather than on basic research and as such engages in product design, development
and performance validation to enhance its existing products and to develop new
products. In fiscal 1994, the Company expended approximately $1.8 million on
Company-sponsored research and development activities.
FOREIGN OPERATIONS
The Company conducts its foreign operations through several subsidiaries and
marketing divisions located in Europe. In fiscal 1994, the aggregate sales by
such foreign subsidiaries and marketing divisions were approximately $3.7
million. The Company employs 11 persons in England. The Company will seek to
increase foreign sales (principally of construction/civil engineering products)
over the next several years. Export sales from United States operations in 1994
were $21.3 million, or 9% of net sales.
RAW MATERIALS
Polypropylene, which is a petroleum derivative, is the basic raw material used
in the manufacture of substantially all of the Company's products. The Company
currently purchases polypropylene in pellet form principally from four
suppliers, with Fina Oil & Chemical Company being the Company's largest supplier
of polypropylene. These purchases are generally made pursuant to annual
contracts which have various price adjustment mechanisms.
During fiscal 1994, polypropylene purchases accounted for approximately 47% of
the Company's cost of sales. The price of polypropylene is a function of, among
other things, polypropylene manufacturing capacity, the demand for polypropylene
and prices of petrochemical feedstocks, crude oil and natural gas liquids. The
average cost of polypropylene was less in fiscal 1994 than in fiscal 1993;
however, costs began to increase during the fourth quarter of fiscal 1994. The
Company believes this increase was primarily due to increased demand throughout
the polypropylene market coupled with the inadequate expansion of polypropylene
manufacturing capacity. The Company expects that polypropylene costs will
further increase during fiscal 1995. Increases in the price of polypropylene
without offsetting selling price increases could have a significant negative
effect on the Company's results of operations and financial condition. As a
result of the level of competition, the Company, to date, has been able to
pass through only a portion of the polypropylene cost increases through higher
selling prices. The Company has not experienced any shortage of supply of
polypropylene to date; however, continued increases in demand without offsetting
increases in manufacturing capacities could cause the Company to experience
supply shortages. Management anticipates additional polypropylene manufacturing
facilities will be completed and commence production during calendar 1995 and
1996. Historically, the creation of additional facilities has helped to relieve
supply pressures. There can be no assurance, however, that the additional
polypropylene manufacturing facilities currently under construction will help to
relieve the current supply pressures.
REGULATION
The Company is subject to federal, state and local laws and regulations
affecting its business, including those promulgated under the Occupational
Safety and Health Act and by the Environmental Protection Agency. Many of the
Company's construction/civil engineering products have applications that are
subject to building code association guidelines and specifications, and highway
department guidelines. Obtaining the necessary approvals can delay new product
introductions in some areas. Moreover, the enactment of new legislation or the
issuance of new guidelines may require the Company to modify its existing
geotextile and erosion control fabric products and may also delay the Company's
introduction of new geotextiles and erosion control fabric products.
The Company's expenditures to date in connection with such federal, state and
local laws and regulations have not been material to its operations. The
Company believes it is currently in compliance with all the material applicable
governmental regulations.
ORDER BACKLOG
The Company generally sells its products pursuant to customer orders which are
either satisfied out of inventory or from the shipment of newly manufactured
products promptly following receipt of an order. Accordingly, the dollar amount
of backlog orders believed to be firm is not significant or indicative of the
Company's future sales and earnings.
EMPLOYEES
As at September 30, 1994, the Company employed 1,978 persons in the United
States, of whom 416 were salaried employees and the remainder were hourly
employees. None of the Company's employees are unionized. The Company has never
experienced any strikes and believes its relations with employees to be
satisfactory.
PATENTS
The Company owns or is licensed under several United States and foreign
patents. While these patents are helpful to the Company's business, it is
believed that a loss of patent exclusivity would not be materially adverse to
the Company's business.
ITEM 2. PROPERTIES
The following table sets forth certain information concerning the Company's
manufacturing and distribution facilities. The Company's facilities are
maintained in good condition and the Company believes that its facilities are
suitable and adequate for the operations conducted therein.
SQUARE ACREAGE OF
LOCATION FEET FUNCTION PROPERTY
OWNED FACILITIES
Chickamauga,
Georgia 692,585 Manufactures carpet backing,
certain fabrics geotextiles
and fibers 85.8
Chattanooga,
Tennessee 124,260 Manufactures specialty yarns
and construction products 10.5
Dalton,
Georgia 215,401 Distribution center and
multi-product warehouse 14.8
Dalton,
Georgia 44,050 Needlepunching of carpet backing 5.0
Ringgold,
Georgia 150,750 Manufactures geotextiles and
certain nonwoven fabrics 28.7
Alto, Georgia 92,400 Manufactures certain yarns 42.7
LEASED FACILITIES LEASED THROUGH
Chickamauga,
Georgia 143,736 Manufactures carpet backing, January 2009
certain fabrics, geotextiles
and fibers
Gainesville,
Georgia 179,940 Manufactures certain fabrics October 2000
Chattanooga,
Tennessee 187,550 Specialty yarn warehouse September 1995
Westside,
Georgia 86,440 Carpet backing warehouse January 1995
Dalton,
Georgia 36,000 Industrial Products
warehouse July 1995
Dalton,
Georgia 31,500 Industrial Products
warehouse July 1995
Dalton,
Georgia 30,000 Industrial Products
warehouse May 1995
Dalton,
Georgia 85,000 Carpet backing warehouse February 1995
Cornelia,
Georgia 100,000 Assembly of certain fabrics March 1998
Indebtedness under the Company's Second Amended and Restated Revolving Credit
and Security Agreement dated as of March 15, 1993 as amended to date (the
"Credit Facility") is secured by a lien on, and a security interest in,
substantially all of the Company's assets, including all real estate, plants,
equipment, inventory, accounts receivable and cash. Under the terms of the
Credit Facility, the lenders thereunder may exercise certain remedies, including
foreclosure, in the event of a default under the Credit Facility.
ITEM 3. CLAIMS AND LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to litigation arising out of
their business operations. Most of such litigation involves claims for personal
injury, property damage, breach of contract and claims involving employee
relations and certain administrative proceedings. The Company believes such
claims are adequately covered by insurance or do not involve a risk of material
loss to the Company or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1994, the Partnership, as the Company's
sole stockholder, approved option plans for the Company's outside directors and
employees. See "Renumeration of Directors and Officers - Option Plans". No
other matters were submitted to a vote of the Partnership during fiscal 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
There is no trading market for the Company's Common Stock. All of the issued
and outstanding Common Stock of the Company is owned by the Partnership. The
Company has never paid cash dividends on its Common Stock. The Company's
ability to pay dividends on its Common Stock is currently restricted by both the
Credit Facility and the indenture (the "Indenture") relating to the Company's 12
3/4% Senior Subordinated Debentures due 2002 (the "Debentures"). See Note 7 to
the financial statements for a description of the Credit Facility and the
Indenture.
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED SEPTEMBER
30,
1994 1993 1992 1991 1990
(IN THOUSANDS OF DOLLARS)
SUMMARY OF OPERATIONS DATA:
Net sales $234,977 $210,516 $195,739 $188,446 $162,746
Operating income 40,770 29,921 27,656 27,591 31,255
Income from continuing
operations before
provision for income
taxes 20,020 8,134 8,155 6,285 9,253
Income from continuing
operations 11,420 3,662 3,595 1,810 4,884
Loss from discontinued
operations - - (553) (309) (103)
Income (loss) on
disposal of discontinued
operations - 1,420 (7,014) - -
Extraordinary Item -
Loss from early
extinguishment of debt - (8,892) - - -
Cumulative Effect of Change
in Accounting Principle - (8,500) - - -
Extraordinary Item -
Utilization of operating
loss carryforward - - - - 870
Net income (loss) 11,420 (12,310) (3,972) 1,501 5,651
AS OF SEPTEMBER 30,
1994 1993 1992 1991 1990
(IN THOUSANDS OF DOLLARS)
BALANCE SHEET DATA:
Total Assets $287,933 $260,372 $254,581 $251,918 $250,828
Long-term debt (less current
maturities) 172,490 164,723 158,638 152,381 158,928
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (IN 000'S)
RESULTS OF OPERATIONS
FISCAL 1994 COMPARED TO FISCAL 1993
Net sales for fiscal 1994 were $234,977, an increase of $24,461, or 12%, from
net sales for fiscal 1993 of $210,516. This increase was due to increased sales
of carpet backing and construction/civil engineering products offset by a
decrease in sales of technical textiles.
Net sales of carpet backing for fiscal 1994 were $117,791, an increase of
$11,385, or 11%, from net sales of $106,406 for fiscal 1993. This was
principally due to increased volume of both primary and secondary carpet
backing.
Net sales of construction/civil engineering products were $68,706 for fiscal
1994, an increase of $20,807, or 44%, from net sales of $47,899 for fiscal 1993.
This was due to a 20% increase in FibermeshTM sales and an 85% increase in sales
of geotextiles and erosion control fabrics.
Net sales of technical textiles were $48,480 for fiscal 1994, a decrease of
$7,731, or 14%, from net sales of $56,211 for fiscal 1993. This decrease was
principally due to decreased sales volume of industrial fabrics. The decreased
sales volume was due to the phase out of several product lines. The equipment
associated with the discontinued product lines was redirected to the additional
production of woven geotextiles.
Gross profit for fiscal 1994 was $82,672, an increase of $14,337, or 21%, from
the gross profit of $68,335 for fiscal 1993. As a percentage of net sales,
gross profit increased from 33% for fiscal 1993 to 35% in fiscal 1994. The
increase in gross profit was due primarily to the increased sales volume, as
well as the increased gross margin. Gross margin improved principally as a
result of lower average polypropylene cost during fiscal 1994. See "Liquidity
and Capital Resources".
Selling expenses for fiscal 1994 were $21,815, an increase of $2,420, or 13%,
over selling expenses of $19,395 for fiscal 1993. The increase in selling
expenses was primarily due to the growth in net sales. As a percentage of net
sales, selling expenses remained constant at 9% in fiscal 1994. General and
administrative expenses for fiscal 1994 were $17,588, an increase of $1,184 over
general and administrative expenses of $16,404 for fiscal 1993. As a percentage
of net sales, general and administrative expenses remained constant at 8% in
fiscal 1994.
Operating income was $40,770 for fiscal 1994 compared to $29,921 for fiscal
1993. As a percentage of net sales, operating income increased to 17% in fiscal
1994 from 14% in fiscal 1993. The increase in operating income was primarily
due to increased gross profit partially offset by higher selling expenses.
Interest expense for fiscal 1994 was $20,011, a decrease of $843, or 4%, over
the $20,854 interest expense for fiscal 1993. This was a result of decreased
average borrowings relating to the Credit Facility and the redemption of the
Company's $40,000 zero coupon junior debenture at its accreted value ($17,093)
during 1993, partially offset by the interest payments made in fiscal 1994
relating to the Debentures.
Income from continuing operations for fiscal 1994 was $11,420, an increase of
$7,758 from the $3,662 of income from continuing operations for fiscal 1993.
The Company had net income of $11,420 for fiscal 1994, compared to a net loss
of $12,310 for fiscal 1993 which included an $8,500 charge for the cumulative
effect on prior years of a change in accounting principle for income taxes and
an $8,892 charge (net of tax) for losses from early extinguishment of debt.
FISCAL 1993 COMPARED TO FISCAL 1992
Net sales for fiscal 1993 were $210,516, an increase of $14,777, or 8%, from
net sales for fiscal 1992 of $195,739. This increase was primarily due to
increased sales of construction/civil engineering products and technical
textiles.
Net sales of carpet backing for fiscal 1993 were $106,406, a decrease of
$1,599, or 2%, from net sales of $108,005 for fiscal 1992. This decline was
principally due to lower selling prices of secondary carpet backing.
Net sales of construction/civil engineering products were $47,899 for fiscal
1993, an increase of $12,949, or 37%, from net sales of $34,950 for fiscal 1992.
This increase was primarily due to a greater volume of sales of geotextiles and
erosion control fabrics, partially offset by lower selling prices.
Net sales of technical textiles were $56,211 for fiscal 1993, an increase of
$3,427, or 7%, from net sales of $52,784 for fiscal 1992. This increase was
principally due to increased sales volume of specialty fabrics.
Gross profit for fiscal 1993 was $68,335, an increase of $6,286, or 10%,
from the gross profit of $62,049 for fiscal 1992. As a percentage of net sales,
gross profit increased from 32% for fiscal 1992 to 33% in fiscal 1993. The
increase in gross profit was due primarily to the increased sales volume, as
well as the increased gross margin. Gross margin improved principally as a
result of lower polypropylene cost during fiscal 1993.
Selling expenses for fiscal 1993 were $19,395, an increase of $3,893, or 25%,
over selling expenses of $15,502 for fiscal 1992. The increase in selling
expenses was primarily due to the growth in net sales. As a percentage of net
sales, selling expenses increased from 8% in fiscal 1992 to 9% in fiscal 1993
primarily due to sales growth of construction/civil engineering products which
require proportionally higher selling expenses than the Company's other product
lines. General and administrative expenses for fiscal 1993 were $16,404, an
increase of $111 over general and administrative expenses of $16,293 for fiscal
1992.
Operating income was $29,921 for fiscal 1993 compared to $27,656 for fiscal
1992. As a percentage of net sales, operating income remained constant at 14%
in both fiscal 1993 and fiscal 1992. The increase in operating income was
primarily due to increased gross profit partially offset by higher selling
expenses.
Interest expense for fiscal 1993 was $20,854, an increase of $2,989, or 17%,
over the $17,865 interest expense for fiscal 1992. This increase was a result
of increased borrowings at an increased interest rate relating to the
Debentures.
Income from continuing operations for fiscal 1993 was $3,662, an increase of
$67, from the $3,595 of income from continuing operations for fiscal 1992.
The Company had a net loss of $12,310 for fiscal 1993, compared to net loss of
$3,972 for fiscal 1992, primarily due to the loss on early extinguishment of
debt of $8,892 and an $8,500 charge resulting from the adoption of Statement of
Financial Accounting Standards No.109, "Accounting for Income Taxes".
LIQUIDITY AND CAPITAL RESOURCES
Earnings before interest, taxes, depreciation and amortization ("EBITDA") for
fiscal 1994, 1993 and 1992 were $52,425, $41,051 and $36,937, respectively.
