<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997
REGISTRATION NO. 333-28817
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
SYNTHETIC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2221 58-1049400
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
</TABLE>
309 LAFAYETTE ROAD
CHICKAMAUGA, GEORGIA 30707
(706) 375-3121
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
---------------------
JOSEPH F. DANA, ESQ.
CHIEF OPERATING OFFICER AND GENERAL COUNSEL
SYNTHETIC INDUSTRIES, INC.
309 LAFAYETTE ROAD
CHICKAMAUGA, GEORGIA 30707
(706) 375-3121
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of Communications to:
MARK ZVONKOVIC, ESQ.
KING & SPALDING
120 WEST 45TH STREET
NEW YORK, NEW YORK 10036
(212) 556-2100
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective and the Plan
of Withdrawal and Dissolution referred to in the Joint Proxy Statement and
Prospectus forming a part of this Registration Statement is approved.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
SYNTHETIC INDUSTRIES, L.P.
309 LAFAYETTE ROAD
CHICKAMAUGA, GEORGIA 30707
(706) 375-3121
, 1997
Dear Limited Partners of Synthetic Industries, L.P.:
You are cordially invited to attend a Special Meeting of the Partners of
the Partnership, to be held on , 1997 at [place] at 10:00 a.m. local
time. At this important meeting, you will be asked to approve a Plan of
Withdrawal and Dissolution for the Partnership.
As you know, we have been working on a plan by which you may choose in the
manner provided by the Plan to liquidate all or part of your Partnership
interest and to convert promptly some or all of the shares of the Common Stock
of Synthetic Industries, Inc. underlying your Partnership interest into cash or
to remain in the Partnership during a dissolution period, after which you will
be distributed any remaining shares of the Common Stock of Synthetic underlying
any Partnership interest you continue to own. You may also elect a combination
of these two choices. The accompanying Proxy Statement and Prospectus fully
describes the Plan. I encourage you to read the Proxy Statement and Prospectus
carefully.
The main elements of the Plan are as follows:
- You will be given an opportunity to decide, anytime before the Special
Meeting, to withdraw some or all (or none) of the shares of Common Stock
currently held by the Partnership which underlie your Units.
- All withdrawn shares must be included in an underwritten sale to be
commenced promptly after approval of the Plan. Upon completion of the
underwritten sale, you will promptly receive cash for your withdrawn
shares that are sold. The price received will be determined by, among
other things, market conditions, recent market prices for the Common
Stock, the discount sometimes accorded secondary offerings and demand for
the withdrawn shares. The price will be subject to approval by a Pricing
Committee which will not permit the sale of your withdrawn shares unless
it deems the price to be reasonable in light of the then current market
conditions.
- The Company and the underwriters will attempt to complete the
underwritten sale as soon as possible after the Plan is approved.
However, if it cannot be completed within 180 days after approval, your
withdrawn shares will be immediately delivered to you and you will be
free to hold them, or, unless you are an affiliate of Synthetic, sell
them through your broker.
- Shares that are not withdrawn will remain in the Partnership for 180 days
after the sale or distribution of the withdrawn shares, and then will be
distributed to you in one to three distributions over the following year.
The first distribution will be 180 days after the sale, the second
distribution, if needed, will be 180 days thereafter and the third
distribution will be 180 days after that. The number of shares to be
distributed will be equal to 25% of the shares held by the public on each
distribution date or, if less, the total number of shares remaining.
After shares are distributed to you, you will be free to hold them or
sell them through your broker, unless you are an affiliate of Synthetic.
The General Partner believes that the Plan is fair and reasonable to, and
in the best interests of, the Limited Partners, and recommends that Limited
Partners vote their Units in favor of the Plan for the following reasons:
- The General Partner believes that the Plan offers all Limited Partners
the opportunity to choose among the widest possible range of alternatives
while preserving to the extent possible the market value of the shares of
Common Stock that the Partnership owns. A Limited Partner may choose a
combination of
<PAGE> 3
approaches by electing withdrawal for a portion of the shares underlying
his or her interest and receiving the remainder of his or her underlying
shares in the subsequent dissolution.
- For Limited Partners who want to liquidate all or a portion of their
investment in the Partnership immediately, the Plan offers an opportunity
to receive cash in a timely manner that is based on a current market
value for the Common Stock underlying those Units.
- The sale of Common Stock necessary to provide cash for Limited Partners
who elect withdrawal will be raised through an orderly sales process that
the General Partner believes is designed to optimize the price received
for the Common Stock and minimize any disruption of the markets for those
choosing to continue to hold their interest.
- For Limited Partners who wish to retain the investment they now hold in
Synthetic through their ownership of Units, the Plan, when the
dissolution begins, will provide them with increased liquidity for their
investment and a determinable public market value therefor.
- The General Partner believes that there is no business purpose or benefit
to investors holding through the Partnership the publicly traded shares
of a single corporation. The Plan will result in the elimination of the
cost and inefficiency of maintaining the Partnership and the
simplification of tax reporting for all Limited Partners.
Patricof & Co. Capital Corp., the Partnership's financial advisor,
delivered to the Partnership on the date of mailing of this Proxy Statement and
Prospectus its written opinion to the effect that, as of the date of such
opinion and subject to certain matters stated therein, the implementation of the
Plan is fair, from a procedural point of view, to the Limited Partners.
The General Partner will not receive any compensation with respect to the
Plan and will be entitled to receive under the Plan its pro rata partner
interest in the underlying Common Stock, as provided by the Partnership
Agreement. In order to maintain the ratio of the General Partner's interest to
the Limited Partners' interest, the Plan requires the General Partner to
withdraw the same pro rata percentage of its interest as Limited Partners elect
to withdraw, but the General Partner will not be permitted to participate in the
underwritten sale and must continue to hold any Common Stock it withdraws until
the Partnership is completely dissolved.
In addition to the approval of Limited Partners holding a majority in
interest of the outstanding Units, the Plan will not be completed unless the
following conditions are satisfied or waived: (i) all necessary regulatory
approvals will have been obtained; (ii) no provision of any applicable law or
regulation and no judgment, injunction, order or decree will prohibit the
completion of the Plan; and (iii) all actions by or in respect of or filing with
any governmental body, agency, official or authority required to permit the
completion of the Plan will have occurred. At any time prior to the Withdrawal,
the Plan may be terminated, even if the foregoing conditions are satisfied, by
the General Partner in the event of adverse legislative developments or if the
General Partner in the exercise of its fiduciary duty determines that the Plan
is no longer in the best interests of the Limited Partners.
In accordance with the terms of the Partnership Agreement, the Plan must be
approved by Limited Partners holding at least a majority of the outstanding
Units. It is important that your Unit(s) be represented at the Special Meeting,
regardless of the number you hold. A failure to vote is the same as a vote
"Against" the Plan. THEREFORE, PLEASE FILL IN, SIGN, DATE AND RETURN YOUR PROXY
CARD AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
This will not prevent you from later voting your Unit(s) in person if you choose
to attend the Special Meeting.
Limited Partners who desire to elect withdrawal with respect to all or a
portion of their interest must (1) vote all of their Units in favor of the Plan,
and (2) properly complete the enclosed Withdrawal Election Agreement and return
it to D.F. King & Co., Inc. by 5:00 p.m. on , 1997, as instructed in
the accompanying Proxy Statement and Prospectus.
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As soon as practicable after approval of the Plan, Limited Partners will be
provided with a notice regarding such approval and additional instructions about
the underwritten sale and/or the distribution.
Questions and requests for assistance may be directed to D.F. King & Co.,
Inc., the Solicitation Agent, at 77 Water Street, New York, New York 10005,
telephone (800) 669-5550. Additional copies of the Joint Proxy Statement and
Prospectus and related materials may be obtained from the Solicitation Agent.
Sincerely,
SYNTHETIC INDUSTRIES, L.P.
<PAGE> 5
SYNTHETIC INDUSTRIES, L.P.
309 LAFAYETTE ROAD
CHICKAMAUGA, GEORGIA 30707
TELEPHONE NUMBER: (706) 375-3121
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NOTICE OF SPECIAL MEETING OF PARTNERS
TO BE HELD , 1997
------------------------
To the Limited Partners of
Synthetic Industries, L.P.:
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Special Meeting") of
the Partners of Synthetic Industries, L.P., a Delaware Limited Partnership (the
"Partnership"), has been called by SI Management L.P., the General Partner of
the Partnership (the "General Partner"), and will be held at on
, 1997, at 10:00 a.m. local time, and thereafter as it may from time
to time be adjourned or postponed, to approve a Plan of Withdrawal and
Dissolution (the "Plan") for the Partnership. The Plan, which must be approved
by Limited Partners holding a majority in interest of the outstanding limited
partnership units (the "Units"), provides for (1) a withdrawal (the
"Withdrawal") by Limited Partners of all or a specified portion of the shares
(the "Shares") of common stock, par value $1.00 per share (the "Common Stock"),
of Synthetic Industries, Inc., a Delaware corporation, currently held by the
Partnership and (2) the subsequent dissolution of the Partnership through one or
more liquidating distributions of the portion of the Shares remaining in the
Partnership after the Withdrawal. Limited Partners who choose the Withdrawal
must participate in an underwritten sale (the "Underwritten Sale") of the
Withdrawn Shares promptly following adoption of the Plan.
A copy of the Plan is attached to the accompanying Joint Proxy Statement
and Prospectus as Annex A. The Proxy Statement and Prospectus and Annexes
thereto form a part of this Notice.
Only holders of record of Units as of the close of business on
, 1997 are entitled to notice of, and to vote at, the Special Meeting and any
adjournment or postponement thereof.
To ensure that your Unit(s) are represented, you are urged to please fill
in, sign, date and return the enclosed proxy card promptly in the enclosed
postage paid envelope. You may revoke your proxy at any time before it is voted
at the Special Meeting. All Units will be voted in accordance with the
instructions indicated in such proxies. If no instructions are indicated, such
Units will be voted for approval of the Plan. If you attend the Special Meeting,
you may vote your Unit(s) in person.
Limited Partners who desire to elect Withdrawal with respect to all or a
portion of the Shares underlying their Units and to participate in the
Underwritten Sale must (1) vote all of their Units in favor of the Plan and (2)
properly complete the enclosed Withdrawal Election Agreement and return it in
the enclosed postage paid envelope as instructed in the accompanying Joint Proxy
Statement and Prospectus.
SI MANAGEMENT, L.P.,
General Partner
By:
, 1997
<PAGE> 6
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS JOINT PROXY STATEMENT AND PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 8, 1997
SYNTHETIC INDUSTRIES, L.P.
SYNTHETIC INDUSTRIES, INC.
JOINT PROXY STATEMENT AND PROSPECTUS
This joint proxy statement and prospectus (the "Proxy
Statement/Prospectus") is furnished in connection with (1) the adoption of an
Agreement and Plan of Withdrawal and Dissolution (the "Plan") for Synthetic
Industries, L.P. (the "Partnership") and (2) the distribution in several
installments by the Partnership as a part of the Plan of 5,781,250 shares (the
"Shares") of common stock, par value $1.00 per share (the "Common Stock"), of
Synthetic Industries, Inc., a Delaware corporation (the "Company"), currently
owned by the Partnership. The Shares constitute approximately 67% of the total
number of shares of Common Stock currently issued and outstanding. The Common
Stock is quoted on the Nasdaq National Market under the symbol "SIND."
This Proxy Statement/Prospectus is being sent by SI Management L.P., the
sole general partner (the "General Partner") of the Partnership, to the limited
partners (the "Limited Partners") of the Partnership, in connection with the
solicitation of proxies (each, a "Proxy") to be voted at a special meeting (the
"Special Meeting") of Limited Partners in Chickamauga, Georgia on ,
1997 (the "Meeting Date"), and at any adjournment or postponement thereof. At
the Special Meeting, Limited Partners will vote upon the Plan that, if approved
by Limited Partners holding a majority of the outstanding limited partnership
units (the "Units") of the Partnership in accordance with the Partnership
Agreement and certain other conditions are satisfied or waived, will result in
(1) a withdrawal (the "Withdrawal") by Limited Partners of all or a specified
portion of the Shares (the "Withdrawn Shares") from the Partnership and (2) the
subsequent dissolution of the Partnership (the "Dissolution") through one to
three liquidating distributions (each, a "distribution" and, collectively, the
"Distribution") of the portion of the Shares remaining in the Partnership after
the Withdrawal (the "Remaining Shares"). Limited Partners who choose the
Withdrawal must participate in an underwritten offer and sale (the "Underwritten
Sale") of the Withdrawn Shares following the adoption of the Plan. The Plan will
be conditioned upon, among other things, the approval of the Plan in accordance
with the Partnership Agreement by Limited Partners holding a majority of the
outstanding Units. The number of distributions that compose the Distribution
will depend upon the number of Shares that constitute the Remaining Shares;
however, in no event shall the first such distribution occur prior to the 180th
day after the completion of the Underwritten Sale or, if the Underwritten Sale
does not occur, the 180th day following the distribution of the Withdrawn
Shares. Complete details of the Plan are set forth in this Proxy
Statement/Prospectus under the caption "The Plan of Withdrawal and Dissolution."
The General Partner believes that the Plan is fair and reasonable to, and
in the best interests of, the Limited Partners, and recommends that Limited
Partners vote their Units in favor of the Plan because the General Partner
believes that the consummation of the Plan will offer desirable investment
options for all Limited Partners. See "The Plan of Withdrawal and Dissolution."
(continued on next page)
---------------------
INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS SET FORTH ON PAGE 13 UNDER
THE CAPTION "RISK FACTORS."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Joint Proxy Statement and Prospectus is , 1997
<PAGE> 7
(continued from previous page)
The Plan involves certain additional factors that should be considered by
all Limited Partners. The effects of the Plan may differ for each Limited
Partner and may be disadvantageous to some, depending upon their individual
circumstances and investment objectives. In particular, Limited Partners should
consider, among other factors described herein, that:
- For those Limited Partners who do not elect to participate in the
Underwritten Sale, the Distribution will begin no earlier than the 180th
day after the completion of the Underwritten Sale or, if the Underwritten
Sale does not occur, the 180th day following the distribution of the
Withdrawn Shares. At the time of the Distribution, the trading price for
the Common Stock may be significantly lower than the public offering
price in the Underwritten Sale.
- Limited Partners who sell Withdrawn Shares will forego any potential
increase in the value of such Withdrawn Shares as a result of the
possible growth of the Company's business or otherwise.
- If a large number of holders of Common Stock were to offer their shares
for sale after the adoption of the Plan, or if the Underwritten Sale is
not completed and a significant number of Withdrawn Shares are soon
thereafter offered for sale, the market price of the Common Stock could
decline substantially absent a corresponding demand for Common Stock from
institutional and retail investors. The market value of the Remaining
Shares subsequently distributed during the Dissolution could also be
adversely affected.
- The Partnership's costs and expenses in connection with the Plan and
previous restructuring proposals, estimated to be approximately $
million, will be paid by the Partnership whether or not the Plan is
approved.
In accordance with the Partnership Agreement, the Plan requires the
approval of Limited Partners holding a majority in interest of the outstanding
Units. See "Voting and Proxy Information." Such approval will bind all Limited
Partners regardless of whether some fail to vote in favor of the Plan. Failure
to forward a Proxy or to vote in person at the Special Meeting will have the
same effect as if a Limited Partner had voted against the Plan.
This Proxy Statement/Prospectus is also being furnished to Limited Partners
as a Prospectus in connection with the Distribution of Shares to Limited
Partners in accordance with the Plan.
This Proxy Statement/Prospectus and the related form of Proxy and
Withdrawal Election Agreement are first being sent to Limited Partners on or
about , 1997.
2
<PAGE> 8
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, AND ANY
INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE PARTNERSHIP, THE GENERAL PARTNER OR THE COMPANY.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY SALES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE PARTNERSHIP OR THE COMPANY SINCE THE DATE HEREOF.
THE COMPANY WILL PROVIDE WITHOUT CHARGE, ON THE WRITTEN REQUEST OF ANY
PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
1996, INCLUDING THE FINANCIAL STATEMENTS. WRITTEN REQUESTS FOR SUCH COPIES
SHOULD BE DIRECTED TO JOSEPH SINICROPI, CHIEF FINANCIAL OFFICER AND SECRETARY OF
SYNTHETIC INDUSTRIES, INC., 309 LAFAYETTE ROAD, CHICKAMAUGA, GEORGIA 30707.
AVAILABLE INFORMATION
The Partnership and the Company are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the Commission's Regional Offices in New
York (Seven World Trade Center, 13th Floor, New York, New York 10048), and
Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661). Copies of these materials may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, such reports, proxy statements and other
information may be electronically accessed at the Commission's site on the World
Wide Web located at http://www.sec.gov. Such reports, proxy statements and other
information concerning the Company may also be inspected at the offices of the
Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006.
This Proxy Statement/Prospectus constitutes a part of a registration
statement on Form S-4 (together with all amendments thereto, the "Registration
Statement") filed by the Company with the Commission under the Securities Act.
This Proxy Statement/Prospectus, which forms a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the rules
and regulations of the Commission. Reference is hereby made to the Registration
Statement and related exhibits and schedules filed therewith for further
information with respect to the Company and the securities offered hereby.
Statements contained herein concerning the provisions of any contract, agreement
or other document are not necessarily complete and, in each instance, reference
is made to the copy of such document filed or incorporated by reference as an
exhibit to the Registration Statement or otherwise filed by the Company with the
Commission and each such statement is qualified in its entirety by such
reference. The Registration Statement and the exhibits and schedules thereto may
be inspected and copied at the public reference facilities maintained by the
Commission at the addresses set forth above.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Prospectus,
including, without limitation, statements under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" regarding the Company's financial position, business strategy and
plans and objectives of management of the Company for future operations,
constitute forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Cautionary statements describing important factors that could cause actual
results to differ materially from the Company's expectations are disclosed under
the caption "Risk Factors" and elsewhere in this Prospectus, including, without
limitation, in conjunction with the forward-looking statements included in this
Prospectus. All subsequent written and oral forward looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by such cautionary statements.
3
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION....................................... 3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 3
SUMMARY..................................................... 5
RISK FACTORS................................................ 13
THE PLAN OF WITHDRAWAL AND DISSOLUTION...................... 17
PROXY AND WITHDRAWAL ELECTION PROCEDURES.................... 29
THE PARTNERSHIP............................................. 33
THE COMPANY................................................. 34
CAPITALIZATION.............................................. 35
COMMON STOCK PRICE RANGE AND DIVIDENDS...................... 36
SELECTED CONSOLIDATED FINANCIAL INFORMATION................. 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 39
BUSINESS.................................................... 46
MANAGEMENT.................................................. 59
PRINCIPAL STOCKHOLDERS...................................... 64
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 65
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS..... 66
DESCRIPTION OF CAPITAL STOCK................................ 71
SUMMARY OF CERTAIN PROVISIONS OF THE PARTNERSHIP
AGREEMENT................................................. 72
SUMMARY COMPARISON OF RIGHTS OF UNITS AND COMMON STOCK...... 76
LEGAL MATTERS............................................... 81
EXPERTS..................................................... 81
SYNTHETIC INDUSTRIES, INC. INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS................................................ F-1
ANNEX A -- Agreement and Plan of Withdrawal and
Dissolution............................................... A-1
ANNEX B -- Form of Withdrawal Election Agreement............ B-1
ANNEX C -- Fairness Opinion................................. C-1
</TABLE>
4
<PAGE> 10
SUMMARY
This summary is not intended to be complete and is qualified in all
respects by the more detailed information appearing elsewhere in this Proxy
Statement/Prospectus. The terms "SI" and the "Company" refer to Synthetic
Industries, Inc. and its subsidiaries, the term the "Partnership" refers to
Synthetic Industries, L.P. and the term the "General Partner" refers to SI
Management L.P., unless otherwise stated or indicated by the context. References
to a "fiscal" year refer to the Company's fiscal year which ends September 30
(e.g., "fiscal 1996" means the Company's fiscal year ended September 30, 1996).
Limited Partners are urged to review carefully the entire Proxy
Statement/Prospectus.
SYNTHETIC INDUSTRIES, L.P.
The Partnership is a Delaware limited partnership formed in 1986 for the
purpose of acquiring all of the capital stock of the Company. Since its
organization in 1986 the Partnership has conducted no business other than owning
and voting the Common Stock. On November 1, 1996, the Company completed a public
offering of Common Stock, as a result of which the Partnership's 5,781,250
Shares currently represent approximately 67% of the issued and outstanding
shares of Common Stock.
The sole general partner of the Partnership is the General Partner, which
owns 1% of the total issued partner interest in the Partnership. The remaining
99% partner interest is divided into 800 Units, which are held by approximately
1,850 Limited Partners. The sole general partner of the General Partner is
Synthetic Management G.P., which acquired its general partner interest in 1993.
The principal executive offices of the Partnership and the General Partner are
located at 309 LaFayette Road, Chickamauga, Georgia 30707, and their telephone
number is (706) 375-3121.
SYNTHETIC INDUSTRIES, INC.
The Company is a Delaware corporation founded in 1969 to produce
polypropylene-based primary carpet backing. Since that time the Company's
business has expanded into the manufacturing and sale of a full line of
polypropylene-based industrial fabrics, specialty yarns and geotextiles. As a
result of its public offering of Common Stock in November 1996, the Company
currently has 8,656,250 shares of Common Stock outstanding. The Common Stock
trades under the symbol "SIND" on the Nasdaq National Market.
The principal executive office of the Company is located at 309 LaFayette
Road, Chickamauga, Georgia 30707, and its telephone number is (706) 375-3121.
THE PLAN OF WITHDRAWAL AND DISSOLUTION
Under the Plan, the Limited Partners are being given the opportunity to
choose between selling some or all of their investment for cash based upon a
value determined by the public markets in an orderly underwritten public
offering or continuing to hold some or all of their investment in the Company's
business by means of freely tradeable shares of Common Stock following the
Distribution. If a Limited Partner elects the Withdrawal with respect to some or
all of his or her limited partner interest, the Shares underlying such interest
will be distributed to such Limited Partner and must be included in the
Underwritten Sale that the Company will attempt to consummate within one hundred
eighty (180) days after the approval of the Plan. If the Underwritten Sale is
consummated, the Shares included will be promptly sold and the Limited Partner
will receive cash in exchange therefor. If the Underwritten Sale is not
consummated or is consummated in part, the remaining Shares will be distributed
to the Limited Partner. If a Limited Partner elects to retain an investment in
the Company, such Limited Partner will receive Shares over time through an
orderly distribution pursuant to the Dissolution. A Limited Partner may elect
Withdrawal with respect to a specified portion of his interest and to receive
Shares in the Dissolution with respect to the remainder.
If the Plan is approved, each Limited Partner will be bound by that
approval even though a Limited Partner, individually, may not have voted for the
Plan or may have abstained. Limited Partners will not have any statutory rights
of appraisal, dissenters' or similar rights in connection with the Plan.
5
<PAGE> 11
The Withdrawal Election
Each Limited Partner may at any time up to the vote at the Special Meeting
make the Withdrawal Election. Limited Partners who make a Withdrawal Election
(the "Withdrawal Election Partners") will receive cash for their Withdrawn
Shares that are sold promptly after the completion of the Underwritten Sale. The
Company has agreed to use its best efforts to facilitate the completion of the
Underwritten Sale as promptly as possible, and no later than one hundred eighty
(180) days following the date on which the Plan is approved, although the
Underwritten Sale is subject to market and other conditions and there can be no
assurance that it will be completed as planned. If the Underwritten Sale has not
been consummated within one hundred eighty (180) days after the approval of the
Plan (the "Underwritten Sale Expiration Date"), the Withdrawn Shares will be
delivered by the Withdrawal Agent to the Withdrawal Election Partners.
To elect to become a Withdrawal Election Partner, a Limited Partner must
vote all of such Limited Partner's Units in favor of the Plan and properly
complete and execute the Withdrawal Election Agreement (the "Withdrawal Election
Agreement") included with this Proxy Statement/Prospectus. A Limited Partner may
make the Withdrawal Election with respect to the shares of Common Stock
underlying all or a specified portion of such Limited Partner's Units. A
Withdrawal Election by a Limited Partner becomes irrevocable at the time of the
adoption of the Plan at the Special Meeting (the "Effective Time"). All Units
(or fractions thereof) included in a Withdrawal Election will be redeemed as of
such date. All Withdrawn Shares must be included in the Underwritten Sale. On or
before the third business day following the Effective Time (the "Withdrawal
Date"), the Partnership will distribute the Withdrawn Shares on behalf of the
Withdrawal Election Partners to [ ], as the withdrawal agent (the
"Withdrawal Agent"), which will be appointed by the Withdrawal Election Partners
in the Withdrawal Election Agreement. The Withdrawal Agent, on behalf of the
Withdrawal Election Partners, will deliver the Withdrawn Shares to the
underwriters at the closing of the Underwritten Sale, and deliver the payment
therefor to the Withdrawal Election Partners. Neither the Withdrawal Election
nor the Underwritten Sale will occur if the Plan is not approved by the Limited
Partners. The General Partner must participate in the Withdrawal with respect to
its general partner interest pro rata with the Withdrawal Election Partners, but
is not permitted to participate in the Underwritten Sale.
In order to effect the Withdrawal, the Plan provides for a proposed
amendment to the Partnership Agreement which must be approved by a majority in
interest of the Limited Partners. A vote in favor of the Plan will also
constitute approval of the amendment. The proposed amendment is attached as
Exhibit A to the Plan.
The Underwritten Sale
Withdrawal Election Partners must include all Withdrawn Shares in the
Underwritten Sale. The Company, pursuant to the Plan, will file on or before the
Withdrawal Date a Registration Statement with respect to the Underwritten Sale
which will be managed by a nationally recognized investment banking firm chosen
jointly by the General Partner and the Company (the "Managing Underwriter").
Marketing of the Withdrawn Shares is expected to commence as promptly as
reasonably possible after the Withdrawal Date. The price at which the Withdrawn
Shares will be sold in the Underwritten Sale will be determined by a pricing
committee (the "Pricing Committee") that will consist of Leonard Chill, who is
both an officer and director of the Company and a representative of the General
Partner, and William J. Shortt and Robert L. Voigt, both of whom are outside
directors of the Company. The Pricing Committee will use its best efforts to
obtain the best possible price for the Withdrawn Shares being sold, taking into
account the recommendation of the Managing Underwriter, as well as recent market
prices for the Common Stock, discounts from market price normally encountered in
comparable underwritten secondary offerings, information from the Managing
Underwriter regarding the recent demand for the Common Stock, general market
conditions and any other factors the Pricing Committee deems appropriate. The
Pricing Committee will have the sole authority to set the price for the
Withdrawn Shares and will have the authority not to proceed with the
Underwritten Sale if the underwriters are unable to consummate the Underwritten
Sale at a public offering price that the Pricing Committee believes, in its
discretion, is reasonable, taking into account the aforementioned factors. The
net proceeds from the sale of the Withdrawn Shares, after deduction of
underwriting discounts and commissions,
6
<PAGE> 12
will be delivered to the Withdrawal Election Partners by the Withdrawal Agent
promptly after the completion of the Underwritten Sale. If the Underwritten Sale
has, for any reason, not been consummated before the Underwritten Sale
Expiration Date, the Withdrawal Agent will immediately thereafter deliver the
Withdrawn Shares to the Withdrawal Election Partners. If the Underwritten Sale
is completed in part, any reduction in the number of Withdrawn Shares shall be
allocated on a pro rata basis for all Withdrawal Election Partners and the
unsold Withdrawn Shares will be delivered to the Withdrawal Election Partners
one hundred eighty (180) days after the completion of the Underwritten Sale.
Neither the Managing Underwriter nor any other underwriter for the
Underwritten Sale is otherwise participating in the Plan and no such underwriter
has been requested or retained to express any opinion as to the fairness of the
Plan or related transactions to any party, or as to whether any Limited Partner
should vote for or against the Plan. The prospective participation of any
underwriter in the Underwritten Sale is not, and should not be construed as, a
solicitation, recommendation or request to any person to approve or disapprove
the Plan. The completion of the Underwritten Sale is subject to a number of
factors, including general market and economic conditions, and there can be no
assurance that the Underwritten Sale will be consummated or consummated at any
particular price.
The Dissolution and Distribution
The Plan provides for the Dissolution by the orderly distribution over time
of the Remaining Shares after (i) the completion of the Withdrawal and (ii) the
satisfaction of any remaining liabilities and expenses of the Partnership. The
Dissolution will be effected by one to three distributions of the Remaining
Shares beginning on the 180th day after the earlier of the completion of the
Underwritten Sale or the distribution of the Withdrawn Shares by the Withdrawal
Agent to the Withdrawal Election Partners (the "First Distribution Date"),
followed by a second distribution, if needed, of the Remaining Shares on the
180th day following the First Distribution Date (the "Second Distribution
Date"), with the balance, if any, being distributed on the 180th day following
the Second Distribution Date (the "Third Distribution Date" and, together with
the First Distribution Date and the Second Distribution Date, the "Distribution
Dates"). The number of Shares to be distributed on each Distribution Date will
be equal to 25% of the total number of shares of Common Stock owned by the
public (the "Public Shares") or, if it is less, the total number of Remaining
Shares. The Public Shares are equal to the total number of shares of Common
Stock outstanding as of the relevant Distribution Date, less the Remaining
Shares not yet distributed. For a table detailing the distribution of Remaining
Shares pursuant to the Plan, please see "The Plan of Withdrawal and
Dissolution -- The Dissolution and Distribution." Under certain conditions, the
Company has the right under the Plan to require the General Partner to
accelerate the Dissolution and distribute in a single distribution all the
Remaining Shares then held by the Partnership. The Company has agreed to use all
reasonable efforts to have in effect on each Distribution Date an effective
registration statement covering the distribution of the Remaining Shares, but
none of the distributions will occur unless or until such registration statement
becomes effective or an exemption to the Company's registration requirements
with respect to such distribution exists, in the Company's sole discretion.
Shares Allocable to Partners After Expenses
At the Effective Time, the Partnership will have Shares allocable
to Partners, after the transfer to the Company of Shares in payment of
all expenses of the Partnership incurred in connection with the Plan. In
accordance with the terms of the Partnership Agreement and the proposed
amendment thereto, 99% of the Shares held by the Partnership, or approximately
Shares, will be allocable to the Limited Partner interests. Therefore,
there will be approximately Shares underlying each Unit. The closing
bid price for the Common Stock on the Nasdaq National Market on the date of this
Proxy Statement/Prospectus was $ per share.
BACKGROUND AND PURPOSES OF THE PLAN
Background of the Plan and Consideration of Alternatives. In 1993, the
General Partner began to explore various ways in which Limited Partners might
begin to realize a return on their investment in the Partnership, including a
sale of the Common Stock, the distribution of Common Stock to Limited Partners
and a sale of
7
<PAGE> 13
the entire Company to another company engaged in the same or a similar industry.
However, the Company's results of operations during this period, the Company's
high leverage and the particular stage in the Company's development and its
growth prospects were not conducive to a realization by the Partnership of any
significant return from a sale of the Company or a public offering of the Common
Stock. In addition, the General Partner was advised that a distribution of
Common Stock held by the Partnership to Limited Partners would most likely
result in a significant devaluation of the Common Stock due to an intense
selling pressure that would result from a large number of Limited Partners
attempting to sell an investment that had been illiquid for so many years.
In mid-1996, prompted by the strength of the stock markets at the time, as
well as an improved outlook for the Company's results of operations in that
year, the Company and the General Partner commenced discussions with its
financial and legal advisors regarding a possible combined offering of the
Common Stock held by the Partnership and Common Stock newly issued by the
Company. On August 1, 1996, the Company filed a registration statement with the
Commission pursuant to which the Partnership would offer all of its 5,781,250
shares of Common Stock and the Company would sell an additional 1,718,750 shares
of newly issued Common Stock. The General Partner determined, because the
Partnership's sale of its Common Stock would not offer Limited Partners a right
to receive their underlying portion of the Common Stock rather than cash, not to
proceed with the Partnership's sale of Common Stock. On November 1, 1996 the
Company completed a public offering of 2,875,000 newly issued shares.
During the next several months, the General Partner and the Company met on
several occasions with their financial and legal advisors to discuss the
prospects of offering Limited Partners during 1997 an opportunity to sell Common
Stock underlying their investment in the Partnership or, alternatively, to
receive such Common Stock in a distribution. As a result of these discussions,
subject to the continued existence of strong equity markets, the General Partner
has proposed a withdrawal of Common Stock and the dissolution of the Partnership
on the terms described in this Proxy Statement/Prospectus. These terms have been
designed to give Limited Partners an opportunity for future liquidity for their
investment and, if they desire and the Underwritten Sale is consummated, cash.
If the Plan is not approved by the Limited Partners, it is intended that
the business of the Partnership will continue to be conducted by the Partnership
in its current form. No other transaction is currently being considered as an
alternative to the Plan, although the Partnership may from time to time explore
alternatives.
Purposes and Intended Benefits. The Plan is intended to provide the
following principal benefits:
- The Plan offers desirable investment options for all Limited Partners.
- For Limited Partners who want to liquidate their investment immediately,
the Plan offers an opportunity to sell for cash the Common Stock
underlying their investment at a current market value within 180 days
after approval of the Plan.
- The sale of shares of Common Stock necessary to provide cash for
Withdrawal Election Partners will be raised through an orderly sales
process designed to optimize the price received for the Common Stock and
minimize any disruption of the markets for Partners who choose to
continue to hold their interests.
- Following the Company's initial public offering in November 1996 and the
listing of the Common Stock on the Nasdaq National Market, a public
market for the Common Stock has been developing. As a result, the General
Partner believes that this is a suitable time to effect the
implementation of the Plan, because the Shares currently held by the
Partnership can now be distributed and sold as contemplated without
materially adversely affecting the market price for the Common Stock,
although there can be no assurance that such will be the case.
- For Limited Partners who wish to retain the investment they now hold in
the Company, the Plan, upon the commencement of the Distribution, will
provide them with increased liquidity for their investment, as well as
the ability to determine the value of their investment based upon the
public market price of the Common Stock underlying their Units.