During fiscal 1994, 1993 and 1992, cash provided by operating activities was
$23,962, $24,334 and $13,535, respectively. Working capital amounted to
$44,114, $42,055 and $33,980 at the end of fiscal 1994, 1993 and 1992,
respectively. Cash provided by operating activities has been used to pay down
the Company's bank indebtedness and to fund the acquisition of certain capital
expenditures. The balance of the capital expenditures were financed through the
Company's revolving line of credit.
On March 15, 1993, the Company and its lenders entered into the amended Credit
Facility. Current maturities of long-term debt decreased from $10,000 to $6,000
during 1993 as a result of payments made under the Credit Facility.
On December 14, 1992, the Company issued $140,000 principal amount of
Debentures. Approximately $119,000 of the aggregate net proceeds of $135,000
realized from the Debenture offering were used to retire the entire $110,000
outstanding principal amount of the Company's 11 1/2% debentures due 1999 with a
sinking fund beginning 1995 of $22,000 per annum. The remaining net proceeds
were utilized to repay a portion of the outstanding indebtedness under the
revolving credit loan portion of the predecessor loan facility to the Credit
Facility.
The Company's $40,000 zero coupon junior debenture, scheduled to mature on
December 1, 1999, was redeemed on April 22, 1993 at its accreted value ($17,093)
with funds drawn under the revolving credit portion of the Credit Facility.
The Company is a lessee under various noncancellable operating leases and
other short-term leases. The minimum lease payments due under existing
noncancellable operating leases in fiscal 1995 are $4,1001.
During fiscal 1994, 1993 and 1992, the Company had capital expenditures of
$31,866, $11,759 and $22,102, respectively. Such capital expenditures consist
primarily of property, plant and equipment expenditures including in fiscal
1994, the expansion of the Company's nonwoven specialty fabrics manufacturing
facility.
Management believes that cash generated from operations and borrowing under
the Credit Facility will be adequate to meet the Company's foreseeable operating
needs and planned capital expenditures, as well as satisfy the Company's debt
service requirements.
Historically, the Company's operations have not been significantly affected by
inflation.
The average cost of polypropylene was less in fiscal 1994 than in fiscal
1993; however, costs began to increase during the fourth quarter of fiscal
1994. The Company believes this increase was primarily due to increased demand
throughout the polypropylene market coupled with the inadequate expansion of
polypropylene manufacturing capacity. The Company expects that polypropylene
costs will further increase during fiscal 1995. As a result of the level of
competition in the Company's various markets, the Company has only a limited
ability to pass on to its customers increases in the price of polypropylene.
Increases in the price of polypropylene without offsetting selling price
increases could have a significant negative effect on the Company's results of
operations and financial condition. As a result of the level of competition,
the Company, to date, has been able to pass through only a portion of the
polypropylene cost increases through higher selling prices. The Company has not
experienced any shortage of supply of polypropylene to date; however, continued
increases in demand without offsetting increases in manufacturing capacities
could cause the Company to experience supply shortages. Management anticipates
additional polypropylene manufacturing facilities will be completed and commence
production during calendar 1995 and 1996. Historically, the creation of
additional facilities has helped to relieve supply pressures. See "Business-
Raw Materials".
ACCOUNTING CHANGES
In November 1992, Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," was issued and is effective
for fiscal years beginning after December 15, 1993. Management believes this
standard will have no effect on its consolidated financial position or results
of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the financial statements, together with the auditors' report thereon,
appearing immediately after Part IV, Item 14 hereof.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS OF THE COMPANY
The Board of Directors of the Company consists of six (6) persons. Directors
all serve for terms of one year. Certain information concerning the directors
of the Company is set forth below:
Date
Name Age Appointed Present Occupation
Jon P. Beckman 54 1987 Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary of the Company
Leonard Chill 62 1987 President and Chief Executive Officer of the
Company
Joseph F. Dana 47 1993 Member of the law firm of Watson & Dana
Lee J. Seidler 59 1993 Private Investor
William J. Shortt 70 1993 Management Consultant
Robert L. Voigt 76 1993 Management Consultant
Jon P. Beckman - Mr. Beckman joined the Company in 1976 and has been
Secretary, Treasurer and Vice President - Finance since 1980. From 1969 to
1976, he was employed by Thiokol Corporation in its Fibers Division where he
held several positions, including Director of Finance. Mr. Beckman is also the
sole director and the controlling stockholder of one of the general partners of
Synthetic G.P.
Leonard Chill - Mr. Chill joined the Company in December 1973 as
President. From 1967 until joining the Company, he held a number of positions
with Thiokol Corporation in its Fibers Division, including that of General
Manager. Mr. Chill has also been a director of Fiberchem, Inc. since July 1989
and of Synthetic Textiles, LTD since March 1993. In addition, Mr. Chill is the
sole director and the controlling stockholder of one of the general partners of
Synthetic G.P.
Joseph F. Dana - Mr. Dana has been engaged in the private practice of law
for over twenty (20) years and has been a member of the law firm Watson & Dana,
LaFayette, Georgia, since its formation in 1978. Mr. Dana has served as general
counsel to the Company since 1987.
Lee J. Seidler - Mr. Seidler retired from Bear Stearns & Co., Inc. in 1989
at which time he was a Senior Managing Director. Mr. Seidler is a director of
The Shubert Foundation, The Shubert Organization, and Players International,
Inc.
William J. Shortt - Mr. Shortt retired from Johnson & Johnson in 1989. From
1977 to 1989, he was Director of Government and Trade Relations, Southeast, at
Johnson & Johnson. Mr. Shortt has also been a director of Standard Telephone
Company, Standard Group Insurance, and First National Bank of Habersham.
Robert L. Voigt - Mr. Voigt served as a consultant to Dixie Yarns, Inc. from
1985 until his retirement at the end of 1991. Mr. Voigt also served as a
director of Dixie Yarns, Inc. from 1981 to 1987.
There are no family relationships between any of the directors of the
Company.
EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and positions held by the executive officers of the Company
are set forth below:
Name Age Present Occupation
Leonard Chill 62 President and Chief Executive Officer
Jon P. Beckman 54 Vice President - Finance, Chief Financial Officer,
Treasurer and Secretary
Ralph Kenner 50 Vice President - Manufacturing
William Gardner
Wright, Jr. 65 Vice President - Marketing and Sales
W. Wayne Freed 59 Vice President - Market Development
Robert J. Breyley 65 Vice President - FibermeshTM
John Michael Long 51 Vice President - Specialty Products Division
Ted Koerner 45 Vice President - Construction Products Division
Bobby Callahan 52 Controller
Except for Messrs. Chill, Beckman, Kenner, Wright, Freed and Long, each of
whom has an employment agreement with the Company, executive officers are
appointed annually and serve at the discretion of the Board of Directors. See
"Renumeration of Directors and Officers Employment Agreements" for a discussion
of the terms of each of Messrs. Chill's, Beckman's, Kenner's, Wright's, Freed's
and Long's employment with the Company. There are no family relationships
between any of the above officers.
See the immediately preceding section for a description of the employment
backgrounds of Messrs. Chill and Beckman.
Ralph Kenner - Mr. Kenner has been Vice President - Manufacturing since
1984. He joined the Company in 1974 as Director, Industrial Relations and
served in that capacity until 1976. In 1976, he was appointed Plant Manager and
served in that capacity until 1984. Mr. Kenner is also the sole director and
controlling stockholder of one of the general partners of Synthetic G.P.
William Gardner Wright, Jr. - Mr. Wright has been Vice President -
Marketing and Sales since 1983. From 1977 until 1983, he was President of Synca
Marketing Corp., a textile sales agency which served as an agent for the
Company's primary carpet backing, as well as the products of other
manufacturers. Mr. Wright is also a Director of the Trust Company Bank of
Northwest Georgia. Mr. Wright is also the sole director and controlling
stockholder of one of the general partners of Synthetic G.P.
W. Wayne Freed - Mr. Freed joined the Company in 1981 and became Vice
President - Market Development of the Company in 1987. Prior thereto, he had 22
years experience in the textile industry. Mr. Freed is also the sole director
and controlling stockholder of one of the general partners of Synthetic G.P.
Robert J. Breyley - Mr. Breyley joined the Company in 1984 and became
Vice President -FibermeshTM Division in December 1986. Prior thereto, he held
a variety of managerial positions with Master Builders, Inc., a leading concrete
admixtures supplier. During his last six years with Master Builders, he was
Senior Vice President of Sales and Marketing. Mr. Breyley is also a limited
partner of Management L.P.
John Michael Long - Mr. Long was elected Vice President - Specialty Products
Division in October 1991. Prior thereto, he held a variety of managerial
positions with Spartan Mills, a manufacturer of nonwoven geotextile fabrics.
During his last five years at Spartan, he was Vice President and General
Manager.
Ted Koerner - Mr. Koerner joined the Company in 1990 as director of the
Construction Products Division. He was named Vice President - Construction
Products in 1993. Prior thereto, Mr. Koerner was an Engineer with the Ohio
Department of Transportation; Sales Engineer, Product Supervisor and Regional
Engineer with Armco Steel Corporation; and Sales Manager with National Seal
Corporation.
Bobby Callahan - Mr. Callahan joined the Company in 1977 and has been
Controller since 1980. Prior thereto, he held a variety of financial management
positions in the carpet industry. Mr. Callahan is also a limited partner of
Management L.P.
ITEM 11. REMUNERATION OF DIRECTORS AND OFFICERS
COMPENSATION OF DIRECTORS
Outside directors receive $15,000 per annum for services as a director and
$800 per meeting attended. Directors who are members of management do not
receive any meeting attendance fees or additional compensation for services as a
director or on committees of the Board of Directors. All directors are
reimbursed for reasonable out-of-pocket expenses incurred in connection with
their attendance at Board of Directors and committee meetings. See
"Renumeration of Directors and Officers - Option Plans".
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information as to the compensation paid
during each of the Company's last three completed fiscal years to (I) the chief
executive officer of the Company and (ii) the four most highly compensated
executive officers of the Company (other than the chief executive officer).
Name and Fiscal Year Ended All Other
Principal Position September 30, Salary($) Bonus (1) Compensation($)
Leonard Chill 1994 247,447 11,458 (2)
Chief Executive Officer 1993 240,240 95,073 11,514
and President 1992 231,000 88,935
Jon P. Beckman 1994 142,845 10,353 (3)
Vice-President - Finance 1993 138,684 53,737 10,515
1992 133,350 50,457
Ralph Kenner 1994 125,973 7,468 (4)
Vice President - 1993 122,304 49,603 8,514
Manufacturing 1992 117,600 45,738
William Gardner Wright,
Jr. 1994 235,664 4,497 (5)
Vice President -
Marketing and Sales 1993 228,800 74,404 4,549
1992 220,500 68,970
Robert J. Breyley 1994 141,720 5,548 (6)
Vice President - 1993 137,592 46,851 6,748
FibermeshTM Division 1992 132,300 51,000
- ----------
(1) The bonus amounts payable to each of Messrs. Chill, Beckman, Kenner,
Wright and Breyley for the fiscal year ended September 30, 1994 was not
determinable as at December 1, 1994. See "Incentive Compensation and Bonus
Plan."
(2) This amount consist of $5,424 of insurance premiums paid by the Company
under a term life insurance policy; $1,537 pertaining to auto allowance; and
$4,497 contributed by the Company under the Retirement Plan. In addition, a
maximum of $247,477 is payable in the event a "change in control" provision
contained in Mr. Chill's employment agreement is triggered. See "Employment
Agreements" and "Retirement Plan".
(3) This amount consists of $2,649 of insurance premiums paid by the Company
under a term life insurance policy; $3,205 pertaining to auto allowance; and
$4,499 contributed by the Company under the Retirement Plan. In addition, a
maximum of $142,845 is payable in the event a "change in control" provision
contained in Mr. Beckman's employment agreement is triggered. See "Employment
Agreements" and "Retirement Plan".
(4) This amount consists of $4,497 contributed by the Company under the
Retirement Plan and $2,971 pertaining to auto allowance. In addition, a
maximum of $125,973 is payable in the event a "change in control" provision
contained in Mr. Kenner's employment agreement is triggered. See "Employment
Agreements" and "Retirement Plan".
(5) This amount represents contributins made by the Company under the
Retirement Plan. See "Retirement Plan".
(6) This amount represents $1,350 pertaining to auto allowance and $4,198
contributed by the Company under the Retirement Plan. See "Retirement Plan".
EMPLOYMENT AGREEMENTS
Leonard Chill is employed by the Company pursuant to an employment
agreement dated October 1, 1989, as amended, which expires on October 1, 1995.
Mr. Chill's current annual salary pursuant to this agreement is $247,447 and is
subject to annual review by the Company's Board of Directors. Mr. Chill's
employment agreement further provides for the purchase by the Company of a term
life insurance policy in the face amount of $1,000,000 and grants Mr. Chill the
exclusive right to designate his beneficiary thereunder. In addition, if Mr.
Chill is terminated, other than for cause or by reason of permanent and total
disability, within 90 days after the consummation of the sale of the Company of
all or substantially all of its assets, or the sale by the Partnership of all or
substantially all of the capital stock of the Company, Mr. Chill is entitled to
receive from the Company his annual base salary for the lesser of twelve months,
or the remainder of the term of his employment agreement.
Jon P. Beckman is employed by the Company pursuant to an employment
agreement dated October 1, 1989, as amended, which expires on October 1, 1995.
Mr. Beckman's annual salary pursuant to this agreement is $142,845 and is
subject to annual review by the Company's Board of Directors. The employment
agreement further provides for the purchase by the Company of a term life
insurance policy in the face amount of $300,000 and grants Mr. Beckman the
exclusive right to designate his beneficiary thereunder. In addition, if Mr.
Beckman is terminated other than for cause or by reason of permanent and total
disability, within 90 days after the consummation of the sale by the Company of
all or substantially all of its assets, or the sale by the Partnership of all or
substantially all of the capital stock of the Company, Mr. Beckman is entitled
to receive from the Company his annual base salary for the lesser of twelve
months, or the remainder of the term of his employment agreement.
Ralph Kenner is employed by the Company pursuant to an employment agreement
dated October 1, 1989, as amended, which expires on October 1, 1995. Mr.