8
<PAGE> 14
- There is no business purpose or benefit to investors holding interests in
a partnership, the sole purpose and activity of which is to hold publicly
traded shares of a single corporation. The Plan will result in the
elimination of the cost and inefficiency of maintaining such a
partnership entity and the simplification of tax reporting for all
Limited Partners.
There can be no assurance, however, that any of the foregoing intended
benefits will result.
Potential Detriments. The principal potential detriments of the Plan are as
follows:
- For those Limited Partners who do not elect to participate in the
Underwritten Sale, the Distribution will begin no earlier than the 180th
day after the completion of the Underwritten Sale or, if the Underwritten
Sale does not occur, the 180th day following the distribution of the
Withdrawn Shares. At the time of the Distribution, the trading price for
the Common Stock may be significantly lower than the public offering
price in the Underwritten Sale.
- Limited Partners who sell Withdrawn Shares will forego any potential
increase in the value of such Withdrawn Shares as a result of the
possible growth of the Company's business or otherwise.
- If a large number of holders of Common Stock were to offer their shares
for sale after the adoption of the Plan, or if the Underwritten Sale is
not completed and a significant number of Withdrawn Shares are soon
thereafter offered for sale, the market price of the Common Stock could
decline substantially absent a corresponding demand for Common Stock from
institutional and retail investors. The market value of the Remaining
Shares subsequently distributed in the Distribution could also be
adversely affected.
- The Partnership's costs and expenses in connection with the Plan and
previous restructuring proposals, estimated at approximately
$ , will be paid by the Partnership whether or not the Plan is
approved.
CONDITIONS TO THE PLAN AND THE UNDERWRITTEN SALE
The Plan will not be consummated unless certain conditions are satisfied or
(if permitted) waived, including: (i) approval of the Plan, as required by the
Partnership Agreement (as defined below), by Limited Partners holding a majority
in interest of the outstanding Units at the Special Meeting and (ii) the
consummation of the Plan not being prohibited under any applicable law,
regulation or order.
The Underwritten Sale will not be consummated unless certain additional
conditions are satisfied or (if permitted) waived, including the determination
by the Pricing Committee that the underwriters have obtained a reasonable price
for the Withdrawn Shares to be sold, taking into account, among other things,
recent market prices for the Common Stock, discounts from market price normally
encountered in comparable underwritten secondary offerings, information from the
underwriters regarding the recent demand for the Common Stock and general market
conditions. In addition, the Underwritten Sale is subject to general market and
economic conditions, and there can be no assurance that the Underwritten Sale
will be consummated.
The General Partner may determine, at any time prior to the Withdrawal, not
to complete the Plan even if all of the conditions are satisfied or if the
General Partner determines, in its sole discretion, that the Plan is not in the
best interests of the Partners.
FAIRNESS OPINION
On , 1997, Patricof & Co. Capital Corp. ("Patricof"), the
Partnership's financial advisor, delivered to the Partnership its written
opinion to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the implementation of the Plan is
fair, from a procedural point of view, to the Limited Partners. As Limited
Partners will be receiving only an allocation of the Shares held by the
Partnership based upon their ownership percentage of their respective limited
partner interests, determined in accordance with the terms of the Partnership
Agreement, the fairness opinion does not address the fairness of the transaction
from a financial point of view. The General Partner is not receiving any
compensation in connection with the Plan and none of the Shares will be
allocated disproportionately to the General Partner. The full text of the
written opinion of Patricof, which sets forth the assumptions made, matters
9
<PAGE> 15
considered and limitations on the review undertaken, is attached as Annex C to
this Proxy Statement/Prospectus and is incorporated herein by reference. Limited
Partners are urged to read this opinion carefully in its entirety.
RECOMMENDATION OF THE GENERAL PARTNER
As a result of its review of the terms of the Plan, its analysis of the
benefits and disadvantages of, and the alternatives to, the Plan, and its review
of the fairness opinion from Patricof to the effect that the implementation of
the Plan is fair, from a procedural point of view, to the Limited Partners, the
General Partner believes that the Plan is fair and reasonable to, and in the
best interests of, the Limited Partners, and recommends that the Limited
Partners vote their Units in favor of the Plan.
SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The implementation of the Plan is expected to result in the following
federal income tax consequences:
Except for particular categories of investors that are subject to special
rules, it is expected that each Limited Partner who makes a Withdrawal Election
will recognize long-term gain or loss resulting from the completion of the
Underwritten Sale in an amount determined by the difference between the cash
proceeds from the Underwritten Sale received by such Limited Partner and such
Limited Partner's tax basis (as described below) of the Withdrawn Shares
distributed to such Partner. If the Underwritten Sale is not consummated, no
Limited Partner will recognize gain or loss resulting from the Withdrawal. In
that event, the tax basis (determined in the aggregate) of all Shares
transferred to each Limited Partner who makes a Withdrawal Election will equal
the tax basis (determined in the aggregate) of such Limited Partner's Units as
determined immediately before the Withdrawal (as adjusted to reflect any
Partnership tax items subsequently allocated to such Limited Partner).
It is further expected that, whether or not the Underwritten Sale is
completed, the Limited Partners will not recognize gain or loss resulting from
the Dissolution. The tax basis (determined in the aggregate) of Remaining Shares
distributed to any Limited Partner who does not make a Withdrawal Election will
equal the tax basis (determined in the aggregate) of such Limited Partner's
Units as determined immediately before the first distribution made pursuant to
the Dissolution (as adjusted to reflect any Partnership tax items subsequently
allocated to such Limited Partner).
As part of the implementation of the Plan, the Partnership will repay all
of its outstanding liabilities (including costs that it has incurred in
connection with reviewing other options and has incurred and, based on estimates
immediately prior to the Withdrawal, will incur to implement the Plan) by
transferring Shares to the Company immediately before the Withdrawal. The use of
Shares to repay such liabilities will result in the recognition of taxable gain
or loss which (along with Plan costs) will be allocated to the Partners in
accordance with the terms of the Partnership Agreement. The Partners will
recognize taxable gain or loss resulting from the use of Shares to repay
liabilities. The Company will pay, without reimbursement from the Partnership,
any Plan costs of the Partnership that exceed the costs estimated immediately
before the Withdrawal. In the event that actual costs are less than the
estimated costs, the Company will refund the excess in the form of additional
shares of Common Stock to be distributed to the Partners remaining in the
Partnership after the Withdrawal (the "Remaining Partners"). It is not expected
that the Partnership's costs will be less than the estimated costs. It is also
not expected that the Partnership's costs will materially exceed the estimated
costs. Nevertheless, any such variance could result in additional income being
recognized by the Remaining Partners. Each Limited Partner should consult such
Limited Partner's own tax advisor regarding the tax consequences of the
repayment of partnership liabilities and Plan costs relevant to such Limited
Partner.
10
<PAGE> 16
VOTING AT THE SPECIAL MEETING
The Special Meeting........ The Special Meeting will be held at [place, date
and time].
Voting..................... Each Limited Partner is entitled to vote such
Limited Partner's interest in the Partnership.
Only Limited Partners of record on ,
1997 (the "Record Date") are entitled to vote at
the Special Meeting and at any adjournment or
postponement thereof.
Units Outstanding.......... On the Record Date, 800 Units were outstanding.
Approval Required.......... The Plan will require the approval of a majority in
interest of the outstanding limited partner
interests of the Partnership.
LIST OF LIMITED PARTNERS
A list of all of the Limited Partners of the Partnership may be obtained by
any Limited Partner from the Partnership at 309 LaFayette Road, Chickamauga,
Georgia 30707, Attention: Leonard Chill.
EXPENSES OF THE PLAN
The Partnership's costs and expenses necessary to consummate the Plan are
estimated to be approximately $ . Such costs and expenses (the
"Partnership Expenses") include the $650,000 promissory note from the
Partnership to the Company in respect of funds previously advanced to the
Partnership in connection with previous restructuring costs, Securities and
Exchange Commission registration and filing fees, solicitation and mailing
expenses, Solicitation Agent fees, accounting fees and expenses, legal fees and
expenses, Withdrawal Agent fees and expenses, fees and expenses in connection
with the fairness opinion, printing and engraving costs and expenses related to
the Dissolution. The Partnership Expenses will be advanced by the Company and
satisfied by the delivery to the Company by the Partnership of Shares.
If the Plan is not approved, the Partnership shall remain liable for such
expenses and shall execute a promissory note that shall be payable upon the
earliest of (a) any sale of Shares for cash that results in the Partnership
holding less than 95% of the Shares that it holds on the date hereof, (b) the
acquisition or exchange for cash or securities of more than 25% of the Shares by
a third party or (c) the dissolution of the Partnership.
Underwriting discounts and commissions in connection with the Underwritten
Sale will be allocated on a pro rata basis among the Withdrawal Election
Partners in accordance with the number of Withdrawn Shares sold. All other costs
of the Underwritten Sale, estimated to be approximately $ , will be
borne by the Company.
The General Partner will not receive any compensation with respect to the
Plan.
11
<PAGE> 17
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following Summary Consolidated Financial Information should be read in
conjunction with the Consolidated Financial Statements and the notes thereto and
the other selected financial data included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED THREE MONTHS
SEPTEMBER 30, MARCH 31, ENDED MARCH 31,
------------------------------------ ----------------------- -----------------------
1994 1995(1) 1996 1996 1997 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(3):
Net sales........................... $ 234,977 $ 271,427 $ 299,532 $ 129,217 $ 146,215 $ 64,609 $ 75,358
Gross profit........................ 82,672 76,721 91,211 33,130 45,049 18,439 24,235
Operating income.................... 40,770 28,687 38,474 9,091 16,678 5,735 9,331
Interest expense.................... 20,011 22,514 22,773 11,390 10,775 5,710 5,365
Income (loss) before provision
(benefit) for income taxes and
extraordinary
item.............................. 20,020 5,436 15,002 (2,647) 5,564 (150) 3,803
Income (loss) before extraordinary
item.............................. 11,420 1,936 8,102 (2,307) 3,064 (410) 2,160
Net income (loss) (2)............... $ 11,420 $ 1,936 $ 8,102 $ (2,307) $ (8,886) $ (410) $ (9,790)
========== ========== ========== ========== ========== ========== ==========
OTHER FINANCIAL DATA(3):
Income (loss) per share before
extraordinary item................ $ 1.93 $ 0.33 $ 1.37 $ (0.39) $ 0.36 $ (0.07) $ 0.24
Weighted average shares
outstanding....................... 5,930,502 5,930,502 5,930,502 5,930,502 8,413,922 5,930,502 8,957,155
Depreciation and amortization....... $ 12,390 $ 14,937 $ 16,299 $ 8,031 $ 9,027 $ 4,023 $ 4,547
Capital expenditures................ 31,866 13,313 34,253 13,650 18,909 6,256 10,085
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, MARCH 31,
1996 1997
------------- ---------
<S> <C> <C>
BALANCE SHEET DATA(3)
Working capital............................................. $ 64,077 $ 89,877
Total assets................................................ 324,058 370,778
Long-term debt, net......................................... 194,353 212,029
Stockholders' equity........................................ 65,844 90,767
</TABLE>
- ---------------
(1) Fiscal 1995 results of operations include a pre-tax charge of $2,852 to
increase the allowance for doubtful accounts due to a customer who
experienced severe financial difficulty. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) Net loss for the three and six month periods ended March 31, 1997 includes
an extraordinary loss of $11,950 from the early extinguishment of debt.
(3) This Summary Consolidated Financial Information reflects that of the
Company. The Summary Consolidated Financial Information of the Partnership
mirrors that of the Company with the exception of the impact of the minority
interest, which resulted from the Company's November 1, 1996 public offering
of Common Stock, and certain expenses incurred by the Partnership in
connection with previous restructuring costs. Adjusted Summary Consolidated
Financial Information of the Partnership is as follows (in thousands, except
limited partnership units outstanding):
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
SEPTEMBER 30, MARCH 31,
1996 1997
------------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating Income............................................ $37,813 $16,723
Income before provision for income taxes, minority interest
in subsidiary net loss, and extraordinary item............ 14,341 5,609
Minority interest in subsidiary net loss.................... -- 3,130
Income before extraordinary item attributable to limited
partners.................................................. 7,367 6,177
Net income (loss) attributable to limited partners.......... $ 7,367 $(5,654)
======= =======
OTHER FINANCIAL DATA:
Income before extraordinary item per limited partnership
unit...................................................... $ 9.21 $ 7.72
Limited partnership units outstanding....................... 800 800
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, MARCH 31,
1996 1997
------------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital............................................. $ 63,418 $ 89,263
Total Assets................................................ 323,756 370,780
Partners' Capital........................................... 65,185 59,423
</TABLE>
12
<PAGE> 18
RISK FACTORS
Before completing the enclosed form of Proxy and the accompanying
Withdrawal Election Agreement, each Limited Partner should carefully examine
this entire Proxy Statement/Prospectus since it provides both summary and
detailed information about the Plan and its consequences, and should give
particular attention to the following considerations.
RISK FACTORS ARISING FROM THE PLAN
Risk of Decline in Value of the Common Stock Issued to the Limited Partners in
the Distribution or as a Result of a Failure to Consummate the Underwritten
Sale
The Company currently has 8,656,250 shares of Common Stock issued and
outstanding, 2,875,000 of which trade on the Nasdaq National Market and
5,781,250 of which are held by the Partnership. If the holders of a large number
of shares of Common Stock were to offer for sale the shares they receive in
connection with the Plan, the market price of the Common Stock could decline
substantially absent a corresponding demand from institutional and retail
investors. The market value of the Remaining Shares subsequently distributed
during the Dissolution could be substantially less than the price received for
the Withdrawn Shares. In addition, if the Underwritten Sale is not completed and
a significant number of Withdrawn Shares are immediately offered for sale, then
the market price of the Common Stock could similarly decline substantially. The
consummation of the Underwritten Sale is subject to a number of factors,
including general market and economic conditions, and there can be no assurance
that the Underwritten Sale will be consummated or consummated at any particular
price. In addition, if it is determined that not all of the Withdrawn Shares can
be sold in the Underwritten Sale, then the number of Withdrawn Shares to be
included in the Underwritten Sale will be reduced pro rata for each Withdrawal
Election Partner, and the Withdrawn Shares not sold in the Underwritten Sale
will be delivered to the Withdrawal Election Partners 180 days after the closing
of the Underwritten Sale. See "The Plan of Withdrawal and Dissolution." The
Distribution will begin no earlier than the 180th day after the consummation of
the Underwritten Sale or, if the Underwritten Sale does not occur, the 180th day
following the delivery of the Withdrawn Shares by the Withdrawal Agent to the
Withdrawal Election Partners. At the time of the Distribution, the trading price
of the Common Stock may be significantly lower than the public offering price in
the Underwritten Sale or the price of the Common Stock on the Solicitation
Expiration Date.
Risk as to Price of Common Stock in Underwritten Sale or Distribution
The future market value of the Common Stock cannot be determined or
estimated at this time. The market price for shares of the Common Stock is
highly volatile and may be materially affected by factors such as the Company's
cost of raw materials, average selling price, the introduction of new products
by the Company or its competitors, and changes in the estimates of earnings or
recommendations of financial analysts regarding the Company. The market price
for shares of Common Stock may also be affected by general market and economic
conditions.
There can be no assurance as to the public offering price of the Withdrawn
Shares offered in the Underwritten Sale. Such price will be determined by the
Pricing Committee in conjunction with the underwriters at the time the offering
is made and will be based upon, among other things, the market price of the
Common Stock on the Nasdaq National Market and the demand for Common Stock among
institutional and retail investors. See "The Plan of Withdrawal and
Dissolution -- Pricing of the Underwritten Sale." Similarly, there can be no
assurance as to the price of the Withdrawn Shares distributed in connection with
the Distribution or in the event the Underwritten Sale is not consummated. The
price of the Withdrawn Shares sold in the Underwritten Sale and the market price
of the Common Stock at the time of the Distribution or at the time the Withdrawn
Shares are distributed, in the event the Underwritten Sale is not consummated,
could be less than a Limited Partner's investment in such Shares.
13
<PAGE> 19
Risk of Failure to Approve the Plan; No Current Alternatives; Potential For
Dissolution
If the Plan is not approved by the Limited Partners, the business of the
Partnership will continue to be conducted by the Partnership in its current
form. No other transaction is currently being considered as an alternative to
the Plan, although the Partnership may from time to time explore alternatives.
The General Partner may, at some point in the future, determine that
continuation in its capacity as general partner of the Partnership is
impractical. The Amended and Restated Limited Partnership Agreement dated as of
November 11, 1986 of Synthetic Industries L.P. (as amended, the "Partnership
Agreement") provides that the General Partner may, at its discretion, resign at
any time. Upon such resignation, all Limited Partners may elect within 120 days
of such resignation to form a new limited partnership on substantially identical
terms to the Partnership to carry on the business of the Partnership and may, by
unanimous vote or action, select a new general partner for such partnership. If
the Limited Partners are not so able to unanimously elect a new general partner,
the Partnership Agreement provides that the Partnership will then be dissolved
and, after payment, or provision for payment when due, of all Partnership
liabilities, all the shares of Common Stock held by the Partnership will
immediately be distributed to the Partners in accordance with their interests as
provided in the Partnership Agreement. See "Summary of Certain Provisions of the
Partnership Agreement."
Risks Related to Conditions to the Plan and the Underwritten Sale; Termination
The Plan will not be consummated unless the following conditions are
satisfied or, to the extent permitted by the Partnership Agreement or the
Agreement and Plan of Withdrawal and Dissolution, waived: (i) Limited Partners
holding a majority in interest of the outstanding Units shall have approved the
Plan at the Special Meeting; (ii) all necessary regulatory approvals shall have
been obtained; (iii) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation of the
Plan; and (iv) all actions by or in respect of or filing with any governmental
body, agency, official or authority required to permit the consummation of the
Plan shall have occurred.
The Underwritten Sale will not be consummated unless certain additional
conditions are satisfied or (if permitted) waived, including (i) the
determination by the Pricing Committee that the underwriters have obtained a
reasonable price for the Withdrawn Shares to be sold, taking into account, among
other things, recent market prices for the Common Stock, discounts from market
price normally encountered in comparable underwritten secondary offerings,
information from the underwriters regarding the recent demand for the Common
Stock and general market conditions and (ii) that the conditions contained in
the underwriting agreement to be executed in connection with the Underwritten
Sale shall have been satisfied or waived by the underwriters. In addition, the
Underwritten Sale is subject to general market and economic conditions, and
there can be no assurance that the Underwritten Sale will be consummated.
Notwithstanding the foregoing, at any time prior to the Withdrawal, the
Plan may be terminated, even if the foregoing conditions are satisfied, by the
General Partner in its sole and absolute discretion in the event of adverse
legislative developments or in the event the General Partner in the exercise of
its fiduciary duties determines that consummation of the Plan otherwise is no
longer in the best interests of the Limited Partners, or by the Board of
Directors of the Company in the event the Board of Directors in the exercise of
its fiduciary duties determines that consummation of the Plan otherwise is no
longer in the best interests of the Company.
The General Partner does not intend to waive any condition if the waiver of
such condition would have a material adverse effect on the rights and interests
of the Limited Partners or the Company.
Tax Risks; Possible Taxable Gain
The Plan is generally not expected to result in gain or loss being
recognized by the Partnership, the Limited Partners or the Company under the
Internal Revenue Code of 1986, as amended, except that each
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Limited Partner generally will recognize taxable gain to the extent that the
amount of cash received pursuant to the consummation of the Underwritten Sale
exceeds such Limited Partner's tax basis in the Withdrawn Shares sold in the
Underwritten Sale. Taxable gain or loss resulting from the Partnership's sale or
other transfer of Shares to repay Partnership liabilities will be allocated in
accordance with the Partnership Agreement to all Partners remaining in the
Partnership at the time of such sale or other transfer. The precise tax
treatment to individual Limited Partners will depend upon a Limited Partner's
particular situation. See "Certain United States Federal Income Tax
Considerations."
Risk of No Independent Representation of Limited Partners
The Limited Partners have not been represented by separate counsel,
accountants, financial advisors or other professionals retained solely on their
behalf in connection with the proposed transactions referred to herein. The
attorneys, accountants and others who have performed services for the General
Partner or the Partnership in connection with the proposed transactions,
including Patricof, which rendered a fairness opinion to the Partnership, have
been selected and employed by the General Partner and may continue to be
employed by the General Partner and its affiliates, including the Company.
CERTAIN FACTORS RELEVANT TO THE BUSINESS
Risk of Increase in Raw Material Prices and Limited Availability of Raw
Materials
Polypropylene, a petroleum derivative, is the basic raw material used in
the manufacture of substantially all of the Company's products, accounting for
approximately 50% of the Company's cost of sales. The price of polypropylene is
primarily a function of manufacturing capacity, demand and the prices of
petrochemical feedstocks, crude oil and natural gas liquids. Historically, the
market price of polypropylene has fluctuated, such as in fiscal 1995 when the
average market cost of polypropylene was approximately 50% higher than in fiscal
1994. A significant increase in the price of polypropylene that cannot be passed
on to customers could have a material adverse effect on the Company's results of
operations and financial condition. There can be no assurance that the price of
polypropylene will not increase in the future or that the Company will be able
to pass on any such increase to its customers. In addition, significant
increases in demand for, or a significant disruption in supply of,
polypropylene, without a corresponding expansion of polypropylene manufacturing
capacity, could result in production shortages. Historically, the creation of
such additional facilities has helped to relieve supply pressures although there
can be no assurance that this will continue to be the case.
The Company's major suppliers of polypropylene are Fina Oil & Chemical
Company, Lyondell Polymers Company, Huntsman Polypropylene and Union Carbide.
The loss of any one of the Company's suppliers could adversely affect the
Company's business until alternative supply arrangements were secured. In
addition, there is no assurance that any new supply agreement entered into by
the Company would have terms comparable to those contained in current supply
arrangements. See "Business -- Raw Materials".
Risk of High Leverage
The Company is highly leveraged. As of June 30, 1997, the Company had
outstanding consolidated long-term debt (including current maturities) of
approximately $210 million. The degree to which the Company is leveraged could
have important consequences to stockholders, including: (i) impairment of the
Company's ability to obtain additional financing in the future; (ii) reduction
of funds available to the Company for its operations and general corporate
purposes or for capital expenditures, as a result of the dedication of a
substantial portion of the Company's net cash flow from operations to the
payment of principal of and interest on the Company's indebtedness; (iii) the
possibility of an event of default under financial and operating covenants
contained in the Company's debt instruments, which, if not cured or waived,
could possibly have a material adverse effect on the Company; (iv) a relative
competitive disadvantage if the Company is substantially more leveraged than its
competitors; and (v) an inability to adjust to rapidly changing market
conditions and consequent vulnerability in the event of a downturn in general
economic conditions or its business because of the Company's reduced financial
flexibility. The Company's ability to make scheduled payments or to refinance
its obligations with respect to its indebtedness depends on its financial and
operating
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performance, which, in turn, is subject to prevailing economic conditions and to
financial, business and other factors beyond its control. Although the Company's
cash flow from its operations has historically been sufficient to meet its debt
service obligations, there can be no assurance that the Company's operating
results will continue to be sufficient for payment of the Company's
indebtedness. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources". Substantially all of the assets of the Company and its subsidiaries
secure the Company's Fourth Amended and Restated Revolving Credit and Security
Agreement, dated as of October 20, 1995, as subsequently amended (the "Credit
Facility"), among the Company, the financial institutions party thereto as the
lenders (the "Lenders"), and BankBoston, as agent for the Lenders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Markets for Company Products are Highly Competitive
The markets for the Company's products are highly competitive. In the
manufacture and sale of carpet backing, which represented approximately 49% of
the Company's total net sales for the fiscal years ended 1996 and 1995,
respectively, the Company competes primarily with Amoco Fabrics and Fibers Co.
("Amoco"), a subsidiary of Amoco Corporation, and, to a lesser extent, certain
other companies. Amoco has the leading position in the carpet backing market
worldwide. In the manufacture and sale of the Company's other products, the
Company generally competes with a number of other companies, including, in some
cases, Amoco. Several of these competitors, particularly Amoco, are
significantly larger and have substantially greater resources than the Company.
The pricing policies of the Company's competitors have at certain times in the
past limited the Company's ability to increase its sales prices or caused the
Company to lower its sales prices. See "Business -- Products," "-- Marketing and
Sales" and "-- Raw Materials".
Loss of Significant Customer Could Adversely Affect the Company
For the fiscal years ended 1996 and 1995, Shaw Industries, Inc. ("Shaw"), a
major carpet manufacturer and longtime customer of the Company, was the
Company's largest single customer, accounting for approximately 18% of the
Company's total net sales and approximately 36% and 37%, respectively, of the
Company's carpet backing sales. If Shaw were to significantly reduce or
terminate its purchases of carpet backing from the Company, the Company's
results of operations and financial condition could be materially adversely
affected. The Company has no other customers that account for greater than 10%
of its total net sales. In fiscal 1996 and fiscal 1995, the Company's ten
largest customers for carpet backing accounted for approximately 78% and 77%,
respectively, of its total net sales to the carpet industry. See "Business --
Marketing and Sales -- Carpet Backing".
Consequences of Adoption of Environmental Regulation
Certain local governments have adopted ordinances prohibiting or
restricting the use or disposal of certain polypropylene products. Widespread
adoption of such prohibitions or restrictions could adversely affect demand for
the Company's products and thereby have a material adverse effect upon the
Company. In addition, a decline in consumer preference for polypropylene
products due to environmental considerations could have a material adverse
effect upon the Company.
Certain Anti-Takeover Effects of the Company's Charter
The Company's Certificate of Incorporation and By-laws restrict the ability
of stockholders to call special meetings or take stockholder action by written
consent. These provisions could delay or hinder the removal of incumbent
directors and could discourage or make more difficult a proposed merger, tender
offer or proxy contest involving the Company or may otherwise have an adverse
effect on the market price of the Common Stock. See "Description of Capital
Stock -- Certain Provisions of the Certificate of Incorporation." The Company
also is subject to provisions of Delaware corporate law that will restrict the
Company from engaging in certain business combinations with a person who,
together with affiliates and associates, owns 15% or more of the Common Stock
(an "Interested Stockholder") for three years after the person becomes an
Interested Stockholder, unless certain conditions are met or the business
combination is approved by the Company's
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<PAGE> 22
Board of Directors (the "Board") and/or the Company's stockholders in a
prescribed manner. These provisions also could render more difficult or
discourage a merger, tender offer or other similar transaction. See "Description
of Capital Stock -- Section 203 of the DGCL."
No Assurance of Active Public Trading; Possible Volatility of Stock Price
Prior to the Common Stock Offering there had been no public market for
shares of the Common Stock. The Common Stock is listed on the Nasdaq National
Market. Such listing, however, does not guarantee that an active trading market
for the Common Stock will exist. In addition, the market price for shares of the
Common Stock is highly volatile. Factors such as the Company's cost of raw
materials, average selling price, the introduction of new products by the
Company or its competitors, changes in the estimates or recommendations of
financial analysts regarding the Company and general market conditions may have
a material adverse effect on the market price of the Common Stock.
THE PLAN OF WITHDRAWAL AND DISSOLUTION
Under the Plan, the Limited Partners are being given the opportunity to
choose between selling some or all of their investment for cash based upon a
value determined by the public markets in an orderly underwritten public
offering or continuing to hold some or all of their investment in the Company's
business by means of freely tradeable shares of Common Stock following the
Distribution. If a Limited Partner elects the Withdrawal with respect to some or
all of his or her limited partner interest, the Shares underlying such interest
will be distributed to such Limited Partner and must be included in the
Underwritten Sale that the Company will attempt to consummate within one hundred
eighty (180) days after the approval of the Plan. If the Underwritten Sale is
consummated, the Shares included will be promptly sold and the Limited Partner
will receive cash in exchange therefor. If the Underwritten Sale is not
consummated or is consummated in part, the remaining Shares will be distributed
to the Limited Partner. If a Limited Partner elects to retain an investment in
the Company, such Limited Partner will receive Shares over time through an
orderly distribution pursuant to the Dissolution. A Limited Partner may elect
Withdrawal with respect to a specified portion of his interest and to receive
Shares in the Dissolution with respect to the remainder.
This Proxy Statement/Prospectus is being furnished to Limited Partners:
- as a Proxy Statement in connection with the solicitation of Proxies by
the General Partner for use at a special meeting of Limited Partners
called for the purpose of adopting the Plan, and the amendments to the
Partnership Agreement that are a part thereof;
- as a Prospectus in connection with the distribution of the Withdrawn
Shares to Limited Partners in connection with the Withdrawal; and
- as a Prospectus in connection with the distribution of the Remaining
Shares to Limited Partners in connection with the Dissolution.
The following portion of this Proxy Statement/Prospectus provides a more
detailed discussion of the Plan. This Proxy Statement/Prospectus does not
constitute an offer of Shares to any persons other than Limited Partners, and
the offer and sale of the Withdrawn Shares in the Underwritten Sale shall be
made only pursuant to a separate registration statement and prospectus to be
filed with the Commission by the Company in connection therewith.
BACKGROUND OF THE PLAN
The Partnership is a Delaware limited partnership that was organized in
1986 for the purpose of acquiring the Company. At the time, an aggregate of 800
Units were issued for aggregate capital contributions of approximately $78.4
million, which was used to fund a portion of the Company's purchase price. The
Partnership owns no assets other than Common Stock of the Company. The
Partnership's only liability consists of a note payable to the Company for costs
incurred by the Company on the Partnership's behalf relating to the development
of earlier restructuring proposals that were not carried through. Since its
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acquisition, the Company has been highly leveraged and all cash remaining after
payment of debt service and operating costs has been reinvested in the Company's
business. Consequently, the Company has not paid a dividend or made any
distributions since its acquisition by the Partnership and, consequently, the
Partnership has never made a cash distribution to its partners.
In 1993, the General Partner began to explore ways in which Limited
Partners might begin to realize a return on their investment in the Partnership.
The General Partner discussed with several financial advisors the feasibility of
a sale of the Common Stock, the distribution of Common Stock to Limited Partners
and a sale of the entire Company to another company engaged in the same or a
similar industry as the Company. In February and August 1993, representatives of
the General Partner met with representatives of Merrill Lynch & Company to
discuss and evaluate several alternatives for the Partnership, including
maintaining the partnership structure, converting to corporate form possibly
combined with an underwritten public offering of secondary and/or primary shares
of Common Stock with a lock-up on the remaining shares, and a sale of the
Company to a third party. The General Partner was not satisfied with the
alternatives presented by Merrill Lynch, as well as its unwillingness to
underwrite a public offering and its lack of interest in providing an analyst to
follow the Company's stock, so discussions were terminated. In September and
October of 1993, representatives of the General Partner met with representatives
of Prudential Securities to discuss and evaluate similar alternatives, in
particular a liquidating distribution of Shares to the Limited Partners coupled
with a concurrent public offering of Common Stock. In October 1993,
representatives of the General Partner also met with representatives of Wheat
First Butcher & Singer to discuss various restructuring options involving a
combination of the Partnership and the Company with either a simultaneous public
offering of Common Stock, a subsequent public offering or a subsequent public
offering and a later distribution to Limited Partners of securities convertible
into Common Stock. The General Partner determined that the terms and
contingencies to which these alternatives were subject made them unattractive.
In addition, the General Partner learned from all of the foregoing alternatives
that the Company's results of operations during this period, the Company's high
leverage and the particular stage in the Company's development and its growth
prospects were not conducive to a realization by the Partnership of any
significant return from a sale of the Company or a public offering of the Common
Stock. In addition, the General Partner was advised by each of the financial
institutions named that a distribution of Common Stock held by the Partnership
to Limited Partners would most likely result in a significant devaluation of the
Common Stock due to an intense selling pressure that would result from a large
number of Limited Partners attempting to sell an investment that had been
illiquid for so many years. In January 1994, representatives of Bank of Boston
met with representatives of the General Partner to discuss a buyout of the
Limited Partners. Discussions were terminated, however, because the General
Partner believed that the discounted purchase price for the partnership units
would be unfair to the existing Limited Partners.
During these same years, the Company was exploring ways to raise capital to
expand its business and reduce its leverage. In mid-1996, the Company began to
consider a primary offering of Common Stock as a means of raising capital.
Consideration of such a sale was prompted by the strength of the stock markets
at the time, as well as an improved outlook for the Company's results of
operations in that year. The Company on July 31, 1996 retained Bear, Stearns &
Co. Inc. ("Bear Stearns") to advise it on such a sale, and the Company and the
General Partner thereafter commenced discussions with Bear Stearns regarding a
possible combined offering of the Common Stock held by the Partnership and
Common Stock newly issued by the Company. During the middle of 1996,
representatives of the Company and the Partnership had several meetings with
representatives of Bear Stearns during which they discussed the proposed
offering and the documents to be used in connection therewith. On August 1,
1996, the Company filed a registration statement with the Commission pursuant to
which the Partnership would offer all of its 5,781,250 shares of Common Stock
and the Company would sell an additional 1,718,750 shares of newly issued Common
Stock. In accordance with the terms of the Partnership Agreement, on August 2,
1996, the General Partner sent a notice to the Limited Partners informing them
of its proposal to sell in the offering all of the Common Stock owned by the
Partnership. In response to such notice, a number of Limited Partners and a law
firm purporting to act on behalf of more than 10% of the Limited Partners
indicated to the General Partner opposition to a sale of the Partnership's
interest in the Company. Thereafter, the General Partner determined that the
Partnership would not sell any of its Common Stock. This decision was based on a
determination that without
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a vote of the Limited Partners, the General Partner could not offer Limited
Partners a right to receive their underlying portion of the Common Stock rather
than cash from a public sale. Moreover, the holding of a meeting of the Limited
Partners to approve such a transaction would result in substantial delay that
would place the Company's offering at risk, which could ultimately be adverse to
the Partnership's investment. On September 13, 1996, the Company amended its
registration statement to provide only for the sale by the Company of 3,400,000
newly-issued shares and the General Partner determined that it would
subsequently propose a choice to Limited Partners after the newly priced Common
Stock had established a market. The initial public offering of 2,875,000 shares
was consummated on November 1, 1996 and resulted in approximately $34 million of
new equity capital being infused into the Company. In connection with
consummation of the offering, the Company entered into a registration rights
agreement with the Partnership granting the Partnership, among other things, the
right to require the Company to register under the Securities Act, all of the
Common Stock owned by the Partnership.