Kenner's annual salary pursuant to this agreement is $125,973 and is subject to
annual review by the Company's Board of Directors. Mr. Kenner's employment
agreement further provides that if Mr. Kenner is terminated other than for cause
or by reason of permanent and total disability, within 90 days after the
consummation of the sale by the Company of all or substantially all of its
assets, or the sale by the Partnership of all or substantially all of the
capital stock of the Company, Mr. Kenner is entitled to receive from the Company
his annual base salary for the lesser of twelve months, or the remainder of the
term of his employment agreement.
W. Gardner Wright is employed by the Company pursuant to an employment
agreement dated July 1, 1993, which expires on October 1, 1995. Mr. Wright's
annual salary pursuant to this agreement is $235,664 and is subject to annual
review by the Company's Board of Directors. Mr. Wright's employment agreement
further provides that if Mr. Wright is terminated other than for cause or by
reason of permanent and total disability, within ninety (90) days after the
consummation of the sale by the Company of all or substantially all of its
assets, or the sale by the Partnership of all or substantially all of the
capital stock of the Company, Mr. Wright is entitled to receive from the Company
his annual base salary for the lesser of twelve (12) months, or the remainder of
the term of his employment agreement.
W. Wayne Freed is employed by the Company pursuant to an employment
agreement dated July 1, 1993, which expires on October 1, 1995. Mr. Freed's
annual salary pursuant to this agreement is $128,544 and is subject to annual
review by the Company's Board of Directors. Mr. Freed's employment agreement
further provides that if Mr. Freed is terminated other than for cause or by
reason of permanent and total disability, within ninety (90) days after the
consummation of the sale by the Company of all or substantially all of its
assets, or the sale by the Partnership of all or substantially all of the
capital stock of the Company, Mr. Freed is entitled to receive from the Company
his annual base salary for the lesser of twelve (12) months, or the remainder of
the term of his employment agreement.
John Michael Long is employed by the Company pursuant to an employment
agreement dated September 2, 1991, as amended, which expires on September 2,
1997. Mr. Long's annual salary pursuant to this agreement is $139,256 and is
subject to annual review by the Company's Board of Directors.
INCENTIVE COMPENSATION AND BONUS PLANS
The Company has adopted for fiscal 1995 incentive plans for each of its
divisions similar to those in effect during fiscal 1994, 1993 and 1992. Each
provides for the payment of bonuses to certain key employees if the particular
division achieves at least a designated minimum amount of operating profit for
the fiscal year.
RETIREMENT PLAN
The Company has established a retirement plan (the "Retirement Plan") under
Section 401(k) of the Internal Revenue Code of 1986, as amended, effective
October 1, 1986. Employees who have completed at least one year of service with
the Company qualify for participation in the Retirement Plan. A participant may
contribute an amount ranging from one percent (1%) to twenty percent (20%) of
his or her annual compensation not to exceed $150,000, which contribution in no
event may exceed a limit set annually by the Internal Revenue Service ($9,240 in
1994). All participant contributions, together with earnings thereon, are fully
vested. The Company may, but is not required to, contribute to the Retirement
Plan a portion of its net profits as determined by its Board of Directors.
Employer contributions vest over three to seven years. The Company currently
makes matching contributions of $0.50 for each dollar contributed to the
Retirement Plan by a participant up to a maximum of three percent (3%) of such
participant's annual compensation. The account balance of a participant is paid
to the participant or his beneficiary, beginning with the participant's
retirement or separation from service, in a lump sum, or installments over the
life expectancy of the participant, as selected by the participant.
OPTION PLANS
Directors Plan.
The Company's 1994 Stock Option Plan for Non-Employee Directors (the
"Directors Plan") was adopted by the Board of Directors upon the recommendation
of a special committee consisting of Messrs. Beckman and Chill and approved by
the Company's sole stockholder during the fourth quarter of fiscal 1994. On
August 4, 1994, Messrs. Dana, Seidler, Shortt and Voigt were granted non-
qualified stock options (the "Directors Options") under the Directors Plan to
purchase 0.24975, 0.4995, 0.1665 and 0.1665 shares of Common Stock,
respectively. At the time the Directors Options were granted, the Company had
(and continued to have as at December 1, 1994) 49.95 shares of Common Stock
outstanding. The Directors Plan does not provide for any further grants of
options thereunder.
The purchase price of the shares of Common Stock subject to the Directors
Options was determined by reference to the fair market value of the Common
Stock, as determined by the DP Committee (as defined below), at the time Messrs.
Dana, Seidler, Shortt and Voigt became members of the Board of Directors. As at
December 1, 1994, 50% of the number of shares of Common Stock subject to each
Director Option had vested and become exercisable. An additional 25% of the
shares of Common Stock subject to each Director Option will vest and become
exercisable on each of October 1, 1995 and 1996. Under the Directors Plan, the
DP Committee has the right to accelerate, in whole or in part, from time to
time, conditionally or unconditionally, the vesting and/or right to exercise any
Director Option if it determines that (i) such acceleration would be appropriate
in order to preserve the rights and intended benefits of such Director Option,
or (ii) such acceleration would be in the best interests of the Company. The
term of each Director's Option is ten years from date of grant.
During the lifetime of an optionee, his Director Option may be exercised
only by him. An optionee may not transfer his Director Option other than by
will; the laws of descent and distribution; or to his children, grandchildren
or wife, or to one or more trusts for the benefit of such family members or
partnerships in which such family members are the only partners, provided that
(i) the optionee does not receive any consideration for such transfer, and (ii)
the transferee of such Director Option remains subject to all the terms and
conditions that were applicable to such Director Option immediately prior to
such transfer.
In the event any optionee dies while he is a member of the Board of
Directors; becomes disabled (within the meaning of the Directors Plan); retires
from the Board of Directors; or resigns from, or otherwise ceases to be a member
of, the Board of Directors ("Disassociation"), the Director Option held by such
optionee, to the extent exercisable on the date of his death, disablement,
retirement, resignation or Disassociation, shall remain exercisable by him or
his legatee or legatees under his will, or by his personal representative or
distributees, (i) in the event of retirement, resignation or Disassociation for
a period of three (3) years following the date of retirement, resignation or
Disassociation and (ii) in the event of disability or death for a period of two
(2) years following the date of disability or death, but in no event beyond the
term of such Director Option.
The Directors Plan is administered by a committee (the "DP Committee") whose
members are Messrs. Beckman and Chill. As Company employees, Messrs. Beckman
and Chill are not eligible to participate in the Directors Plan. In the event
that the outstanding shares of Common Stock are changed by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split, combination or exchange of shares and the like, or dividends payable in
Common Stock, an appropriate adjustment shall be made by the DP Committee in the
aggregate number of shares of Common Stock available under the Directors Plan
and in the number of shares and price per share subject to outstanding Director
Options. In the event that (i) the Company shall be reorganized or (ii)
substantially all or all of the assets of the Company shall be sold or exchanged
an optionee shall be entitled to receive, upon the exercise of his Director
Option, the same number and kind of shares of Common Stock or the same amount of
property, cash or securities as he would have been entitled to receive upon the
occurrence of any such corporate event as if he had been, immediately prior to
such event, the holder of the number of shares of Common Stock covered by his
Director Option.
Management Plan.
The Company's 1994 Stock Option Plan (the "Management Plan") was adopted by
the Board of Directors upon the recommendation of a special committee consisting
of Messrs. Seidler, Shortt and Voigt and approved by the Company's sole
stockholder during the fourth quarter of fiscal 1994. Under the Management
Plan, incentive stock options ("ISOs"), as provided in Section 422A of the
Internal Revenue Code, and non-qualified stock options may be granted to any
full-time employee of the Company or its subsidiaries. The maximum aggregate
number of shares of Common Stock that may be issued under the Management Plan is
4.24575. At the time the Management Plan was adopted, the Company had (and
continued to have as at December 1, 1994) 49.95 shares of Common Stock
outstanding. On December 9, 1994, options to purchase an aggregate of 2.736225
shares of Common Stock were granted under the Management Plan. Of such amount,
Messrs. Chill, Beckman, Wright, Freed, Kenner and Breyley were granted options
to purchase 0.953913, 0.351442, 0.288684, 0.288684, 0.288684 and 0.083677 shares
of Common Stock, respectively. Options may not be granted under the Management
Plan after August 28, 2004.
The Management Plan provides for administration by a committee (the
"Committee") whose members are Messrs. Dana, Seidler, Shortt and Voigt. Subject
to the express provisions of the Management Plan, the Committee has the
discretion and authority to determine to whom from among the eligible employees
an option may be granted, the time or times at which each option may be
exercised, the number of shares of Common Stock subject to each option and the
terms and conditions of each stock option agreement issued pursuant to the
Management Plan; provided, however, that shares of Common Stock subject to any
such agreement shall vest and become exercisable at a minimum rate of 25% per
year over a four-year period. Under the Management Plan, the Committee has the
fight to accelerate, in whole or in part, from time to time, conditionally or
unconditionally, the vesting and/or right to exercise any option if it
determines that (i) such acceleration would be appropriate in order to preserve
the rights and intended benefits of such option, or (ii) such acceleration would
be in the best interests of the Company.
In the event that the outstanding shares of Common Stock are changed by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split, combination or exchange of shares and the like,
or dividends payable in Common Stock, an appropriate adjustment shall be made by
the Committee in the aggregate number of shares of Common Stock available under
the Management Plan and in the number of shares and price per share subject to
outstanding options. In the event that (i) the Company shall be reorganized or
(ii) substantially all or all of the assets of the Company shall be sold or
exchanged an optionee shall be entitled to receive, upon the exercise of his
option, the same number and kind of shares of Common Stock or the same amount of
property, cash or securities as he would have been entitled to receive upon the
occurrence of any such corporate event as if he had been, immediately prior to
such event, the holder of the number of shares of Common Stock covered by his
option.
The purchase price of the shares of Common Stock subject to options under
the Management Plan must be no less than the fair market value of the Common
Stock at the date of grant, as determined by the Committee; provided, however,
that the purchase price of shares of Common Stock subject to ISOs granted to any
optionee who owns shares possessing more than 10% of the combined voting power
of the Company or any parent or subsidiary of the Company ("Ten Percent
Stockholder") must not be less than 110% of the fair market value of the Common
Stock at the date of the grant. The maximum term of an option may not exceed
ten years from the date of grant, except with respect to ISOs granted to Ten
Percent Shareholders which must expire within five years of the date of grant.
During the lifetime of an optionee, his option may be exercised only by him.
An optionee may not transfer his option other than by will or the laws of
descent and distribution. The Committee, in its sole and absolute discretion,
may further provide that non-qualified stock options may be transferred by an
optionee to his children, grandchildren or wife, or to one or more trusts for
the benefit of such family members or partnerships in which such family members
are the only partners, provided that (i) the optionee does not receive any
consideration for such transfer, and (ii) the transferee of such option remains
subject to all the terms and conditions that were applicable to such option
immediately prior to such transfer.
In the event any optionee dies while he is an employee of the Company;
becomes disabled (within the meaning of the Management Plan); or retires with
the approval of the Company, the option held by him, to the extent exercisable
on the date of his death, disablement or retirement shall remain exercisable by
him or his legatee or legatees under his will, or by his personal representative
or distributees, (i) in the event of retirement for a period of three (3) years
following the date of retirement, and (ii) in the event of disability or death
for a period of two (2) years following the date of disability or death, but in
no event beyond the term of such option. In the event of any other termination
of an optionee's employment, the option held by him, to the extent exercisable
on the date of termination, shall remain exercisable for a period of three
months following the date of termination unless the Committee, in its sole and
absolute discretion, provides for a longer period in the stock option agreement
covering such option, but in no event beyond the term of such option.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As at December 1, 1994, all of the issued and outstanding capital stock of
the Company was owned by the Partnership. See "Renumeration of Directors and
Officers - Option Plans". Management L.P. is the sole general partner of the
Partnership. Synthetic G.P. is the sole general partner of Management L.P. By
virtue of these relationships, Synthetic G.P. controls the management and
affairs of the Partnership.
The general partners of Synthetic G.P. are the following Delaware
corporations: Chill Investments, Inc., Beckman Investments, Inc., Freed
Investments, Inc., Kenner Investments, Inc. and Wright Investments, Inc. Each
of Messrs., Chill, Beckman, Freed, Kenner and Wright is the sole director and
the controlling stockholder of one of Synthetic G.P.'s general partners. For
further information concerning Messrs. Chill, Beckman, Freed, Kenner and Wright,
see "Directors and Executive Officers."
The address of the Partnership is 309 LaFayette Road, Chickamauga, Georgia
30707.
ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
During fiscal 1994, the Company paid legal fees totaling approximately
$75,000 to the law firm of Watson & Dana located in LaFayette, Georgia.
Mr. Dana, a director of the Company, is a member of Watson & Dana.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements:
Page No. of
Financial Statement
(1) Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in
Stockholder's Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
(2) Financial Statement Schedules:
Property, Plant and Equipment (Schedule V) F-17
Accumulated Depreciation of Property, Plant
and Equipment (Schedule VI) F-18
Valuation and Qualifying Accounts
(Schedule VIII) F-19
Supplementary Statement of Operations
Information (Schedule X) F-20
(b) No reports on Form 8-K were filed during the last quarter of the Company's
fiscal year ended September 30,1994.
(c) Exhibits: See exhibit index on following page.
(d) No additional financial statements are required to be filed.
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Securities Exchange Act of 1934, as amended, by Registrants Which
Have Not Registered Securities Pursuant to Section 12 thereunder.
No annual reports or proxy materials have been sent to the sole
stockholder of the Company or to the holders of the Debentures..
EXHIBIT INDEX
Location in
Sequential
Page Numbering
System
The following are the Exhibits as required by Item 14 (c).
* 2.1 Acquisition Agreement dated November 21, 1986 between
Synthetic Industries, Inc., Synthetic Industries Limited, Polyweave
Corporation, the shareholders of Synthetic Industries, Inc.,
Synthetic Industries Limited and S.I. Holding Inc. including
exhibits thereto.
* 2.2 Plan and Agreement of Merger dated December 4, 1986.
** 2.3 Asset Purchase Agreement dated October 12, 1990 between
Synthetic Industries, Inc. and Chicopee.
** 3.1 Certificate of Incorporation of Synthetic Industries, Inc.
(including all amendments to date) filed with the Secretary of the
State of Delaware.
** 3.2 Amended and Restated By-Laws of Synthetic Industries, Inc.
(including all amendments to date).
**** 4.1 Form of Indenture between Synthetic Industries, Inc. and
United States Trust Company of New York, Trustee, in respect to the
12 3/4% Senior Subordinated Debentures due 2002.