On February 18, 1997, the General Partner sent a letter to Limited Partners
informing them of the Company's recent public offering and telling them that in
1997 the General Partner would explore alternatives for providing Limited
Partners liquidity for their investment in the Partnership. During the next
several months, the General Partner and the Company met on several occasions
with their financial and legal advisors to discuss the prospects of offering
Limited Partners during 1997 an opportunity to sell shares of Common Stock
underlying their investment in the Partnership or, alternatively, to receive
such shares of Common Stock in a distribution. As a result of these discussions,
the General Partner determined, subject to the continued existence of strong
equity markets and the improved performance of the Company, that the Partnership
should develop a plan for Limited Partners under which each Limited Partner
would be given an option to convert such Limited Partner's investment into cash
by withdrawing from the Partnership and participating in a public sale of Common
Stock, and, to the extent such option was not chosen by a Limited Partner, such
Limited Partner would receive through an orderly dissolution process over a
defined period of time the shares of Common Stock underlying such Limited
Partner's limited partner interest. On March 21, 1997, the General Partner
notified the Limited Partners that it had determined to develop such a plan and
that Limited Partners would be accorded their right under the Partnership
Agreement to vote on such plan as soon the General Partner's work thereon was
complete and all of the necessary and appropriate documents were filed and
reviewed by the Commission. During the remainder of March, April and early May,
the General Partner continued to work on the Plan. During this period, General
Partner held two meetings with representatives of Bear Stearns to discuss its
various components, including the optimal timing of the liquidating
distributions and the potential effects they would have on the market for the
Common Stock. The General Partner consulted with Bear Stearns because the
General Partner believes that Bear Stearns is particularly knowledgeable about
the Company's securities having been the lead underwriter of the Company's
initial public offering of Common Stock and the initial purchaser of the
Company's 9 1/4% Senior Subordinated Notes due 2007. Bear Stearns was not,
however, officially retained by either the Company or the Partnership and
received no compensation for its advice.
On June 6, 1997, the General Partner reviewed the terms and conditions it
had developed for a Plan of Withdrawal and Dissolution. On a preliminary basis
the General Partner approved the Plan and made a preliminary judgment that the
Plan was in the best interests of the Limited Partners. The factors considered
by the General Partner included, among other things, that (i) the Plan would
offer desirable investment options for all Limited Partners, (ii) for Limited
Partners who would want to liquidate their investment immediately, the Plan
would offer an opportunity to sell for cash the Common Stock underlying their
investment at a current market value within 180 days after approval of the Plan,
(iii) the sale of shares of Common Stock necessary to provide cash for
Withdrawal Election Partners would be raised through an orderly sales process
designed to optimize the price received for the Common Stock and minimize any
disruption of the markets for Limited Partners who chose to continue to hold
their interests, (iv) for Limited Partners who would wish to retain the
investment they hold in the Company, the Plan, upon the commencement of the
Distribution, would provide them with increased liquidity for their investment,
as well as the ability to determine the value of their investment based upon the
public market price of the Common Stock underlying their Units and (v) the Plan
would result in the elimination of the cost and inefficiency of
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maintaining a partnership entity for which there is no business purpose or
benefit. The General Partner then met with the Board of Directors of the Company
and the Company and the General Partner thereafter agreed to go forward with the
filing of this Proxy Statement/Prospectus and the preparation of the
registration statement under which the Underwritten Sale would be made. In
addition, the General Partner determined to engage Patricof to advise the
Partnership with respect to the Plan and to render an opinion as to the fairness
of the Plan, from a procedural point of view, to the Limited Partners. On July
22, 1997, the General Partner met with a representative of Patricof, and
discussed the proposed contents of the fairness opinion, including the
procedures used and assumptions made by Patricof. On August 7, 1997, the
partners of Synthetic Management G.P., the general partner of the General
Partner, met to discuss approval of the Plan. After such discussion, it was
determined that the General Partner would approve the Plan, including
elimination of the General Partner's increased allocation of profits in the
event the Priority Return occurs. Such approval, however, was conditioned upon
(i) receipt of a fairness opinion from Patricof in a form and substance
satisfactory to the General Partner and (ii) the closing bid price of the Common
Stock not being greater than $30 per share at the time of mailing of the proxy
statement relating to approval of the Plan.
FAIRNESS OPINION
On , 1997, Patricof, the Partnership's financial advisor,
delivered to the Partnership its written opinion to the effect that, as of the
date of such opinion and based upon and subject to certain matters stated
therein, the implementation of the Plan is fair, from a procedural point of
view, to the Limited Partners. As Limited Partners will be receiving only an
allocation of the Shares held by the Partnership based upon their ownership
percentage of their respective limited partner interests, determined in
accordance with the terms of the Partnership Agreement, the fairness opinion
does not address the fairness of the transaction from a financial point of view.
The General Partner is not receiving any compensation in connection with the
Plan and none of the Shares will be allocated disproportionately to the General
Partner. The full text of the written opinion of Patricof, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as Annex C to this Proxy Statement/Prospectus and is incorporated
herein by reference. Limited Partners are urged to read this opinion carefully
in its entirety.
In rendering its opinion, Patricof reviewed and analyzed the information it
considered relevant, including (i) recent Company filings with the Commission,
(ii) recent Company press releases and other publicly available information with
respect to the Company, (iii) the Partnership's letters to the Limited Partners
dated February 18, 1997 and March 21, 1997, (iv) recent filings with the
Commission by other public companies with respect to relevant transactions and
(v) drafts of the Company's registration statement on Form S-4 (File. No.
333-28817) of which this Proxy Statement/Prospectus forms a part, the Plan, the
form of Proxy, the Withdrawal Election Agreement, the proposed amendment to the
Partnership Agreement and the Withdrawal Agent Agreement. Patricof also had
discussions with various officers of the Company, including the Chief Executive
Officer, the Chief Operating Officer and General Counsel and the Chief Financial
Officer, an outside director, a representative of the probable Managing
Underwriter and lawyers from the firm of King & Spalding, which represents the
Company in connection with the Plan. The factors Patricof considered in arriving
at its conclusion included (i) the Plan's purposes and proposed benefits,
whether more desirable alternatives might have been available and the
reasonableness of the Plan in light of the foreseeable risks and rewards, (ii)
the holding periods incident to the Underwritten Sale and the Distribution,
(iii) the reasonableness of all costs to be borne by the Partnership and the
Limited Partners associated with the implementation of the Plan, (iv)
assumptions made by Company management concerning the Company and its business
environment affecting the timing of the Plan, (v) the absence of independent
financial and other representatives of the Limited Partners, (vi) the conditions
to the Plan, including the affirmative vote of a majority in interest of the
Limited Partners, (vii) the conditions to the Underwritten Sale, (viii) the
reasonableness of the criteria to be used by the Pricing Committee and (ix)
procedural elements, such as (A) the mechanism for establishing the allocation
of proceeds from the Dissolution, (B) proration provisions if the Underwritten
Sale is completed only in part, (C) acceleration provisions with respect to the
Distribution, (D) the reasonableness of the Withdrawal Election procedures, (E)
termination provisions and (F) the role of the General Partner with respect to
the validity of the proxies and the Withdrawal Election. In rendering its
opinion, Patricof (i) relied on, and assumed without independent verification,
the accuracy and
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completeness of all information provided to it by the Company, its officers and
directors, counsel to the Company, and by the representative of the probable
Managing Underwriter, (ii) assumed that the information supplied to it
represented good faith efforts by such parties to respond fully to Patricof's
inquiries, (iii) assumed that the final version of all documents will be
substantially similar in form and substance as the drafts submitted to it, (iv)
did not, and will not, undertake any independent appraisal of the Company's
assets or liabilities, (v) expresses no opinion as to any tax consequences
associated with the Plan and (vi) expresses no opinion as to the fairness, from
a financial point of view, of the price to be received by the Withdrawal
Election Partners in the Underwritten Sale.
Patricof was retained by the Partnership to perform such duties as are
customarily performed by financial advisors in similar transactions including,
without limitation, the following: (i) in connection with the Special Meeting,
analyzing and reviewing procedures to be used in implementing the Plan; (ii) in
connection with the Underwritten Sale, analyzing and reviewing the
reasonableness of the marketing processes; (iii) assessing the reasonableness of
the costs allocated to the Partnership and to the Limited Partners; (iv)
responding to questions from the General Partner or its representatives
concerning the Plan; (v) rendering an opinion as to whether the implementation
of the Plan is fair, from a procedural point of view, to the Limited Partners
and (vi) subsequent to the rendering of the opinion, to continue assessing the
reasonableness of the marketing processes associated with the Underwritten Sale.
In accordance with the terms of its engagement, Patricof was not retained to (i)
undertake any independent appraisal of the Company's assets or liabilities, (ii)
render an opinion with respect to the tax consequences of the Plan or (iii)
render an opinion as to the fairness, from a financial point of view, of the
price to be received by the Withdrawal Election Partners in the Underwritten
Sale. The Partnership has paid Patricof a fee of $87,500, plus expenses, and
will pay an additional fee of $62,500 upon the Meeting Date or, if the Special
Meeting is held after September 15, 1997, $31,250 on September 15, 1997 and
$31,250 on the Meeting Date. The Company and the Partnership have also agreed to
indemnify Patricof against all losses, claims, damages, expenses or liabilities
resulting from, relating to, or arising out of action taken or omitted to be
taken by (i) the Company, the Partnership, the General Partner and any Limited
Partners or (ii) Patricof and its affiliates, counsel and other professional
advisors in good faith pursuant to the terms of, or in connection with services
rendered pursuant to the engagement agreement between Patricof and the
Partnership or any of the transactions covered thereby. The Company and the
Partnership have further agreed to reimburse Patricof for all reasonable
out-of-pocket expenses (including fees of counsel) incurred in connection with
investigating, preparing or defending any such action or claim. The Company and
the Partnership will not, however, indemnify Patricof with respect to losses,
claims, damages, expenses or liabilities which result from the willful
misconduct, gross negligence or bad faith of Patricof and its affiliates,
counsel and other professional advisors.
In connection with the Company's initial public offering of Common Stock
completed in November 1996, Patricof was engaged as financial advisor to the
Partnership and received a fee of $200,000 for its services. The funds required
to pay Patricof to date have been advanced by the Company to the Partnership and
are evidenced by a promissory note.
RECOMMENDATION OF THE GENERAL PARTNER; REASONS FOR AND CONSIDERATIONS REGARDING
THE PLAN
After several years of careful consideration and after listening to the
views of many Limited Partners regarding their individual investment objectives
under certain circumstances, the General Partner has determined that the best
interests of the Limited Partners would be served by providing them with the
option either to receive cash for their investment in the Partnership, based on
the current market value of the Common Stock, or to maintain an investment in
their share of the Company's business through direct ownership of Common Stock.
The first option is intended to allow Limited Partners to liquidate their
investment as soon as the Underwritten Sale can be completed. The second option
allows Limited Partners to continue to participate in the Company's growth by
holding upon the conclusion of the Dissolution the publicly traded Common Stock
rather than the illiquid interests in the Partnership.
21
<PAGE> 27
THE GENERAL PARTNER BELIEVES THAT THE PLAN IS FAIR AND REASONABLE TO, AND
IN THE BEST INTERESTS OF, THE LIMITED PARTNERS, AND RECOMMENDS THAT THE LIMITED
PARTNERS VOTE THEIR UNITS IN FAVOR OF THE PLAN FOR THE FOLLOWING REASONS:
- The Plan offers desirable investment options for all Limited Partners.
- For Limited Partners who want to liquidate their investment immediately,
the Plan offers an opportunity to sell for cash the Common Stock
underlying their investment at a current market value within 180 days
after approval of the Plan.
- The sale of shares of Common Stock necessary to provide cash for
Withdrawal Election Partners will be raised through an orderly sales
process designed to optimize the price received for the Common Stock and
minimize any disruption of the markets for Partners who choose to
continue to hold their interests.
- Following the Company's initial public offering in November 1996 and the
listing of the Common Stock on the Nasdaq National Market, a public
market for the Common Stock has been developing. As a result, the General
Partner believes that this is a suitable time to effect the
implementation of the Plan, because the Shares currently held by the
Partnership can now be distributed and sold as contemplated without
materially adversely affecting the market price for the Common Stock,
although there can be no assurance that such will be the case.
- For Limited Partners who wish to retain the investment they now hold in
the Company, the Plan, upon the commencement of the Distribution, will
provide them with increased liquidity for their investment, as well as
the ability to determine the value of their investment based upon the
public market price of the Common Stock underlying their Units as
described below under "-- Shares Allocable to Partners After Expenses."
- There is no business purpose or benefit to investors holding interests in
a partnership, the sole purpose and activity of which is to hold publicly
traded shares of a single corporation. The Plan will result in the
elimination of the cost and inefficiency of maintaining such a
partnership entity and the simplification of tax reporting for all
Limited Partners.
In addition, the General Partner believes that the Plan is procedurally
fair, because (i) the General Partner retained a financial advisor to render an
opinion as to whether the Plan was fair from a procedural point of view to the
Limited Partners, and Patricof, the advisor so retained, rendered such an
opinion; (ii) the Plan is subject to the favorable vote of the majority in
interest of the Limited Partners; (iii) the Plan offers to Limited Partners the
choice of converting their investment into cash or retaining shares of Common
Stock; and (iv) the General Partner has considered and discussed with its
financial advisors possible alternatives to the Plan, which alternatives were
not believed to be as favorable as the Plan.
In reaching its conclusion that the Plan is fair and reasonable to, and in
the best interests of the Limited Partners, the General Partner weighed the
benefits set forth above against certain risks and costs to Limited Partners
associated with the Plan. See "Risk Factors." The risks include the following:
- For the Withdrawing Partners, a failure by the Company and the
underwriters to consummate the Underwritten Sale and a corresponding
decline in the market price of the Common Stock thereafter.
- For the Remaining Partners, a drop in the market price of the Common
Stock during the length of time that must pass before the Dissolution is
completed.
- The costs to be born by the Partnership that are associated with Plan,
which are estimated to be approximately $ , are more
substantial than would be the costs associated with a simple dissolution
of the Partnership, due primarily to the investment options being
offered.
The General Partner has determined, however, that these risks and costs, when
weighed against the benefits and options being made available to Limited
Partners, are warranted. In making such determination, the
22
<PAGE> 28
General Partner has assumed that the economy and the stock markets will
generally continue to be relatively strong and that the future business
prospects of the Company will generally be consistent with recent results.
However, there can be no assurance that these assumptions will prove to be
accurate.
THE WITHDRAWAL ELECTION
Each Limited Partner may at any time up to the vote at the Special Meeting
make a Withdrawal Election. Such Withdrawal Election becomes irrevocable at the
time of the adoption of the Plan at the Special Meeting and effective on the
Withdrawal Date. The Withdrawal Election Partners will receive cash for their
Withdrawn Shares that are sold promptly after the completion of the Underwritten
Sale. The Company has agreed to use its best efforts to facilitate the
completion of the Underwritten Sale as promptly as possible, and no later than
one hundred eighty (180) days following the date on which the Plan is approved,
although the Underwritten Sale is subject to market and other conditions and
there can be no assurance that it will be completed as planned. If the
Underwritten Sale has not been consummated by the Underwritten Sale Expiration
Date, the Withdrawn Shares will be delivered by the Withdrawal Agent to the
Withdrawal Election Partners.
To elect to become a Withdrawal Election Partner, a Limited Partner must
vote all of such Limited Partner's Units in favor of the Plan and properly
complete and execute the Withdrawal Election Agreement included with this Proxy
Statement/Prospectus. A Limited Partner may make the Withdrawal Election with
respect to the shares of Common Stock underlying all or a specified portion of
such Limited Partner's Units. All Units (or fractions thereof) included in a
Withdrawal Election will be redeemed as of such date. All Withdrawn Shares must
be included in the Underwritten Sale. On the Withdrawal Date, the Partnership
will distribute the Withdrawn Shares on behalf of the Withdrawal Election
Partners to the Withdrawal Agent, which will be appointed by the Withdrawal
Election Partners in the Withdrawal Election Agreement. The Withdrawal Agent, on
behalf of the Withdrawal Election Partners, will deliver the Withdrawn Shares to
the underwriters at the closing of the Underwritten Sale, and deliver the
payment therefor to the Withdrawal Election Partners. Neither the Withdrawal
Election nor the Underwritten Sale will occur if the Plan is not approved by the
Limited Partners. The General Partner must participate in the Withdrawal with
respect to its general partner interest pro rata with the Withdrawal Election
Partners, but is not permitted to participate in the Underwritten Sale.
In order to effect the Withdrawal, the Plan provides for a proposed
amendment to the Partnership Agreement, which amendment must be approved by a
majority in interest of the Limited Partners. A vote in favor of the Plan will
also constitute approval of the amendment. The proposed amendment is attached as
Exhibit A to the Plan. See "-- Amendment of the Partnership Agreement" below.
Limited Partners who abstain or do not vote may not make a valid Withdrawal
Election. Based upon communications that the General Partner has had with
various Limited Partners, the General Partner believes that any Limited Partner
who wants to participate in the Underwritten Sale would be in favor of the Plan.
In order for the Underwritten Sale to take place, the Plan must be approved by a
majority in interest of the Limited Partners. The General Partner wants to
ensure that Limited Partners who demonstrate their desire to participate in the
Underwritten Sale have every opportunity to do so. Abstaining or not voting is,
in effect, a vote "against" the Plan. Therefore, the General Partner wants
Limited Partners who wish to elect Withdrawal to affirmatively indicate their
approval of the Plan in order to have every chance of reaching the requisite
majority approval. In addition, since the Limited Partners have no appraisal
rights in respect of their Units under Delaware law or the terms of the
Partnership Agreement, there is no need to vote against the Plan or abstain in
order to be entitled to any such rights. See "Summary Comparison of Rights of
Units and Common Stock -- Appraisal Rights."
THE UNDERWRITTEN SALE
Withdrawal Election Partners must include all Withdrawn Shares in the
Underwritten Sale. The Company, pursuant to the Plan, will file on or before the
Withdrawal Date a Registration Statement with respect to the Underwritten Sale
which will be managed by the Managing Underwriter. Marketing of the
23
<PAGE> 29
Withdrawn Shares is expected to commence as promptly as reasonably possible
after the Withdrawal Date. The price at which the Withdrawn Shares will be sold
in the Underwritten Sale will be determined by the Pricing Committee that will
consist of Leonard Chill, who is both an officer and director of the Company and
a representative of the General Partner, and William J. Shortt and Robert L.
Voigt, both of whom are outside directors of the Company. The Pricing Committee
will use its best efforts to obtain the best possible price for the Withdrawn
Shares being sold, taking into account the recommendation of the Managing
Underwriter, as well as recent market prices for the Common Stock, discounts
from market price normally encountered in comparable underwritten secondary
offerings, information from the Managing Underwriter regarding the recent demand
for the Common Stock, general market conditions and any other factors the
Pricing Committee deems appropriate. The Pricing Committee will have the sole
authority to set the price for the Withdrawn Shares and will have the authority
not to proceed with the Underwritten Sale if the underwriters are unable to
consummate the Underwritten Sale at a public offering price that the Pricing
Committee believes, in its discretion, is reasonable, taking into account the
aforementioned factors. See "Risk Factors -- Risk as to Price of Common Stock in
Underwritten Sale or Distribution." The following graph sets forth for the dates
indicated the closing bid prices per share of Common Stock as reported on the
Nasdaq National Market:
LOGO
The net proceeds from the sale of the Withdrawn Shares, after deduction of
underwriting discounts and commissions, will be delivered to the Withdrawal
Election Partners by the Withdrawal Agent promptly after the completion of the
Underwritten Sale. If the Underwritten Sale has, for any reason, not been
consummated before the Underwritten Sale Expiration Date, the Withdrawal Agent
will immediately thereafter deliver the Withdrawn Shares to the Withdrawal
Election Partners.
If (i) the Managing Underwriter determines or advises the Pricing Committee
that not all of the Withdrawn Shares can be sold in the Underwritten Sale or
(ii) the Pricing Committee determines that not all of the Withdrawn Shares can
be included in the Underwritten Sale at what it deems to be a reasonable price,
then the number of Withdrawn Shares to be included in the Underwritten Sale for
each Withdrawal Election Partner shall be reduced pro rata with every other
Withdrawal Election Partner in the same proportion as the number of such
Withdrawal Election Partner's Withdrawn Shares bears to the total number of
Withdrawn Shares. The Withdrawn Shares that are not sold in the Underwritten
Sale will be delivered to the Withdrawal Election Partners one hundred eighty
(180) days after the completion of the Underwritten Sale. For example, if a
Withdrawal Election Partner has 10,000 Withdrawn Shares to be included in the
Underwritten Sale and a
24
<PAGE> 30
total of 2,000,000 Withdrawn Shares are proposed to be sold, but it is
determined that only 1,000,000 Withdrawn Shares can be sold, then 5,000 of such
Withdrawal Election Partner's Withdrawn Shares will be sold in the Underwritten
Sale and the balance of 5,000 Withdrawn Shares will be delivered one hundred
eighty (180) days later.
Neither the Managing Underwriter nor any other underwriter for the
Underwritten Sale is otherwise participating in the Plan and no such underwriter
has been requested or retained to express any opinion as to the fairness of the
Plan or related transactions to any party, or as to whether any Limited Partner
should vote for or against the Plan. The prospective participation of any
underwriter in the Underwritten Sale is not, and should not be construed as, a
solicitation, recommendation or request to any person to approve or disapprove
the Plan. The completion of the Underwritten Sale is subject to a number of
factors, including general market and economic conditions, and there can be no
assurance that the Underwritten Sale will be consummated or consummated at any
particular price.
THE DISSOLUTION AND DISTRIBUTION
The Plan provides for the Dissolution by the orderly distribution over time
of the Remaining Shares after (i) the completion of the Withdrawal and (ii) the
satisfaction of any remaining liabilities and expenses of the Partnership. See
"-- Expenses of the Plan" below. The Dissolution will be effected by one to
three distributions of the Remaining Shares to be made on the applicable
Distribution Dates. The number of Shares to be distributed on each of the First
and Second Distribution Dates will be equal to 25% of the Public Shares or, if
it is less, the total number of Remaining Shares. The balance of the Remaining
Shares, if any, will be distributed on the Third Distribution Date. The Public
Shares are equal to the total number of shares of Common Stock outstanding as of
each Distribution Date, less the Remaining Shares not yet distributed. The chart
that appears below illustrates four alternative circumstances under which the
distribution of Remaining Shares may occur pursuant to the Plan. As the chart
demonstrates, the size and number of the distributions of the Remaining Shares
is significantly affected by the number of Remaining Shares held by the
Partnership immediately after the Underwritten Sale:
<TABLE>
<CAPTION>
REMAINING SHARES
------------------------------------------------
1,731,250 2,500,000 3,500,000 4,500,000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Public Shares..................................... 6,862,500 6,093,750 5,093,750 4,093,750
First Distribution Date........................... 1,731,250 1,523,438 1,273,438 1,023,438
Second Distribution Date.......................... 0 976,563 1,591,797 1,279,297
Third Distribution Date........................... 0 0 634,766 2,197,266
</TABLE>
The time periods provided in the Plan were determined by the Partnership
and the Company based primarily upon the advice of its financial advisors as to
the shortest period possible to effect the Distribution without causing a
material adverse effect on the public market for the Common Stock due to the
possible influx into the public market of a large number of shares that were
previously held by the Partnership and not traded. The Company has agreed to use
all reasonable efforts to have in effect on each Distribution Date an effective
registration statement covering the distribution of the Remaining Shares, but
none of the distributions will occur unless or until such registration statement
becomes effective or an exemption to the Company's registration requirements
with respect to such distribution exists, in the Company's sole discretion.
Under certain conditions, the Company has the right under the Plan to require
the General Partner to accelerate the Dissolution and distribute in a single
distribution all the Remaining Shares then held by the Partnership.
SHARES ALLOCABLE TO PARTNERS AFTER EXPENSES
At the Effective Time, the Partnership will have Shares allocable
to Partners, after the transfer to the Company of Shares in payment of
all Partnership Expenses. See "-- Expenses of the Plan" below. Under the terms
of the Partnership Agreement as amended by the proposed Amendment, the Limited
Partners are entitled to 99% of such Shares, or approximately Shares.
Therefore, there will be
25
<PAGE> 31
approximately Shares underlying each Unit, Shares underlying
each 1/2 Unit and Shares underlying each 1/4 Unit. To determine the
underlying interest in dollars, multiply the per share price of the Common Stock
by the number of Shares per Unit, 1/2 Unit or 1/4 Unit, as the case may be. For
example, at a per share price of $ , the value of the partner interest per
Unit, 1/2 Unit and 1/4 Unit in dollars is $ , $ and
$ , respectively. At a price of $ per share (the closing bid
price on the date of this Proxy Statement/Prospectus), the Shares to be
distributed with respect to each Unit will have a value of approximately
$ (before deduction of any commissions or other charges a Limited
Partner may incur if he should choose to sell his Shares after he receives
them). There can be no assurance, however, that such a value can be obtained in
the Underwritten Sale or Distribution.
CONDITIONS TO THE PLAN AND THE UNDERWRITTEN SALE
The Plan will not be consummated unless the following conditions are
satisfied or, to the extent permitted by the Partnership Agreement or the
Agreement and Plan of Withdrawal and Dissolution, waived:
- Limited Partners holding a majority in interest of the outstanding Units
shall have approved the Plan at the Special Meeting;
- All necessary regulatory approvals shall have been obtained;
- No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Plan;
and
- All actions by or in respect of or filing with any governmental body,
agency, official or authority required to permit the consummation of the
Plan shall have occurred.
The Underwritten Sale will not be consummated unless the following
additional conditions are satisfied or (if permitted) waived:
- The Pricing Committee shall have determined that the underwriters have
obtained a reasonable price for the Withdrawn Shares to be sold, taking
into account, among other things, recent market prices for the Common
Stock, discounts from market price normally encountered in comparable
underwritten secondary offerings, information from the underwriters
regarding the recent demand for the Common Stock and general market
conditions.
- The conditions contained in the underwriting agreement to be executed in
connection with the Underwritten Sale shall have been satisfied or waived
by the underwriters. Such conditions are expected to be customary for
public offerings of equity securities and will include the conditions
that there be no material adverse change in the Company's financial
position and that there be no major disruption in the public securities
markets.
In addition, the Underwritten Sale is subject to general market and economic
conditions, and there can be no assurance that the Underwritten Sale will be
consummated.
The General Partner does not intend to waive any condition if the waiver of
such condition would have a material adverse effect on the rights and interests
of the Limited Partners.
TERMINATION OF THE PLAN AND THE UNDERWRITTEN SALE
Notwithstanding the foregoing, even if the foregoing conditions are
satisfied, at any time prior to the Withdrawal, the Plan may be terminated by
the General Partner in its sole and absolute discretion in the event of adverse
legislative developments or in the event the General Partner in the exercise of
its fiduciary duties determines that consummation of the Plan otherwise is no
longer in the best interests of the Partners, or by the Board of Directors of
the Company in the event the Board of Directors in the exercise of its fiduciary
duties determines that consummation of the Plan otherwise is no longer in the
best interests of the Company.
26
<PAGE> 32
AMENDMENT OF THE PARTNERSHIP AGREEMENT
In order to effect certain elements of the Plan, the Plan provides for an
amendment to the Partnership Agreement, which is attached as Exhibit A to the
Plan. In accordance with the Partnership Agreement, such an amendment must be
approved by a majority in interest of the Limited Partners. A vote "FOR" the
Plan is deemed to be approval by a Limited Partner of the proposed amendment
("Amendment") to the Partnership Agreement. Set forth below is a summary of the
Amendment. The Amendment shall be immediately effective with respect to the
Partnership upon the approval pursuant to the Plan by at least a majority in
interest of the Limited Partners. Except as otherwise provided in the Amendment,
the Partnership Agreement shall remain in full force and effect without any
other amendment, modification or alteration.
The Amendment will provide for the Withdrawal, Distribution and Dissolution
pursuant to the terms of the Plan. The Amendment will also eliminate any
restrictions in the Partnership Agreement which would prohibit, limit or prevent
(i) the Withdrawal by a Partner of all or a specified portion of his or her
partner interest pursuant to and in accordance with the terms of the Plan, (ii)
the Distribution of the Partnership's assets as provided in the Plan or (iii)
the Withdrawal or Distribution from being effective on the date or dates or in
the manner contemplated by the Plan. No consent of the Partnership or any
Partner, opinion of counsel for any party or other procedure would be required
in order to enable any Partner or the Partnership to effect the Withdrawal or
Distribution.
The Amendment also provides for certain amendments to the provisions of the
Partnership Agreement relating to distributions and profit and loss allocations.
The Partnership Agreement currently provides that upon the liquidation and
termination of the Partnership, after the Priority Return is reached, the
General Partner is entitled to 100% of the profits of the Partnership until the
ratio of the aggregate capital accounts of all Partners reaches 30% for the
General Partner and 70% for the Limited Partners. Therefore, the General Partner
is entitled to 30% of all profits of the Partnership. The Amendment would
eliminate this allocation and, regardless of whether the Priority Return is
deemed to have occurred, the General Partner would only be entitled to a 1%
allocation of profits and losses as of the Withdrawal Date. The Limited Partners
would be entitled to the other 99% allocation. For a discussion of the General
Partner's elimination of the possibility of its right to receive an increased
allocation of profits upon the occurrence of the Priority Return, see "--
Background of the Plan." Limited Partners other than the Withdrawal Election
Partners (to the extent of their withdrawn interests) would be subject to
additional allocations of profits and losses in proportion to their capital
accounts until their Partnership interests are completely liquidated in
accordance with the Plan.
The foregoing summary does not purport to be complete and is qualified in
its entirety by reference to the Amendment, which is attached as Exhibit A to
the Plan which is attached as Annex A to this Proxy Statement/Prospectus.
27
<PAGE> 33
EXPENSES OF THE PLAN
The following table sets forth the material expenses incurred or estimated
to be incurred by the General Partner, the Partnership and the Company in
connection with the Plan (exclusive of costs incurred in connection with the
Underwritten Sale, including the fees of the underwriters in connection
therewith):
<TABLE>
<CAPTION>
AMOUNT INCURRED
OR ESTIMATED TO
BE INCURRED
---------------
<S> <C>
SEC Registration Fees................................................. $
Solicitation and Mailing Expenses.....................................
Solicitation Agent Fee................................................
Accounting Fees and Expenses..........................................
Legal Fees and Expenses...............................................
Withdrawal Agent Fees and Expenses....................................
Fairness Opinion Fees and Expenses....................................
[Blue Sky Qualification Fees and Expenses]............................
Printing and Engraving................................................
Promissory Note payable to the Company for expenses previously
advanced............................................................
Miscellaneous.........................................................
---------------
Total....................................................... $
============
</TABLE>
The General Partner will not receive any compensation with respect to the
Plan.
Partnership Expenses
The Company has agreed (except as provided below) to advance to the
Partnership all of the Partnership Expenses. On the Effective Date, the
Partnership, in satisfaction of all Partnership Expenses theretofore incurred or
thereafter to be incurred by the Company in connection with the Plan, shall
deliver to the Company Shares. In the event that at the time of the
final Distribution of Shares, the aggregate Partnership Expenses incurred is
less than $ , then the Company will issue to the Partnership a number
of shares of Common Stock determined by dividing the difference between
$ and the actual amount of Partnership Expenses incurred by the
average of the closing bid prices of the Common Stock on the NNM for the ten
trading days prior to the date of the final Distribution. The Shares so issued,
if any, shall be distributed in such final Distribution. In the event that at
the time of the final Distribution of Shares, the aggregate Partnership Expenses
incurred is greater than $ , the Company shall not be entitled to any
reimbursement of the difference between $ and the actual amount of
Partnership Expenses incurred. If the Plan is not approved, the Partnership
shall execute a promissory note in favor of the Company for the Partnership
Expenses advanced by and owed to the Company. Such promissory note shall bear
interest equal to the Company's cost of funds under its revolving credit
facility ( % on July 1, 1997) and shall be due and payable immediately upon
the earliest of (a) any sale of Shares for cash that results in the Partnership
holding less than 95% of the Shares that it holds on the date hereof, (b) the
acquisition or exchange for cash or securities of more than 25% of the Shares by
a third party or (c) the dissolution of the Partnership.
Expenses of the Underwritten Sale
Each of the Withdrawal Election Partners and, if the underwriters'
overallotment option is exercised, the Company shall bear the underwriters'
discounts and commissions attributable to the Withdrawn Shares sold by it in the
Underwritten Sale. The Company shall bear the following costs and expenses
associated with the Underwritten Sale: Commission registration and filing fees,
fees with respect to filings required to be made with the National Association
of Securities Dealers, Inc., printing expenses, fees and disbursements of
counsel for the Company and of all independent certified public accountants of
the Company (including the expenses of any special audit and "cold comfort"
letters required by or incident to the Underwritten Sale) and
28
<PAGE> 34
the fees and expenses incurred in connection with the listing of the Withdrawn
Shares to be registered on the NNM. All other expenses of the Partnership, if
any, incurred in connection with the Underwritten Sale, including all fees and
expenses of the Partnership's auditors, consultants, advisors, attorneys,
special experts and other professionals, all fees, discounts, commissions and
other consideration paid or incurred by or for any of the Withdrawal Election
Partners and all relevant taxes, including transfer taxes, will be borne by the
Partnership and are included in the Partnership Expenses described above.
Underwriting discounts and commissions in connection with the Underwritten Sale
will be allocated on a pro rata basis among the Withdrawal Election Partners
and, if applicable, the Company, in accordance with the number of Shares sold on
behalf of each Withdrawal Election Partner and the Company, as the case may be.