**** 10.1 Second Amended and Restated Revolving Credit and Security
Agreement dated as of March 15, 1993 among Synthetic Industries,
Inc., The First National Bank of Boston and other Lenders listed on
Schedule I thereto, and The First National Bank of Boston, as agent
on behalf of the Lenders.
** 10.2 U.S. Patent No. 4,867,614, Reinforced Soil and Method (Exp.
December 13, 2003).
** 10.3 U.S. Patent No. 4,790,691, Fiber Reinforced Soil and Method
(Exp. December 13, 2003).
** 10.4 U.S. Patent No. 5,007,766, Shaped Barrier for Erosion Control
and Sediment Collection (Exp. April 16, 2008).
10.5 Fiscal 1994 Management Incentive Bonus Plan.
* 10.6 Lease agreement dated November 22, 1971 between Murray Sobel
and Synthetic Industries, Inc. (including all amendments to date).
* 10.7 Lease agreement dated February 13, 1969, between Murray Sobel
and wife, Marcela S. Sobel, and Joseph F. Decosimo, Frank M.
Thompson and Murray Sobel, Trustees and Synthetic Industries, Inc.
(including all amendments to date).
** 10.8 Lease agreement dated December 17, 1990 between Chicopee and
Synthetic Industries, Inc.
** 10.9 Lease agreement dated January 17, 1991 between Herchel L.
Webster and Allie Ree Webster and Synthetic Industries, Inc. (the
"Lumite Lease").
****** 10.10 Amendment to the Lumite Lease dated October 1, 1992.
** 10.11 Consulting Agreement dated July 23, 1991 between Texpro
Limitada y Cia S.C.A. and Synthetic Industries, Limited.
** 10.12 Employment Agreement dated October 27, 1989 between Leonard
Chill and Synthetic Industries, Inc. (including all amendments to
date).
** 10.13 Employment Agreement dated October 27, 1989 between Jon P.
Beckman and Synthetic Industries, Inc. (including all amendments to
date).
** 10.14 Employment Agreement dated October 27, 1989 between Ralph A.
Kenner, Jr. and Synthetic Industries, Inc. (including all
amendments to date).
** 10.15 Employment Agreement dated September 2, 1991 between John M.
Long and Synthetic Industries, Inc.
** + 10.16 Supply Contract between Eastman Chemical Products, Inc. and
Synthetic Industries, Inc. dated December 13, 1991.
** + 10.17 Supply Contract between Shell Chemical Company and Synthetic
Industries, Inc. dated March 5, 1992.
** + 10.18 Supply Contract between Fina Oil and Chemical Company dated
May 3, 1990.
** 10.19 Agreement dated February 18, 1986 between Leonard Chill and
Synthetic Industries, Inc.
** 10.20 Agreement dated February 18, 1986 between Richard E. Hingson
and Synthetic Industries, Inc.
** 10.21 Agreement dated February 18, 1986 between Ralph A. Kenner
and Synthetic Industries, Inc.
** 10.22 Agreement dated February 18, 1986 between Blake M. Putnam
and Synthetic Industries, Inc.
** 10.23 Agreement dated February 18, 1986 between Richard H. Schuler
and Synthetic Industries, Inc.
** 10.24 Agreement dated February 18, 1986 between Gardner Wright, Jr.
and Synthetic Industries, Inc.
** 10.25 Agreement dated September 2, 1991 between John M. Long and
Synthetic Industries, Inc.
** 10.26 Agreement dated July 16, 1990 between Charles T. Koerner and
Synthetic Industries, Inc.
** 10.27 Agreement dated November 28, 1990 between Edwin M. Wood and
Synthetic Industries, Inc.
** 10.28 Agreement dated September 1, 1984 between Robert J. Breyley,
Sr. and Fibermesh Company.
*** 10.29 Employment Agreement dated July 1, 1993 between W. Gardner
Wright, Jr. and Synthetic Industries, Inc.
*** 10.30 Employment Agreement dated July 1, 1993 between W. Wayne
Freed and Synthetic Industries, Inc.
10.31 1994 Stock Option Plan for Non-Employee Directors
10.32 1994 Stock Option Plan
** 21. List of Subsidiaries of Synthetic Industries, Inc.
- --------------
* Filed as an exhibit to the Company's Registration Statement on Form S-1
(33-11479) as filed with the Securities and Exchange Commission on
January 23, 1987 and incorporated herein by reference.
** Filed as an exhibit to the Company's Registration Statement on Form S-1
(33-51206) as filed with the Securities and Exchange Commission on
August 24, 1992 and incorporated herein by reference.
*** Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993 and incorporated herein by
reference.
**** Filed as an exhibit to the Company's Amendment No. 3 to the Registration
on Form S-1 (33-51206) as filed with the Securities and Exchange
Commission on December 4, 1992 and incorporated herein by reference.
***** Filed as an exhibit to the Partnership's Registration Statement on Form
10 (0-21548) as filed with the Securities and Exchange Commission on
April 16, 1993 and incorporated herein by reference.
******Filed as an exhibit to the Partnership's Amendment No. 1 to the
Registration Statement on Form 10 (0-21548) as filed with the Securities
and Exchange Commission on August 10, 1993 and incorporated herein by
reference.
+ Pursuant to an order dated October 19, 1992, the Securities and Exchange
Commission granted confidential treatment with respect to certain
portions of this exhibit under Rule 406 of the Securities Act of 1933, as
amended.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Synthetic Industries, Inc.
Chickamauga, Georgia
We have audited the accompanying consolidated balance sheets of Synthetic
Industries, Inc. (a wholly owned subsidiary of Synthetic Industries, L.P.) and
its subsidiaries as of September 30, 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 September 30, 1994. Our audits also
included the financial statement schedules listed in the Index at Item 14(a)2.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Synthetic Industries, Inc. and
subsidiaries at September 30, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1994 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for income taxes during the year ended
September 30, 1993.
November 22, 1994
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
SEPTEMBER 30,
ASSETS 1994 1993
CURRENT ASSETS:
Cash $ 117 $ 253
Accounts receivable, less allowance for
doubtful accounts of $1,201 and $1,090 39,094 36,465
Inventory (Note 3) 32,520 25,265
Other current assets (Note 4) 10,859 11,949
TOTAL CURRENT ASSETS 82,590 73,932
PROPERTY, PLANT AND EQUIPMENT, net (Note 5) 115,050 92,602
DEFERRED FINANCING AND ORGANIZATION COSTS,
net of accumulated amortization of $4,788
and $4,049 7,246 8,252
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED AND OTHER INTANGIBLES (Note 6) 83,047 85,586
$287,933 $260,372
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $18,767 $ 13,411
Accrued expenses and other current
liabilities 6,944 6,411
Income taxes payable (Note 11) 482 -
Interest payable 6,247 6,023
Current maturities of long-term
debt (Note 7) 6,036 6,032
TOTAL CURRENT LIABILITIES 38,476 31,877
LONG-TERM DEBT (Note 7) 172,490 164,723
DEFERRED INCOME TAXES (Note 11) 21,150 19,349
232,116 215,949
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDER'S EQUITY:
Common stock, $1 par value:
Authorized, issued and outstanding 49.95 shares - -
Additional paid-in capital 69,300 69,300
Cumulative translation adjustments 26 52
Deficit (13,509) (24,929)
TOTAL STOCKHOLDER'S EQUITY 55,817 44,423
$287,933 $260,372
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
YEAR ENDED SEPTEMBER 30,
1994 1993 1992
Net Sales $ 234,977 $210,516 $195,739
Costs and expenses:
Cost of sales 152,305 142,181 133,690
Selling expenses 21,815 19,395 15,502
General and administrative expenses 17,588 16,404 16,293
Amortization of excess of purchase
price over net assets acquired
and other intangibles 2,499 2,615 2,598
194,207 180,595 168,083
Operating income 40,770 29,921 27,656
Other expenses:
Interest expense 20,011 20,854 17,865
Amortization of deferred financing
and organization costs 739 933 1,636
20,750 21,787 19,501
Income from continuing operations before
provision for income taxes 20,020 8,134 8,155
Provision for income taxes
(Note 11) 8,600 4,472 4,560
Income from continuing operations 11,420 3,662 3,595
Discontinued Operations (Note 12):
Loss from discontinued operations
(no tax effect - Note 11) - - (553)
Reversal of provision for (disposal of)
discontinued operations, [net of
tax provision (benefit) of $800
and ($3,276)] - 1,420 (7,014)
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principle - 5,082 (3,972)
Extraordinary item - Loss from early
extinguishment of debt (net of
tax benefit of $5,392) (Note 8) - (8,892) -
Cumulative effect on prior years of
change in accounting principle
for income taxes - (8,500) -
NET INCOME (LOSS) $ 11,420 $(12,310) $ (3,972)
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS OF DOLLARS)
ADDITIONAL CUMULATIVE
COMMONPAID-IN TRANSLATION
STOCK CAPITALADJUSTMENTS DEFICIT TOTAL
Balance, October 1, 1991 - 69,300 2,185 (8,647) 62,838
Net loss - - - (3,972) (3,972)
Foreign currency translation - - (2,166) - (2,166)
Balance, September 30, 1992 - 69,300 19 (12,619) 56,700
Net loss - - - (12,310) (12,310)
Foreign currency translation - - 33 - 33
Balance, September 30, 1993 - 69,300 52 (24,929) 44,423
Net income - - - 11,420 11,420
Foreign currency translation - - (26) - (26)
Balance, September 30, 1994 $ - $ 69,300 $ 26$ (13,509) $ 55,817
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
Year ended September 30,
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principle $ 11,420 $ 5,082 $ (3,972)
Adjustments to reconcile net income (loss)
to net cash provided by operations:
(Reversal of) provision for loss on
disposal of discontinued
operations (net of tax) - (1,420) 7,014
Depreciation 9,152 8,515 6,683
Amortization of intangibles, deferred
financing and organizational costs 3,238 3,558 4,295
Deferred income taxes 3,830 5,489 (1,018)
Provision for bad debts 217 383 720
Loss on disposal of equipment 266 751 -
Accrued interest on junior subordinated
debentures - 1,190 1,922
Change in assets and liabilities,
net of disposition:
Increase in accounts receivable (2,861) (5,335) (328)
(Increase) decrease in inventory (7,255) 1,758 (5,114)
(Increase) in other assets (632) (647) (1,140)
Increase (decrease) in accounts
payable 5,348 (1,700) 5,110
Increase (decrease) in accrued expenses
and other current liabilities 533 1,949 (656)
Increase (decrease) in income taxes
payable 482 (356) (20)
Decrease in net liabilities of
discontinued operations - (640) -
Increase in interest payable 224 5,757 39
Cash provided by operating
activities 23,962 24,334 13,535
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (31,866) (11,759) (22,102)
Cash used in investing
activities (31,866) (11,759) (22,102)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan - 30,000 7,069
Repayments under term loan (6,000) (19,303) (9,373)
Issuance of 12_% Senior
subordinated debentures - 140,000 -
Redemption of 11 1/2% Senior
subordinated debentures - (116,344) -
Repayment costs on early
extinguishment of debt - (720) -
Repayment of Junior Subordinated
Debenture - (17,093) -
Net borrowing (repayment) under
revolving credit line 13,802 (23,298) 10,833
Repayments of other long term debt (31) (28) (24)
Deferred Finance Costs - (5,784) -
Cash provided by (used in)
financing activities 7,771 (12,570) 8,505
Effect of exchange rate changes
on cash (3) (1) (1)
NET (DECREASE) INCREASE IN CASH (136) 4 (63)
CASH AT BEGINNING OF PERIOD 253 249 312
CASH AT END OF PERIOD $ 117 $ 253 $ 249
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 19,787 $ 14,913 $ 15,843
Income taxes 3,901 - 2,276
See Notes to Consolidated Financial Statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
1.ORGANIZATION
The Company, a wholly owned subsidiary of Synthetic Industries L.P., a
Delaware limited partnership (the "Partnership"), manufactures and markets a
variety of polypropylene based technical textiles. These include primary and
secondary carpet backing, construction/civil engineering products and
technical textiles.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All significant
intercompany transactions and balances have been eliminated.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of foreign subsidiaries are translated at the
fiscal year-end rates of exchange, and the results of operations are
translated at the average rates of exchange for the years presented. Gains
or losses resulting from translating foreign currency financial statements
are accumulated in the cumulative translation adjustments account in the
stockholder's equity section of the accompanying consolidated balance sheets.
INVENTORY
Inventory is stated at the lower of cost, determined using the first-in,
first-out method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated depreciation
and amortization. Depreciation is provided on the straight-line method based
on estimated useful lives, as follows:
Building and improvements 25 years
Machinery and equipment 14 years
Leasehold improvements are amortized over the shorter of the useful life of
the asset or the term of the lease. Expenses for repairs, maintenance and
renewals are charged to operations as incurred. Expenditures which improve
an asset or extend its useful life are capitalized. When properties are
retired or otherwise disposed of, the related cost and accumulated
depreciation and amortization are removed from the accounts and any gain or
loss is included in income.
The Company capitalized interest costs as part of the cost of constructing
major facilities and equipment. Interest costs of $729, $283 and $315 were
capitalized in 1994, 1993 and 1992, respectively.
INCOME TAXES
Effective October 1, 1992, the Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". The Company provides for deferred income
taxes under the asset and liability method, whereby deferred income taxes
result from temporary differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements. For
years prior to fiscal 1993, amounts provided for income taxes were based on
income reported for financial statement purposes pursuant to Accounting
Principles Board Opinion No. 11.
The effect of adopting SFAS No. 109 in fiscal 1993 was to decrease net income
by approximately $8,440, reflecting a decrease in income tax expense of $60
and an $8,500 charge for the cumulative effect of adoption.
DEFERRED FINANCING AND INTANGIBLE ASSETS
Deferred financing costs are amortized over a period of 5 to 12 years.
Intangible assets consist of a trademark and patent on FibermeshTM which are
amortized on a straight-line basis over 40 and 5 years, respectively.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
The excess of purchase price over net assets acquired is amortized on a
straight-line basis over a period of 40 years. Excess of purchase price over
net assets acquired is assessed for recoverability on a regular basis. In
evaluating the value and future benefits of goodwill, its carrying value
would be reduced by the excess, if any, of the balance over Management's best
estimate of undiscounted future operating income before amortization of the
related intangible assets over the remaining amortization period.
EARNINGS PER SHARE INFORMATION
The Company is owned by one stockholder. As such, earnings per share
information is not considered relevant and is not presented in the
consolidated financial statements or notes thereto.
RECLASSIFICATION OF PRIOR FINANCIAL STATEMENTS
Certain reclassifications have been made to previous years' financial
statements to conform with 1994 classifications.
3.INVENTORY
September 30,
1994 1993
Finished goods $ 20,580 $ 15,856
Work in process 5,263 4,715
Raw materials 6,677 4,694
$32,520 $25,265
4.OTHER CURRENT ASSETS
September 30,
1994 1993
Prepaid supplies $ 6,416 $ 4,905
Deferred income tax
benefits 3,085 5,114
Income tax receivable 550 747
Other 808 1,183
$10,859 $11,949
5.PROPERTY, PLANT AND EQUIPMENT
September 30,
1994 1993
Land $ 3,061 $ 2,929
Buildings and
improvements 21,183 18,429
Machinery and equipment
and leasehold
improvements 141,332 112,802
165,576 134,160
Accumulated
depreciation 50,526 41,558
$115,050 $92,602
6.EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED AND OTHER INTANGIBLES
September 30,
1994 1993
Excess of purchase price
over net assets
acquired $99,818 $99,818
Intangible assets 4,485 4,525
104,303 104,343
Accumulated amortization 21,256 18,757
$ 83,047 $ 85,586
The excess of purchase price over net assets acquired arose from the purchase of
the Company's Common Stock by the Partnership in 1986.
7.LONG-TERM DEBT
Long-term debt consists of the following at September 30:
1994 1993
Secured revolving credit facility:
Secured revolving credit portion $ 16,129 $2,327
Term loan portion 21,000 27,000
12 3/4% Senior subordinated debentures 140,000 140,000
Other 1,397 1,428
178,526 170,755
Less current portion 6,036 6,032
Total long-term portion $172,490 $164,723
A.THE SECURED REVOLVING CREDIT FACILITY
On March 15, 1993, the Company and its lenders entered into a Second
Amended and Restated Revolving Credit Agreement (the "Amended Credit
Facility"). Under the term portion of the Amended Credit Facility (the
"Term Loan"), the Company borrowed $30,000, payable over a 60-month period
which began on April 1, 1993, in equal installments of $500, plus
interest, calculated at a rate equal to the bank's base rate (7.5% at
September 30,1994) plus 1 1/2%. The Amended Credit Facility will
terminate on March 8, 1998.
The revolving credit loan portion of the Amended Credit Facility (the
"Revolver") provides for availability based on a borrowing formula
consisting of 85% of eligible accounts receivable and 50% of eligible
inventory, subject to certain limitations. The maximum amount available
for borrowing under the Revolver is $30,000. At September 30,1994, the
Company had $13,208 available under the Revolver. Interest on borrowings
is at the bank's base rate (7.5% at September 30,1994) plus 1 1/4%.
The Company may, at its option and with certain restrictions, convert a
portion of its advances under the Term Loan or Revolver to Eurodollar
borrowings. At September 30, 1994, the Company has converted $20,500 of
the Term Loan into Eurodollar borrowings. Interest on Eurodollar
borrowings is calculated based on the Interbank Eurodollar rate (5.125% at
September 30, 1994) plus 3% or 2 3/4% for Term Loan or Revolver advances,
respectively.
The Amended Credit Facility provides for borrowings under letters of
credit of up to $3,000, which borrowings reduce amounts otherwise
available under the Revolver. The Company is required to pay a .375% fee
on the unused portion of the commitment and an agency fee of $150 per
annum. In connection therewith, for the Amended Credit Facility, costs of
approximately $550, consisting of bank and legal fees and other related
expenses, were deferred during fiscal 1993.
The Amended Credit Facility is collaterialized by substantially all of the
Company's assets and contains covenants related to the maintenance of
certain operating and working capital levels and limitations as to the
amount of capital expenditures.
The Company's ability to pay dividends on its Common Stock is restricted
by both the Amended Credit Facility and the indenture relating to the
Debentures discussed below.
B.SENIOR SUBORDINATED DEBENTURES
On December 14, 1992, the Company issued $140,000 of 12 3/4% Senior
Subordinated Debentures due 2002 (the "Debentures"), which represent
unsecured obligations of the Company. The Debentures are redeemable at
the option of the Company at any time on or after December 1, 1997,
initially at 106.375% of their amount, together with accrued interest,
with declining redemption prices thereafter. Interest on the Debentures
is payable semi-annually on June 1 and December 1.
The fair value of the Company's Debentures is estimated based on quoted
market prices for the Debentures in the over-the-counter market. The
estimated fair value of the Debentures at September 30, 1994 is 101.0% of
their face amount or $141,000.
The scheduled maturities of long-term debt are as follows:
1995 $6,036
1996 6,040
1997 6,045
1998 19,179
1999 56
Thereafter 141,170
$178,526
8.EXTINGUISHMENT OF DEBT
On January 13, 1993, the Company's 11 1/2% Senior Subordinated Debentures,
due 1999 (the "Old Debentures"), with a principal amount of $110,000, were
redeemed at 105.11% of the principal amount thereof. The principal amount
and related unamortized Old Debenture issuance costs were removed from the
balance sheet at December 31, 1992 resulting in an extraordinary loss of
$8,076 comprised of the following:
Call premium $5,621
Unamortized deferred
financing costs 6,071
Unamortized discount 611
Interest on defeasance 723
Tax benefit (4,950)
Loss on early debt retirement $8,076
On April 22, 1993, the Company redeemed the $40,000 maturity value zero
coupon junior subordinated debenture (the "Junior Debenture") issued to
Integrated Resources, Inc. ("IRI") which was scheduled to mature on
December 1, 1999, for $17,488. A final payment fee of $395 to terminate a
consulting arrangement was made to IRI and is included in the
extraordinary loss on early retirement of debt (net of $119 tax benefit).
In connection with the Amended Credit Facility, deferred financing fees
and prepayment costs associated with the prior credit facility were
written off during fiscal 1993, resulting in an extraordinary loss on the
early extinguishment of debt of approximately $540, comprised of the
following:
Prepayment costs $325
Unamortized deferred financing
costs 538
Tax benefit (323)
Loss on early debt retirement $540
9.COMMITMENTS AND CONTINGENCIES
A.LEASE COMMITMENTS
The Company leases certain factory and warehouse buildings and equipment
under long-term operating leases expiring through 2009. Future minimum
lease payments under noncancellable operating leases at September 30, 1994
are as follows:
Operating
Year leases
1995 $4,100
1996 3,635
1997 2,173
1998 929
1999 795
Thereafter 1,608
Total $13,240
Total rental expense for the above operating leases and other short-term
leases for the years ended September 30, 1994, 1993 and 1992 was $4,684,
$4,340 and $3,558, respectively.
B.CAPITAL EXPENDITURES
The Company has commitments for capital expenditures relating to plant
expansions in the amount of $864 at September 30, 1994.
C.CONTINGENCIES
The Company is a party to litigation arising out of its normal business
operations. The litigation primarily involves claims for personal injury,
property damage, breach of contract and employee relations. The Company
believes it has meritorious defenses to these suits and believes these
claims do not involve a risk of material loss to the Company or are
adequately covered by insurance.
10. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMER
Most of the Company's carpet backing sales are with customers located in
Georgia. Net sales to one customer represented 18%, 17% and 17%,
respectively, of consolidated net sales for the fiscal years presented.
11. INCOME TAXES
The provision (benefit) for income taxes is as follows:
YEAR ENDED SEPTEMBER 30,
1994 1993 1992
Current:
Federal $3,770 $(764) $ 1,955
State 1,000 (200) 347
4,770 (964) 2,302
Deferred:
Federal 3,405 795 (879)
State 425 49 (139)
3,830 844 (1,018)
Total taxes on income $8,600 $(120) $1,284
The Omnibus Budget Reconciliation Act of 1993 ("Tax Act"), enacted in August
1993, increased the statutory corporate income tax 1% (to 35%) and made other
changes concerning the deductibility of certain costs in determining taxable
income. Provisions of the Tax Act were effective retroactive to January 1,
1993. As a result and in accordance with SFAS 109, deferred federal income tax
expense was increased by $423 in the quarter ended September 30, 1993.
The provision (benefit) for income taxes shown above has been classified as
follows in the consolidated statement of operations:
YEAR ENDED SEPTEMBER 30,
1994 1993 1992
Continuing operations $8,600 $4,472 $4,560
Discontinued operations - 800 (3,276)
Extraordinary item - (5,392) -
Total taxes on income $8,600 $ (120) $ 1,284
No foreign income tax benefit is applied to the losses from discontinued
operations due to the Company's inability to utilize such losses to reduce taxes
payable in the future.
A reconciliation of U.S. income tax from continuing operations computed at the
statutory rate and actual tax expense is as follows:
YEAR ENDED SEPTEMBER 30,
1994 1993 1992
Amount computed at statutory rate $7,007 $2,522 $2,773
State and local taxes less applicable
federal income tax 747 289 480
Amortization of goodwill 871 915 911
Amortization of excess of fair values
assigned in purchase accounting
over historical tax basis - - 405
Effect of federal tax rate increase - 423 -
Other, net (25) 323 (9)
$8,600 $4,472 $4,560
The tax effects of significant items comprising the Company's net deferred tax
liability are as follows:
YEAR ENDED SEPTEMBER 30,
19941993
Property, plant and equipment $20,058 $18,218
Trademarks and patents 1,092 1,131
Total deferred liabilities 21,150 $19,349
Receivables 480 421
Inventory 397 493
Accrued expenses 691 851
AMT credit carryforward 1,517 3,349
Total deferred assets 3,085 5,114
Net deferred liability $18,065 $14,235
Deferred tax charges (credits) arising from differences between tax and
financial reporting, determined under the provisions of Accounting Principles
Board No. 11 for fiscal 1992 were as follows:
Depreciation $ 380
Utilization of net operating
loss carryforwards -
AMT credits (110)
Accrued expenses -
Disposal of discontinued
operations (1,044)
Allowance for doubtful
accounts (105)
Other (139)
$(1,018)
12. DISCONTINUED OPERATIONS
On March 15, 1993, the Company completed the disposal of its Irish
manufacturing operations, which had been accounted for as a discontinued
operation. As a result, the Company reduced the provision for the loss on
disposal by $1,420 (net of $800 tax provision). The fiscal 1992 provision of
$7,014 (net of $3,276 tax benefit) included a provision of $450 for operating
losses during the phase out period. Net sales of discontinued operations were
$10,833 in fiscal 1992.
13. RETIREMENT PROGRAMS
For U.S. employees, the Company maintains a trusteed profit-sharing plan
("Plan") which is qualified under Section 401(k) of the Internal Revenue
Code. The Company may elect to contribute a portion of its profits to the
Plan, as determined by the Board of Directors. Employer contributions vest
over 3 to 7 years. The Company has elected to match employee contributions
to the Plan on a 50% basis but not to exceed 3% of the employee's annual
compensation. During fiscal years 1994, 1993 and 1992, the Company
contributed $891, $813 and $707, respectively. All full-time employees over
the age of 21 who have been employed continuously for at least one year are
eligible for participation in the Plan. The Plan provides for the Company to
bear the expense of the administration of the Plan.
The Company's foreign subsidiaries maintained defined contribution and
defined benefit pension plans, consistent with statutory practices. In
conjunction with the sale of the Irish subsidiaries, substantially all of
these plans were transferred to the new owners. The Company has recognized
no gain or loss as total plan assets approximated projected benefit
obligations. Pension expense on the foreign plans is not significant.
In November 1992, the SFAS issued Statement No. 112, "Employers' Accounting
for Postemployment Benefits," which is effective for fiscal years beginning
after December 15, 1993. Management believes this standard will have no
effect on consolidated financial position or results of operations.
14. STOCK OPTION PLANS
In August 1994, the Company adopted a stock option plan (the "Plan") pursuant
to which non-qualified stock options (the "Options") to purchase an aggregate
of 1.08225 shares of Common Stock were granted to the four non-employee
Directors of the Company at an exercise price which was determined by
reference to the fair market value of the Company's equity at the time such
Directors joined the Board of Directors. The Options will be fully vested by
October 1, 1996 and have a term which expires on August 4, 2004.
In August 1994, the Company adopted a stock option plan ( the "Management
Plan") for its key employees which provides for the grant of "incentive stock
options," within the meaning of Section 422A of the Internal Revenue Code,
and non-qualified options. The purchase price of the shares of Common Stock
subject to options under the Management Plan must, as a general matter, be no
less than the fair market value of the Common Stock at the date of grant. As
of September 30, 1994, no options had been granted under the Management Plan.
SYNTHETIC INDUSTRIES, INC. Schedule V
AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS OF DOLLARS)
IMPROVEMENTS
LAND AND BUILDINGS AND MACHINERY AND
DESCRIPTION IMPROVEMENTS IMPROVEMENTS EQUIPMENT TOTAL
Balance,
September 30, 1991 $ 2,098 $ 19,154 $ 91,210 $ 112,462
Additions 1,218 4,167 16,717 22,102
Reclassifications(1) (530) (5,790) (4,908) (11,228)
Balance,
September 30, 1992 $ 2,786 $ 17,531 $ 103,019 $ 123,336
Additions 143 898 10,718 11,759
Disposals (2) - - (935) (935)
Balance,
September 30, 1993 $ 2,929 $ 18,429 $ 112,802 $ 134,160
Additions 132 2,754 28,980 31,866
Disposal (2) - - (450) (450)
Balance,
September 30, 1994 $ 3,061 $ 21,183 $ 141,332 $ 165,576
(1) Reclassification of Irish assets to discontinued operations.
(2) Disposal of certain Lumite assets.
SYNTHETIC INDUSTRIES, INC. Schedule VI
AND SUBSIDIARIES
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS OF DOLLARS)
IMPROVEMENTS
DESCRIPTION LAND AND BUILDINGS AND MACHINERY
IMPROVEMENTS IMPROVEMENTS EQUIPMENT TOTAL
Balance,
September 30, 1991 $ 37 $ 3,014 $ 26,183 $ 29,234
Additions 14 604 6,065 6,683
Reclassification (1) - (856) (1,834) (2,690)
Balance,
September 30, 1992 $ 51 $ 2,762 $ 30,414 $ 33,227
Additions 15 1,297 7,203 8,515
Disposal (2) - - (184) (184)
Balance,
September 30, 1993 $ 66 $ 4,059 $ 37,433 $ 41,558
Additions 15 823 8,314 9,152
Disposal (2) - - (184) (184)
Balance,
September 30, 1994 $ 81 $ 4,882 $ 45,563 $ 50,526
(1) Reclassification of Irish assets to discontinued operations.