THE SOLICITATION OF PROXIES FROM LIMITED PARTNERS
The Limited Partners are being asked to approve the Plan on the terms and
subject to the conditions set forth in the Agreement and Plan of Withdrawal and
Dissolution, which is attached to this Proxy Statement/Prospectus as Annex A and
is incorporated herein by reference. Such approvals will require the affirmative
vote of Limited Partners holding a majority in interest of the outstanding
Units. As of the date of this Proxy Statement/Prospectus, there were 800 Units
outstanding, which are held by approximately 1,850 Limited Partners. See "Proxy
and Withdrawal Election Procedures."
Even if sufficient proxies approving the Plan have been obtained from the
Limited Partners, the Plan will not be consummated unless all other conditions
thereto have been satisfied or (if permitted) waived. In addition, the General
Partner may determine not to complete the Plan, even if such conditions are
satisfied, if, among other things, there are adverse legislative developments or
the General Partner determines at that time that the Plan is not in the best
interests of the Partners.
THE GENERAL PARTNER RECOMMENDS THAT LIMITED PARTNERS VOTE TO APPROVE THE
PLAN. THE PRINCIPAL REASONS FOR THIS RECOMMENDATION ARE DESCRIBED UNDER
"-- RECOMMENDATION OF THE GENERAL PARTNER; REASONS FOR AND CONSIDERATIONS
REGARDING THE PLAN" ABOVE.
MARKET PRICES FOR UNITS
The Units are not listed on any national securities exchange or quoted on
the Nasdaq System or Nasdaq National Market, and there is no established trading
market for the Units. Assignments of the Units have been extremely limited and
sporadic. The Partnership Agreement does not permit the assignment of Units by
the Limited Partners without the General Partner's consent.
29
<PAGE> 35
PROXY AND WITHDRAWAL ELECTION PROCEDURES
SOLICITATION OF PROXIES; SUBMISSION/WITHDRAWAL ELECTIONS; EXPENSES
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of Proxies by the General Partner of the Partnership for the
approval of the Plan. This Proxy Statement/Prospectus, together with the
enclosed Proxy and Withdrawal Election Agreement, were first mailed to Limited
Partners on or about , 1997.
The Partnership will pay the cost of soliciting Proxies. Proxies,
Withdrawal Election Agreements and revocations will be considered received on
the stamped date of receipt at the offices of D.F. King & Co., Inc. (the
"Solicitation Agent"). The Solicitation Agent has been retained to assist the
General Partner in the solicitation of Proxies for a customary fee, which amount
is included in the estimate of costs of the Plan. See "The Plan of Withdrawal
and Dissolution -- Expenses of the Plan." The Partnership will also reimburse
custodians for their reasonable expenses for forwarding proxy material to
beneficial owners of Units.
RECORD DATE; PROXIES; SUBMISSION OF PROXY AND WITHDRAWAL ELECTION AGREEMENT
The General Partner has fixed the close of business on , 1997
as the Record Date for the determination of Limited Partners entitled to vote at
the Special Meeting. Only Limited Partners on the Record Date will be entitled
to vote at the Special Meeting. No matters other than approval of the Plan will
be voted on at the Special Meeting.
The Solicitation will expire at 5:00 p.m., New York City time, on
, 1997 (the "Solicitation Expiration Date"), unless extended by the
General Partner in its sole discretion, but will expire in any case on
, 1997. In order to be valid, a duly executed and properly completed
Proxy and Withdrawal Election Agreement must be received by the Solicitation
Agent on or before the Solicitation Expiration Date. The Solicitation Expiration
Date may be extended by the General Partner without notice to the Limited
Partners.
Proxies given by Limited Partners in the form accompanying this Proxy
Statement/Prospectus are revocable at any time prior to the Solicitation
Expiration Date by written notice to the Solicitation Agent, or by signing and
returning a later dated Proxy. Proxies may also be revoked by attending the
Special Meeting and voting in person.
Limited Partners are requested to vote by completing the enclosed Proxy and
Withdrawal Election Agreement and returning it signed and dated by mail,
overnight courier or hand delivery to the address(es) set forth below:
D.F. King & Co., Inc.
77 Water Street
20th Floor
New York, New York 10005
30
<PAGE> 36
DELIVERY OF THE PROXY AND WITHDRAWAL ELECTION AGREEMENT OR REVOCATION IS AT
THE RISK OF THE LIMITED PARTNER. TO ENSURE RECEIPT OF THE PROXY AND WITHDRAWAL
ELECTION AGREEMENT, OR REVOCATION, WHEN SENT BY MAIL, IT IS SUGGESTED THAT
LIMITED PARTNERS USE REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED.
LIMITED PARTNERS SHOULD NOT INCLUDE CERTIFICATES REPRESENTING UNITS WITH THEIR
PROXY AND WITHDRAWAL ELECTION AGREEMENT.
VOTING
The affirmative vote of the Limited Partners who hold a majority in
interest of the outstanding Units is required to approve the Plan. The failure
to return a Proxy or an abstention by a Limited Partner is equivalent to a vote
"AGAINST" the Plan. Therefore, each Limited Partner who desires to vote "FOR"
the Plan is urged to return a Proxy.
Each Limited Partner is entitled to vote such Limited Partner's interest in
the Partnership. Only Limited Partners of record on the Record Date are entitled
to vote. Limited Partners should indicate the manner in which they wish to vote
in the space provided on the Proxy. Proxies solicited by the General Partner
will be voted in accordance with the directions given on the Proxy. Where no
instructions are indicated, Proxies will be voted "FOR" the Plan.
WITHDRAWAL ELECTIONS
In order to make a valid Withdrawal Election to participate in the
Underwritten Sale pursuant to the Plan, a Limited Partner must vote all of such
Limited Partner's Units in favor of the Plan and properly complete and sign the
enclosed Withdrawal Election Agreement indicating on such Withdrawal Election
Agreement the percentage, 25%, 50%, 75% or 100%, of such Limited Partner's
Unit(s) of which the Shares underlying such Unit(s) such Limited Partner desires
to have included in the Underwritten Sale. An election may include a fraction of
a Unit only if the election pertains to the entire interest held by such Limited
Partner. The number of any Limited Partner's Shares to be included in the
Underwritten Sale will be rounded to the nearest whole number. No Withdrawal
Election shall have been validly made unless the Solicitation Agent shall have
received a properly completed and executed Withdrawal Election Agreement by 5:00
p.m., New York City time, on the Solicitation Expiration Date (the "Election
Deadline"). If, as of the Election Deadline, the Solicitation Agent shall not
have received such a Withdrawal Election Agreement from a Limited Partner, such
Limited Partner shall be deemed not to have made a Withdrawal Election with
respect to such Limited Partner's Units. Any Limited Partner who has made a
Withdrawal Election by submitting a Withdrawal Election Agreement to the
Solicitation Agent may at any time prior to the Election Deadline change or
revoke such Limited Partner's Withdrawal Election by submitting a revised
Withdrawal Election Agreement, properly completed and signed, that is received
by the Solicitation Agent prior to the Election Deadline, or by voting in person
at the Special Meeting.
The Withdrawal Election will be irrevocable upon the time of adoption of
the Plan at the Special Meeting. The Withdrawal Agent, on behalf of the
Withdrawal Election Partners, will deliver the Withdrawn Shares at the closing
of the Underwritten Sale and deliver payment therefor to the Withdrawal Election
Partners. If the Underwritten Sale is not consummated as provided herein, the
Withdrawn Shares (after deduction of certain expenses) shall be promptly
distributed by the Withdrawal Agent to the Withdrawal Election Partners. Any
payment or distribution of Shares shall be sent to the Withdrawal Election
Partners via first class mail at the addresses indicated on their Withdrawal
Election Agreements. No Withdrawal Election shall be effected if the Plan is not
approved by the Limited Partners and there can be no assurance that, if the Plan
is approved, the Underwritten Sale will be consummated. See "The Plan of
Withdrawal and Dissolution -- The Withdrawal Election."
SUMMARY OF WITHDRAWAL ELECTION AGREEMENT
Each Withdrawal Election Agreement includes (i) a Withdrawal Election, (ii)
an Appointment of Withdrawal Agent, (iii) a Power of Attorney and (iv) a Custody
Agreement. In the Withdrawal Election, each Withdrawal Election Partner may
indicate the specified percentage, 25%, 50%, 75% or 100%, of Units
31
<PAGE> 37
(or fraction thereof) of which the Shares underlying such Units (or fraction
thereof) such Withdrawal Election Partner desires to have included in the
Underwritten Sale. In the Appointment of Withdrawal Agent, each Withdrawal
Election Partner will appoint [United States Trust Company of New York ("U.S.
Trust")] as Withdrawal Agent, to act on behalf of such Withdrawal Election
Partner in connection with the Withdrawal, the Underwritten Sale and, if the
Underwritten Sale is not consummated or is consummated in part, the distribution
of Withdrawn Shares to such Withdrawal Election Partner.
The Power of Attorney will enable each Withdrawal Election Partner to
irrevocably appoint [U.S. Trust] as his or her true and lawful attorney-in-fact
with respect to all matters arising in connection with the sale of Common Stock
by such Withdrawal Election Partner in the Underwritten Sale or, if the
Underwritten Sale is not consummated, the delivery of Withdrawn Shares to such
Withdrawal Election Partner, and grant [U.S. Trust] the power and authority to
take certain actions including: (i) to sell and deliver to the several
Underwriters up to the number of shares of Common Stock as underlies the
percentage of Units (or fraction thereof) set forth in the Withdrawal Election;
(ii) to execute, deliver and perform the Underwriting Agreement, with full power
to make such amendments to the Underwriting Agreement as the Withdrawal Agent
may deem advisable; (iii) to give such orders and instructions to the Transfer
Agent as the Withdrawal Agent may determine with respect to certain specified
matters; (iv) on behalf of such Withdrawal Election Partner, to make the
representations and warranties contained in the Underwriting Agreement; (v) to
incur any necessary or appropriate expense in connection with the Underwritten
Sale as contemplated by the Plan; (vi) to approve on behalf of such Withdrawal
Election Partner any amendments to the registration statement to be filed in
connection with the Underwritten Sale or the prospectus which forms a part
thereof; (vii) to retain legal counsel to represent such Withdrawal Election
Partner in connection with any and all matters referred to herein; (viii) to
take such action on behalf of such Withdrawal Election Partner as may be
required by state securities laws; (ix) to sell, pursuant to the Underwriting
Agreement, a number of shares of Common Stock fewer than the shares of Common
Stock underlying the percentage of the Unit(s) (or fraction thereof) set forth
in the Withdrawal Election; and (x) to make, execute, acknowledge and deliver
such other documents, agreements and certificates and in general to do all
things and to take all actions as are necessary to consummate the Underwritten
Sale.
Pursuant to the Custody Agreement, the Withdrawal Agent, on behalf each
Withdrawal Election Partner, will receive the Withdrawn Shares from the
Partnership and hold such Shares in custody, deliver the Withdrawn Shares to the
underwriters at the closing of the Underwritten Sale and deliver payment
therefor to each Withdrawal Election Partner. The Withdrawal Agent shall also
return to such Withdrawal Election Partner new certificates representing the
number of shares of Common Stock of the Company, if any, which are in excess of
the number of Withdrawn Shares sold by such Withdrawal Election Partner in the
Underwritten Sale. If the Underwritten Sale has not been consummated prior to
the Underwritten Sale Expiration Date, the Withdrawal Agent will deliver to each
Withdrawal Election Partner the Withdrawn Shares deposited with it under the
Custody Agreement.
The Custody Agreement requires each Withdrawal Election Partner to
represent and warrant that: (i) upon approval of the Plan by the Limited
Partners and the Withdrawal, such Withdrawal Election Partner will be the lawful
owner of the Withdrawn Shares to be sold by such Withdrawal Election Partner
pursuant to the Underwriting Agreement and will have good and valid title to
such Withdrawn Shares; (ii) upon delivery of payment for such Withdrawn Shares,
good and valid title to such Withdrawn Shares will pass to the underwriters;
(iii) such Withdrawal Election Partner has, and on the Closing Date will have,
full legal right, power and authority to enter into the Underwriting Agreement
and to sell, assign, transfer and deliver such Withdrawn Shares in the manner
provided therein, and the Underwriting Agreement will be duly authorized,
executed and delivered by the Withdrawal Agent on behalf of such Withdrawal
Election Partner and the Underwriting Agreement will be a valid and binding
agreement of such Withdrawal Election Partner enforceable in accordance with its
terms; (iv) the Withdrawal Election Agreement signed by such Withdrawal Election
Partner appointing [U.S. Trust] as his or her attorney-in-fact to the extent set
forth therein has been duly authorized, executed and delivered by or on behalf
of such Withdrawal Election Partner and is a valid and binding instrument of
such Withdrawal Election Partner, enforceable in accordance with its terms and,
pursuant to the Withdrawal Election Agreement, such Withdrawal Election Partner
has authorized [U.S.
32
<PAGE> 38
Trust] to execute and deliver on his or her behalf the Underwriting Agreement
and any other document necessary or desirable in connection with transactions
contemplated thereby and to deliver the Withdrawn Shares to be sold by such
Withdrawal Election Partner pursuant to the Underwriting Agreement; (v) such
Withdrawal Election Partner will not take, directly or indirectly, any action
designed to, or which might reasonably be expected to, cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Withdrawn Shares pursuant to the distribution contemplated
by the Underwritten Sale, and other than as permitted by the Securities Act, the
Withdrawal Election Partner will not distribute any prospectus or other offering
material in connection with the Underwritten Sale; (vi) the execution, delivery
and performance of the Underwriting Agreement by such Withdrawal Election
Partner, compliance by such Withdrawal Election Partner with all the provisions
thereof and the consummation of the Underwritten Sale and, if the Underwritten
Sale is not consummated or is consummated in part, the distribution of Withdrawn
Shares to Withdrawal Election Partners will not require any consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body (except as such may be required under the
Securities Act or state securities or "Blue Sky" laws) and will not conflict
with or constitute a breach of any of the terms or provisions of, or a default
under, any agreement, indenture or other instrument to which such Withdrawal
Election Partner is a party or by which such Withdrawal Election Partner or
property of such Withdrawal Election Partner is bound, or violate or conflict
with any laws, administrative regulation or ruling or court decree applicable to
such Withdrawal Election Partner or property of such Withdrawal Election
Partner; (vii) such Withdrawal Election Partner is not a member, an affiliate of
a member or a person associated with a member of the National Association of
Securities Dealers, Inc.; and (viii) the information regarding such Withdrawal
Election Partner set forth in the Withdrawal Election Agreement does not, and
will not on the Closing Date (and any subsequent closing date with respect to
the underwriters' overallotment option, if applicable), contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of
circumstances under which they were made, not misleading.
The Withdrawal Election Agreement requires that each Withdrawal Election
Partner agree, if so requested in writing, to provide an opinion of counsel,
addressed to King & Spalding, counsel to the Company, setting forth such matters
as King & Spalding may reasonably request in rendering its legal opinion to the
underwriters pursuant to the Underwriting Agreement.
The Withdrawal Election Agreement requires that each Withdrawal Election
Partner agree to indemnify and hold the Withdrawal Agent harmless with respect
to anything done by it in good faith in accordance with the Withdrawal Election
Agreement.
Each Withdrawal Election Agreement will terminate immediately upon
completion of the Underwritten Sale or, if the Underwritten Sale is not
completed prior to the Underwritten Sale Expiration Date, then immediately
following the distribution of the Withdrawn Shares to the Withdrawal Election
Partners in accordance with the terms of the Plan.
Each Withdrawal Election Agreement delivered pursuant to any one of the
procedures described under the caption "Proxy and Withdrawal Election
Procedures" in the Proxy Statement/Prospectus and in the instructions thereto
will constitute a legal and binding agreement and power of attorney between the
Withdrawal Election Partner, the Partnership, the Company and the Withdrawal
Agent, as the case may be, upon the terms and subject to the conditions set
forth in the Proxy Statement/Prospectus and in the Withdrawal Election
Agreement.
The foregoing summary does not purport to be complete and is qualified in
its entirety by reference to the Withdrawal Election Agreement, a copy of which
is attached as Annex B hereto.
NO APPRAISAL OR REDEMPTION RIGHTS
Neither the Partnership Agreement nor Delaware law provides any right for
dissenting Limited Partners to have their Units appraised or redeemed as a
result of the Plan, and no such rights are included in the right of Limited
Partners to vote on the Plan.
33
<PAGE> 39
PARTNERSHIP UNITS AND PRINCIPAL HOLDERS THEREOF
As of the date of this Proxy Statement/Prospectus, there were 800
outstanding Units owned by approximately 1850 Limited Partners. As of the same
date, no person was known by the Partnership to own beneficially more than 5% of
the Units.
VALIDITY OF PROXIES AND WITHDRAWAL ELECTION AGREEMENTS
All questions as to the validity of Proxies and Withdrawal Election
Agreements received will be determined by the General Partner, and such
determination will be final and binding. Proxies will be deemed not to have been
made until any irregularities have been cured or waived. Any Proxy or Withdrawal
Election Agreement which, in the opinion of the General Partner, is not properly
completed and executed, and as to which irregularities are not cured or waived,
may be returned to the Limited Partner who submitted such Proxy or Withdrawal
Election Agreement.
34
<PAGE> 40
THE PARTNERSHIP
The Partnership is a Delaware limited partnership formed in 1986 for the
purpose of acquiring all of the capital stock of the Company. Since its
organization in 1986 the Partnership has conducted no business other than owning
and voting the Common Stock. The Partnership currently owns approximately 67%,
or 5,781,250 shares, of the issued and outstanding Common Stock.
The sole general partner of the Partnership is the General Partner. In
1993, Synthetic Management G.P. acquired the general partner interest in the
General Partner from a corporation owned by Integrated Resources, Inc. Synthetic
Management G.P. is a Georgia general partnership whose five partners are
controlled by Leonard Chill, Ralph Kenner, William Gardner Wright, Jr. and W.
Wayne Freed, current executive officers of the Company, and Jon P. Beckman, a
former executive officer of the Company. See "Certain Relationships and Related
Transactions" and "Management -- Executive Officers and Directors of the
Company." For a description of certain provisions of the Partnership Agreement,
see "Summary of Certain Provisions of the Partnership Agreement."
The following chart illustrates the current ownership structure of the
Company, the Partnership and their affiliates:
chart
35
<PAGE> 41
THE COMPANY
The Company is a Delaware corporation founded in 1969 to produce
polypropylene-based primary carpet backing. Since that time the Company's
business has expanded into the manufacturing and sale of a full line of
polypropylene-based industrial fabrics, specialty yarns and geotextiles.
The Company is one of the world's leading producers of polypropylene
fabrics and fibers for the home furnishing, construction, environmental,
recreational and agricultural industries. The Company manufactures and sells
more than 2,000 products in over 65 end-use markets. The Company believes that
it is the second largest producer of carpet backing in the world and is the
largest producer of synthetic fiber additives for concrete reinforcement through
its Fibermesh(R) line of products. The Company also produces polypropylene
products for the geotextile and erosion control markets and is a leader in
designing innovative products for speciality applications. The Company's
products are engineered to meet specific customer criteria such as strength,
flexibility, resistance to sunlight and water/air permeability. The Company aims
to compete in markets in which it can be the primary or secondary provider of
such products, with over 93% of its products meeting this criterion. The
Company's consolidated sales have grown from $196 million in fiscal 1992 to $300
million in fiscal 1996.
As a result of its public offering of Common Stock in November 1996, the
Company currently has 8,656,250 shares of Common Stock outstanding, which trade
under the symbol "SIND" on the Nasdaq National Market. Approximately 67% of the
issued and outstanding Common Stock of the Company is owned by the Partnership.
36
<PAGE> 42
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997. The information presented below should be read in conjunction with
"Summary Consolidated Financial Information", "Selected Consolidated Financial
Information", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and notes
thereto appearing elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE DATA)
<S> <C>
Cash........................................................ $ 1,190
========
Long-term debt(1):
Credit Facility(2):
Revolving credit portion.................................. 4,618
Term loan portion......................................... 25,000
12 3/4% Senior Subordinated Debentures due 2002............. 7,403
9 1/4% Senior Subordinated Notes due 2007................... 170,000
Capitalized lease obligation................................ 4,397
Other....................................................... 1,299
--------
Total long-term debt.............................. 212,717
Less current portion........................................ 688
--------
Long term debt, net............................... 212,029
--------
Stockholders' equity:
Common stock $1.00 par value; 25,000,000 shares
authorized; 8,656,250 shares issued and
outstanding(3)......................................... 8,656
Additional paid-in capital................................ 94,325
Cumulative translation adjustments........................ 143
Deficit................................................... (12,357)
--------
Total stockholders' equity........................... 90,767
--------
Total capitalization.............................. $302,796
========
</TABLE>
- ---------------
(1) For a description of the Company's long-term debt, see Note 6 of Notes to
Consolidated Financial Statements.
(2) At March 31, 1997, the amount available under the Credit Facility was
$19,051. The Company is currently in the process of renegotiating the Credit
Facility.
(3) Excludes 638,397 shares of Common Stock at March 31, 1997 which are subject
to options granted under the Stock Option Plans, 327,289 of which are
subject to currently exercisable options.
37
<PAGE> 43
COMMON STOCK PRICE RANGE AND DIVIDENDS
The Company's Common Stock is listed on the Nasdaq National Market (the
"NNM") under the Symbol "SIND". The following table sets forth for the periods
indicated the high and low closing bid prices per share of Common Stock as
reported on the NNM.
<TABLE>
<CAPTION>
COMMON STOCK BID
PRICE
------------------
HIGH LOW
------- -------
<S> <C> <C>
Year Ended September 30, 1997
First Quarter (from November 1, 1996)..................... $15.750 $12.000
Second Quarter............................................ 19.750 15.000
Third Quarter............................................. 21.250 17.750
Fourth Quarter (through August 6, 1997)................... 23.375 21.125
</TABLE>
At June 30, 1997, there were approximately holders of record of Common
Stock. On August 6, 1997, the reported last sale price of the Common Stock on
the NNM was $24.50 per share.
The Company has not declared or paid any cash or other dividends on the
Common Stock and intends for the foreseeable future to retain its earnings to
finance the development of its business and for repayment of debt. The
declaration and payment of dividends by the Company are subject to the
discretion of the Board. Any future determination to pay dividends will depend
on the Company's results of operations, financial condition, capital
requirements, contractual restrictions and other factors deemed relevant by the
Board. In addition, the Credit Facility and the Indenture governing the
Company's 9 1/4% Senior Subordinated Notes due 2007 (the "Notes") contain
restrictions on the Company's ability to declare and pay dividends.
38
<PAGE> 44
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND FINANCIAL RATIOS)
The statement of operations data for the fiscal years ended September 30,
1994, 1995 and 1996 and the balance sheet data as of September 30, 1995 and 1996
are derived from the Consolidated Financial Statements of the Company that have
been audited by Deloitte & Touche LLP, independent auditors, and are included
elsewhere in this Proxy Statement/Prospectus. The statement of operations data
for the years ended September 30, 1992 and 1993 and the balance sheet data as of
September 30, 1992, 1993 and 1994 are derived from audited financial statements
of the Company that are not included herein. The statement of operations and
balance sheet data as of and for the three and six month periods ended March 31,
1996 and 1997 have been derived from the unaudited interim financial statements
of the Company and include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to fairly present
the data for such periods. The following Selected Consolidated Financial
Information should be read in conjunction with the Consolidated Financial
Statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995(1) 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(3):
Net sales.................. $ 195,739 $ 210,516 $ 234,977 $ 271,427 $ 299,532 $ 129,217 $ 146,215
Cost of sales.............. 133,690 142,181 152,305 194,706 208,321 96,087 101,166
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit............... 62,049 68,335 82,672 76,721 91,211 33,130 45,049
Selling, general and
administrative
expenses................. 31,795 35,799 39,403 45,468 50,145 22,743 27,075
Amortization of
intangibles.............. 2,598 2,615 2,499 2,566 2,592 1,296 1,296
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income........... 27,656 29,921 40,770 28,687 38,474 9,091 16,678
Interest expense........... 17,865 20,854 20,011 22,514 22,773 11,390 10,775
Amortization of deferred
financing costs.......... 1,636 933 739 737 699 348 339
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations
before provision
(benefit) for income
taxes and extraordinary
item..................... 8,155 8,134 20,020 5,436 15,002 (2,647) 5,564
Provision (benefit) for
income taxes............. 4,560 4,472 8,600 3,500 6,900 (340) 2,500
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations
before extraordinary
item..................... 3,595 3,662 11,420 1,936 8,102 (2,307) 3,064
Net income (loss)(2)....... $ (3,972) $ (12,310) $ 11,420 $ 1,936 $ 8,102 $ (2,307) $ (8,886)
========== ========== ========== ========== ========== ========== ==========
OTHER FINANCIAL DATA(3):
Income (loss) per share
from continuing
operations before
extraordinary item....... $ 0.62 $ 0.63 $ 1.93 $ 0.33 $ 1.37 $ (0.39) $ 0.36
Weighted average shares
outstanding.............. 5,781,250 5,781,250 5,930,502 5,930,502 5,930,502 5,930,502 8,413,922
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DAT
Net sales.................. $ 64,609 $ 75,358
Cost of sales.............. 46,170 51,123
---------- ----------
Gross profit............... 18,439 24,235
Selling, general and
administrative
expenses................. 12,056 14,256
Amortization of
intangibles.............. 648 648
---------- ----------
Operating income........... 5,735 9,331
Interest expense........... 5,710 5,365
Amortization of deferred
financing costs.......... 175 163
---------- ----------
Income (loss) from
continuing operations
before provision
(benefit) for income
taxes and extraordinary
item..................... (150) 3,803
Provision (benefit) for
income taxes............. 260 1,643
---------- ----------
Income (loss) from
continuing operations
before extraordinary
item..................... (410) 2,160
Net income (loss)(2)....... $ (410) $ (9,790)
========== ==========
OTHER FINANCIAL DATA(3):
Income (loss) per share
from continuing
operations before
extraordinary item....... $ (0.07) $ 0.24
Weighted average shares
outstanding.............. 5,930,502 8,957,155
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
-------------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (3):
Working capital........................................... $ 33,980 $ 42,055 $ 44,114 $ 69,039 $ 64,077 $ 89,877
Total assets.............................................. 254,581 260,372 287,933 312,300 324,058 370,778
Long-term debt, net....................................... 158,638 164,723 172,490 192,048 194,353 212,029
Stockholders' equity...................................... 56,700 44,423 55,817 57,756 65,844 90,767
</TABLE>
39
<PAGE> 45
- ------------------
(1) Fiscal 1995 results of operations include a pre-tax charge of $2,852 to
increase the allowance for doubtful accounts due to a customer who
experienced severe financial difficulty. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) Net loss for the three and six month periods ended March 31, 1997 includes
an extraordinary loss of $11,950 from the early extinguishment of debt. Net
income for fiscal 1993 includes (i) an extraordinary loss of $8,892 from the
early extinguishment of debt, (ii) a charge of $8,500 for the cumulative
effect of an accounting change relating to the adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", and
(iii) a gain of $1,420 on the disposal of discontinued operations. Net
income for fiscal 1992 includes a loss from discontinued operations of $553
and a loss on the disposal of discontinued operations of $7,014.
(3) This Selected Consolidated Financial Information reflects that of the
Company. The Selected Consolidated Financial Information of the Partnership
mirrors that of the Company with the exception of the impact of the minority
interest, which resulted from the Company's November 1, 1996 public offering
of Common Stock, and certain expenses incurred by the Partnership in
connection with previous restructuring costs. Adjusted Selected Consolidated
Financial Information of the Partnership is as follows (in thousands, except
limited partnership units outstanding):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
1996 1997
----------------- ----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Selling, general, and administrative expenses....... $ 50,806 $ 27,030
Operating income.................................... 37,813 16,723
Income before provision for income taxes, minority
interest in subsidiary net loss, and extraordinary
item.............................................. 14,341 5,609
Income before minority interest in subsidiary net
loss and extraordinary item....................... 14,341 3,109
Minority interest in subsidiary net loss............ -- 3,130
Income before extraordinary item.................... 7,441 6,239
Income before extraordinary item attributable to
limited partners.................................. 7,367 6,177
Net income (loss)................................... 7,441 (5,711)
Net income (loss) attributable to limited
partners.......................................... $ 7,367 $ (5,654)
======== ========
OTHER FINANCIAL DATA:
Income before extraordinary item per limited
partnership
unit.............................................. $ 9.21 $ 7.72
Limited partnership units outstanding............... 800 800
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, MARCH 31,
1996 1997
------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital.......................................... $ 63,418 $ 89,263
Total Assets............................................. 323,756 370,780
Partners' Capital........................................ 65,185 59,423
</TABLE>
40
<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the information
contained in the Consolidated Financial Statements, including the notes thereto,
and the other financial information appearing elsewhere in this Proxy
Statement/Prospectus. Dollar amounts are in thousands. The following discussion
includes forward-looking statements that involve certain risks and
uncertainties. See "Risk Factors."
INTRODUCTION
The Company's net sales in recent years have increased due to a variety of
factors, including generally increasing sales volumes as a result of growing
demand for the Company's products and the Company's ability to expand its
markets through development of new products.
The Company's products are sold along three principal product lines: carpet
backing, construction and civil engineering products, and technical textiles.
The following table summarizes net sales growth for each of these product lines
during the fiscal years ended September 30, 1994, 1995 and 1996 and the six
month periods ended March 31, 1996 and 1997:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------------------------------------ -----------------------------------
1994 1995 1996 1996 1997
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Carpet backing............... $117,791 50.1% $133,025 49.0% $146,491 48.9% $ 68,889 53.3% $ 77,128 52.7%
Construction and civil
engineering................ 68,706 29.3 82,933 30.6 97,043 32.4 34,456 26.7 40,747 27.9
Technical textiles........... 48,480 20.6 55,469 20.4 55,998 18.7 25,872 20.0 28,340 19.4
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net sales.................... $234,977 100.0% $271,427 100.0% $299,532 100.0% $129,217 100.0% $146,215 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The Company's carpet backing business has grown at a faster rate than that
of the industry as a whole, principally due to recent market share gains in the
consumer carpet backing market and increased penetration of the commercial
carpet backing market. The Company's construction and civil engineering business
has grown significantly over the past three years due to increased acceptance of
the Company's proprietary concrete reinforcement products, the expansion of this
product line to offer a full range of geosynthetic products to the markets the
Company serves and other innovative product offerings. Over the past three
years, the Company has streamlined its technical textile business and exited
several product lines which did not meet the Company's strategic sales and
profitability objectives. The Company believes that it has positioned its
technical textile business for increased sales and profitability.
While the Company's sales have grown in each of the past three years, the
Company's gross profit has fluctuated due to a variety of factors, primarily
related to changes in the price of polypropylene. Polypropylene is the basic raw
material used in the manufacture of substantially all of the Company's products,
accounting for approximately 50% of the Company's costs of goods sold. The
Company believes that the selling prices of its products have adjusted over time
to reflect changes in polypropylene prices, although such price changes
favorably affected gross profit for fiscal 1994 and adversely affected gross
profit for fiscal 1995. In the first six months of fiscal 1997 and for fiscal
1996, the Company's polypropylene prices were lower, on average, than for the
corresponding periods in the previous year. The benefit of this average cost
decrease, coupled with higher sales volume in each respective period, resulted
in a gross profit improvement. Gross profit for the first six months of fiscal
1997 was $45,049, compared to $33,130 for the same period of fiscal 1996, an
increase of $11,919, or 36.0%. As a percentage of sales, gross profit increased
to 30.8% from 25.6%. Gross profit for fiscal 1996 was $91,211, compared to
$76,721 for the same period of fiscal 1995, an increase of $14,490, or 18.9%. As
a percentage of sales, gross profit increased to 30.5% from 28.3%.
The Company has not experienced any shortage of supply of polypropylene;
however, continuous increases in demand or major supply disruptions without
offsetting increases in manufacturing capacities could cause future supply
shortages. Higher prices of polypropylene, however, without offsetting selling
price
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<PAGE> 47
increases could have a significant negative effect on the Company's results of
operations and financial condition.
According to a September 1996 report by Chemical Data Inc. ("Chem Data"), a
monthly petrochemical and plastics analysis publication, current annual
polypropylene capacity in North America is 12.6 billion pounds per year, up from
11.4 billion pounds at December 31, 1995. Total average annual capacity will
rise to 14.0 billion pounds per year for 1997 and 14.6 billion pounds per year
for 1998. Historically, the creation of additional capacity has helped to
relieve supply pressures although there can be no assurance that this will
continue to be the case.
The Company historically has operated at or near full capacity on a 24-hour
per day, seven days per week, 350 days per year schedule. Reflecting this level
of capacity utilization, the Company invested approximately $113,000 on its six
manufacturing facilities during the five year period ended September 30, 1996,
including the completion in August 1996 of a major $35,000 expansion at its
largest manufacturing facility. Based on existing product prices and demand,
this expansion should increase the Company's sales by as much as $30,000 for
fiscal 1997.
The following table sets forth the percentage relationships to net sales of
certain income statement items. See "Selected Consolidated Financial
Information", as well as the Consolidated Financial Statements, the notes
thereto and other financial information included elsewhere in the Prospectus for
more detailed financial information.
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31, MARCH 31,
------------------------ ------------- -------------
1994 1995 1996 1996 1997 1996 1997
------ ------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................... 64.8 71.7 69.5 74.4 69.2 71.5 67.8
----- ----- ----- ----- ----- ----- -----
Gross profit......................... 35.2 28.3 30.5 25.6 30.8 28.5 32.2
Selling expenses....................... 9.3 9.0 9.2 9.3 9.7 9.7 9.6
General and administrative expenses.... 7.5 7.8 7.6 8.4 8.8 9.0 9.3
Amortization of intangibles............ 1.0 0.9 0.9 1.0 0.9 1.0 0.9
----- ----- ----- ----- ----- ----- -----
Operating income..................... 17.4 10.6 12.8 6.9 11.4 8.8 12.4
Interest expense....................... 8.5 8.3 7.6 8.8 7.4 8.8 7.1
Amortization of deferred financing
costs................................ 0.3 0.3 0.2 0.3 0.2 0.3 0.2
----- ----- ----- ----- ----- ----- -----
Income (loss) before provision
(benefit) for income taxes and
extraordinary item................ 8.6 2.0 5.0 (2.2) 3.8 (0.3) 5.1
Provision (benefit) for income taxes... 3.7 1.3 2.3 (0.3) 1.7 0.4 2.2
----- ----- ----- ----- ----- ----- -----
Income (loss) before extraordinary
item.............................. 4.9% 0.7% 2.7% (1.9%) 2.1% (0.7%) 2.9%
===== ===== ===== ===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 as Compared to Three Months Ended March 31,
1996
Net sales for the second quarter of fiscal 1997 were $75,358 compared to
$64,609 for the same period of fiscal 1996, an increase of $10,749, or 16.6%.
Carpet backing sales for the second quarter of fiscal 1997 were $40,206 compared
to $35,336 for the same period of fiscal 1996, an increase of $4,870, or 13.8%.
Construction and civil engineering product sales for the second quarter of
fiscal 1997 were $19,675 compared to $15,056 for the same period of fiscal 1996,
an increase of $4,619, or 30.7%. Technical textile sales for the second quarter
of fiscal 1997 were $15,477 compared to $14,217 for the same period of fiscal
1996, an increase of $1,260, or 8.9%.
Gross profit for the second quarter of fiscal 1997 was $24,235 compared to
$18,439 for the same period of fiscal 1996, an increase of $5,796, or 31.4%. As
a percentage of sales, gross profit increased to 32.2% from
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<PAGE> 48
28.5%. This increase was primarily due to increased sales volume and lower
average polypropylene costs. See "-- Introduction."
Selling expenses for the second quarter of fiscal 1997 were $7,246 compared
to $6,236 for the same period of fiscal 1996, an increase of $1,010, or 16.2%.
This increase was primarily due to increased expenditures associated with higher
sales volume as well as increased marketing expenses. These expenses are related
to the Company's expectation of higher sales in fiscal 1997 resulting from the
completion of the fiscal 1996 capacity expansion program. As a percentage of
sales, selling expenses decreased from 9.7% to 9.6%.
General and administrative expenses for the second quarter of fiscal 1997
were $7,010 compared to $5,820 for the same period of fiscal 1996, an increase
of $1,190, or 20.4%. As a percentage of sales, general and administrative
expenses increased from 9.0% to 9.3%. The increase in general and administrative
expenses was primarily due to infrastructure expenditures, which included an
increased investment in the Company's Management Information System, to support
anticipated Company growth.
Operating income for the second quarter of fiscal 1997 was $9,331 compared
to $5,735 for the same period of fiscal 1996, an increase of $3,596, or 62.7%.
As a percentage of sales, operating income increased to 12.4% in fiscal 1997
from 8.8% in fiscal 1996. This increase was primarily due to higher sales
volumes and lower average raw material costs offset by slightly increased
general and administrative costs.
Interest expense for the second quarter of fiscal 1997 was $5,365 compared
to $5,710 for the same period of fiscal 1996, a decrease of $345, or 6.0%, due
to interest income of $223 as well as lower interest on the outstanding debt and
the prepayment of the Credit Facility.
The effective income tax rate before the effect of extraordinary items for
the second quarter of fiscal 1997 was 43%, due primarily to the effect of
nondeductible expenses, including the amortization of goodwill, on taxable
income in fiscal 1997.
Income before extraordinary loss for the second quarter of fiscal 1997 was
$2,160 compared to net loss of $410 for the same period of fiscal 1996, an
increase of $2,570. Earnings before interest, taxes, depreciation and
amortization ("EBITDA")(1) for the second quarter of fiscal 1997 were $13,715
compared to $9,584 for the same period of fiscal 1996, an increase of $4,131, or
43.1%. The increase in income, as well as EBITDA, was primarily due to higher
sales volumes and lower average raw material costs offset by slightly increased
general and administrative costs.
Six Months Ended March 31, 1997 as Compared to Six Months Ended March 31, 1996
Net sales for the first six months of fiscal 1997 were $146,215 compared to
$129,217 for the same period of fiscal 1996, an increase of $16,998, or 13.2%.
Carpet backing sales for the first six months of fiscal 1997 were $77,128
compared to $68,889 for the same period of fiscal 1996, an increase of $8,239,
or 12.0%. Construction and civil engineering product sales for the first six
months of fiscal 1997 were $40,747 compared to $34,456 for the same period of
fiscal 1996, an increase of $6,291, or 18.3%. Technical textiles sales for the
first six months of fiscal 1997 were $28,340 compared to $25,872 for the same
period of fiscal 1996, an increase of $2,468, or 9.5%.
Gross profit for the first six months of fiscal 1997 was $45,049 compared
to $33,130 for the same period of fiscal 1996, an increase of $11,919, or 36.0%.
As a percentage of sales, gross profit increased to 30.8% from 25.6%. This
increase was primarily due to increased sales volume and lower average
polypropylene costs.
Selling expenses for the first six months of fiscal 1997 were $14,184
compared to $11,952 for the same period of fiscal 1996, an increase of $2,232,
or 18.7%. This increase was primarily due to increased expenditures associated
with higher sales volume as well as increased marketing expenses. These expenses
are
- ---------------
1 The Company believes that EBITDA is helpful in understanding cash flow from
operations that is available for debt service, taxes and capital expenditures.
EBITDA is not a concept recognized under generally accepted accounting
principles and is not a substitute for operating income, net income or cash
flows from operating activities.
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<PAGE> 49
related to the Company's expectation of higher sales in fiscal 1997 resulting
from the completion of the fiscal 1996 capacity expansion program. As a
percentage of sales, selling expenses increased from 9.3% to 9.7%.
General and administrative expenses for the first six months of fiscal 1997
were $12,891 compared to $10,791 for the same period of fiscal 1996, an increase
of $2,100, or 19.5%. As a percentage of sales, general and administrative
expenses increased from 8.4% to 8.8%. The increase in general and administrative
expenses was primarily due to infrastructure expenditures, which included an
increased investment in the Company's Management Information System, to support
anticipated Company growth.
Operating income for the first six months of fiscal 1997 was $16,678
compared to $9,091 for the same period of fiscal 1996, an increase of $7,587, or
83.5%. As a percentage of sales, operating income increased to 11.4% in fiscal
1997 from 6.9% in fiscal 1996. This was primarily due to higher sales volumes
and lower average raw material costs offset by slightly increased selling and
general and administrative costs.
Interest expense for the first six months of fiscal 1997 was $10,775
compared to $11,390 for the same period of fiscal 1996, a decrease of $615, or
5.4%, due to interest income of $395 as well as a lower interest rate on the
outstanding debt and the prepayment of the Credit Facility.
The effective income tax rate before the effect of the extraordinary item
for the first six months of fiscal 1997 was 45% due primarily to the effect of
nondeductible expenses, including the amortization of goodwill, on taxable
income in fiscal 1997.
Income before extraordinary loss for the first six months of fiscal 1997,
was $3,064 compared to net loss of $2,307 for the same period of fiscal 1996, an
increase of $5,371. EBITDA for the first six months of fiscal 1997 were $25,366
compared to $16,774 for the same period of fiscal 1996, an increase of $8,592,
or 51.2%. The increase in income, as well as EBITDA, was primarily due to higher
sales volumes and lower average raw material costs offset by slightly increased
selling and general and administrative costs.
Fiscal 1996 Compared to Fiscal 1995
Net sales for fiscal 1996 were $299,532 compared to $271,427 for fiscal
1995, an increase of $28,105, or 10.4%. This increase was primarily due to
increased sales of carpet backing and construction and civil engineering
products. Carpet backing sales for fiscal 1996 were $146,491 compared to
$133,025 for fiscal 1995, an increase of $13,466, or 10.1%. This increase was
the result of higher unit volume in primary and secondary carpet backing,
partially offset by lower average selling prices. Construction and civil
engineering product sales for fiscal 1996 were $97,043 compared to $82,933 for
fiscal 1995, an increase of $14,110, or 17.0%. This increase was due to an
increase in sales of geotextile and erosion control fabrics of $13,018, or
30.7%, resulting primarily from nonwoven sales in the landfill and roadway and
building site markets. Technical textiles sales for fiscal 1996 were $55,998
compared to $55,469 for fiscal 1995, an increase of $529, or 1.0%.
Gross profit for fiscal 1996 was $91,211, compared to $76,721 for the same
period of fiscal 1995, an increase of $14,490, or 18.9%. As a percentage of
sales, gross profit increased to 30.5% from 28.3%. This increase was primarily
due to increased sales volume as well as lower average polypropylene costs. See
"-- Introduction."
Selling expenses for fiscal 1996 were $27,488 compared to $24,273 for the
same period of fiscal 1995, an increase of $3,215, or 13.2%. This increase was
primarily due to increased expenditures associated with higher sales volume as
well as increased marketing expenses. These expenses are related to the
Company's expectation of higher sales in 1997 resulting from the completion of
the 1996 capacity expansion program. As a percentage of sales, selling expenses
increased from 9.0% to 9.2%.
General and administrative expenses for fiscal 1996 were $22,657 compared
to $21,195 for the same period of fiscal 1995, an increase of $1,462, or 6.9%.
As a percentage of sales, general and administrative expenses decreased from
7.8% to 7.6%. In fiscal 1995, general and administrative expenses included a
pre-tax charge of $2,852 related to an increase in the allowance for doubtful
accounts taken to establish a reserve for a carpet backing customer who
experienced severe financial difficulties. Without this charge, fiscal 1995
general and administrative expenses as a percentage of sales would have been
6.8%. The increase in general and
44
<PAGE> 50
administrative expenses was primarily due to infrastructure expenditures, which
included an increased investment in the Company's Management Information System,
to support anticipated Company growth.
Operating income for fiscal 1996 was $38,474 as compared to $28,687 for
fiscal 1995, an increase of $9,787, or 34.1%. As a percentage of sales,
operating income increased to 12.8% in fiscal 1996 from 10.6% in fiscal 1995.
This was primarily due to factors discussed above.
Total interest expense for fiscal 1996 was $22,773 compared to $22,514 for
fiscal 1995, an increase of $259, or 1.2%, due to higher average total debt
outstanding.
The effective income tax rate was 46% and 64% in fiscal 1996 and 1995,
respectively. The decrease was primarily due to the effect of nondeductible
expenses, including the amortization of goodwill, on higher taxable income in
fiscal 1996.
Net income for fiscal 1996 was $8,102 compared to net income of $1,936 for
fiscal 1995, an increase of $6,166, or 318.5%. EBITDA for fiscal 1996 was
$54,074 compared to $42,887 for fiscal 1995, an increase of $11,187, or 26.1%.
The increase in net income, as well as EBITDA, was primarily due to higher sales
volumes and lower average raw material cost partially offset by slightly lower
average selling prices, higher manufacturing costs associated with plant
shutdowns as a result of the winter ice storms in 1996 and increased selling and
general and administrative costs.
Fiscal 1995 Compared to Fiscal 1994
Net sales for fiscal 1995 were $271,427 compared to $234,977 for fiscal
1994, an increase of $36,450, or 15.5%. This increase was primarily due to unit
volume growth in certain product lines and higher average selling prices. Carpet
backing sales for fiscal 1995 were $133,025 compared to $117,791 for fiscal
1994, an increase of $15,234, or 12.9%. This increase was primarily due to
higher unit volume due in part to increased market share in both primary and
secondary carpet backing as well as higher selling prices as compared to fiscal
1994. Construction and civil engineering product sales for fiscal 1995 were
$82,933 compared to $68,706 for fiscal 1994, an increase of $14,227, or 20.7%.
This increase was primarily due to a significant growth in sales of geosynthetic
products as well as an increase in sales of Fibermesh(R) fibers. Technical
textiles sales for fiscal 1995 were $55,469 compared to $48,480 for fiscal 1994,
an increase of $6,989, or 14.4%. This increase was primarily due to unit volume
growth in the furniture and bedding markets.
Gross profit for fiscal 1995 was $76,721 compared to $82,672 for fiscal
1994, a decrease of $5,951, or 7.2%. As a percentage of sales, gross profit
decreased to 28.3% from 35.2%. This decrease was primarily due to the higher
polypropylene costs, offset partially by higher average selling prices. See
"-- Introduction."
Selling expenses for fiscal 1995 were $24,273 compared to $21,815 for
fiscal 1994, an increase of $2,458, or 11.3%. This increase was primarily due to
increased marketing efforts in the construction and civil engineering products
lines as a direct result of increased sales. However, as a percentage of sales,
selling expenses decreased from 9.3% to 8.9%.
General and administrative expenses for fiscal 1995 were $21,195 compared
to $17,588 for fiscal 1994, an increase of $3,607, or 20.5%. As a percentage of
sales, general and administrative expenses increased from 7.5% to 7.8%. This
increase was primarily due to a charge of $2,852 related to an increase in the
allowance for doubtful accounts during the fourth quarter of fiscal 1995. The
charge was taken to establish a reserve for accounts receivable for a carpet
backing customer who experienced severe financial difficulties. The Company
believes the reserve provided is adequate for this account to cover any future
potential losses and in the opinion of management, no significant future loss of
revenue is anticipated.
Operating income for fiscal 1995 was $28,687 compared to $40,770 for fiscal
1994, a decrease of $12,083, or 29.6%. As a percentage of sales, operating
income decreased to 10.6% from 17.4%. This decrease was primarily due to the
change in gross profit associated with higher raw material costs.
Total interest expense for fiscal 1995 was $22,514 compared to $20,011 for
fiscal 1994. This increase was due to a higher average total debt outstanding
and a higher base rate for the Credit Facility.
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<PAGE> 51
The effective income tax rate for fiscal 1995 was 64.3% compared to 43% for
fiscal 1994. The increase was primarily due to the effect of nondeductible
expenses, including the amortization of goodwill, on lower taxable income in
fiscal 1995.
Net income for fiscal 1995 was $1,936 compared to $11,420 for fiscal 1994,
a decrease of $9,484, or 83%. This decrease was primarily due to increased raw
material and interest costs.
LIQUIDITY AND CAPITAL RESOURCES
To finance its capital expenditures program and fund its operational needs,
the Company has relied upon cash provided by operations, supplemented as
necessary by bank lines of credit and long-term indebtedness. Cash (used in)
provided by operating activities was ($908) and $10,138 for the six months ended
March 31, 1997 and 1996, respectively, and $31,421 and ($35) for fiscal 1996 and
1995, respectively.
Cash used in operating activities for the six months ended March 31, 1997
resulted primarily from an increase in inventory of $20,501, due to seasonal
buildups, financed principally through income before extraordinary item of
$3,064 and noncash charges of $12,278, as well as an increase in accounts
payable of $8,459.
Cash provided by (used in) operating activities in fiscal 1996 and 1995
resulted primarily from net income of $8,102 and $1,936, respectively, after
deducting non-cash charges of $20,723 and $17,945 and net working capital
changes of approximately $2,596 and ($19,916), for each respective period. The
increase in cash provided by operating activities for fiscal 1996 as compared to
fiscal 1995 was principally due to fluctuations in net income and the Company's
working capital requirements. The changes included reduced inventory and
accounts payable balances in 1996 resulting primarily from lower inventory
quantities and lower polypropylene costs. The decrease in cash provided by
operating activities in fiscal 1995 as compared to fiscal 1994 was principally
due to lower net income and fluctuations in working capital requirements.
Working capital requirements increased primarily due to increases in accounts
receivable, inventory and accounts payable. The increase in accounts receivable
results from increased sales over the prior year particularly in certain
seasonal product lines. The increases in inventory and accounts payable resulted
from the effects of higher polypropylene costs, as well as increased units in
finished goods and raw materials. Working capital amounted to $89,877 and
$64,077 at March 31, 1997 and 1996, respectively, and $64,077 and $69,039 at
September 30, 1996 and 1995, respectively.
On February 11, 1997, the Company issued $170,000 aggregate principal
amount of 9 1/4% Senior Subordinated Notes due February 15, 2007 (the "Notes"),
which represent unsecured obligations of the Company. The Notes are redeemable
at the option of the Company at any time on or after February 15, 2002, at an
initial redemption price of 104.625% of their principal amount together with
accrued interest, with declining redemption prices thereafter. Interest on the
Notes are payable semi-annually on February 15 and August 15.
On November 1, 1996, the Company received net proceeds of approximately
$34,000 (after payment of underwriting discounts and commissions and expenses)
from the sale of 2,875,000 shares of Common Stock in an underwritten public
offering. These proceeds, together with the proceeds received from the February
11, 1997 issuance of $170,000 in aggregate principal amount of the Notes, were
utilized primarily to retire approximately $133,000 of the Company's 12 3/4%
Senior Subordinated Debentures due 2002 (the "Debentures"), pay the related
prepayment costs and fees associated with the refinancing of $15,920 and to
repay $20,000 of certain outstanding indebtedness under the Company's Fourth
Amended and Restated Revolving Credit and Security Agreement, dated as of
October 20, 1995, as subsequently amended, among the Company, the lenders party
thereto and BankBoston, as agent (the "Credit Facility"). In connection
therewith, the Company recorded an extraordinary loss of $11,950 net of tax
benefit of $7,481.
These net proceeds were also utilized to invest in capital expenditures of
$18,909 and, on February 27, 1997, to acquire all of the equipment and certain
other assets of a needlepunch nonwoven manufacturer, for approximately $9.4
million in cash. Pro forma results of operations are not presented because the
effects of the acquisition are not significant. Capital expenditures in fiscal
1996 and 1995 were approximately $34,200 and
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<PAGE> 52
$13,300, respectively. The Company expects to incur approximately an additional
$31,000 and $40,000 capital expenditures in fiscal 1997 and 1998, respectively,
primarily to expand capacity and to continue to reduce manufacturing costs,
subject to prevailing market conditions.
The Credit Facility provides for potential borrowing capacity of up to
$85,000 and is comprised of term loan borrowings of $45,000 and a revolving
credit loan portion (the "Revolver") of up to $40,000. The term loan balance at
March 31, 1997 was $25,000, of which $10,000 is payable in 1999 and $15,000 is
payable in 2000. The Lenders under the Credit Facility are BankBoston, Sanwa
Business Credit Corporation and South Trust Bank of Georgia, N.A. 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 and reserves. These reserves include outstanding letters of credit
of $1,100 and the remaining balance due under the Debentures of approximately
$7,400. Accordingly, at March 31, 1997, the maximum amount available for
borrowing under the Revolver was $19,051. The Credit Facility expires on October
1, 2001. The Company is currently in the process of renegotiating the Credit
Facility.
The Credit Facility permits borrowings which bear interest, at the
Company's option, (i) for domestic borrowings based on the lender's base rate
plus .75% or 1.00% for Revolver or term loan advances, respectively (9.25% and
9.5% at March 31, 1997) or (ii) for Eurodollar borrowings, based on the
Interbank Eurodollar rate at the time of conversion plus 2.5% or 2.75% for term
loan or Revolver advances, respectively (8.3125% at March 31, 1997). The Credit
Facility provides for borrowings under letters of credit of up to $3,000, which
borrowings reduce amounts 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.
At March 31, 1997, the Company's total outstanding indebtedness amounted to
$212,717. Such indebtedness consists primarily of borrowings under the Credit
Facility of $29,618, $170,000 aggregate principal amount of the Notes, $7,403
aggregate principal amount of the Debentures and an outstanding capital lease
obligation of $4,397 dated as of May 28, 1996. Cash interest paid during the six
months ended March 31, 1997 and 1996 was $14,411 and $11,765, respectively, and
during fiscal 1996, 1995 and 1994 was $23,176, $22,334 and $19,787,
respectively.
Based on current levels of operations and anticipated growth, the Company's
management expects cash from operations to provide sufficient cash flow to
satisfy the debt service requirements of the long-term obligations, including
interest thereon, permit anticipated capital expenditures and fund the Company's
working capital requirements for the next twelve months.
INFLATION AND SEASONALITY
The Company does not believe that its operations have been materially
affected by inflation during the three most recent fiscal years. While the
Company does not expect that inflation will have a material impact upon
operating results, there is no assurance that its business will not be affected
by inflation in the future.
The Company's sales and income from continuing operations have historically
been higher in the third and fourth quarters of its fiscal year. While sales and
operating income in the carpet backing and technical textiles product lines are
not greatly affected by seasonal trends, sales and operating income of
construction and civil engineering products are lower in the first and second
quarters of any given fiscal year due to the impact of adverse weather
conditions on the construction and civil engineering markets. Consequently, as
sales and operating income from construction and civil engineering products
continue to increase as a percentage of the Company's total sales, the
seasonality of these products' sales will affect total sales and quarterly
operating results of the Company to a greater degree.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" which is effective for the Company's fiscal year
ending September 30, 1997. SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. The Company
will account for stock-based
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<PAGE> 53
compensation awards under the provisions of Accounting Principles Board Opinion
No. 25, as permitted by SFAS No. 123. In accordance with SFAS No. 123, beginning
in the fiscal year ending September 30, 1997, the Company will make pro forma
disclosures relative to stock-based compensation as part of the accompanying
footnotes to the consolidated financial statements.
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This new
standard requires presentation of both basic and diluted earnings per share
("EPS") on the face of the statements of operations and requires a
reconciliation of the numerators and denominators of basic and diluted EPS
calculations. This statement will be effective for the Company's first quarter
1998 consolidated financial statements. The adoption of this statement is not
expected to have a material impact on the Company's consolidated financial
statements.
BUSINESS
THE COMPANY
The Company is one of the world's leading producers of polypropylene
fabrics and fibers for the home furnishing, construction, environmental,
recreational and agricultural industries. The Company manufactures and sells
more than 2,000 products in over 65 end-use markets. The Company believes that
it is the second largest producer of carpet backing in the world and is the
largest producer of synthetic fiber additives for concrete reinforcement through
its Fibermesh(R) line of products. SI also produces polypropylene products for
the geotextile and erosion control markets and is a leader in designing
innovative products for specialty applications. The Company's products are
engineered to meet specific customer criteria such as strength, flexibility,
resistance to sunlight and water/air permeability. The Company aims to compete
in markets in which it can be the primary or secondary provider of such
products, with over 93% of its products meeting this criterion. The Company's
consolidated sales have grown from $196 million in fiscal 1992 to $300 million
in fiscal 1996.
The Company's products are sold along three principal product lines: carpet
backing, construction and civil engineering products, and technical textiles.
The Company has a worldwide presence in carpet backing, a woven fabric used in
all modern tufted carpets, and is one of the two leading manufacturers in the
U.S. that produce a broad range of primary and secondary carpet backing. Carpet
backing accounted for approximately 49% of the Company's fiscal 1996 sales. The
Company's construction and civil engineering products are its fastest growing
product line and include fiber additives for concrete reinforcement and
environmental and geotextile products used in roadways, landfills and building
sites to stabilize soils and control erosion. The Company's sales to the
construction and civil engineering market have grown from approximately $35
million in fiscal 1992 to approximately $97 million in fiscal 1996. These
products represented approximately 32% of the Company's total sales in fiscal
1996, up from approximately 18% of total sales in fiscal 1992. The Company's
technical textile products are comprised of specialty fabrics, industrial yarns
and fibers used in diverse applications such as filtration (e.g., wastewater
treatment, air filtration and bauxite mining), agriculture (e.g., shade cloth
and ground cover) and recreation (e.g., swimming pool covers and trampoline
mats). These products are highly engineered to meet niche customer applications
and represented approximately 19% of fiscal 1996 sales. The Company's products
are principally sold through direct sales to customers by the Company's sales
force and through a broad network of distributors located across North and South
America, Europe and the Pacific Rim.
Management believes that the Company has a reputation in its markets as a
high quality, cost-efficient manufacturer. The Company is committed to
maintaining its market leadership and reputation for innovation through capital
investment in facilities and state-of-the-art equipment, by hiring and training
skilled employees and through process control standards and productivity
improvements. SI invested approximately $113 million in capital improvements in
its facilities and equipment during the five year period ended September 30,
1996, including the completion in August 1996 of a major $35 million, 130,000
square foot expansion of its largest manufacturing facility. Based on existing
product prices and demand, this expansion should increase the Company's sales by
as much as $30 million for fiscal 1997. The Company anticipates that
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ongoing maintenance capital expenditures will be less than $5 million per year.
Additional capital expenditures, if any, will be focused on expansion
opportunities, subject to market conditions. The Company is one of the largest
independent consumers of polypropylene in the world. The Company also believes
its position as a vertically-integrated manufacturer -- performing each step in
the conversion of polypropylene into value-added end products -- provides a
competitive advantage by allowing the Company to manufacture high quality
products to customer's specifications, while controlling manufacturing costs.
The Company's principal business strategy is to leverage its market
presence in its core businesses into additional growth while maintaining its
market position as a high quality, cost-efficient manufacturer. The primary
components of this strategy are to expand penetration of existing markets,
develop innovative products, strengthen market position in carpet backing,
continue to improve manufacturing efficiencies and expand manufacturing capacity
and pursue strategic acquisitions.
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, the Company diversified into the manufacture and sale of
polypropylene-based industrial fabrics and specialty yarns. Between 1981 and
1983, the Company entered the construction and civil engineering products
market, initially by manufacturing woven geotextiles and later through its
introduction of Fibermesh(R) fibers for concrete reinforcement. In 1985, the
Company added secondary carpet backing to its product offerings. In fiscal 1991,
the Company purchased a technical synthetic fabrics operation located in
Gainesville, Georgia, from Chicopee, a subsidiary of Johnson & Johnson (the
"Chicopee Acquisition"). In addition to broadening the Company's line of
geosynthetic products, the acquisition gave the Company access to new markets
for high performance geotextiles. As a result of improved fiber technology and
increased fiber manufacturing capabilities, the Company opened its sixth
facility, the nonwoven geotextile plant in Ringgold, Georgia in 1992, enabling
the Company to offer a full line of geotextile products.
On February 27, 1997, the Company acquired certain assets of the Spartan
Technologies division of Spartan Mills. The assets will be used primarily in the
manufacturing of nonwoven fabrics used in the geotextile and furniture and
bedding markets.
The Company was acquired by the Partnership in December 1986. Immediately
prior to the completion of the Common Stock Offering, all of the issued and
outstanding capital stock of the Company was owned by the Partnership. SI
Management L.P. (the "General Partner") is the sole general partner of the
Partnership. Synthetic Management G.P. is the sole general partner of SI
Management L.P. By virtue of these relationships, Synthetic Management G.P.
controls the management and affairs of the Partnership and, therefore, the
Company. See "Certain Relationships and Related Transactions."
On November 1, 1996, the Company sold 2,875,000 shares of Common Stock in
the Common Stock Offering. The net proceeds to the Company from the sale (after
payment of underwriting discounts and commissions and expenses) were
approximately $34 million. Immediately following the Common Stock Offering, the
Partnership owned 5,781,250 shares of Common Stock, or approximately 67% of the
issued and outstanding shares of Common Stock. Employees, officers and directors
have been granted options to purchase an additional 6.9% of Common Stock on a
fully diluted basis. See "The Company," "Principal Stockholders" and "Certain
Relationships and Related Transactions."
INDUSTRY OVERVIEW
The Company manufactures polypropylene fiber, most of which it consumes
internally to manufacture its products. Polypropylene fiber is the second
largest polymeric material used in synthetic fabrics, representing approximately
30% of the total U.S. synthetic fiber market, behind polyester and ahead of
nylon. According to the Society for the Plastics Industry ("SPI"), total
domestic production of polypropylene fiber was approximately 3 billion pounds in
1995 and grew at an annual rate of approximately 9.3% per year in the period
from 1993 to 1995.
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The Company believes it is one of the largest manufacturers of
polypropylene fiber in the U.S. with approximately 8% of total domestic output.
The top ten manufacturers of polypropylene fiber in the United States generate
approximately 70% of the annual domestic output of polypropylene fiber. Most of
the large producers of polypropylene fiber, including the Company, are
vertically integrated, converting polypropylene into fiber which can be used to
manufacture fabrics or can be sold directly to other manufacturers. These large
producers often have significant shares of the markets in which they compete,
such as the Company's share of the primary and secondary carpet backing markets
and concrete fiber reinforcement market.
Most of the products manufactured by the Company are woven and nonwoven
polypropylene fabrics. Woven polypropylene fabrics are produced by weaving
narrow tapes of slit film, which are made by extruding polypropylene into long
sheets. Such fabrics are characterized by high strength to weight ratios. All of
the Company's carpet backing products and approximately 42% of its civil
engineering products are woven polypropylene fabrics. Nonwoven polypropylene
fabrics are produced by mechanically interlocking fibers with barbed needles.
Several of the Company's technical textile products and 58% of its civil
engineering products, principally for waste containment, roadway and building
site applications, are nonwoven polypropylene fabrics.
Approximately 45% of the polypropylene fiber manufactured by the Company is
used by the Company to make carpet backing. The Carpet and Rug Institute ("CRI")
estimates that 1996 U.S. shipments of primary polypropylene carpet backing were
approximately 1.72 billion square yards. The Company believes that 1996 U.S.
shipments of secondary polypropylene carpet backing were 1.63 billion square
yards, or approximately 95% of primary carpet backing shipments. According to
CRI, growth of total domestic primary carpet backing shipments averaged 2.8% in
the period from 1993 to 1996. The growth rate of the Company's primary and
secondary carpet backing shipments has generally exceeded that of the market,
with an average annual increase in shipments of 8% for the period from fiscal
1993 to fiscal 1996.
Approximately 33% of the polypropylene fiber manufactured by the Company is
used to make construction and civil engineering products, of which approximately
22% and 11% are geotextiles and concrete reinforcing fibers, respectively.
According to Industrial Fabrics Association International, approximately 414
million square yards of woven and nonwoven geotextiles were shipped domestically
in 1995 for the civil engineering fabric market. According to industry sources,
domestic shipments of woven and nonwoven geotextiles are expected to grow at an
average annual rate of approximately 6% over the next five years. The growth
rate of the Company's civil engineering product lines has outpaced that of the
market with average annual growth in shipments of 27% for the period from fiscal
1994 to fiscal 1996. In addition, the Company believes that its Fibermesh(R)
products currently have a 65% share of the fiber reinforced concrete market.
Fibermesh(R) concrete reinforcing fiber shipments grew at an average annual rate
of 8% for the period from fiscal 1994 to fiscal 1996.
Approximately 22% of the polypropylene fiber manufactured by the Company is
used to make technical textiles. The technical textiles market consists of a
large number of relatively stable product lines with annual sales in each
product line of approximately $10 million to $12 million. The Company expects to
generate growth in its technical textiles sales through new products such as
building product components and nonwoven furniture construction fabrics.
BUSINESS STRATEGY
The Company's goals are to maintain steady growth in its core business,
develop innovative and value-added products to expand its product lines,
penetrate new international markets, and continue to create new high margin
niche products out of engineered fabrics and fibers. The Company seeks to be the
leading or second supplier in its chosen markets by delivering high-quality
products at competitive prices. Key elements of the Company's strategy to
achieve these goals are:
Expand Penetration of Existing Markets
The Company is committed to expanding sales in markets where it currently
has a leadership position by increasing market penetration through the offering
of a broader product line to meet its customers' varied needs and by expanding
its customer base. The Company is pursuing this goal through (i) the expansion
of
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geographical coverage of its sales effort; (ii) the development of
applications-oriented marketing efforts that focus on the Company's product
solutions as alternatives to traditional industry practices; (iii) increased
customer acceptance of its products created through stringent quality standards
and industry accreditation for its test labs; and (iv) the use of in-house
technical consultants to educate industry leaders as to the cost savings offered
by the Company's products as compared to traditional solutions.
The Company believes that it has significant expansion opportunities for
its existing products. The Company is developing comprehensive marketing efforts
to increase sales of its products in existing markets and to penetrate new
domestic and international markets, particularly Europe and the Pacific Rim, by
increasing awareness of its products among existing and potential customers. The
Company focuses on education of its customers' engineering support personnel,
advertising and application-oriented marketing efforts as it seeks to expand
acceptance of its products. The Company has experienced success with this
strategy, as evidenced by the growth of its civil engineering product line for
which sales have increased from $31.4 million in fiscal 1994 to $55.4 million in
fiscal 1996. Within this product line, the Company has focused on the roadway
and building site, erosion control and waste containment sectors. Among the
Company's other products, nonwoven geotextile sales to the roadway and building
site markets have grown from $12.5 million in fiscal 1994 to $19.2 million in
fiscal 1996.
The Company has also expanded its presence in international markets
primarily through additional distribution arrangements, increased marketing
efforts focused primarily on major international construction projects and the
expansion of its international sales force. As a result, total international
sales increased from $25.0 million in fiscal 1994 to $33.3 million in fiscal
1996.
Develop Innovative Products
The Company seeks to develop innovative products and modify existing
products in response to specific customer needs and to establish new markets
through the development of novel applications for its existing products. By
increasing its expenditures for research, product development and marketing, the
Company believes it will be able to capitalize on its manufacturing strengths
and distribution network to introduce new value added products and extend
product lines to complement its existing product base. For example, within the
Company's Fibermesh(R) product line, a specially designed Fibermesh(R) MD
product provides after-crack strength retention to concrete, thus mitigating
immediate failure of the concrete. Since its introduction in 1991, sales of
Fibermesh(R) MD have grown to $26.5 million in fiscal 1996.
The redesign and enhancement of its core products have also resulted in the
development of high strength geotextiles and the Company's building material
products. These developments utilize existing weaving technology to permit
construction over extremely weak soils and to replace fiberglass in certain
construction applications such as wallboard. The Company's soil reinforcement
fibers are used in roadway construction and maintenance and its biotechnical
composite three dimensional mats enable vegetation to be grown on steep slopes
and in high-flow water channels. The Company believes that these products are
environmentally friendly, aesthetically pleasing and low-cost alternatives to
crushed rock. The Company has also developed a new line of products that are
manufactured using the same production techniques as nonwoven geotextiles but
are used as vinyl substrates and spill control products.