(2) Disposal of certain Lumite assets.
SYNTHETIC
INDUSTRIES, INC. Schedule VIII
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
ADDITIONS
BALANCE AT PROVISION, DEDUCTIONS BALANCE
BEGINNING FOR DOUBTFUL NET OF END OF
DESCRIPTION OF PERIOD ACCOUNTS OTHER RECOVERIES PERIOD
Allowance for doubtful accounts
September 30, 1992 $ 803 $ 720 $(130) (1) $(624) $ 769
September 30, 1993 769 383 - (62) 1,090
September 30, 1994 1,090 217 - (106) 1,201
(1) Reclassification of Irish assets to discontinued operations.
SYNTHETIC INDUSTRIES, INC. Schedule X
AND SUBSIDIARIES
SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
(IN THOUSANDS OF DOLLARS)
YEAR ENDED SEPTEMBER 30,
ITEM 1994 1993 1992
Maintenance and repairs $14,079 $12,983 $13,099
NOTE: All other items were omitted as they were either not applicable or
amounted to less than 1% of revenues.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SYNTHETIC INDUSTRIES, INC.
By: /s/ Leonard Chill
Leonard Chill
President
Dated: December 27, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on the behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Leonard Chill
Leonard Chill President and Director
Dated: December 27, 1994
By: /s/ Jon P. Beckman
Jon P. Beckman Vice President - Finance, Treasurer,
Secretary and Director (Chief Financial
Officer, Principal Accounting Officer)
Dated: December 27, 1994
By: /s/ Joseph P. Dana
Joseph P. Dana Director
Dated: December 27, 1994
By: /s/ Robert L. Voigt Director
Robert L. Voigt
Dated: December 27, 1994
SYNTHETIC INDUSTRIES, INC.
1994 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
ARTICLE 1
DEFINITIONS
As used herein, the following terms have the meanings hereinafter set
forth unless the context clearly indicates to the contrary:
1.1 "Board" shall mean the Board of Directors of the Company.
1.2 "Committee" shall mean a committee designated by the Board,
which shall consist of at least two (2) members of the Board. The initial
members of the Committee shall be Jon P. Beckman and Leonard Chill.
1.3 "Company" shall mean Synthetic Industries, Inc., a Delaware
corporation, and any successor to such corporation.
1.4 "Disabled Non-Employee Director" shall mean a Non-Employee
Director who is determined by (i) a licensed physician acceptable to the
Committee (which determination shall be evidenced by a certificate addressed and
delivered to the Committee), and (ii) the Committee, in its sole and absolute
discretion, to be completely unable to serve as a member of the Board.
1.5 "Fair Market Value" of a share of Stock shall mean, as of any
date, the fair market value of the Stock as determined by the Committee in
accordance with this Section 1.5.
For purposes of the Plan, as of any date when the Stock is quoted on
the National Association of Securities Dealers Automated Quotation System,
National Market System ("NASDAQ-NMS") or listed on one or more national
securities exchanges, the "Fair Market Value" of the Stock as of such date shall
be deemed to be the mean between the highest and lowest sale prices of the Stock
reported on the NASDAQ-NMS or the principal national securities exchange on
which the Stock is listed and traded on the immediately preceding date, or, if
there is no such sale on that date, then on the last preceding date on which
such a sale was reported. If the Stock is not quoted on the NASDAQ-NMS or
listed on an exchange, or representative quotes are not otherwise available, the
"Fair Market Value" of the Stock shall mean the amount determined by the
Committee to be the fair market value based upon their good faith valuation.
1.6 "Non-Employee Director" shall mean each of the following
members of the Board: Joseph F. Dana, Lee J. Seidler, William J. Shortt and
Robert L. Voigt.
1.7 "Option" shall mean an option granted pursuant to the
provisions of Article 6 hereof that does not satisfy the requirements of Section
422 of the Internal Revenue Code of 1986, as amended.
1.8 "Optionee" shall mean a person to whom an Option has been
granted hereunder.
1.9 "Plan" shall mean the Synthetic Industries, Inc. 1994 Stock
Option Plan for Non-Employee Directors, the terms of which are set forth herein,
as amended from time to time.
1.10 "Stock" shall mean the common stock of the Company, par value
$1.00 per share, or in the event that the outstanding shares of Stock are
hereafter changed into or exchanged for shares of a different stock or
securities of the Company or some other corporation, such other stock or
securities.
1.11 "Stock Option Agreement" shall mean an agreement between the
Company and an Optionee under which the Optionee may purchase Stock hereunder.
ARTICLE 2
THE PLAN
2.1 Name. This Plan shall be known as the "Synthetic Industries,
Inc. 1994 Stock Option Plan for Non-Employee Directors."
2.2 Purpose. The purpose of the Plan is to enable the Company to
provide incentives, which are linked directly to increases in shareholder value,
to Non-Employee Directors in order that they will be encouraged to serve on the
Board and exert their best efforts on behalf of the Company.
2.3 Effective Date. The Plan shall become effective upon its
adoption by the Board; provided, however, that if the Plan is not approved by
the holders of a majority of the shares of capital stock of the Company entitled
to vote thereon within twelve (12) months after the date on which the Plan is
adopted by the Board, the Plan and any Options granted thereunder shall
terminate and become null and void. The effective date is July 15, 1994.
2.4 Term of Plan. No Option shall be granted pursuant to the Plan
on or after the tenth (10th) anniversary of the date on which the Plan is
adopted by the Board, but Options theretofore granted may extend beyond such
anniversary date.
ARTICLE 3
THE PARTICIPANTS
As at July 15, 1994, the Company had 49.95 shares of Stock
outstanding. The Non-Employee Directors shall be granted the following Options:
Mr. Seidler - an Option to purchase 0.4995 shares of Stock; Mr. Dana - an Option
to purchase 0.24975 shares of Stock; Mr. Shortt - an Option to purchase 0.1665
shares of Stock; and Mr. Voigt - an Option to purchase 0.1665 shares of Stock.
In no event shall any other Options be granted under the Plan.
ARTICLE 4
ADMINISTRATION
4.1 Duties and Powers of Committee. The Plan shall be administered
by the Committee. The Board may from time to time remove members from or add
members to the Committee, and shall fill any vacancy on the Committee. The
Committee shall select one of its members as its Chairman, should the Board fail
to select a Chairman for it, and shall hold its meetings at such times and
places as it may determine. The Committee shall keep minutes of its meetings
and shall make such rules and regulations for the conduct of its business as it
may deem necessary. Subject to the express provisions of the Plan, the
Committee shall have the discretion and authority to determine the time or times
at which each Option may be exercised and the terms and conditions of each Stock
Option Agreement; provided, however, that shares subject to any such agreement
shall vest at a minimum of twenty-five percent (25%) per year over a four (4)
year period. Subject to the express provisions of the Plan, the Committee shall
also have complete authority to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to it, to determine the details and
provisions of each Stock Option Agreement, and to make all other determinations
necessary or advisable in the administration of the Plan, including without
limitation the amending or altering of the Plan and any Options granted
hereunder as may be required to comply with or to conform to any federal, state
or local laws or regulations. No member of the Board or the Committee shall be
liable to any person for any action, determination or omission made with respect
to the Plan or any Option granted hereunder. The determinations of the
Committee on the matters referred to in this Section shall be conclusive.
4.2 Majority Rule. A majority of the members of the Committee
shall constitute a quorum, and any action taken by a majority at a meeting at
which a quorum is present or any action taken without a meeting evidenced by a
writing executed by all the members of the Committee shall constitute the action
of the Committee.
4.3 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to the service of each
Non-Employee Director on the Board. The Company also shall furnish the
Committee with such clerical and other assistance as is necessary in the
performance of its duties.
ARTICLE 5
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to adjustments pursuant to the provisions
of Section 5.2 hereof, the maximum number of shares of Stock which may be issued
and sold hereunder shall not exceed 1.08225 shares of Stock. Shares subject to
an Option may be either authorized but unissued shares or shares issued and
reacquired by the Company; provided, however, that shares of Stock with respect
to which an Option has been exercised shall not again be available for issuance
hereunder.
5.2 Adjustment upon Changes in Capitalization.
(a) In the event that the outstanding shares of Stock are changed
by reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split, combination or exchange of shares and the like,
or dividends payable in Stock, an appropriate adjustment shall be made by the
Committee in the aggregate number of shares of Stock available under the Plan
and in the number of shares and price per share subject to outstanding Options.
In the event that (i) the Company shall be reorganized or (ii) substantially all
or all of the assets of the Company shall be sold or exchanged, an Optionee
shall be entitled to receive, upon the exercise of his Option, the same number
and kind of shares of Stock or the same amount of property, cash or securities
as he would have been entitled to receive upon the occurrence of any such
corporate event as if he had been, immediately prior to such event, the holder
of the number of shares of Stock covered by his Option.
(b) Any adjustment under this Section 5.2 in the number of shares
of Stock subject to Options shall be determined solely by the Committee and
shall apply proportionately to only the unexercised portion of any Option
granted hereunder.
ARTICLE 6
OPTIONS
6.1 Option Grant and Agreement. Each Option granted hereunder
shall be evidenced by minutes of a meeting or the written consent of the
Committee and by a written Stock Option Agreement, dated as of the date of grant
and executed by the Company and the Optionee. As to each grant hereunder, the
terms of the Option, including the Option's duration, time or times of exercise,
and exercise price shall be stated in the Stock Option Agreement. The terms and
conditions of the Option shall be consistent with the Plan.
6.2 Option Price. The per share Option price of the Stock subject
to each Option shall be equal to $790,790.80, which amount is representative of
the per share Fair Market Value of the Stock on the date each Non-Employee
Director became a member of the Board.
6.3 Exercise Period. The period for the exercise of each Option
shall be determined by the Committee, but in no instance shall such period
extend beyond ten (10) years from the date of grant of the Option.
6.4 Option Exercise. (a) Unless otherwise provided in the Stock
Option Agreement, an Option shall be exercisable in whole or in part at any time
prior to expiration of the Option, provided that, unless otherwise determined by
the Committee, no Option may be exercised for less than the lesser of
(i) 0.00166667 shares or (ii) the number of shares which remain subject to the
Option. The Committee shall have the authority in its sole discretion to
prescribe in any Stock Option Agreement that the Option may be exercised in
installments during the term of the Option, and to determine, from time to time,
the documents required in connection with such exercise.
(a) An Option may be exercised at any time or from time to time
during the term of the Option as to any or all full shares of Stock which have
become purchasable under the provisions of the Option. The Option price is to
be paid in full in cash upon the exercise of the Option and the Company shall
not be required to deliver certificates for such shares until such payment has
been made; provided, however, that in lieu of cash, an Optionee may, to the
extent permitted by the Stock Option Agreement at the date of grant, exercise
his Option in whole or in part, by tendering to the Company shares of Stock
owned by him and having a Fair Market Value as of the date of exercise equal to
the Option price applicable to his Option, or a combination of cash and shares.
The holder of an Option shall not have any of the rights of a stockholder with
respect to the shares of Stock subject to the Option until such shares have been
issued to him upon the exercise of his Option.
At the discretion of the Committee, payment for any shares of Stock
subject to Options may also be made by delivering a properly executed exercise
notice to the Company, together with a copy of irrevocable instructions to a
broker to deliver promptly to the Company an amount of sale or loan proceeds
sufficent to pay the Option price. To facilitate the foregoing, the Company may
enter into agreements for coordinated procedures with one or more brokerage
firms.
(b) An Option shall be exercised by written notice of intent to
exercise the Option with respect to a specified number of shares of Stock
delivered to the Company at its principal office, together with payment in full
to the Company in accordance with Section 6.4(b) of the amount of the Option
price for the number of shares of Stock with respect to which the Option is then
being exercised.
6.5 Nontransferability of Option. (a) Except as provided in
Section 6.5(b), (i) no Option shall be transferable by an Optionee otherwise
than by will or the laws of descent and distribution and (ii) during the
lifetime of an Optionee, his Option shall be exercisable only by him.
(a) The Committee, in its sole and absolute discretion, may provide
in any Option Agreement or amendment thereto, that the Optionee may transfer
Options to his children, grandchildren or spouse, or to one or more trusts for
the benefit of such family members or partnerships in which such family members
are the only partners, provided that (i) the Optionee does not receive any
consideration for such transfer, and (ii) the transferee of such Options remains
subject to all the terms and conditions that were applicable to such Options
immediately prior to such transfer.
6.6 Death, Disability, Retirement, Resignation or Disassociation of
Optionee. In the event any Optionee dies while he is a member of the Board;
becomes a Disabled Non-Employee Director; retires from the Board; resigns from
the Board or otherwise is no longer a member of the Board ("Disassociation"),
any Option held by him, to the extent exercisable on the date of his death,
disablement, retirement, resignation or Disassociation shall remain exercisable
by him or his legatee or legatees under the Optionee's will, or by his personal
representative or distributees, (i) in the event of retirement, resignation or
Disassociation for a period of three (3) years following the date of retirement,
resignation or Disassociation and (ii) in the event of disability or death for a
period of two (2) years following the date of disability or death, but in no
event beyond the Option term.
If an Option granted hereunder shall be exercised by the legal
representative of a deceased Non-Employee Director or former Non-Employee
Director or by a person who acquired an Option granted hereunder by bequest or
inheritance or by reason of the death of any Non-Employee Director or former
Non-Employee Director, written notice of such exercise shall be accompanied by a
certified copy of letters testamentary or equivalent proof of the right of such
legal representative or other person to exercise such Option.
6.7 Vesting. The Committee shall have the right to accelerate, in
whole or in part, from time to time, conditionally or unconditionally, the
vesting and/or right to exercise any Option granted under the Plan if it
determines that (i) such acceleration would be appropriate in order to preserve
the rights and intended benefits of Options granted to any Optionee under the
Plan, or (ii) such acceleration would be in the best interests of the Company.
ARTICLE 7
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate
for shares of Stock purchased upon the exercise of any Option granted hereunder
or any portion thereof, prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges
on which the Stock is then listed;
(b) The completion of any registration or other qualification of
such shares under any federal or state law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body, which the Committee shall in its sole discretion deem necessary or
advisable;and
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency which the Committee shall in its sole
discretion determine to be necessary or advisable.