Strengthen Market Position in Carpet Backing
The Company intends to increase its carpet backing market share through (i)
continued capital investment in state-of-the-art equipment for additional carpet
backing production capacity, (ii) expansion of sales in the growing commercial
carpet sector of the domestic market and (iii) the continued development and
strengthening of its relationships with key customers. The Company's sales of
primary and secondary carpet backing have grown from $117.8 million in fiscal
1994 to $146.5 million in fiscal 1996. To support this growth, beginning in
fiscal 1994, the Company introduced a new production initiative supported by
capital expenditures in each of fiscal 1994, 1995 and 1996. Recent expenditures
include investments to expand capacity and improve production output through
installation of state-of-the-art equipment, including the Company's 88
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loom, $35 million expansion at its largest manufacturing facility completed in
August 1996 that has increased the Company's current capacity in carpet backing
by approximately 16.0%.
Despite the Company's recent strong growth, customer demand for the
Company's products has exceeded capacity. The Company believes it is well
positioned, based upon its relationships with its customers, the quality of its
products and its planned expansion in manufacturing capacity, to gain market
share. While the Company estimates that its share of the domestic residential
carpet backing market is 25%, in the growing commercial carpet segment of the
U.S. market, which currently represents approximately 25% of the total U.S.
carpet market, its share is less than 10%.
The Company has successfully cultivated long-term relationships with key
customers, which include nine of the top ten largest carpet manufacturers in the
world. The Company's success in developing and strengthening its relationships
with these and other key customers is attributable to its commitment to product
quality, dedication to customer technical service and sensitivity and
responsiveness to changing customer needs.
Continue to Improve Manufacturing Efficiencies and Expand Manufacturing Capacity
The Company is committed to implementing improvements throughout its
manufacturing system that will increase product volume and lower costs. The
Company's product design teams continuously seek to incorporate new operating
capabilities that enhance or maintain performance specifications while lowering
the cost of manufacturing its products. State-of-the-art equipment, much of
which has been developed with direct input from internal engineers, has been
modified and installed to exceed manufacturing processing specifications, to
continuously measure process parameters and to maintain very narrow tolerances,
resulting in less product variation. As a result, the Company has been able to
improve its manufacturing processes to utilize less labor and material and
produce higher quality fabrics. In addition, the Company maintains a human
resource program aimed at capturing productivity gains through team building,
formal training and employee empowerment.
The Company also believes that its sales are enhanced as a result of its
reputation for quality control and process improvement (especially in markets
where product reliability is critical, such as waste containment). For example,
the Company was the first geosynthetic manufacturer to have its own test
laboratories accredited by the Geosynthetic Research Institute which assures
that a quality system and laboratory infrastructure is in place to perform
specific tests required in the industry.
The Company believes that increasing manufacturing capacity at its existing
plants will provide the capability to gain market share in its current markets
and to continue to expand into new markets. The Company has invested
approximately $113 million in capital improvements and new facilities during the
five year period ended September 30, 1996 and continuously evaluates
opportunities to expand its existing production capacity, add new capabilities
and enhance production technologies. Specifically, in response to opportunities
in the nonwoven market, the Company constructed a state-of-the-art nonwoven
facility in 1992 which management believes to be one of the largest such
facilities in the United States. This facility today generates sales exceeding
$35 million per year as its products support the geotextile, furniture and
building materials markets. The Company's recently completed $35 million capital
expenditure will increase capacity for carpet backing and woven geotextile
production, thus expanding the Company's market base and should increase
consolidated sales over the next twelve months by a projected $30 million.
Included in this expansion is a 130,000 square foot building addition to the
Company's largest manufacturing facility, 88 new looms and related equipment to
support these looms. The Company plans to continue to spend additional capital
to increase its manufacturing capability for primary and secondary carpet
backing, and woven and nonwoven geotextiles, subject to prevailing market
conditions.
Pursue Strategic Acquisitions
The Company is continually evaluating the potential acquisition of
companies, technologies or products which will complement its existing product
lines and manufacturing and distribution strengths. Acquisition opportunities
will be evaluated based on the strategic fit, the expected return on capital
invested and the ability
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of management to improve the profitability of acquired operations through cost
reductions and other synergies with existing operations.
PRODUCTS
The Company develops, manufactures and sells a wide array of
polypropylene-based industrial fibers and fabrics along its three principal
product lines: carpet backing, construction and civil engineering, which
comprises environmental/geotextile products and concrete reinforcement products,
and technical textiles. The Company manufactures five basic yarn and fiber
types, from which approximately 2,000 products are manufactured to serve in
excess of 65 end-use markets. The Company aims to compete in markets in which it
can be the primary or secondary provider of such products, with over 93% of its
products meeting this criterion. Although end-use applications are diverse, the
Company has been able to leverage its manufacturing expertise to introduce new
products that often define industry standards. Through research, internal
developments, marketing and acquisitions, the Company has developed or acquired
new technologies to capitalize on a broad range of new niche product
opportunities, enabling it to expand beyond its traditional primary carpet
backing business. Since 1981, the following product lines have been added to the
Company's portfolio: filtration, specialty yarns, geotextiles, Fibermesh(R)
concrete reinforcing fibers, secondary carpet backing, staple fibers, erosion
control fibers, soil reinforcing fibers and high performance wovens and
nonwovens. This diversification has contributed to average annual sales
increases of 23.4% for the period from fiscal 1987 to fiscal 1991 and 9.8% for
the period from fiscal 1992 to fiscal 1996.
Carpet Backing
Carpet backing is the Company's oldest and largest product line. Carpet
backing represented approximately 50.1%, 49.0% and 48.9%, or $117.8 million,
$133.0 million and $146.5 million of the Company's fiscal 1994, 1995 and 1996
net sales, respectively. The technology utilized in the Company's carpet backing
business has provided the basic woven fabric technology for the Company's other
product lines. For example, certain geotextiles, agriculture fabrics and
furniture construction fabrics are woven on the same looms used to weave carpet
backing.
The Company's carpet backing product line consists of woven primary and
secondary fabrics in a variety of styles and widths that are manufactured from
polypropylene raw materials. Primary carpet backing is a tightly woven material
into which carpet yarn is tufted in the manufacture of broadloom floorcoverings.
Secondary carpet backing, which forms the base of the carpet, is the coarser
woven fabric that is laminated to the back of tufted broadloom to insure both
carpet integrity and dimensional stability. The Company produces a broad range
of primary and secondary backing.
The Company believes it is the second largest producer of carpet backing in
the United States, where carpeting is the most popular floor covering material.
The total market for carpeting in the United States has grown approximately 4%
per year over the past decade. In recent years, the growth rate of the Company's
carpet backing sales has generally outpaced that of the market due to the
Company's ability to gain market share. Management believes that the Company's
growth rate has been limited by its production capacity.
Construction and Civil Engineering
The Company's construction and civil engineering division has two distinct
product lines: environmental and geotextile products and concrete reinforcement
fibers. Construction and civil engineering has achieved rapid growth since 1993
when the Company enhanced its channels of distributions for Fibermesh(R) and
expanded into production of nonwoven geotextiles. Construction and civil
engineering products represented approximately 29.3%, 30.6% and 32.4%, or $68.7
million, $82.9 million and $97.0 million of the Company's fiscal 1994, 1995 and
1996 net sales, respectively. Within this product line, geotextile products
principally serve the environmental market, with end uses such as landfill
containment and stabilization, erosion control and soil stabilization,
separation and reinforcement. The construction market includes subbase
reinforcement and stabilization for highway and commercial construction and
reinforcement of conventional and pre-cast concrete. Growth in sales in the
environmental/geotextiles sector for the period fiscal 1993 to fiscal 1996
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averaged 48.3% annually. Fibermesh(R) concrete reinforcing fiber sales grew at
an average annual rate of 10.5% for the period from fiscal 1993 to fiscal 1996.
Environmental/Geotextile Products. The Company's environmental/geotextile
product line consists of erosion control fabrics, geotextiles, and soil fibers.
These products control erosion and capture sediment; provide filtration,
separation and reinforcement of soils; improve engineering properties of native
soils; protect landfill liners; and extend pavement life. The specifications of
the Company's geosynthetic fabrics and fibers vary depending on specific site
conditions, including such factors as slope angles, water flow velocities,
climate, runoff, soil profile and ultimate land use. The Company's geosynthetic
products generally comply with state agency guidelines pertaining to
geosynthetic products issued to date.
The Company produces a variety of nonwoven geotextiles for use in landfill
construction, asphalt roadway construction and drainage systems. The Company's
woven geotextiles are typically used in road and building construction to form a
separation barrier between unstable soils and aggregate foundations. The
Company's LANDLOK(R) erosion control products are used in water runoff channels
and in areas of exposed soil and shoreline erosion. These products hold the soil
in place, while allowing and supporting vegetative growth. LANDLOK(R) products
are an environmentally friendly and aesthetically pleasing alternative to rock
or concrete erosion control methods.
The Company has developed a strong market position in
environmental/geotextile products on the basis of sales growth and engineering
strengths. The Company believes it is now the fastest growing supplier of
geotextiles to this market, and has the broadest environmental/geotextile
product line in North America.
Environmental and economic concerns have contributed to an increase in
government mandates as well as industry practices to control surface runoff and
soil erosion and improve water quality. Geotextiles tend to be more durable,
easier to use, and more cost effective as compared to similar products made of
conventional materials. In highly populated urban areas with high concentrations
of roads and buildings the need for good conservation practices is becoming
increasingly acute. The Company believes that this market will continue to
expand as environmental concerns continue to grow, thereby increasing demand for
the Company's products. The Company believes its strength as a cost-effective
manufacturer of geotextiles will allow it to continue to increase sales of
current products, and introduce new products to this market.
Concrete Reinforcement. The Company pioneered the concept of using
polypropylene fibers as a secondary reinforcement for concrete and developed and
introduced Fibermesh(R) to the concrete industry in 1983. The Company believes
that its Fibermesh(R) products have a 65% share of the fiber treated segment of
the concrete industry. All concrete reinforcement fibers, including
Fibermesh(R), have only approximately 9% penetration of the total concrete
industry. Growth in this market will be based on increased acceptance of the use
of synthetic fibers for concrete reinforcement as a replacement for conventional
wire mesh. The Company estimates that 250 million cubic yards of concrete poured
annually in the United States could potentially benefit from the use of
Fibermesh(R) fibers.
The addition of Fibermesh polypropylene fibers to the concrete mixture
gives the concrete greater crack resistance and improved impact strength.
Primary applications for fiber reinforced concrete are commercial and
residential slabs, precast pipe and other products, shotcrete installations, and
whitetopped highways. Fibermesh(R)provides a cost-effective replacement for the
nonstructural wire mesh traditionally used in concrete construction and improves
the concrete's durability. Fibermesh(R) complies with construction guidelines
and specifications issued by all of the national building code associations. Of
the three synthetic fiber types used in fiber reinforced concrete, polypropylene
is recognized for its superior properties over nylon and polyester. Fibermesh(R)
is sold in fibrillated, monofilament and multi-denier designs, the latter of
which is protected by a U.S. patent.
Technical Textiles
Technical textiles produced by the Company are products and systems that
offer high performance solutions for niche markets. Technical textiles
represented approximately 20.6%, 20.4% and 18.7%, or $48.5 million, $55.5
million and $56.0 million of the Company's fiscal 1994, 1995 and 1996 net sales,
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respectively. Technical textiles are sold to several niche markets, including
the furniture, filtration, agricultural and recreational industries, and each
product in those markets generally accounts for $10 to $12 million or less in
sales. The Company's technical textile products are generally differentiated on
the basis of product uniqueness, quality and service rather than price.
The Company's technical textiles consist of specialty fabrics, industrial
yarns and fibers. The specialty fabrics are manufactured in a variety of widths,
weights, permeability ranges and dimensional configurations primarily from
polypropylene and, to a minor extent, other synthetic fibers. Customers use
these fabrics to manufacture products used in diverse applications such as
filtration (e.g., bauxite mining, wastewater treatment, electrostatic-air
filters and chemical separation), agriculture (e.g., shade for foliage
protection and environmental screening), and recreation (e.g., swimming pool
covers and trampoline mats).
The Company also sells its industrial yarns and fibers directly to weavers,
knitters, and non-woven manufacturers who produce niche market products, such as
automobile upholstery, coat linings, geotextiles, air filters and water
filtration media.
Recent product line repackaging has created new business programs for the
Company, which programs are currently in the new product launch phase. These
programs include professional landscaping products, livestock maintenance
fabrics and building product components.
MARKETING AND SALES
Carpet Backing. The Company sells its carpet backing products to 91
customers in the carpet industry, most of whom are carpet manufacturers located
in the United States. In fiscal 1996, the Company's ten largest carpet backing
customers accounted for approximately 78% of its total net sales to the carpet
industry. In fiscal 1996, sales to Shaw, 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 is estimated to have 27% of the
United States carpet market.
The Company's carpet backing products are sold primarily through the
Company's sales force that is directed from a central sales office in Calhoun,
Georgia. All of the sales managers have significant industry experience and
monitor ongoing product requirements, styling changes and competitive trends
affecting their customers.
Construction and Civil Engineering. The Company's geosynthetic products are
sold primarily in North America to regional and national distributors,
installers of landfill liners and various governmental transportation
departments, port authorities and waterway commissions. In fiscal 1996, the ten
largest geosynthetic product customers accounted for approximately 30% of the
Company's total net sales in this product line.
The Company's geosynthetic products are marketed by full-time salespeople
with expertise in civil engineering and agronomy who are directed from a central
office in Chattanooga, Tennessee. These salespeople, along with a technical
support staff at Company headquarters, provide design and field engineering
services to customers. They also are integral to the process of obtaining
required governmental permits for use of the products by end-users. In addition,
the Company has an ongoing marketing communications program to build awareness
of product capabilities and expand interest in and use of geotextiles.
Fibermesh(R) is sold through a direct sales force to ready-mix concrete
companies and precast concrete product manufacturers located primarily in the
United States and the United Kingdom. The Fibermesh(R) sales force operates out
of divisional offices in Austin, Texas, Denver, Colorado, Chattanooga, Tennessee
and Chesterfield, England. In addition, Fibermesh(R) is sold through a contract
with Master Builders, Inc., a construction industry product distributor. Other
construction industry product distributors market Fibermesh(R) in over 50
foreign countries. In fiscal 1996, the ten largest Fibermesh(R) customers
accounted for approximately 12% of the Company's total net sales of
Fibermesh(R).
Technical Textiles. The Company sells its specialty fabrics to a diverse
group of approximately 400 manufacturers located primarily in North and Central
America and the Pacific Rim countries. The Company
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sells its industrial yarns and fibers to a diverse group of approximately 100
manufacturers located in North America and Europe. In fiscal 1996, the Company's
ten largest technical textile customers accounted for approximately 26% of the
Company's total net sales of technical textiles. The Company's technical
textiles are marketed by salespersons through sales offices in Gainesville,
Ringgold and Calhoun, Georgia and Chesterfield, England.
COMPETITION
The markets for the Company's products are highly competitive. In the
manufacture and sale of carpet backing, which represented approximately 49% of
the Company's total net sales for each of fiscal 1996 and 1995, the Company
competes primarily with Amoco, and, to a lesser extent, Wayn-Tex Inc. and
certain other companies. Amoco has the dominant position in the carpet backing
market worldwide. In the United States, only the Company 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, availability, service, price and product line variety, providing
carpet manufacturers with a reliable alternative source of supply to Amoco.
In the manufacture and sale of the Company's other products, the Company
generally competes with a number of other companies, some of which are
significantly larger and have substantially greater resources than the Company.
The Company's primary competitors in the construction and civil engineering
market are Amoco and Nicolon Corporation with respect to geotextiles, North
American Green, Inc. with respect to environmental and erosion control products,
and W.R. Grace & Co., which markets but does not manufacture concrete
reinforcement fibers, with respect to concrete reinforcement. The Company
competes in the concrete reinforcement fiber market primarily on the basis of
product design and technical service. In some applications, Fibermesh(R) also
competes with welded wire fabric on the basis of product performance and cost.
The Company competes in the construction and civil engineering market on the
basis of product line breadth and quality, price, and the custom design,
engineering and other services it provides to customers. With respect to
technical textiles, competitors vary depending upon the specific market niche.
The Company competes in each segment of the technical textiles market primarily
on the basis of service, quality, innovation and product line variety.
The pricing policies of the Company's competitors have at certain times in
the past limited the Company's ability to increase the prices or caused the
Company to lower the prices of certain of its products. See " -- Products,"
" -- Marketing and Sales" and " -- Raw Materials".
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. SI believes it is a technological leader in the conversion of
polypropylene into woven and nonwoven polypropylene products. The expertise of
the Company's research and development and marketing staff has enabled the
Company to develop innovative products, frequently in response to specific
customer needs.
Woven fabrics are produced by interlacing thousands of strands of extruded
yarn at right angles to one another. The manner in which the yarn is interlaced
determines the type of weave. Woven fabrics are characterized by strength and
dimensional stability. The Company's woven fabric products include primary and
secondary carpet backing, geotextiles, erosion control fabrics, and specialty
fabrics for the filtration, recreational, construction and agricultural markets.
Nonwoven fabrics are produced by first stacking several layers of webbed
short length fibers and then entangling the layers by punching barbed needles
through the layers. Nonwoven fabrics provide extensibility without rupture and
dimensionality. The Company's nonwoven fabric products include geotextiles,
erosion control fabrics, furniture and bedding construction fabrics, and spill
control fabrics.
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The Company believes that it has state-of-the-art manufacturing capability
in both its woven and nonwoven product lines and is one of the most
cost-efficient producers in the markets in which it participates. The Company's
three primary manufacturing processes are extrusion, weaving and needlepunching.
Extrusion. Much of the Company's expertise has been developed in its
extrusion processes. Many of the product's specification properties are created
by engineering the polymeric raw materials during the extrusion process. In
addition to yarns and fibers for conventional end-uses, the Company has also
developed value-added products through the use of additives including those
which resist sunlight degradation. The Company owns and operates one of the
world's largest polypropylene staple fiber lines. Most of the Company's extruded
products are consumed internally and become value-added woven and nonwoven
fabrics, but some are sold to weavers, knitters, nonwovens producers and
convertors.
Weaving. The yarns produced in the Company's extrusion and yarn spinning
operations are woven on looms to produce the wide variety of fabrics that the
Company sells through all of its marketing divisions. Fabric properties are
engineered to industry specifications by altering constituent yarns and weave
patterns. Looms are generally interchangeable to weave carpet backing,
geotextiles and certain agricultural fabrics. The breadth of the Company's woven
product offerings was enhanced by the Chicopee Acquisition.
Needlepunching. In 1993, the Company constructed a state-of-the-art
needlepunched nonwovens fabric facility. This modern plant produces a new
generation of engineered cost-effective fabrics for the geotextile, furniture
construction and chemical spill cleanup markets. In February 1997, the Company
acquired certain assets of the Spartan Technologies division of Spartan Mills to
be used primarily in the manufacturing of needlepunched nonwoven fabrics used in
the geotextile and furniture and bedding markets.
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.
The Company's production equipment is capable of manufacturing a variety of
woven and nonwoven polypropylene 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 specific profit opportunities.
The Company's plants are run on a continuous 24-hour per day basis, seven
days a week, 350 days per year. Orders are typically filled from inventory.
RESEARCH AND DEVELOPMENT
The Company's research and development is focused primarily on development
and as such the Company engages in product design, development and performance
validation to improve existing products and to create new products. The Company
expended approximately $2.0 million (approximately 0.7% of sales) and $1.9
million (approximately 0.7% of sales) on Company-sponsored research and
development activities in fiscal 1996 and fiscal 1995, respectively. As part of
a recently completed strategic review, the Company expects to increase research
and development expenses in fiscal 1997 to approximately $5.2 million.
INTERNATIONAL OPERATIONS
The Company conducts its foreign sales operations through subsidiaries in
Europe and a network of distributors worldwide. In fiscal 1996, the aggregate
sales (principally of construction and civil engineering products) by such
foreign subsidiaries and marketing divisions were approximately $5.5 million.
International sales from United States operations in fiscal 1996 were $27.8
million. Total international sales were 9.3% of consolidated 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
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<PAGE> 63
principally from four suppliers, with Fina Oil & Chemical Company being the
Company's largest supplier of polypropylene. These purchases are generally made
pursuant to long-standing arrangements.
Polypropylene purchases account for approximately 50% of the Company's cost
of sales. Increases in the price of polypropylene without offsetting increases
in selling prices could have a significant negative effect on the Company's
results of operations and financial condition. The Company believes that the
sales prices of its products will adjust over time to reflect changes in
polypropylene costs. The Company has not experienced production curtailment due
to shortages of polypropylene supply at any time.
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 or similar
agencies. Many of the Company's construction and 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 substantial compliance with applicable
governmental regulations.
ENVIRONMENTAL COMPLIANCE
The Company is subject to a broad range of federal, foreign, state and
local laws and regulations relating to the pollution and protection of the
environment. Among the many environmental requirements applicable to the Company
are laws relating to air emissions, wastewater discharges and the handling,
disposal or release of solid and hazardous substances and wastes. Based on
continuing internal review and advice from independent consultants, the Company
believes that it is currently in substantial compliance with applicable
environmental requirements. A cease-and-desist order was issued by the U.S. Army
Corps of Engineers on June 13, 1996, concerning the Chickamauga, Georgia
facility and the deposit of filling material into national wetlands without a
permit. The Company is working with the Army Corps of Engineers to create an
equivalent wetland area. The Company does not anticipate that such order will
have a material adverse effect on its operations.
The Company is also subject to laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), that
may impose liability retroactively and without fault for releases or threatened
releases of hazardous substances at on-site or off-site locations. The Company
is not aware of any releases for which it may be liable under CERCLA or any
analogous provision.
Actions by federal, state and local governments in the United States and
abroad concerning environmental matters could result in laws or regulations that
could increase the cost of producing the products manufactured by the Company or
otherwise adversely affect demand for its products. For example, certain local
governments have adopted ordinances prohibiting or restricting the use or
disposal of certain polypropylene products. Widespread adoption of such
prohibitions or restrictions could adversely affect demand for the Company's
products and thereby have a material adverse effect upon the Company. In
addition, a decline in consumer preference for polypropylene products due to
environmental considerations could have a material adverse effect upon the
Company.
Most of the Company's manufacturing processes are mechanical and are
therefore considered to be environmentally benign. Polypropylene resins are
readily recyclable, and the Company recycles post-industrial waste for certain
of the its products. In addition, each of the Company's manufacturing sites has
equipment and procedures for reclaiming a majority of internally generated
scrap, thus reducing the amount of waste sent to local landfills. As a result,
the Company does not currently anticipate any material adverse effect on its
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<PAGE> 64
operations, financial condition or competitive position as a result of its
efforts to comply with environmental requirements. Some risk of environmental
liability is inherent, however, in the nature of the Company's business, and
there can be no assurance that material environmental liabilities will not
arise. It is also possible that future developments in environmental regulation
could lead to material environmental compliance or cleanup costs.
PROPERTIES
The Company operates the following principal domestic manufacturing and
distribution facilities. All of the Company's owned properties are subject to
liens in favor of the lenders under the Credit Facility.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE OWNED
FOOTAGE OF OR
LOCATION PRINCIPAL FUNCTION FACILITY LEASED
-------- ------------------ ----------- ------
<S> <C> <C> <C>
Chickamauga, Georgia............... Manufacturing of carpet backing, 738,800 Owned
geotextiles and fibers
Dalton, Georgia.................... Distribution center and multi- 216,000 Owned
product warehouse
Ringgold, Georgia.................. Manufacturing of geotextiles 183,750 Owned
Chattanooga, Tennessee............. Manufacturing of specialty yarns 126,432 Owned
Alto, Georgia...................... Manufacturing of certain yarns 92,400 Owned
Dalton, Georgia.................... Needlepunching of carpet backing 44,945 Owned
Gainesville, Georgia............... Manufacturing of certain fabrics 200,000 Leased
Dalton, Georgia.................... Woven, nonwoven and geotextile
124 Keene Street warehouse 185,000 Leased
Dalton, Georgia.................... Geosynthetic products and fiber
120 Keene Street warehouse 168,000 Leased
Chickamauga, Georgia............... Manufacturing of carpet backing,
Dalton, Georgia geotextiles and fibers 143,736 Leased
Cleveland Highway.................. Specialty yarn warehouse 104,827 Leased
Cornelia, Georgia.................. Assembly of certain fabrics 76,000 Leased
Westside, Georgia.................. Carpet backing warehouse 86,440 Leased
Dalton, Georgia
North Dug Gap...................... Carpet backing warehouse 85,000 Leased
Dalton, Georgia.................... Geosynthetic products warehouse 36,000 Leased
Florence
Dalton, Georgia.................... Geosynthetic products warehouse 31,500 Leased
1408 Coronet
Claremont, North Carolina.......... Nonwoven fabrics warehouse 14,000 Leased
Tupelo, Mississippi................ Nonwoven fabrics warehouse 13,500 Leased
Chattanooga, Tennessee............. Corporate support offices 4,800 Leased
-----------
Total............................ 2,551,130
=========
</TABLE>
ORDER BACKLOG
The Company generally sells its products pursuant to customer orders which
are satisfied either out of inventory or by the manufacture and shipment of the
product 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.
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<PAGE> 65
EMPLOYEES
As of September 30, 1996, the Company employed 2,212 persons in the United
States, of whom 458 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. The Company employs 13 persons in the United Kingdom.
PATENTS AND TRADEMARKS
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.
The Company has registered several of its trademarks, including
FIBERGRIDS(R), FIBERMESH(R) and LANDLOK(R), with the United States Patent and
Trademark office and with several foreign trademark offices.
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.
The General Partner, Synthetic Management G.P., Leonard Chill, Jon P.
Beckman, W. Wayne Freed, Ralph Kenner, W. Gardner Wright, Chill Investments,
Inc., Beckman Investments, Inc., Freed Investments, Inc., Kenner Investments,
Inc. and Wright Investments, Inc., as defendants, and the Partnership, as a
nominal defendant, have been named in two putative class action lawsuits filed
by a limited partner of the Partnership on behalf of himself, the other limited
partners and the Partnership. In the first action, filed on February 11, 1997 in
the Delaware Court of Chancery and amended on June 11, 1997, the plaintiff has
alleged, among other things, breach of the defendants' fiduciary duty to achieve
the highest possible value for the limited partners in connection with the
November 1, 1996 Common Stock Offering of the Company and the Plan by failing to
explore alternative transactions that could potentially threaten their positions
with and control over the Company and the benefits derived therefrom. The
plaintiff seeks, among other things, removal of the General Partner, dissolution
of the Partnership, appointment of a receiver, rescission of certain stock
option grants and employment agreements and compensatory damages in an
undetermined amount. On June 25, 1997, defendants filed a motion to dismiss the
amended complaint, which motion is currently being briefed. The second lawsuit
was filed in the U.S. District Court of the Northern District of California on
May 1, 1997. In connection with a letter sent by the General Partner to the
limited partners, the plaintiff has alleged that the defendants have violated
federal securities laws by mailing a proxy solicitation to the limited partners
without first filing with the Commission, mailing out the solicitation without
filing or disseminating a proxy statement and failing to disclose numerous
material facts in the solicitation. The complaint seeks an injunction to remedy
the alleged violations of securities regulations and a declaratory judgment
stating that the defendants violated securities regulations. On May 23, 1997,
plaintiff filed a motion for a preliminary injunction, which motion has been
fully briefed, was argued on July 25, 1997 and is ripe for judicial
determination. The Partnership is a principal stockholder of the Company and
certain members of the Company's management control the General Partner. See
"Certain Relationships and Related Transactions." The Company is not named as a
defendant in either lawsuit and the Company does not believe that the ultimate
resolutions will have a material adverse effect on the Company.
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<PAGE> 66
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth certain information concerning each of the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES HELD
---- --- -------------------------
<S> <C> <C>
Leonard Chill.................... 64 President, Chief Executive Officer and
Director
Joseph F. Dana................... 50 Chief Operating Officer, General Counsel and
Director
Joseph Sinicropi................. 43 Chief Financial Officer and Secretary
Robert J. Breyley................ 68 Vice President -- Fibermesh(R) Division
W.O. Falkenberry................. 54 Vice President -- Human Resources
W. Wayne Freed................... 61 Vice President -- Market Development
Richard E. Hingson............... 42 Vice President -- Technical Services
Ralph Kenner..................... 53 Vice President -- Manufacturing
C. Ted Koerner................... 47 Vice President -- General Manager
Construction/Civil Engineering Products Group
John Michael Long................ 53 Vice President -- General Manager Technical
Textiles Group
William Gardner Wright, Jr....... 68 Vice President -- General Manager Carpet
Backing Division
Bobby Callahan................... 54 Controller
Lee J. Seidler (1)............... 62 Director
William J. Shortt (1)............ 72 Director
Robert L. Voigt (1).............. 78 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee and Audit Committee.
Directors of the Company are elected each year at the annual meeting of
stockholders. The Company's officers serve at the discretion of the Board.
Leonard Chill joined the Company in December 1973 as President and was
appointed Chief Executive Officer in 1986. He has been a director since 1986.
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
is also the sole director and sole stockholder of one of the general partners of
Synthetic Management G.P., the entity which is the sole general partner of the
general partner of the Partnership. See "The Company."
Joseph F. Dana was appointed Chief Operating Officer and General Counsel on
July 1, 1997. Prior to joining the Company, Mr. Dana had been engaged in the
private practice of law for over twenty years and had been a member of the law
firm of Watson & Dana, LaFayette, Georgia, since its formation in 1978, serving
as general counsel to the Company since 1987. He has been a Director since 1993.
Joseph Sinicropi joined the Company in 1995 as Chief Accounting Officer. He
was named Chief Financial Officer and Secretary in February 1996. Prior to
joining the Company, he was an audit senior manager in the international
accounting firm of Deloitte & Touche LLP from 1985 to 1995.
Robert J. Breyley joined the Company in 1984 and became Vice
President -- Fibermesh(R) Division in December 1984. 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.
W.O. Falkenberry joined the Company in 1993 as Vice President -- Human
Resources. Prior thereto, he was Director of Human Resources with the Champion
Products Division of the Sara Lee Corporation from 1989 to 1993.
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<PAGE> 67
W. Wayne Freed joined the Company in 1981 and became Vice
President -- Market Development in 1987. Prior thereto, he had 28 years
experience in the textile industry. Mr. Freed is also the sole director and sole
stockholder of one of the general partners of Synthetic Management G.P.
Richard E. Hingson joined the Company in 1984 as Quality Control Manager
and became Technical Director in 1989. He was promoted to Vice
President -- Technical Services in 1997. Prior thereto, he held a variety of
managerial positions with Amoco Fabrics Company, a producer of polypropylene and
polyethylene yarns and fabrics.
Ralph 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 sole stockholder
of one of the general partners of Synthetic Management G.P.
C. Ted Koerner joined the Company in 1990 and became Vice
President -- Construction Products Division in 1993. He was named Vice
President -- General Manager of the Construction/Civil Engineering Products
Group in 1995. Prior thereto, Mr. Koerner was an engineer with the Ohio
Department of Transportation; a sales engineer, product supervisor and regional
engineer with Armco Steel Corporation; and a sales manager with National Seal
Corporation.
John Michael Long was Vice President -- Nonwoven Fabrics from 1991 to 1996
at which time he was named Vice President -- General Manager of the Technical
Textiles Group. 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.
William Gardner Wright, Jr. was Vice President -- Marketing and Sales from
1983 to 1996 at which time he was named Vice President-General Manager of the
Carpet Backing Division. From 1977 until 1983, he was President of Synca
Marketing Corp., a textile sales agency which served as a sales agent for the
Company's primary carpet backing, as well as the products of other
manufacturers. Mr. Wright is a director of the Sun Trust Bank of Northwest
Georgia. Mr. Wright is also the sole director and sole stockholder of one of the
general partners of Synthetic Management G.P.
Bobby 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.
Lee J. Seidler was professor of accounting and Price Waterhouse professor
of auditing at New York University. Dr. Seidler was Senior Managing Director at
Bear, Stearns & Co. Inc. from 1981 to 1989. He is presently associated with
Bear, Stearns & Co. Inc. as Managing Director Emeritus. Dr. Seidler is a
director of the Shubert Foundation, The Shubert Organization, and Players
International, Inc. and has been a director of SafeCard Services, Inc. and
Eastbank, N.A. He has been a Director since 1993.
William J. 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 Inc., and First National Bank of Habersham. He has been a
Director since 1993.
Robert L. 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. He has been a Director since 1993.
Each of the executive officers, except Mr. Breyley, has an Employment
Agreement with the Company. There are no family relationships between any of the
above officers or directors of the Company.
DIRECTORS' COMPENSATION
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 service as a
director or service on committees of the Board. All directors are reimbursed for
reasonable out-of-pocket expenses incurred in connection with their attendance
at meetings of the Board and its committees on which they serve.
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<PAGE> 68
Under the Company's 1994 Stock Option Plan for Non-Employee Directors (the
"Directors' Plan"), Messrs. Dana, Seidler, Shortt and Voigt were granted
non-qualified stock options (the "Directors' Options") to purchase 28,906,
57,813, 19,271 and 19,271 shares of Common Stock, respectively. 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 Compensation Committee, at the time Messrs. Dana,
Seidler, Shortt and Voigt became members of the Board. As of October 1, 1996,
100% of the number of shares of Common Stock subject to each Director Option are
vested and are exercisable. As a Company employee, Mr. Chill is 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 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 Directors' Options. The term of each
Directors' Option is ten years from the date of grant.
BOARD COMMITTEES
The Board has established a Compensation Committee, composed of Messrs.
Seidler, Shortt and Voigt, which establishes salary, incentives and other forms
of compensation and administers the Company's 1994 Stock Option Plan and 1996
Stock Option Plan and other incentive compensation and benefit plans applicable
to the Company's officers. The Board has also established an Audit Committee,
composed of Messrs. Seidler, Shortt and Voigt, which recommends to the Board the
selection of independent auditors, and reviews the scope and results of the
audit and other services provided by the independent auditors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding the compensation paid
during each of the Company's last three completed fiscal years to the Chief
Executive Officer of the Company and each of the other four most highly
compensated executive officers of the Company as of September 30, 1996
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- AWARDS
FISCAL OTHER ------------
YEAR ANNUAL SECURITIES ALL OTHER
NAME AND ENDED COMPEN- UNDERLYING COMPEN-
PRINCIPAL POSITION SEPT. 30, SALARY($) BONUS($) SATION($) OPTIONS(#) SATION($)
------------------ --------- --------- -------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Leonard Chill...................... 1996 254,871 118,119 -- -- 9,924(1)
Chief Executive Officer and 1995 254,871 89,939 4,668 -- 10,044(1)
President 1994 247,447 127,260 3,989 -- 9,921(1)
Ralph Kenner....................... 1996 145,973 55,063 -- -- 4,170(2)
Vice President -- Manufacturing 1995 145,973 41,926 2,344 -- 4,482(2)
1994 125,973 66,660 2,300 -- 4,497(2)
William Gardner Wright, Jr......... 1996 235,664 81,920 -- -- 4,170(2)
Vice President -- General
Manager -- 1995 235,664 70,238 304 -- 4,005(2)
Carpet Backing Division 1994 235,664 99,384 339 -- 4,497(2)
Robert J. Breyley.................. 1996 141,720 48,144 -- -- 4,170(2)
Vice President -- 1995 141,720 49,500 -- -- 3,329(2)
Fibermesh(R) Division 1994 141,720 72,000 -- -- 4,198(2)
W. Wayne Freed..................... 1996 152,400 37,123 -- -- 4,170(2)
Vice President -- 1995 142,000 28,267 1,808 -- 4,090(2)
Market Development 1994 128,544 29,969 2,109 -- 3,808(2)
</TABLE>
- ---------------
(1) These amounts consist of $5,424 of insurance premiums paid by the Company
under a term life insurance policy in each of 1996, 1995 and 1994, and
$4,500, $4,620 and $4,497 contributed by the Company under its 401(k) plan
in 1996, 1995 and 1994, respectively.
(2) These amounts represent the annual contribution made by the Company under
its 401(k) Plan in the respective year.
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<PAGE> 69
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table sets forth options granted to the Named Executive
Officers during fiscal 1996:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM (1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% 10%
---- ----------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Leonard Chill.............. 34,875 17.8% $10.72 12/09/05 $235,058 $595,665
Ralph Kenner............... 20,458 10.4 10.72 12/09/05 137,887 349,423
William Gardner Wright,
Jr....................... 20,458 10.4 10.72 12/09/05 137,887 349,423
Robert J. Breyley.......... -- -- -- -- -- --
W. Wayne Freed............. 20,458 10.4 10.72 12/09/05 137,887 349,423
</TABLE>
- ---------------
(1) These gains are based on arbitrary compounded rates of growth of stock
prices mandated by the Securities and Exchange Commission of 5% and 10% per
year from the date the option was granted over the full option term. These
rates do not represent the Company's estimate or projection of future prices
of the Common Stock. There is no assurance that the values that may be
realized by any Named Executive Officer upon exercise of his options will be
at or near the value estimated in the foregoing table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth option exercises by and the value of the
in-the-money unexercised options held at September 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (1) AT FY-END (2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leonard Chill............... -- -- 27,602 117,680 $62,933 $268,310
Ralph Kenner................ -- -- 8,353 45,518 19,045 103,781
William Gardner Wright,
Jr........................ -- -- 8,353 45,518 19,045 103,781
Robert J. Breyley........... -- -- 2,421 7,264 5,520 16,562
W. Wayne Freed.............. -- -- 8,353 45,518 19,045 103,781
</TABLE>
- ---------------
(1) Any shares of Common Stock received upon the exercise of options are subject
to "lock-up" agreements with the underwriters of the Common Stock Offering.
(2) Based on the initial public offering price ($13.00 per share) less the
exercise price ($10.72 per share) payable for such shares.
EMPLOYMENT AGREEMENTS
Each of Messrs. Chill, Freed, Kenner and Wright (the "Executives") are
employed by the Company pursuant to individual employment agreements effective
as of September 6, 1996 (the "Effective Date"). The term of employment under
these agreements is three years from the Effective Date; provided that on each
anniversary of the month following the first Effective Date, and each successive
month, the term is automatically extended for one successive month, providing a
minimum remaining term of two years, unless either party terminates the
agreement by written notice. The current annual salaries for Messrs. Chill,
Freed, Kenner and Wright pursuant to these agreements are $270,163, $161,544,
$154,731 and $249,803, respectively, and are subject to annual review by the
Board.
The Company has the right to terminate the Executive's employment for
"cause" or "without cause," in each case as defined in the applicable employment
agreement. In the event that an Executive is terminated by the Company "without
cause," other than following a "Change in Control" (as defined below), the
Executive
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<PAGE> 70
is entitled to receive his base salary at the rate in effect on the date of
termination of employment for a period of two years from the date of
termination, any unpaid, accrued amounts under the annual incentive plan, a pro
rata payment under the annual incentive plan for the termination year, a payment
equal to the three year average of incentive payments received under the
Company's annual incentive plan and any stock option rights due through the end
of the term. Under each employment agreement, a Change in Control occurs when
(i) any person or group becomes the beneficial owner of capital stock of the
Company representing 35% of all the voting stock, (ii) the members of the Board
on the Effective Date cease to constitute a majority of the Board, or (iii) the
Company combines with another entity and a person holds more than 35% of the
voting stock of the Company or the Company's directors, as of the date
immediately before such combination, constitute less than a majority of the
board of directors of the combined entity.
If the Executive is terminated by the Company "without cause" prior to the
occurrence of a Change in Control and it can be shown such termination occurred
in connection with, prior to or in anticipation of the Change in Control, or if
the termination resulted from a Change in Control, the Executive is entitled to
(i) a lump sum payment equal to two times the Executive's annual base salary and
annual incentive plan for the year in which the Change in Control occurs or the
prior year, whichever is greater, (ii) unpaid, accrued amounts under the annual
incentive plan and a payment that equals the average of the incentive payment
received by the Executive under the annual incentive plan for the immediately
preceding three years and (iii) certain other supplemental insurance coverages,
for a maximum of 18 months (the "Change in Control Provision"). In the event of
a Change in Control, whether or not the Executive's employment continues with
the Company, all options granted to such Executive under any of the Management
Plans (as defined below) shall vest immediately on the date of the Change in
Control.
In the event that an Executive's employment is terminated for disability or
death, the Executive (or his estate) is to be paid (a) his base salary at the
rate in effect on the date of termination until the earlier of
six months from the date of termination or the date of commencement of long term
disability payments, if applicable, and (b) any unpaid, accrued amounts under
the annual incentive plan, and will receive any stock option rights to which
such Executive would otherwise be entitled. In the case of termination by reason
of death, the executive is also entitled to a payment under the annual incentive
plan equal to the pro rata amount due for the termination year.
OPTION PLANS
The Company's 1994 Stock Option Plan (the "1994 Plan") was adopted by the
Board upon the recommendations 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. The Company's 1996 Stock Option Plan (the
"1996 Plan") was similarly adopted on May 15, 1996, as amended as of July 31,
1996.
Under the 1994 Plan and 1996 Plan (collectively, the "Management Plans")
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 1994 Plan and 1996 Plan is
491,413 and 289,062, respectively. As of September 30, 1996, options to purchase
an aggregate of 491,413 shares of Common Stock had been granted under the 1994
Plan. Of such amount, Messrs. Chill, Wright, Freed, Kenner and other key
managers hold options to purchase 145,282, 53,871, 53,871, 53,871 and 130,648
shares of Common Stock, respectively. Mr. Beckman holds options for 53,871
common shares. As of September 30, 1996, the only options granted under the 1996
Plan were options to purchase 21,723 shares of Common Stock granted to Mr.
Sinicropi. Options may not be granted under the Management Plans after August
28, 2004. See "Principal Stockholders."
The purchase price of the shares of Common Stock subject to options under
the Management Plans 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
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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 Stockholders which must expire within five years
of the date of grant.
The Management Plans are administered by the Company's Compensation
Committee. Subject to the express provisions of the Management Plans, the
Compensation 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 Plans; 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996 and 1995, the Company paid legal fees totaling
approximately $232,000 and $135,000 to the law firm of Watson & Dana. Until May
21, 1997, Mr. Dana, a director of the Company and a member of the Compensation
Committee, was a member of Watson & Dana. Effective May 21, 1997, Mr. Dana
became employed as Chief Operating Officer and General Counsel of the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of June 30, 1997 by: (i) each
stockholder known by the Company to own beneficially 5% or more of the
outstanding shares of Common Stock; (ii) each director of the Company; (iii)
each of the Named Executive Officers; and (iv) all executive officers and
directors of the Company as a group. Unless otherwise indicated, the address for
each officer, director and 5% stockholder is c/o Synthetic Industries, Inc., 309
LaFayette Road, Chickamauga, Georgia 30707.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENT
---- ---------------- -------
<S> <C> <C>
5% STOCKHOLDERS:
Synthetic Industries, L.P.............................. 5,781,250(1) 64.69%
The Crabbe Huson Group, Inc.(2)........................ 738,000(2) 8.26%
NAMED EXECUTIVE OFFICERS:
Leonard Chill.......................................... 73,554(3)(4)(5) *
W. Wayne Freed......................................... 31,453(3)(4)(5) *
William Gardner Wright, Jr............................. 31,453(3)(4)(5) *
Ralph Kenner........................................... 31,453(3)(4)(5) *
Robert J. Breyley...................................... 5,472(4)(6) *
DIRECTORS:
Joseph F. Dana......................................... 28,906(4) *
Lee J. Seidler......................................... 57,813(4) *
William J. Shortt...................................... 19,271(4) *
Robert L. Voigt........................................ 19,271(4) *
All executive officers and directors as a
group (14 persons)(5)(6)(7).......................... 328,265 3.67%
</TABLE>
- ---------------
* Less than 1.0%.
(1) Under certain conditions the Partnership has the right to cause the Company
to register the sale of its shares of Common Stock. See "Certain
Relationships and Related Transactions."
(2) The business address for The Crabbe Huson Group, Inc. is 121 S.W. Morrison,
Suite 1400, Portland, Oregon 97204. Information regarding The Crabbe Huson
Group, Inc. has been obtained by the Company from a Schedule 13G filed by
The Crabbe Huson Group, Inc. with the Commission on or about April 14,
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1997. The Crabbe Huson Group, Inc. does not directly own any shares of
Common Stock. It has shared voting and investment power over 738,000 shares
of Common Stock.
(3) Includes 9,632 shares as to which such person may be deemed to have
beneficial ownership as a result of his indirect beneficial ownership of
0.1666% of a partnership interest in the Partnership.
(4) Includes shares of Common Stock subject to options exercisable within 60
days, as follows: Leonard Chill -- 63,923 shares; W. Wayne Freed -- 21,821
shares; William Gardner Wright, Jr. -- 21,821 shares; Ralph Kenner -- 21,821
shares; Robert J. Breyley -- 4,842 shares; Joseph F. Dana -- 28,906 shares;
Lee J. Seidler -- 57,813 shares; William J. Shortt -- 19,271 shares; Robert
L. Voigt -- 19,271 shares.
(5) Does not include 5,781,250 shares (other than the 9,632 shares described in
footnote 3 above) as to which Messrs. Chill, Wright, Kenner and Freed may be
deemed to have beneficial ownership by virtue of their indirect control of
the Partnership. See "Certain Relationships and Related Transactions."
(6) Includes 630 shares as to which Mr. Breyley may be deemed to have beneficial
ownership as a result of his indirect beneficial ownership of 0.0109% of a
partnership interest in the Partnership.
(7) Does not include (i) an aggregate of 19,976 shares of Common Stock subject
to options exercisable within 60 days that are owned by employees of the
Company other than the executive officers and (ii) an aggregate of 405,945
shares of Common Stock subject to options that are not exercisable within 60
days that are owned by directors, officers and employees of the Company.
Includes an aggregate of 38,528 shares as to which Messrs. Chill, Wright,
Kenner and Freed may be deemed to have beneficial ownership as a result of
their indirect beneficial ownership of 0.1666% each of a partnership
interest in the Partnership.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partner is the sole general partner of the Partnership.
Synthetic Management G.P. is the sole general partner of SI Management L.P. By
virtue of these relationships, Synthetic Management G.P. controls the management
and affairs of the Partnership and, therefore, the Company. The Partnership owns
5,781,250 shares of Common Stock, or approximately 67% of the issued and
outstanding shares of Common Stock, and therefore holds the voting power to
determine the outcome of all matters upon which stockholders vote.
The general partners of Synthetic Management G.P. are the following five
Delaware corporations: Chill Investments, Inc., Beckman Investments, Inc., Freed
Investments, Inc., Kenner Investments, Inc. and W.G. Wright Investments, Inc.
Each of Messrs. Chill, Beckman, Freed, Kenner and Wright is the sole director
and the sole stockholder of one of Synthetic Management G.P.'s general partners.
For further information concerning Messrs. Chill, Beckman, Freed, Kenner and
Wright, see "Management -- Executive Officers and Directors of the Company" and
" -- Executive Compensation."
The Company and the Partnership entered into a Registration Rights
Agreement pursuant to which the Company has agreed that upon request of the
Partnership the Company will register under the Securities Act and applicable
state securities laws the sale of the Common Stock owned by the Partnership and
as to which registration has been requested. The Company's obligation is subject
to certain limitations relating to a minimum amount required for registration,
the timing of a registration and other similar matters. The Company is obligated
to pay any registration expenses incidental to such registration, excluding
underwriters' commissions and discounts. In connection with the Common Stock
Offering, the Company incurred approximately $300,000 of such registration
expenses on behalf of the Partnership. The above description is qualified in its
entirety by reference to the Registration Rights Agreement, a copy of which was
filed as an exhibit to the Company's Registration Statement on Form S-4 (File
No. 333-28817), of which this Proxy Statement/Prospectus is a part. The
Partnership, however, is subject to a lock-up agreement with the underwriters of
the Common Stock Offering pursuant to which the Partnership has agreed not to
offer, sell, agree to sell, grant any option for the sale of or otherwise
dispose of, directly or indirectly, any shares of Common Stock (or any security
convertible into, exercisable for or exchangeable for Common Stock) without
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the consent of Bear, Stearns & Co. Inc. for a period of 270 days after November
1, 1996, and thereafter, until December 31, 1997, only pursuant to an
underwritten public offering.
Lee J. Seidler, a director of the Company, is presently associated with
Bear, Stearns & Co. Inc. ("Bear Stearns") as Managing Director Emeritus and from
time to time receives fees in connection with consulting and referral services
to Bear Stearns, including the Common Stock Offering and the offering of
$170,000,000 aggregate principal amount of 9 1/4% senior subordinated notes due
2007. Dr. Seidler has received from Bear Stearns in connection with such
services approximately $200,000 since the beginning of the Company's fiscal
year.
Jon P. Beckman, a former executive officer of the Company and an affiliate
of the General Partner, is being retained as a consultant to the Company.
Pursuant to his consulting agreement with the Company, Mr. Beckman will receive,
until January 31, 2000, or upon earlier termination of his consulting agreement,
$125,000 per year and various insurance coverages, and will be authorized to
exercise all stock options awarded to him, subject to applicable vesting
provisions. Under this agreement, Mr. Beckman is required to provide the Company
with 20 hours of consultation per month, has released the Company from any
liability resulting from his employment and has also agreed not to compete
against the Company.
The Company leases office space under a five-year lease with William
Gardner Wright, Jr., one of the Company's executive officers. The term of the
lease expires on September 30, 1998 and the rent is approximately $4,000 per
month, which the Company believes is within prevailing market rates.
Pursuant to a licensing agreement with the Company, W. Wayne Freed, an
executive officer of the Company, receives royalties related to the manufacture
and sale of a certain product for which Mr. Freed owns all of the U.S. and
foreign patents. Under this agreement, Mr. Freed received royalties of $3,079
and $12,269 in fiscal 1995 and 1996, respectively, and will continue to receive
such royalties until 2012 or the earlier termination of the license agreement.
See also the information and the transactions described under
"Management -- Compensation Committee Interlocks and Insider Participation."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
King & Spalding, counsel to the Partnership ("Counsel"), has advised the
Company that the following discussion expresses its opinion as to certain
federal income tax consequences of the implementation of the Plan. This
discussion is based on the Internal Revenue Code of 1986 (as amended) (the
"Code"), Treasury Regulations (including proposed regulations) promulgated
thereunder, administrative pronouncements and judicial decisions each as now in
effect, all of which are subject to change, possibly with retroactive effect.
The discussion below does not purport to address federal income tax consequences
applicable to particular categories of investors, some of which (for example,
financial institutions, insurance companies, foreign investors or persons who
acquired their Partnership interests generally within a two-year period of the
implementation of the Plan) may be subject to special rules. No ruling on any of
the issues discussed below will be sought from the Internal Revenue Service, and
the description of the income tax consequences below is not binding on the
Internal Revenue Service. As such, the Limited Partners should consult their own
tax advisors in determining the specific federal, state, local, foreign and any
other tax consequences to them of the implementation of the Plan. The Limited
Partners are not indemnified for any federal income taxes or other taxes that
may be imposed upon them and the imposition of any such taxes could reduce the
value of the Plan to any particular Limited Partner.
CLASSIFICATION AS A PARTNERSHIP
The federal income tax consequences of the Plan depend, in part, on the
entity classification of the Partnership. On December 17, 1996, the Internal
Revenue Service issued Treasury Regulation Sections 301.7701-1 through
301.7701-3 (the "Check-the-Box Regulations"), thereby changing the longstanding
entity classification regulations that were in effect at the time the
Partnership was formed. Under the Check-the-Box Regulations, a domestic entity
formed under a state limited partnership law is by default a partnership
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for federal income tax purposes, unless such entity elects to be taxed as a
corporation. The Partnership is a limited partnership that was validly formed
and recognized as a limited partnership at all times since its inception under
the state limited partnership law of Delaware. The Partnership has claimed to be
a partnership for federal income tax purposes since its inception, and neither
the Partnership nor the General Partner has been notified that the
classification of the Partnership was or is under examination by the Internal
Revenue Service. The General Partner will not cause or otherwise permit the
Partnership to elect to be taxable as a corporation. Based on these facts as
represented by the General Partner in its individual capacity and as the general
partner of the Partnership, the Partnership is a partnership for federal income
tax purposes.
This discussion takes into account Section 7704 of the Code which generally
provides that "publicly traded partnerships" are taxable as corporations.
Section 7704(b) of the Code defines the term "publicly traded partnership" to
mean any partnership if: (i) interests in the partnership are traded on an
established securities market, or (ii) interests in the partnership are readily
tradeable on a secondary market (or the substantial equivalent thereof). The
legislative history of Section 7704 of the Code provides that a secondary market
for interests in a partnership or the substantial equivalent thereof exists if
investors are readily able to buy, sell or exchange their partnership interests
in a manner that is comparable, economically, to trading on established
securities markets. A secondary market or substantial equivalent thereof also
exists if prospective buyers and sellers otherwise have the opportunity to buy,
sell or exchange interests in a partnership in a time frame and with the
regularity and continuity that is comparable to more established secondary
markets (e.g., where quotes are regularly available).
The determination of whether a secondary market or substantial equivalent
thereof exists is based on all of the facts and circumstances relevant in any
particular case. Certain transfers are disregarded in determining whether
interests in a partnership are readily tradeable on a secondary market or the
substantial equivalent thereof, including (but not limited to) transfers at
death, transfers between family members, transfers involving distributions from
a qualified retirement plan or individual retirement account, certain material
transfers between related parties, and transfers not recognized by the
partnership (collectively the "Exempt Transfers"). In addition, partnership
interests will not be readily tradeable on a secondary market or the substantial
equivalent thereof, if any one of several other exceptions is satisfied. One of
these exceptions provides that a secondary market or its equivalent will not
exist if the sum of the interests in partnership capital or profits attributable
to those partnership interests that are sold, redeemed, or otherwise disposed of
during the partnership's taxable year does not exceed two percent of the total
interests in partnership capital or profits. The Exempt Transfers, among other
items, do not count towards the two percent ceiling.
Section 7704 of the Code does not apply to any partnership for any taxable
year if (1) 90 percent or more of the gross income of the partnership for such
taxable year consists of interest, dividends, or other types of qualifying
income, and (2) the partnership, at all times during such year, neither is
registered under the Investment Company Act of 1940, as amended, (the "1940
Act") as a management company or unit investment trust, has in effect an
election under the 1940 Act to be treated as a business development company, nor
is a common trust fund or similar fund excluded by Section 3(c)(3) of the 1940
Act from the definition of "investment company" that is not a common trust fund
as defined under Section 584(a) of the Code (collectively referred to as the
"1940 Act provisions").
The General Partner, in its individual capacity and as the general partner
of the Partnership has represented that, since the inception of the Partnership
and through the Dissolution, Units have not and will not be traded on an
established securities market and have not been and will not be readily
tradeable on a secondary market or the substantial equivalent thereof. It has
been determined that the Partnership has not met the terms of any of the 1940
Act provisions at any time and will not meet any such terms. Based on these
representations and determinations, the Partnership is not taxable under Section
7704 of the Code.
If, for any reason, the Partnership were treated for federal income tax
purposes as a corporation, the federal income tax consequences of the
implementation of the Plan would be different from the description in this
"Certain United States Federal Income Tax Considerations." The Partnership would
be required to pay federal income tax at corporate tax rates on any net gain
realized upon the distribution of the Common Stock
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to the Partners. The Partners, including the Limited Partners that do not make a
Withdrawal Election, generally would recognize gain or loss upon the
distribution of Common Stock in redemption of their Units.
PRINCIPLES OF PARTNERSHIP TAXATION APPLICABLE TO THE PLAN
Subject to exceptions not applicable to the implementation of the Plan and
the discussion of Section 731(c) of the Code below, a partner does not recognize
gain upon the distribution of property by a partnership to the partner, except
to the extent that any money distributed exceeds the adjusted basis of the
partner's interest in the partnership immediately before the distribution. The
partner does not recognize loss upon any such distribution, except when only
money and certain other assets not applicable to the implementation of the Plan
are distributed. As a general rule, partnerships recognize no gain or loss on
the distribution of any property to its partners.
The basis of property (other than money) distributed by a partnership to a
partner other than in liquidation of such partner's interest generally shall be
the partnership's adjusted basis in the property immediately before the
distribution but, in no event, shall it exceed the distributee partner's
adjusted basis of such partner's interest reduced by any money distributed in
the same transaction. In the context of a liquidation of a partner's interest in
a partnership, the basis of property distributed to a partner generally is an
amount equal to the adjusted basis of such partner's interest in the
partnership, generally determined immediately before the liquidation (adjusted
to reflect any partnership tax items subsequently allocated to such partner),
reduced by any money distributed by the partnership to the partner as part of
the same transaction.
Under Section 731(c) of the Code, marketable securities generally will be
treated as money for purposes of determining whether partners recognize gain
with respect to partnership distributions as described above. Marketable
securities are defined to include, in part, (i) financial instruments that are
actively traded within the meaning of Section 1092(d)(1) of the Code, (ii)
financial instruments the value of which is determined substantially by
reference to marketable securities, (iii) financial instruments which are
readily convertible into, or exchangeable for, money or marketable securities ,
and (iv) any interest in an entity if, at the time the interest is distributed
by the partnership, substantially all (i.e., 90 percent or more) of the assets
of the entity consist of money, marketable securities or both. In addition, any
interest in an entity will be treated as a marketable security but only to the
extent of the value of such interest which is attributable to money, marketable
securities or both, at the time the interest is distributed by the partnership.
This latter provision applies only if less than 90 percent but 20 percent or
more of the assets of the entity (determined by value) at the time the interest
in the entity is distributed consist of money, marketable securities or both.
The Common Stock is currently listed on the Nasdaq National Market and will
be so listed when distributed by the Partnership under the Plan. Therefore, the
Common Stock will be a marketable security within the meaning of Section 731(c)
of the Code at that time. Applicable Treasury Regulations provide that Section
731(c) of the Code does not apply, however, to marketable securities if the
following conditions are met: (1) such securities must not have been marketable
when acquired by a partnership, (2) the entity that issued the securities had no
outstanding marketable securities at the time such securities were acquired by
the partnership, and (3) the partnership distributes such securities within five
years of the date the securities became marketable. The General Partner, in its
individual capacity and as the general partner of the Partnership, and the
Company each has represented that the first two of three conditions have been
met. Therefore, the Partnership's distributions of the Common Stock as
contemplated under the Plan qualifies for this exception to Section 731(c) of
the Code, provided that the Dissolution is completed in accordance with the
Plan.
Despite qualifying for the exception discussed in the immediately preceding
paragraph, the Common Stock could be a marketable security in whole or in part
subject to Section 731(c) of the Code if 20 percent or more of the Company's
assets consist of marketable securities, cash or both at the time the Common
Stock was acquired by the Partnership or at the time it is distributed by the
Partnership. The General Partner, in its individual capacity and as the general
partner of the Partnership, and the Company each has represented that, at the
time the Partnership acquired the Common Stock and at all times since then, the
Company has not held
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money, marketable securities, or both having a total value equal to or exceeding
20 percent of the total value of all assets of the Company ("excessive money and
marketable securities"). Each also has represented that the Company will not
acquire excessive money and marketable securities prior to the completion of the
plan. Provided that the Company does not acquire excessive money and marketable
securities and the Partnership does not acquire money or marketable securities
prior to completion of the Plan, the implementation of the Plan will not be
subject to the application of Section 731(c) of the Code.
This discussion assumes that the Dissolution will occur (1) by November 1,
2001; (2) at a time when less than 20 percent of the Company's assets consists
of marketable securities, cash or both; and (3) at a time when the Partnership
does not hold or own money or other marketable securities. If the Plan is
approved by the Limited Partners, the Dissolution will occur as described
herein, whether or not the Underwritten Sale is completed. Depending on all of
the facts and circumstances, the federal income tax consequences of failing to
meet these conditions may be minimal. Any gain recognized by a Limited Partner
under Section 731(c) of the Code upon a later distribution of Common Stock (or
other marketable securities) generally would be reduced by an amount equal to
the excess of such Limited Partner's share of total net gain in the
Partnership's marketable securities which would be recognized if the Partnership
sold all of its marketable securities immediately before such distribution over
such Limited Partner's share of such gain immediately after the distribution. In
addition, although not free from doubt, the Partnership in fact may be exempt
from the application of Section 731(c) of the Code as an "investment
partnership" as defined therein.
TREATMENT OF COMPLETE OR PARTIAL WITHDRAWAL AND THE UNDERWRITTEN SALE
Based on the facts described herein, the representations of the General
Partner (in its individual capacity and on behalf of the Partnership) and the
Company (including the representation to the effect that, at the time of each
and every distribution of Common Stock, the Partnership will have no asset other
than Common Stock) and the discussion above, neither the Partnership nor any
Withdrawal Election Partner will recognize gain or loss with respect to the
Withdrawal.
The Withdrawal will be characterized as a retirement of the Partnership
interests of those Withdrawal Election Partners who elect to withdraw their
entire interests in the Partnership pursuant to the Withdrawal. Each such
Withdrawal Election Partner will have a total tax basis in such Partner's
allocable shares of Withdrawn Shares equal to the total tax basis (including tax
basis allocable to shares sold in the Underwritten Sale) of such Limited
Partner's Units as determined immediately before the Withdrawal. Upon completion
of the Plan, each Withdrawal Election Partner who does not withdraw entirely
from the Partnership pursuant to the Withdrawal will have a total tax basis
(including tax basis allocable to shares sold in the Underwritten Sale) in such
Limited Partner's allocable shares of Withdrawn Shares and Remaining Shares
equal to the total tax basis of such Limited Partner's Units as determined
immediately before the Withdrawal (as adjusted to reflect any Partnership tax
items subsequently allocated to such Limited Partner).
Upon the completion of the Underwritten Sale in whole or in part, each
Withdrawal Election Partner will recognize gain equal to the excess, if any, of
the amount of cash such Partner receives from the Withdrawal Agent over the
total tax basis of such Partner's allocable shares of Withdrawn Shares sold
pursuant to the Underwritten Sale or will recognize loss equal to the excess, if
any, of the total tax basis of such Partner's allocable shares of Withdrawn
Shares sold pursuant to the Underwritten Sale over the amount of cash such
Partner receives from the Withdrawal Agent. Because the Partnership has held the
Common Stock for longer than one year, any such gain or loss will be long-term
capital gain or loss (except for particular investors the tax consequences to
which are not addressed in this discussion). Each Limited Partner should consult
such Partner's own tax advisor regarding the tax basis of specific Shares sold
in the Underwritten Sale.
TREATMENT OF THE DISSOLUTION
Based on the facts described herein, the representations of the General
Partner (in its individual capacity and on behalf of the Partnership) and the
Company (including the representation to the effect that, at the time of each
and every distribution of Common Stock, the Partnership will have no asset other
than Common Stock) and the discussion above, neither the Partnership nor any
Partner will recognize gain or loss with
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respect to the Dissolution. The total tax basis of the Remaining Shares
distributed to each Partner who does not make a Withdrawal Election will equal
the total tax basis of such Partner's Units as determined immediately before the
first distribution made pursuant to the Dissolution (as adjusted to reflect any
Partnership tax items subsequently allocated to such Limited Partner).
TREATMENT OF REPAYMENT OF PARTNERSHIP LIABILITIES AND PLAN COSTS
As part of the implementation of the Plan, the Partnership will repay all
of its outstanding liabilities (including costs that it has incurred in
connection with reviewing other options and has incurred and, based on estimates
immediately prior to the Withdrawal, will incur to implement the Plan) by
selling Shares or transferring Shares to the Company immediately before the
Withdrawal. The use of Shares to repay such liabilities will result in the
recognition of taxable gain or loss which (along with Plan costs) will be
allocated to the Partners in accordance with the terms of the Partnership
Agreement. The Partners will recognize taxable gain or loss resulting from the
use of Shares to repay the liabilities. The Company will pay, without
reimbursement from the Partnership, any Plan costs of the Partnership that
exceed the costs estimated immediately before the Withdrawal. In the event that
actual costs are less than the estimated costs, the Company will refund the
excess in the form of additional shares of Common Stock to be distributed to the
Remaining Partners. It is not expected that the Partnership's costs will be less
than the estimated costs. It is also not expected that the Partnership's costs
materially will exceed the estimated costs. Nevertheless, any such variance
could result in additional income being recognized by Remaining Partners. Each
Limited Partner should consult such Limited Partner's own tax advisor regarding
the tax consequences of the repayment of partnership liabilities and Plan costs
relevant to such Limited Partner.
BACKUP WITHHOLDING AND REPORTING OBLIGATIONS
A 31% backup withholding and information reporting requirements will apply
to the Withdrawal Election Partners with respect to any proceeds from the
Underwritten Sale. Specifically, each Withdrawal Election Partner will be
subject to backup withholding at a rate of 31% with respect to the payment of
that Partner's share of any proceeds, unless such Partner (a) provides a correct
taxpayer identification number ("TIN"), certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable backup
withholding rules, or (b) comes within certain exempt categories and, when
required, demonstrates that fact. A Withdrawal Election Partner that does not
provide his or her correct TIN may be subject to penalties imposed by the
Internal Revenue Service. Any amount paid as backup withholding will be
creditable against the Partner's federal income tax liability provided that the
required information is furnished to the Internal Revenue Service.
OTHER MATTERS
Neither the General Partner, the Partnership nor Counsel can guarantee that
any federal income tax consequences described in this section will be available.
The availability of the federal income tax considerations as described above is,
in large part, dependent on past, present and future facts and circumstances.
Thus, an opinion of Counsel represents only such counsel's best legal judgment
and relies on the accuracy and completeness of the representations of the
General Partner, the Partnership and the Company and of certain assumptions made
with the consent of the General Partner, the Partnership and the Company. An
opinion has no binding effect or official status of any kind, so that no
assurance can be given that the opinion would be sustained by a court, if
contested, or that legislative or administrative changes or court decisions may
not be forthcoming which would require modifications of the statements and
conclusions expressed herein. Moreover, the General Partner has not requested
and will not request a private ruling from the Internal Revenue Service
regarding the classification of the Partnership as a partnership for federal
income tax purposes or any of the tax consequences of the Plan. The Internal
Revenue Service is not precluded from challenging the tax consequences of the
Plan as described above.
EACH PARTNER ALSO SHOULD BE AWARE THAT THE FOREGOING SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF UNITED STATES FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO A PARTICULAR PARTNER IN LIGHT OF ITS CIRCUMSTANCES
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AND INCOME TAX SITUATION. FOR THESE REASONS, EACH PARTNER SHOULD CONSULT ITS OWN
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH PARTNER OF THE
IMPLEMENTATION OF THE PLAN.
STATE AND OTHER TAX MATTERS
In addition to the federal income tax consequences described in "Certain
United States Federal Income Tax Considerations," the Partners should consider
the foreign, state and local tax consequences of the implementation of the Plan.
Foreign, state and local tax law may differ substantially from federal income
tax law, and the discussion above does not describe any aspect of foreign, state
or local taxation. Each Partner should consult its own tax advisor with respect
to such tax matters.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of
25,000,000 shares of Common Stock, par value $1.00 per share, of which 8,656,250
shares are issued and outstanding.
COMMON STOCK
Each share of Common Stock is entitled to share equally in dividends if,
as, and when declared by the Board and, upon liquidation or dissolution of the
Company, whether voluntary or involuntary, to share equally in the assets of the
Company available for distribution to the holders of the Common Stock. Each
holder of Common Stock is entitled to one vote per share for all purposes. The
holders of Common Stock have no preemptive rights and there is no cumulative
voting, redemption right or right of conversion with respect to the Common
Stock. All outstanding shares of Common Stock are fully paid and nonassessable.