ARTICLE 8
CONDITIONS OF EXERCISE
(a) Unless prior to the exercise of an Option the shares of Stock
issuable upon such exercise are the subject of a registration statement filed
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended (the "Securities Act"), and there is then in effect a
prospectus filed as part of such registration statement meeting the requirements
of Section 10(a)(3) of the Securities Act, the notice of exercise with respect
to such Option shall be accompanied by a representation or agreement of the
Optionee to the Company to the effect that such shares are being acquired for
investment only and not with a view to the resale or distribution thereof, or
such other documentation as may be required by the Company, unless, in the
opinion of counsel to the Company, such representation, agreement or
documentation is not necessary to comply with the Securities Act.
(b) Anything in Section 8(a) to the contrary notwithstanding, the
Company shall not be obligated to issue or sell any shares of Stock until they
have been listed on each securities exchange on which such shares may then be
listed and until and unless, in the opinion of counsel to the Company, the
Company may issue such shares pursuant to a qualification or an effective
registration statement, or an exemption from registration, under such state and
federal laws, rules or regulations as such counsel may deem applicable. The
Company shall use reasonable efforts to effect such listing, qualification and
registration, as the case may be.
ARTICLE 9
LEGENDS
The Company may endorse such legend or legends upon any Stock Option
Agreement and upon the certificates for shares of Stock issued upon exercise of
such Option, and the Committee may issue such "stop transfer" instructions to
the Company's transfer agent in respect of such Stock Option Agreement and/or
shares, as the Committee, in its sole and absolute discretion, determines to be
necessary or appropriate to (i) prevent a violation of, or to perfect an
exemption from, the registration requirements of the Securities Act, or (ii)
implement the provisions of any agreement between the Company and the Optionee
or grantee with respect to such Stock Option Agreement and/or shares.
ARTICLE 10
TERMINATION, AMENDMENT AND MODIFICATION OF PLAN
The Board may at any time, upon recommendation of the Committee and
notwithstanding Section 2.4 hereof, terminate the Plan, and may at any time and
from time to time and in any respect amend or modify the Plan; provided,
however, that the Board, without approval of the shareholders of the Company,
may not adopt any amendment to the Plan if the amendment would:
(a) Increase the total number of shares of Stock which may be
issued pursuant to the Plan except as contemplated in Section 5.2 hereof; or
(b) Materially modify the requirements as to eligibility for
participation in the Plan.
Notwithstanding the foregoing, the Board shall not terminate, amend or
modify the Plan in any manner so as to adversely affect the rights of Optionees
with respect to Options theretofore granted under the Plan without the consent
of the Optionee or permitted transferee (if any) of the Option.
ARTICLE 11
RELATIONSHIP TO OTHER COMPENSATION PLANS
11.1 In General. The adoption of the Plan shall not affect any
other stock option, incentive or other compensation plans in effect for the
Company, nor shall the adoption of the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of, or independent contractors with, the Company.
ARTICLE 12
MISCELLANEOUS
12.1 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
12.2 Singular, Plural; Gender. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
12.3 Headings, etc., No Part of Plan. Headings of articles and
Sections hereof are inserted for convenience and reference; they constitute no
part of the Plan.
12.4 Applicable Law. The Plan shall be governed by, and construed
in accordance with, the laws of the State of Delaware.
12.5 No Right to Continue as a Director. Nothing in the Plan or in
any Option shall confer on any Optionee any right to continue as a member of the
Board or affect the right of the Company, the Board or the shareholders of the
Company to terminate the directorship of any Optionee at any time.
PROPOSED
INCENTIVE COMPENSATION PLAN
SYNTHETIC INDUSTRIES, INC.
EXECUTIVE DIVISION
FISCAL YEAR 1993/94
Administration:
Compensation Committee of the Board of Directors.
Qualification to Participate:
1. Employment by participant throughout the fiscal year.
2. Operating Profit must be 80% of Plan. If the planned profit
objective;
a) is exceeded, then the bonus shall be raised by the
ratio that actual profits are to plan, except that a maximum
bonus shall not exceed 100% of base salary.
b) fails to be reached, but is at least 80% achieved,
then the bonus shall be lowered by the ratio that actual profit
is to planned profit. If profit falls below 80%, no bonus is
earned or payable.
Definition:
Operating Profit for the 1993/94 Plan is $36,444,000.
Compensation Amount:
For achieving Planned Operating Profit: $452,000.
December 19, 1994
LC/jbf
PROPOSED
INCENTIVE COMPENSATION PLAN
SYNTHETIC INDUSTRIES, INC.
WOVEN FABRICS DIVISION
FISCAL YEAR 1993/94
Administration:
Compensation Committee of the Board of Directors.
Qualification to Participate:
1. Employment by participant throughout the fiscal year.
2. Operating Profit must be 80% of Plan. If the planned profit
objective;
a) is exceeded, then the bonus shall be raised by the
ratio that actual profits are to plan, except that a maximum
bonus shall not exceed 100% of base salary.
b) fails to be reached, but is at least 80% achieved,
then the bonus shall be lowered by the ratio that actual profit
is to planned profit. If profit falls below 80%, no bonus is
earned or payable.
Definition:
Operating Profit for the 1993/94 Plan is $25,026,000
Compensation Amount:
For achieving Planned Operating Profit: $10,000.
December 19, 1994
LC/jbf
PROPOSED
INCENTIVE COMPENSATION PLAN
SYNTHETIC INDUSTRIES, INC.
LUMITE DIVISION
FISCAL YEAR 1993/94
Administration:
Compensation Committee of the Board of Directors.
Qualification to Participate:
1. Employment by participant throughout the fiscal year.
2. Operating Profit must be 80% of Plan. If the planned profit
objective;
a) is exceeded, then the bonus shall be raised by the
ratio that actual profits are to plan, except that a maximum
bonus shall not exceed 100% of base salary.
b) fails to be reached, but is at least 80% achieved,
then the bonus shall be lowered by the ratio that actual profit
is to planned profit. If profit falls below 80%, no bonus is
earned or payable.
Definition:
Operating Profit for the 1993/94 Plan is $2,876,000
Compensation Amount:
For achieving Planned Operating Profit: $15,000.
December 19, 1994
LC/jbf
INCENTIVE COMPENSATION PLAN
SYNTHETIC INDUSTRIES, INC.
FIBERMESH DIVISION
FISCAL YEAR 1993/94
Administration:
Compensation Committee of the Board of Directors.
Qualification to Participate:
1. Employment by participant throughout the fiscal year.
2. Operating Profit must be 80% of Plan. If the planned profit
objective;
a) is exceeded, then the bonus shall be raised by the
ratio that actual profits are to plan, except that a maximum
bonus shall not exceed 100% of base salary.
b) fails to be reached, but is at least 80% achieved,
then the bonus shall be lowered by the ratio that actual profit
is to planned profit. If profit falls below 80%, no bonus is
earned or payable.
Definition:
Operating Profit for the 1993/94 Plan is $6,909,000
Compensation Amount:
For achieving Planned Operating Profit: $70,000.
December 19, 1994
LC/jbf
INCENTIVE COMPENSATION PLAN
SYNTHETIC INDUSTRIES, INC.
SPECIALTY PRODUCTS DIVISION
FISCAL YEAR 1993/94
Administration:
Compensation Committee of the Board of Directors.
Qualification to Participate:
1. Employment by participant throughout the fiscal year.
2. Operating Profit must be 80% of Plan. If the planned profit
objective;
a) is exceeded, then the bonus shall be raised by the
ratio that actual profits are to plan, except that a maximum
bonus shall not exceed 100% of base salary.
b) fails to be reached, but is at least 80% achieved,
then the bonus shall be lowered by the ratio that actual profit
is to planned profit. If profit falls below 80%, no bonus is
earned or payable.
Definition:
Adjusted Profit for the 1993/94 Plan is $6,150,000
Compensation Amount:
For achieving Planned Operating Profit: $25,000.
December 19, 1994
LC/jbf
INCENTIVE COMPENSATION PLAN
SYNTHETIC INDUSTRIES, INC.
CONSTRUCTION PRODUCTS DIVISION
FISCAL YEAR 1993/94
Administration:
Compensation Committee of the Board of Directors.
Qualification to Participate:
1. Employment by participant throughout the fiscal year.
2. Operating Profit must be 80% of Plan. If the planned profit
objective;
a) is exceeded, then the bonus shall be raised by the
ratio that actual profits are to plan, except that a maximum
bonus shall not exceed 100% of base salary.
b) fails to be reached, but is at least 80% achieved,
then the bonus shall be lowered by the ratio that actual profit
is to planned profit. If profit falls below 80%, no bonus is
earned or payable.
Definition:
Adjusted Profit for the 1993/94 Plan is $4,219,000
Compensation Amount:
For achieving Planned Operating Profit: $35,000.
December 19, 1994
LC/jbf
88680272
SYNTHETIC INDUSTRIES, INC.
1994 STOCK OPTION PLAN
ARTICLE 1
DEFINITIONS
As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary:
1.1 "Board" shall means the Board of Directors of the Company.
1.2 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.3 "Committee" shall mean a committee designated by the Board, which
shall consist of at least two (2) members of the Board. At any time when
transactions under the Plan are subject to Section 16 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), each such director must be a
"disinterested person" within the meaning of Rule 16b-3 (or any successor rule
or regulation) promulgated under the Exchange Act.
1.4 "Company" shall mean Synthetic Industries, Inc., a Delaware
corporation, and any successor to such corporation.
1.5 "Disabled Employee" shall mean an employee of the Company or any of
its Subsidiaries who is determined by (i) a licensed physician acceptable to the
Committee (which determination shall be evidenced by a certificate addressed and
delivered to the Company), and (ii) the Committee, in its sole and absolute
discretion, to be completely unable to engage in his regular occupation.
1.6 "Fair Market Value" of a share of Stock shall mean, as of any date,
the fair market value of the Stock as determined by the Committee in accordance
with this Section 1.6.
For purposes of the Plan, as of any date when the Stock is quoted on
the National Association of Securities Dealers Automated Quotation System,
National Market System ("NASDAQ-NMS") or listed on one or more national
securities exchanges, the "Fair Market Value" of the Stock as of such date shall
be deemed to be the mean between the highest and lowest sale prices of the Stock
reported on the NASDAQ-NMS or the principal national securities exchange on
which the Stock is listed and traded on the immediately preceding date, or, if
there is no such sale on that date, then on the last preceding date on which
such a sale was reported. If the Stock is not quoted on the NASDAQ-NMS or
listed on an exchange, or representative quotes are not otherwise available, the
"Fair Market Value" of the Stock shall mean the amount determined by the
Committee to be the fair market value based upon their good faith valuation.
1.7 "Incentive Stock Option" shall mean an option to purchase Stock which
complies with and is subject to the terms, limitations and conditions of Section
422 of the Code and any regulations promulgated with respect thereto.
1.8 "Non-Employee Director" shall mean a member of the Board who is not an
employee of the Company or any Subsidiary.
1.9 "Non-ISO" shall mean an option to purchase Stock which fails, or is
not intended, to satisfy the requirements of Section 422 of the Code.
1.10 "Option" shall mean an Incentive Stock Option or a Non-ISO granted
pursuant to the provisions of Article 6 hereof.
1.11 "Optionee" shall mean a person to whom an Option has been granted
hereunder.
1.12 "Parent" shall mean any corporation coming within the definition of
the term "parent corporation" contained in Section 424(e) of the Code.
1.13 "Plan" shall mean the Synthetic Industries, Inc. 1994 Stock Option
Plan, the terms of which are set forth herein, as amended from time to time.
1.14 "Predecessor" shall mean any corporation coming within the definition
of the term "predecessor corporation" contained in Treasury Regulations
promulgated under Section 422 of the Code.
1.15 "Stock" shall mean the common stock of the Company, par value $1.00
per share, or in the event that the outstanding shares of Stock are hereafter
changed into or exchanged for shares of a different stock or securities of the
Company or some other corporation, such other stock or securities.
1.16 "Stock Option Agreement" shall mean an agreement between the Company
and an Optionee under which the Optionee may purchase Stock hereunder.
1.17 "Subsidiary" shall mean any corporation coming within the definition
of the term "subsidiary corporation" contained in Section 424(f) of the Code.
ARTICLE 2
THE PLAN
2.1 Name. This Plan shall be known as the "Synthetic Industries, Inc.
1994 Stock Option Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of the
Company, its Subsidiaries and its shareholders by affording certain key
employees of the Company and its Subsidiaries an opportunity to acquire or
increase their proprietary interests in the Company by granting to such persons
Options to purchase Stock in the Company, so that Optionees will be provided
with an additional incentive to achieve the Company's objectives through
participation in its success and growth and to encourage their continued
employment with the Company or its Subsidiaries.
2.3 Effective Date. The Plan shall become effective upon its adoption by
the Board; provided, however, that if the Plan is not approved by the holders of
a majority of the shares of capital stock of the Company entitled to vote
thereon within twelve (12) months before or after the date on which the Plan is
adopted by the Board, the Plan and any Options granted thereunder shall
terminate and become null and void. The effective date is August 29, 1994.
2.4 Termination Date. Subject to Section 2.3, the Plan shall terminate
and no further Options shall be granted hereunder upon the tenth (10th)
anniversary of the date on which the Plan is adopted by the Board or the date on
which the Plan is approved by the Company's shareholders, whichever first
occurs.
ARTICLE 3
PARTICIPANTS
Any full-time employee (including, without limitation, officers who are
also directors) of the Company or its Subsidiaries shall be eligible to
participate in the Plan. The Committee may grant Options to any such eligible
employee as it may determine from time to time in its sole and absolute
discretion. No such employee shall have any right to receive Options under the
Plan.
ARTICLE 4
ADMINISTRATION
4.1 Duties and Powers of Committee. The Plan shall be administered by the
Committee. The Board may from time to time remove members from or add members
to the Committee, and shall fill any vacancy on the Committee. The Committee
shall select one of its members as its Chairman, should the Board fail to select
a Chairman for it, and shall hold its meetings at such times and places as it
may determine. The Committee shall keep minutes of its meetings and shall make
such rules and regulations for the conduct of its business as it may deem
necessary. Subject to the express provisions of the Plan, the Committee shall
have the discretion and authority to determine to whom from among the eligible
"key employees" an Option will be granted, the time or times at which each
Option may be exercised, the number of shares of Stock subject to each Option
and the terms and conditions of each Stock Option Agreement; provided, however,
that shares subject to any such agreement shall vest at a minimum of twenty-five
percent (25%) per year over a four (4) year period. Subject to the express
provisions of the Plan, the Committee shall also have complete authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine the details and provisions of each Stock Option
Agreement, and to make all other determinations necessary or advisable in the
administration of the Plan, including without limitation the amending or
altering of the Plan and any Options granted hereunder as may be required to
comply with or to conform to any federal, state or local laws or regulations.
No member of the Board or the Committee shall be liable to any person for any
action, determination or omission made with respect to the Plan or any Option
granted hereunder. The determinations of the Committee on the matters referred
to in this Section shall be conclusive.
4.2 Majority Rule. A majority of the members of the Committee shall
constitute a quorum, and any action taken by a majority at a meeting at which a
quorum is present or any action taken without a meeting evidenced by a writing
executed by all the members of the Committee shall constitute the action of the
Committee.
4.3 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to eligible persons, their
employment, years of service to the Company, death, retirement, disability or
other termination of employment, and such other pertinent facts as the Committee
may require. The Company shall furnish the Committee with such clerical and
other assistance as is necessary in the performance of its duties.
ARTICLE 5
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to adjustments pursuant to the provisions of
Section 5.2 hereof, the maximum number of shares of Stock which may be issued
and sold hereunder shall not exceed [4.24575 shares]. Shares subject to an
Option may be either authorized but unissued shares or shares issued and
reacquired by the Company; provided, however, that shares of Stock with respect
to which an Option has been exercised shall not again be available for issuance
hereunder. If outstanding Options granted hereunder shall terminate or expire
for any reason without being wholly exercised, the shares of Stock allocable to
any unexercised portion of such Option will again be available for issuance
pursuant to an Option granted under the Plan.
5.2 Adjustment upon Changes in Capitalization.
(a) In the event that the outstanding shares of Stock are changed by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split, combination or exchange of shares and the like,
or dividends payable in Stock, an appropriate adjustment shall be made by the
Committee in the aggregate number of shares of Stock available under the Plan
and in the number of shares and price per share subject to outstanding Options.
If (i) the Company shall be reorganized, or (ii) substantially all or all of the
assets of the Company shall be sold or exchanged, an Optionee shall be entitled
to receive, upon the exercise of his Option, the same number and kind of shares
of Stock or the same amount of property, cash or securities as he would have
been entitled to receive upon the occurrence of any such corporate event as if
he had been, immediately prior to such event, the holder of the number of shares
of Stock covered by his Option.
(b) Any adjustment under this Section 5.2 in the number of shares
subject to Options shall be determined solely by the Committee and shall apply
proportionately to only the unexercised portion of any Option granted hereunder.
If fractions of a share would result from any such adjustment, the adjustment
shall be revised to the next lower whole number of shares.
ARTICLE 6
OPTIONS
6.1 Option Grant and Agreement. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Stock Option Agreement, dated as of the date of grant and executed by
the Company and the Optionee, which shall clearly identify whether the Options
granted are Incentive Stock Options and/or Non-ISOs. As to each grant hereunder,
the terms of the Option, including the Option's duration, time or times of
exercise, and exercise price shall be stated in the Stock Option Agreement. The
terms and conditions of the Option shall be consistent with the Plan.
6.2 Optionee Limitations Regarding Incentive Stock Options.
(a) The Committee shall not grant an Incentive Stock Option hereunder
to any person who, at the time the Incentive Stock Option would be granted, owns
or is considered to own stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company, its Parent
or any of its Subsidiaries; provided, however, that this limitation shall not
apply if at the time an Incentive Stock Option would be granted, the Option
price is at least one hundred ten percent (110%) of the Fair Market Value of the
Stock subject to the Incentive Stock Option and such Option by its terms would
not be exercisable after five (5) years from the date on which the Option is
granted. For purposes of the immediately preceding sentence, a person shall be
considered to own (i) the stock owned, directly or indirectly, by or for his
brothers and sisters (whether by the whole or half blood), spouse, ancestors and
lineal descendants; and (ii) the stock owned, directly or indirectly, by or for
a corporation, partnership, estate or trust in proportion to such person's stock
interest, partnership interest or beneficial interest therein; and (iii) the
stock which the person has the right to purchase under any outstanding options
of the Company.
(b) If the aggregate Fair Market Value of the Stock with respect to
which Incentive Stock Options are exercisable for the first time by any Optionee
during a calendar year (under all plans of the Company and its Parents and
Subsidiaries) exceeds $100,000, such Incentive Stock Options shall be treated,
to the extent of such excess, as Non-ISOs. For purposes of the preceding
sentence, the Fair Market Value of the Stock shall be determined at the time the
Incentive Stock Options covering such shares were granted.
6.3 Option Price. The per share Option price of the Stock subject to each
Option shall be determined by the Committee, provided that such price shall not
be less than the Fair Market Value of the Stock on the date the Option is
granted.
6.4 Exercise Period. The period for the exercise of each Option shall be
determined by the Committee, but in no instance shall such period exceed ten
(10) years from the date of grant of the Option.
6.5 Option Exercise. (a) Unless otherwise provided in the Stock Option
Agreement, an Option shall be exercisable in whole or in part at any time prior
to expiration of the Option, provided that, unless otherwise determined by the
Committee, no Option may be exercised for less than the lesser of (i) 0.00166667
shares, or (ii) the number of shares which remain subject to the Option. The
Committee shall have the authority in its sole discretion to prescribe in any
Stock Option Agreement that the Option may be exercised in installments during
the term of the Option, and to determine, from time to time, the documents
required in connection with such exercise.
(b) An Option may be exercised at any time or from time to time
during the term of the Option as to any or all full shares of Stock which have
become purchasable under the provisions of the Option. The Option price is to
be paid in full in cash upon the exercise of the Option and the Company shall
not be required to deliver certificates for such shares until such payment has
been made; provided, however, that in lieu of cash, an Optionee may, to the
extent permitted by the Stock Option Agreement at the date of grant, exercise
his Option in whole or in part, by tendering to the Company shares of Stock
owned by him and having a Fair Market Value as of the date of exercise equal to
the Option price applicable to his Option, or a combination of cash and shares.
The holder of an Option shall not have any of the rights of a stockholder with
respect to the shares of Stock subject to the Option until such shares have been
issued to him upon the exercise of his Option.
At the discretion of the Committee, payment for any shares of Stock
subject to Options may also be made by delivering a properly executed exercise
notice to the Company, together with a copy of irrevocable instructions to a
broker to deliver promptly to the Company an amount of sale or loan proceeds
sufficient to pay the Option price. To facilitate the foregoing, the Company
may enter into agreements for coordinated procedures with one or more brokerage
firms.
(c) An Option shall be exercised by written notice of intent to
exercise the Option with respect to a specified number of shares of Stock
delivered to the Company at its principal office, together with payment in full
to the Company in accordance with Section 6.5(b) of the amount of the Option
price for the number of shares of Stock with respect to which the Option is then
being exercised. In addition to and at the time of payment of the Option price,
or at the time of any "disqualifying disposition" (as described in Section
421(b) of the Code), the Optionee shall pay to the Company in cash the full
amount of any federal and state withholding or other employment taxes required
by any government to be withheld, or otherwise deducted and paid, by the Company
in respect of such exercise or disposition. In lieu thereof, the Company shall
have the right to withhold the amount of such taxes from any other sums due or
to become due from the Company to the Optionee, upon such terms and conditions
as the Committee shall prescribe.
6.6 Nontransferability of Option. (a) Except as provided in Section
6.6(b), (i) no Option shall be transferable by an Optionee otherwise than by
will or the laws of descent and distribution and (ii) during the lifetime of an
Optionee, his Option shall be exercisable only by him.
(b) The Committee, in its sole and absolute discretion, may provide
in any Option Agreement or amendment thereto, that the Optionee may transfer Non
- -ISOs to his children, grandchildren or spouse, or to one or more trusts for the
benefit of such family members or partnerships in which such family members are
the only partners, provided that (i) the Optionee does not receive any
consideration for such transfer, and (ii) the transferee of such Non-ISOs
remains subject to all the terms and conditions that were applicable to such
Non-ISOs immediately prior to such transfer.
6.7 Termination of Employment of Optionee. Except as provided in Section
6.8 hereof, in the event of the termination of the employment of an Optionee,
any Option held by him, to the extent exercisable on the date of termination
shall remain exercisable for a period of three (3) months following the date of
termination unless the Committee, in its sole and absolute discretion, provides
in the Stock Option Agreement that the Option shall be exercisable for a longer
period after such termination, and, provided further, that in no event shall any
Stock Option Agreement provide for the extension of the period during which the
Option may be exercised beyond the Option term.
6.8 Death, Disability or Retirement of Optionee. In the event any
Optionee dies while he is employed by the Company, becomes a Disabled Employee
or retires with the approval of the Company, any Option held by him, to the
extent exercisable on the date of termination, shall remain exercisable by him
or his legatee or legatees under the Optionee's will, or by his personal
representative or distributees, (i) in the event of retirement, for a period of
three (3) years following the date of retirement, and (ii) in the event of
disability or death for a period of two (2) years following the date of
disability or death, but in no event beyond the Option term.
If an Option granted hereunder shall be exercised by the legal
representative of a deceased employee or former employee or by a person who
acquired an Option granted hereunder by bequest or inheritance or by reason of
the death of any employee or former employee, written notice of such exercise
shall be accompanied by a certified copy of letters testamentary or equivalent
proof of the right of such legal representative or other person to exercise such
Option.
6.9 Vesting. The Committee shall have the right to accelerate, in whole
or in part, from time to time, conditionally or unconditionally, the vesting
and/or right to exercise any Option granted under the Plan if it determines that
(1) such acceleration would be appropriate in order to preserve the rights and
intended benefits of Options granted to any Optionee under the Plan, or (2) such
acceleration would be in the best interests of the Company.
ARTICLE 7
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate for
shares of Stock purchased upon the exercise of any Option granted hereunder or
any portion thereof, prior to fulfillment of all of the following conditions:
The admission of such shares to listing on all stock exchanges on which the
Stock is then listed;
The completion of any registration or other qualification of such shares under
any federal or state law or under the rulings or regulations of the Securities
and Exchange Commission or any other governmental regulatory body, which the
Committee shall in its sole discretion deem necessary or advisable; and
The obtaining of any approval or other clearance from any federal or state
governmental agency which the Committee shall in its sole discretion determine
to be necessary or advisable.
ARTICLE 8
CONDITIONS OF EXERCISE
(a) Unless prior to the exercise of an Option the shares of Stock issuable
upon such exercise are the subject of a registration statement filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), and there is then in effect a prospectus filed
as part of such registration statement meeting the requirements of Section
10(a)(3) of the Securities Act, the notice of exercise with respect to such
Option shall be accompanied by a representation or agreement of the Optionee to
the Company to the effect that such shares are being acquired for investment
only and not with a view to the resale or distribution thereof, or such other
documentation as may be required by the Company, unless, in the opinion of
counsel to the Company, such representation, agreement or documentation is not
necessary to comply with the Securities Act.
(b) Anything in Section 8 (a) to the contrary notwithstanding, the Company
shall not be obligated to issue or sell any shares of Stock until they have been
listed on each securities exchange on which such shares may then be listed and
until and unless, in the opinion of counsel to the Company, the Company may
issue such shares pursuant to a qualification or an effective registration
statement, or an exemption from registration, under such state and federal laws,
rules or regulations as such counsel may deem applicable. The Company shall use
reasonable efforts to effect such listing, qualification and registration, as
the case may be.
ARTICLE 9
LEGENDS
The Company may endorse such legend or legends upon any Stock Option
Agreement and upon the certificates for shares of Stock issued upon exercise of
such Option, and the Committee may issue such "stop transfer" instructions to
the Company's transfer agent in respect of such Stock Option Agreement and/or
shares, as the Committee, in its sole and absolute discretion, determines to be
necessary or appropriate to (i) prevent a violation of, or to perfect an
exemption from, the registration requirements of the Securities Act, (ii)
implement the provisions of any agreement between the Company and the Optionee
or grantee with respect to such Stock Option Agreement and/or shares, or (iii)
permit the Company to determine the occurrence of a disqualifying disposition,
as described in Section 421(b) of the Code, of shares transferred upon exercise
of an Incentive Stock Option granted under the Plan.
ARTICLE 10
TERMINATION, AMENDMENT AND MODIFICATION OF PLAN
The Board may at any time, upon recommendation of the Committee and
notwithstanding Section 2.4 hereof, terminate the Plan, and may at any time and
from time to time and in any respect amend or modify the Plan; provided,
however, that the Board, without approval of the shareholders of the Company,
may not adopt any amendment to the Plan if the amendment would:
Increase the total number of shares of Stock which may be issued pursuant to the
Plan except as contemplated in Section 5.2 hereof;
Materially increase the benefits accruing to participants in the Plan; or
Materially modify the requirements as to eligibility for participation in the
Plan.
Notwithstanding the foregoing, the Board shall not terminate, amend or
modify the Plan in any manner so as to adversely affect the rights of Optionees
with respect to Options theretofore granted under the Plan without the consent
of the Optionee or permitted transferee (if any) of the Option.
ARTICLE 11
RELATIONSHIP TO OTHER COMPENSATION PLANS
11.1 In General. The adoption of the Plan shall not affect any other
stock option, incentive or other compensation plans in effect for the Company or
any of its Subsidiaries, nor shall the adoption of the Plan preclude the Company
or any of its Subsidiaries from establishing any other forms of incentive or
other compensation for employees of, or independent contractors with, such
corporations.
ARTICLE 12
MISCELLANEOUS
12.1 Plan Binding On Successors. The Plan shall be binding upon the
successors and assigns of the Company.
12.2 Singular, Plural; Gender. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
12.3 Headings, etc., No Part of Plan. Headings of articles and Sections
hereof are inserted for convenience and reference; they constitute no part of
the Plan.
12.4 Applicable Law. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
12.5 No Employment Rights. Nothing in the Plan or in any Option shall
confer on any person any right to continue in the employ of the Company or any
of its Subsidiaries, or shall interfere in any way with the right of the Company
or any of its Subsidiaries to terminate his employment at any time.
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