The Board is authorized to issue additional shares of Common Stock within the
limits authorized by the Certificate of Incorporation and without stockholder
action.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation contains provisions to indemnify the
Company's directors and officers to the fullest extent permitted by the Delaware
General Corporation Law (the "DGCL"), including payment in advance of a final
disposition of a director's or officers' expenses and attorneys' fees incurred
in defending any action, suit or proceeding. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION
The Certificate of Incorporation requires that any action required or
permitted to be taken by the Company's stockholders must be effected at a duly
called annual or special meeting of stockholders and may not be effected by
consent in writing. The provisions requiring stockholders to take action only at
a duly called annual or special meeting may be amended, altered or repealed only
upon the affirmative vote of the holders of at least 66 2/3% of the outstanding
shares of voting stock of the Company.
SECTION 203 OF THE DGCL
Generally, Section 203 of the DGCL prohibits certain Delaware corporations
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time of the transaction in which the person
became an interested stockholder, unless (i) prior to the time the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85% of the outstanding voting stock, or (iii) at or after such time the
business combination is approved by the board of directors and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder. A "business combination" includes
mergers, asset sales and other transactions
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resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. A Delaware corporation may "opt out" from the
application of Section 203 of the DGCL through a provision in its certificate of
incorporation or by-laws. The Company has not opted out of Section 203 of the
DGCL and thus is subject to this provision which could render more difficult or
discourage a merger, tender offer or other similar transaction.
REGISTRATION RIGHTS
In connection with the Common Stock Offering, the Company and the
Partnership entered into a Registration Rights Agreement pursuant to which the
Company agreed that upon request of the Partnership the Company will register
under the Securities Act and applicable state securities laws the sale of the
Common Stock owned by the Partnership and as to which registration has been
requested. The Company's obligation is subject to certain limitations relating
to a minimum amount required for registration, the timing of a registration and
other similar matters. The Company is obligated to pay any registration expenses
incidental to such registration, excluding underwriters' commissions and
discounts. The above description is qualified in its entirety by reference to
the Registration Rights Agreement, a copy of which was filed as an exhibit to
the Company's Registration Statement on Form S-4 (File No. 333-28817), of which
this Proxy Statement/Prospectus is a part. The Partnership, however, is subject
to a lock-up agreement with the underwriters of the Common Stock Offering
pursuant to which the Partnership agreed not to offer, sell, agree to sell,
grant any option for the sale of or otherwise dispose of, directly or
indirectly, any shares of Common Stock (or any security convertible into,
exercisable for or exchangeable for Common Stock) without the consent of Bear,
Stearns & Co. Inc. for a period of 270 days after November 1, 1996, and
thereafter, until December 1, 1997, only pursuant to an underwriting public
offering.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is BankBoston.
SUMMARY OF CERTAIN PROVISIONS OF THE PARTNERSHIP AGREEMENT
The Partnership Agreement is the governing instrument which establishes the
Partnership's right under the laws of the State of Delaware to operate under its
name as a limited partnership and contains the rules under which the Partnership
will be operated. Many of the principal provisions of the Partnership Agreement
have been summarized elsewhere in this Proxy Statement/Prospectus under various
headings, in particular under "Summary Comparison of Rights of Units and Common
Stock," and certain other provisions of the Partnership Agreement are summarized
below. For complete information, however, reference is made to the Partnership
Agreement a copy of which has been filed as an exhibit to the Registration
Statement of which this is a part.
The following statements and other statements in this Proxy
Statement/Prospectus concerning the Partnership Agreement and related matters
are merely a summary, do not purport to be complete and are subject to, and
qualified in their entirety by reference to, the Partnership Agreement. Such
statements in no way modify or amend the Partnership Agreement and do not take
into account the proposed Amendment. See "The Plan of Withdrawal and
Dissolution -- Amendment to the Partnership Agreement."
MANAGEMENT OF THE PARTNERSHIP; POWERS AND DUTIES OF THE GENERAL PARTNER
The General Partner, whose express duties and responsibilities are set
forth in the Partnership Agreement, has certain exclusive powers and rights,
including (i) the full, complete and exclusive discretion to manage the
Partnership and to control and conduct the Partnership's business, (ii) the
right to execute such documents as it deems necessary or appropriate in
connection with the management of the Company or other Partnership purposes and,
as attorney-in-fact for each of the Limited Partners, to execute, deliver and
file certain documents, including all instruments necessary to effect the
dissolution of the Partnership, (iii) the power to perform or cause to be
performed all of the Partnership's obligations under any agreement to which
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the Partnership is a party and (iv) the right to call a meeting of the Partners
in connection with any matter, pursuant to the Partnership Agreement, on which
the Partners may vote. The Limited Partners have no authority to participate in
the management or control of the Partnership's business and have no authority or
right to act for or bind the Partnership.
LIABILITY OF THE GENERAL PARTNER AND LIMITED PARTNERS TO THIRD PARTIES
The General Partner is liable for all general obligations of the
Partnership to the extent not paid by the Partnership. All decisions made for or
on behalf of the Partnership by the General Partner are binding upon the
Partnership.
No Limited Partner is personally liable for the debts of the Partnership or
shall be liable to pay for any loss beyond the amount of his or her Capital
Contribution to the Partnership, unless, in addition to the exercise of its
rights and powers as a Limited Partner, he or she takes part in the control of
the business of the Partnership.
The Delaware Revised Uniform Limited Partnership Act and the Partnership
Agreement provide that, in certain circumstances, the Limited Partners may be
liable to return amounts previously distributed to them.
DISSOLUTION AND LIQUIDATION
The Partnership shall continue in full force and effect until December 31,
2035, unless terminated earlier as a result of
(1) the sale or other disposition of all or substantially all of the assets
of the Company (other than to an entity owned in whole or in part,
directly or indirectly, and controlled by, the Partnership);
(2) a determination to dissolve the Partnership by a majority in interest
of the Limited Partners;
(3) the removal, retirement, death, dissolution, insanity or resignation of
a General Partner or the bankruptcy or insolvency of a General Partner
which is not discharged or vacated within 90 days from the date
thereof, unless all of the Limited Partners agree to continue the
business of the Partnership within 120 days of the occurrence of such
an event; or
(4) the occurrence of any other event causing the dissolution of the
Partnership under the laws of the State of Delaware.
Upon dissolution of the Partnership, the Partnership's assets will applied
to the payment, or providing for payment when due, of obligations of the
Partnership to third parties. All remaining net assets will then be distributed
among the General Partner and the Limited Partners in proportion to their
respective Capital Accounts.
ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS; PRIORITY RETURN
The Partnership Agreement provides that income, gains, losses, deductions,
credits and distributions of the Partnership will generally be allocated among
and credited 99% to the Limited Partners in proportion to their respective
capital account contributions and 1% to the General Partner until such time as
the aggregate of distributions of cash and other property to all of the Partners
is equal to the aggregate capital account contributions of all of the Partners
plus an amount equivalent to a return thereon of 6%, compounded annually. At
such time, the "Priority Return" is deemed to occur and, thereafter until the
liquidation and termination of the Partnership, income, gains, losses,
deductions, credits and distributions of the Partnership will be allocated 70%
to the Limited Partners in proportion to their respective capital contributions
and 30% to the General Partner. Upon the liquidation and termination of the
Partnership, distributions will be made as follows: (i) until the Priority
Return is reached, 99% to the Limited Partners in proportion to their respective
capital account contributions and 1% to the General Partner, (ii) after the
Priority Return is reached, 100% to the General Partner until the ratio of the
aggregate capital accounts is 70% for the Limited Partners and 30% for the
General Partner, and (iii) after the ratio of the aggregate capital accounts is
70% for the Limited Partners
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<PAGE> 81
and 30% for the General Partner, 70% to the Limited Partners in proportion to
their respective capital account contributions and 30% to the General Partner.
VOTING RIGHTS OF LIMITED PARTNERS
The Limited Partners do not have the right to participate in the management
or control of the Partnership's business. The Partnership Agreement provides,
however, that the Limited Partners may, among other matters:
(a) by vote of a majority in interest of the Limited Partners, amend the
Partnership Agreement, provided that no amendment may alter or modify the
percentage or allocation of distributions to which Partners are entitled, amend
the specific rights granted therein to the Limited Partners or, without the
consent of the Partners so affected, alter or modify the rights, obligations,
and liabilities of the Partners, or increase the required capital contribution
of the Partners;
(b) by vote of two-thirds in interest of the Limited Partners, approve or
disapprove the sale of all or substantially all of the Partnership's assets;
(c) by vote of a majority in interest of the Limited Partners, dissolve the
Partnership; or
(d) by vote of a majority in interest of the Limited Partners, remove any
General Partner.
The General Partner may at any time call a meeting of Limited Partners and
is required to give notice of such a meeting within seven days of receipt of a
written request therefor signed by ten percent or more in interest of the
Limited Partners, if in receipt of certain opinions of counsel approved by the
same percentage in interest of the Limited Partners as is required to take the
action to which the meeting relates.
ADDITIONAL GENERAL PARTNERS
The General Partner may at any time designate one or more persons as
additional general partners, provided that the interests of the Limited Partners
are not reduced thereby. The designation must comply with the provisions of the
Delaware Revised Uniform Limited Partnership Act with respect to admission of an
additional general partner.
REMOVAL, WITHDRAWAL, BANKRUPTCY, INSOLVENCY, DISSOLUTION, RETIREMENT OR
RESIGNATION OF THE GENERAL PARTNER
The Limited Partners may, by vote of a majority in interest, vote to remove
any General Partner from the Partnership. The General Partner is also permitted,
at its discretion, to resign at any time. 100% in interest of the Limited
Partners must designate a successor general partner within 120 days, or the
Partnership will be dissolved. In the event of the removal or voluntary
withdrawal of the General Partner, the General Partner shall cease to be a
general partner of the Partnership and a portion of its interest will be
assigned, pro rata with the Limited Partners, to any successor general partner
so that the successor general partner has not less than 1% in interest in the
Partnership. Any such interest not so assigned will, at the option of the
Partnership, either be converted into a special limited partner interest and
retained by the General Partner or purchased by the Partnership for its
appraised value in accordance with the terms of the Partnership Agreement. In
the event of the bankruptcy, insolvency, dissolution, retirement or resignation
of the General Partner, if 100% in interest of the Limited Partners appoint a
successor general partner, the successor general partner shall succeed to the
interest of the bankrupt, insolvent, dissolved, retired or resigned General
Partner without compensation to the latter.
REIMBURSEMENT OF GENERAL PARTNER EXPENSES
The Partnership will reimburse the General Partner for certain of its
expenses. Such reimbursements may include reimbursement for reasonable,
documented, out-of-pocket expenses incurred on behalf of the Partnership. The
Partnership will not reimburse the General Partner for any expenses incurred in
the ordinary
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courses of its business as General Partner of the Partnership, including
expenses in respect of the employees of the Partnership, or for any items of
general overhead.
AMENDMENTS
The Partnership Agreement may be amended upon the written request of a
majority in interest of the Limited Partners provided that no such amendment
shall in any way (i) alter, modify or expand the rights, obligations and
liabilities of the General Partner without its consent, (ii) alter or modify the
percentage of distributions or the distributions allocated to each Partner,
(iii) increase the liability or the required capital contribution of any Partner
without the consent of such Partner, (iv) diminish the rights, obligations and
liabilities of any Limited Partner without the consent of such Limited Partner,
or (v) amend the specific rights granted to the Limited Partners therein. The
Partnership Agreement may also be amended by the General Partner, without the
consent of the Limited Partners, if (i) such amendments are required by state
securities or "Blue Sky" commissioners and are for the benefit of or not adverse
to the interests of the Limited Partners or (ii) the distribution and allocation
provisions of the Partnership Agreement are unlikely to be respected for federal
income tax purposes. Also, the power of attorney contained in the Partnership
Agreement empowers the General Partner to amend the Partnership Agreement to
admit additional Limited Partners into the Partnership, to increase the Capital
Contribution of a Partner or to comply, in the judgment of the General Partner,
with applicable law.
DESIGNATION OF TAX MATTERS PARTNER
Pursuant to Section 6231 of the Internal Revenue Code of 1986, as amended,
and the regulations thereunder and the Partnership Agreement, the General
Partner is designated the "tax matters partner" for purposes of filing tax
returns, representing the Partnership in connection with all examinations of the
Partnership's affairs by tax authorities and making certain elections under the
Code.
APPLICABLE LAW
The Partnership Agreement shall be construed and enforced in accordance
with the laws of the State of Delaware.
BOOKS AND RECORDS
The fiscal year of the Partnership will be the year ending September 30.
The books and records of the Partnership shall be maintained by the General
Partner. Such books and records shall be available for reasonable inspection and
examination by any Limited Partner, or any duly authorized representative of
such Limited Partner.
TRANSFERABILITY OF THE UNITS
The transfer of Units requires the written consent of the General Partner,
which consent may be withheld in the complete discretion of the General Partner,
except for transfer by will or intestacy. In addition, because a transfer or
assignment of 50% or more of the capital and profits interests of the
Partnership within a 12-month period will terminate the Partnership for Federal
income tax purposes, which may result in adverse tax consequences to Limited
Partners, the Partnership Agreement prohibits the transfer or assignment (except
by gift or bequest) of interests if such transfer, when added to all other
transfers in any 12-month period, would represent the transfer of 49% or more of
the capital interests of the Partnership. If a transfer would otherwise take
place but for the 49% threshold having been reached, the Partnership Agreement
permits the liquidation of such interest for fair market value.
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<PAGE> 83
SUMMARY COMPARISON OF RIGHTS OF UNITS AND COMMON STOCK
The following summary compares a number of differences between ownership of
Units and ownership of shares of Common Stock and the effects relating thereto.
The following statements do not purport to be complete and are qualified in
their entirety by reference to the Partnership Agreement and the Company's
Certificate of Incorporation. See "Description of Capital Stock" and "Summary of
Certain Provisions of the Partnership Agreement."
UNITS COMMON STOCK
TRANSFERABILITY
<TABLE>
<S> <C>
Subject to certain limited exceptions, Units may not The Common Stock is freely transferable and is quoted
be transferred without the written consent of the on the Nasdaq National Market.
General Partner. There is no established public
trading market for the Units.
</TABLE>
PERMITTED ACTIVITIES
<TABLE>
<S> <C>
The Partnership Agreement provides that the Part- The Company's Restated Certificate of Incorporation
nership may engage in the ownership and operation of and Bylaws contain no restrictions on the activities
the Company and such other ancillary and related in which the Company may engage.
businesses as the General Partner shall deem
desirable.
</TABLE>
FINANCIAL REPORTING
<TABLE>
<S> <C>
The Partnership is subject to the reporting require- The Company is subject to the reporting requirements
ments of the Exchange Act. The Partnership must also of the Exchange Act, and its Shareholders receive
prepare and provide to its Partners statutorily reports prepared in accordance with the rules and
required tax information. regulations of the Commission.
</TABLE>
TAXATION, DISTRIBUTIONS AND DIVIDENDS
<TABLE>
<S> <C>
The Partnership is not a taxable entity under the The Company is subject to federal and state income
Internal Revenue Code. Accordingly, Partners report taxes on corporate income. Shareholders will have
and pay federal income taxes on the basis of their taxable income from the Company's operations to the
distributive share of partnership income, gains, extent that taxable dividends are declared and paid
losses, credits and deductions, if any, whether or on the Common Stock. The Bylaws of the Company
not any cash distributions are actually made. The provide that the Board of Directors has the authority
Partnership Agreement provides that, other than in to declare dividends as and when they deem it to be
connection with a sale of all or substantially all of expedient to the extent permitted by law. To date,
the assets of, or the liquidation of, the the Company has not declared or paid any cash or
Partnership, the General Partner has the authority to other dividends on the Common Stock and intends for
determine the amount available for distribution to the foreseeable future to retain its earnings to
the Partners. Distributions, if any, generally are finance the development of its business and for
made 1% to the General Partner and 99% to Limited repayment of debt.
Partners until Limited Partners are provided with a
6% per annum compounded return on their adjusted
aggregate capital contributions, and thereafter 30%
to the General Partner and 70% to Limited Partners.
The General Partner has not made any such distribu-
tions in the past.
</TABLE>
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<PAGE> 84
UNITS COMMON STOCK
VOTING RIGHTS
<TABLE>
<S> <C>
The General Partner controls the business of the Each share of Common Stock entitles its holder to
Partnership. Limited Partners may not participate in cast one vote on matters as to which voting is
the management of the Partnership without jeop- permitted or required by the Delaware General
ardizing their limited liability. Limited partners Corporation Law, including the election of direc-
have, however, certain enumerated rights, such as the tors, amendments to the Company's Restated Cer-
removal and replacement of the General Partner. tificate of Incorporation and mergers and other
Amendments to the Partnership Agreement and removal extraordinary transactions. Generally, matters re-
of the General Partner require the affirmative vote quiring the vote of the Common Stock are approved by
of Limited Partners holding a majority of outstanding the affirmative vote of the holder of a majority of
Units. The approval of two- thirds of the outstanding the shares of Common Stock at a meeting of
Units is required for the sale or other disposition stockholders at which a quorum is present.
of all or substantially all of the assets of the
Partnership.
</TABLE>
LIMITED LIABILITY
<TABLE>
<S> <C>
Limited Partners' liability with respect to the Shares of Common Stock are fully paid and nonas-
activities of the Partnership is generally limited sessable. Stockholders do not have personal liability
to their original capital contributions. In certain for the obligations of the Company.
circumstances, they may be liable for amounts
distributed or returned to them.
</TABLE>
CHANGE OF CONTROL
<TABLE>
<S> <C>
There is no provision in the Delaware Revised Uniform The Company, as a Delaware corporation, is subject to
Limited Partnership Act comparable to the Section 203 of the Delaware General Corporation Law,
provisions contained in Section 203 of the Delaware which prohibits business combinations with interested
General Corporation Law, or in the Partnership stockholders for a period of three years following
Agreement that restricts change of control the date such stockholder became an owner of 15% or
transactions with Partners. Changes in management can more of the outstanding voting stock of the Company.
be effected only by removal of the General Partner. The Company's Restated Certificate of Incorporation
prohibits stockholders acting by written consent,
which may impede a takeover attempt. The Company has
no other provision in its Restated Certificate of
Incorporation or its Bylaws with an antitakeover
effect.
</TABLE>
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UNITS COMMON STOCK
INDEMNIFICATION
<TABLE>
<S> <C>
The Delaware Revised Uniform Limited Partnership Act, The Delaware General Corporation Law, Section 145,
Section 17-108, states that a limited partnership permits a corporation to indemnify any person who is
has the power to indemnify any partner or person or is threatened to be made a party to any suit due
unless restricted by its partnership agreement. to the fact that such person is a director, officer,
The Partnership Agreement generally provides for the employee or agent acting on behalf of such
indemnification of the General Partner and its corporation, subject to a determination by the Board
affiliates, provided such person's actions were of Directors that such person has met certain
determined in good faith to be in the best interest standards of conduct.
of the Partnership and did not involve negligence or The Company's Restated Certificate of Incorporation
misconduct. and Bylaws provide for the indemnification of any
director, officer, employee or agent of the Company
to the fullest extent permitted by applicable law.
</TABLE>
FIDUCIARY DUTIES
<TABLE>
<S> <C>
Under Delaware law, and subject to the terms of the Under the Delaware General Corporation Law, a
Partnership Agreement, the General Partner has director of a corporation must perform his or her
fiduciary duties of good faith, loyalty and fair duties as a director in good faith and with that
dealing to Limited Partners in the management of degree of care which an ordinarily prudent person in
Partnership affairs. a like position would use under similar circum-
stances.
</TABLE>
REMOVAL OF THE GENERAL PARTNER OF THE PARTNERSHIP
AND DIRECTORS OF THE COMPANY
<TABLE>
<S> <C>
The General Partner may be removed by an affirmative Delaware General Corporation Law provides that any
vote of Limited Partners holding a majority of director or the entire Board of Director may be
Units. In such event, Limited Partners holding all of removed, with or without course, by the holders of a
the outstanding Units may designate a successor majority of the shares then entitled to vote at an
general partner or the Partnership will be dissolved. election of directors.
</TABLE>
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UNITS COMMON STOCK
RIGHT TO CALL MEETINGS AND SUBMIT PROPOSALS
<TABLE>
<S> <C>
The Partnership Agreement provides that meetings of The Company's charter documents, as permitted by the
the Partners may be called by Limited Partners Delaware General Corporation Law, do not authorize
holding more than 10% of the outstanding Units for stockholders to request a meeting of the Company.
any matter on which the Partners may vote provided Stockholders may submit proposals for consideration
that the Partnership receives certain opinions of only at annual meetings and, in addition to complying
counsel regarding the legality of the action, and with federal securities laws and other laws, must
that the action would not affect either the Limited deliver notice to the Secretary of the Company, or
Partners' limited liability or the Partnership's tax such notice must be mailed and received at the
status. Limited Partners holding a majority of the principal executive offices of the Company, within 10
outstanding Units may propose, subject to certain days following the day on which notice of the date of
limitations, amendments to the Partnership Agreement. the annual meeting was mailed or public disclosure of
the date of the meeting was made. A stockholder's
notice must set forth as to each matter the
stockholder proposes (a) a brief description of the
business desired to be brought before the annual
meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address of
the stockholder proposing such business, (c) the
class and number of shares of the Company that are
beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such
business.
</TABLE>
LIQUIDATION RIGHTS
<TABLE>
<S> <C>
Upon liquidation of the Partnership, Limited Part- In the event of a liquidation of the Company, the
ners share in any assets available for distribution holders of Common Stock are entitled to share ratably
in accordance with the applicable provisions of the in any assets of the Company remaining after
Partnership Agreement. The liquidation provisions creditors have been paid or provided for. The
generally provide that the assets of the Partnership dissolution of the Company may be proposed only by
remaining after payment of or providing for its debts the Board of Directors of the Company by adopting a
and liabilities will be distributed to the General resolution approving a proposal to dissolve the
Partner and the Limited Partners in accordance with Company and proposing such dissolution to the
their respective capital account balances. Limited stockholders at a meeting of stockholders. The
Partners holding a majority of the outstanding Units Company will be dissolved if a majority of the
may, by written consent, determine to dissolve the outstanding shares of Common Stock are voted for such
Partnership. proposal.
</TABLE>
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<PAGE> 87
UNITS COMMON STOCK
LIMITS ON MANAGEMENT'S LIABILITY
<TABLE>
<S> <C>
The General Partner is generally liable to third The Company's Restated Certificate of Incorporation,
parties for all debts and obligations of the Partner- as permitted by the Delaware General Corporate Law,
ship. The Partnership Agreement provides that the eliminates the monetary liability of the Company's
General Partner or its affiliates will not have any directors for a breach of their fiduciary duty as
liability to the Partnership or the Limited Partners directors, except for liability (i) for any breach of
for any losses or liabilities, provided such person's the director's duty of loyalty to the Company or its
actions are determined in good faith to be in the stockholders, (ii) for acts or omissions not in good
best interest of the Partnership and do not involve faith or that involve intentional misconduct or a
negligence or misconduct. knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law (which provides
for liability of directors for unlawful payment of
dividends or unlawful stock purchases or
redemptions), or (iv) for any transaction from which
the director derived an improper personal benefit.
</TABLE>
APPRAISAL RIGHTS
<TABLE>
<S> <C>
Neither the Partnership Agreement nor the Delaware Under the Delaware General Corporation Law, a holder
Revised Uniform Limited Partnership Act provides of Common Stock who does not vote in favor of a
for rights similar to the appraisal rights of the merger or consolidation of the Company may, upon
Common stock under the Delaware General Corporation compliance with certain procedures, be entitled to
Law. receive the fair value of the shares in cash in lieu
of the consideration that would otherwise be received
in the merger or consolidation. Appraisal rights are
not available in certain mergers, including (a)
mergers in which the Company is the surviving
corporation and no vote of its stockholders was
required and (b) mergers when the Common Stock was
then listed on a national securities exchange or held
of record by more than 2,000 holders and the holders
of Common Stock are not required to accept in
exchange for their shares anything other than shares
of stock of the surviving corporation that, on the
effective date of the merger, would be listed on a
national securities exchange or held of record by
more than 2,000 holders, cash in lieu of fractional
shares, or any combination thereof.
</TABLE>
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LEGAL MATTERS
Certain legal matters in connection with the Plan of Withdrawal and
Dissolution will be passed upon for the Company by King & Spalding, New York,
New York.
EXPERTS
The Consolidated Financial Statements as of September 30, 1996 and 1995 and
for each of the three fiscal years in the period ended September 30, 1996,
appearing in this Proxy Statement/Prospectus and Registration Statement, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report thereon appearing herein, and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
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<PAGE> 89
SYNTHETIC INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
(1) Consolidated Financial Statements as of September 30, 1996 and 1995 and for
each of the three years in the period ended September 30, 1996.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Changes in Stockholder's
Equity.................................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
(2) Unaudited Consolidated Financial Statements as of March 31, 1997 and 1996
and for the three and six month periods then ended.
<TABLE>
<S> <C>
Consolidated Balance Sheets................................. F-16
Consolidated Statements of Operations....................... F-17
Consolidated Statements of Cash Flows....................... F-18
Notes to Consolidated Financial Statements.................. F-19
</TABLE>
F-1
<PAGE> 90
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
Synthetic Industries, Inc.
Chickamauga, Georgia
We have audited the accompanying consolidated balance sheets of Synthetic
Industries, Inc. and its subsidiaries as of September 30, 1996 and 1995, 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,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
November 12, 1996
F-2
<PAGE> 91
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 101 $ 108
Accounts receivable, net (Note 4)......................... 48,165 47,947
Inventory (Note 5)........................................ 39,142 45,597
Other current assets (Note 6)............................. 14,655 14,708
-------- --------
TOTAL CURRENT ASSETS.............................. 102,063 108,360
PROPERTY, PLANT AND EQUIPMENT, net (Note 7)................. 137,974 116,729
OTHER ASSETS (Note 8)....................................... 84,021 87,211
-------- --------
$324,058 $312,300
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 20,227 $ 24,021
Accrued expenses and other current liabilities............ 9,669 7,378
Income taxes payable (Note 11)............................ 1,407 1,455
Interest payable.......................................... 6,024 6,427
Current maturities of long-term debt (Note 9)............. 659 40
-------- --------
TOTAL CURRENT LIABILITIES......................... 37,986 39,321
LONG-TERM DEBT (Note 9)..................................... 194,353 192,048
DEFERRED INCOME TAXES (Note 11)............................. 25,875 23,175
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 3):
Common stock (par value $1.00 per share; authorized,
25,000,000;
issued and outstanding, 5,781,250)..................... 5,781 5,781
Additional paid-in capital................................ 63,519 63,519
Cumulative translation adjustments........................ 15 29
Deficit................................................... (3,471) (11,573)
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................ 65,844 57,756
-------- --------
$324,058 $312,300
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 92
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.............................................. $ 299,532 $ 271,427 $ 234,977
---------- ---------- ----------
Costs and expenses:
Cost of sales........................................ 208,321 194,706 152,305
Selling expenses..................................... 27,488 24,273 21,815
General and administrative expenses.................. 22,657 21,195 17,588
Amortization of excess of purchase price over net
assets acquired and other intangibles............. 2,592 2,566 2,499
---------- ---------- ----------
261,058 242,740 194,207
---------- ---------- ----------
Operating income....................................... 38,474 28,687 40,770
---------- ---------- ----------
Other expenses:
Interest expense, net................................ 22,773 22,514 20,011
Amortization of deferred financing costs............. 699 737 739
---------- ---------- ----------
23,472 23,251 20,750
---------- ---------- ----------
Income before provision for income taxes............... 15,002 5,436 20,020
Provision for income taxes (Note 11)................... 6,900 3,500 8,600
---------- ---------- ----------
NET INCOME............................................. $ 8,102 $ 1,936 $ 11,420
========== ========== ==========
Net income per common share (Note 3)................... $ 1.37 $ .33 $ 1.93
========== ========== ==========
Weighted average shares outstanding.................... 5,930,502 5,930,502 5,930,502
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 93
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN TRANSLATION
STOCK CAPITAL ADJUSTMENTS DEFICIT TOTAL
------ ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1993 (Note 3)......... $5,781 $63,519 $ 52 $(24,929) $44,423
Net income................................ -- -- -- 11,420 11,420
Foreign currency translation.............. -- -- (26) -- (26)
------ ------- ---- -------- -------
Balance, September 30, 1994............... 5,781 63,519 26 (13,509) 55,817
Net income................................ -- -- -- 1,936 1,936
Foreign currency translation.............. -- -- 3 -- 3
------ ------- ---- -------- -------
Balance, September 30, 1995............... 5,781 63,519 29 (11,573) 57,756
Net income................................ -- -- -- 8,102 8,102
Foreign currency translation.............. -- -- (14) -- (14)
------ ------- ---- -------- -------
Balance, September 30, 1996............... $5,781 $63,519 $ 15 $ (3,471) $65,844
====== ======= ==== ======== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 94
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 8,102 $ 1,936 $ 11,420
Adjustments to reconcile net income to net cash provided
by
(used in) operations:
Depreciation and amortization.......................... 16,299 14,937 12,390
Deferred income taxes.................................. 3,400 (355) 3,830
Provision for bad debts................................ 1,024 3,363 217
Loss on disposal of equipment.......................... -- -- 266
Change in assets and liabilities:
Increase in accounts receivable...................... (1,247) (12,212) (2,861)
Decrease (increase) in inventory..................... 6,451 (13,076) (7,255)
Increase in other current assets..................... (647) (1,469) (632)
(Decrease) increase in accounts payable.............. (3,801) 5,254 5,348
Increase in accrued expenses and other current
liabilities....................................... 2,291 434 533
(Decrease) increase in income taxes payable.......... (48) 973 482
(Decrease) increase in interest payable.............. (403) 180 224
-------- -------- --------
Cash provided by (used in) operating activities... 31,421 (35) 23,962
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (29,253) (13,313) (31,866)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan................................ 19,500 11,000 --
Repayments under term loan................................ (500) (6,000) (6,000)
Net (repayment) borrowings under revolving credit line.... (20,734) 8,598 13,802
Payment of capital lease obligation and other long term
debt................................................... (342) (36) (31)
Deferred financing costs.................................. (101) (221) --
-------- -------- --------
Cash (used in) provided by financing activities........ (2,177) 13,341 7,771
Effect of exchange rate changes on cash................ 2 (2) (3)
-------- -------- --------
NET DECREASE IN CASH........................................ (7) (9) (136)
CASH AT BEGINNING OF PERIOD................................. 108 117 253
-------- -------- --------
CASH AT END OF PERIOD....................................... $ 101 $ 108 $ 117
======== ======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................... $ 23,176 $ 22,334 $ 19,787
Income taxes........................................... 3,548 2,882 3,901
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Capital lease obligation incurred for purchase of
equipment.............................................. $ 5,000 $ -- $ --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 95
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION
Synthetic Industries, Inc., a Delaware corporation (the "Company"),
manufactures and markets a wide range of polypropylene-based fabric and fiber
products designed for industrial applications. The Company's diverse mix of
products are marketed to the floor covering, construction and technical textile
markets for such end-use applications as carpet backing, geotextiles, erosion
control, concrete reinforcement and furniture construction fabrics. The Company
manufactures and sells more than 2,000 products in over 65 end-use markets
predominantly in North America, Europe and the Far East.
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.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment.
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. Foreign currency
transaction gains and losses are included in results of operations. Foreign
currency realized and unrealized gains and losses for the years presented were
not material.
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:
<TABLE>
<S> <C>
Building and improvements................................... 25 years
Machinery and equipment..................................... 14 years
</TABLE>
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
the results of operations.
Capitalized interest is charged to machinery and equipment and amortized
over the lives of the related assets. Interest capitalized during fiscal 1996,
1995 and 1994 was $392, $729 and $283, respectively.
F-7
<PAGE> 96
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company accounts for income taxes using an asset and liability approach
in accordance with Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in the statement
of operations in the period that includes the enactment date.
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.
DEFERRED FINANCING COSTS AND INTANGIBLE ASSETS
Deferred financing costs are amortized over periods from 5 to 12 years.
Intangible assets consist primarily of a Fibermesh(R) trademark and patents on
civil engineering products, which are amortized on a straight-line basis over 40
and 15 years, respectively.
NET INCOME PER SHARE
Net income per share was computed by dividing net income by the weighted
average number of common shares and common equivalent shares outstanding during
each period, as adjusted for the stock splits. Common equivalent shares include
options calculated using the treasury stock method. Retroactive restatement has
been made to all share and per share amounts for the 115,741-for-1 stock split
effective October 30, 1996 (Note 3).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. SFAS No. 121 is effective for
financial statements for fiscal years beginning after December 15, 1995.
Management believes that the adoption of this standard will have no effect on
consolidated financial position or results of operations.
F-8
<PAGE> 97
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" which will be effective for the Company beginning October 1, 1996.
SFAS No. 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. The Company will account for stock-
based compensation awards under the provisions of Accounting Principles Board
Opinion No. 25, as permitted by SFAS No. 123. In accordance with SFAS No. 123,
beginning in the fiscal year ended September 30, 1997, the Company will make pro
forma disclosures relative to stock-based compensation as part of the
accompanying footnotes to the consolidated financial statements.
RECLASSIFICATION OF PRIOR FINANCIAL STATEMENTS
Certain reclassifications have been made to previous years' financial
statements to conform with 1996 classifications.
3. RECAPITALIZATION AND INITIAL PUBLIC OFFERING
On July 31, 1996, the board of directors of the Company (the "Board")
approved an amendment to the Company's Certificate of Incorporation to effect a
recapitalization of the Company's Common Stock, pursuant to which the number of
authorized shares of the Company's Common Stock was increased
to 25,000,000 shares (the "Recapitalization"). As part of the Recapitalization,
the Board approved a
115,740.74-for-1 stock split of the issued and outstanding shares of Common
Stock. The Recapitalization, including the stock split, became effective
immediately prior to the initial public offering. All share and per share
information included in the accompanying consolidated financial statements and
notes have been adjusted to give retroactive recognition to the stock split.
On November 1, 1996, the Company sold 2,875,000 shares of Common Stock in
an underwritten public offering. The net proceeds to the Company from the sale
(after payment of underwriting discounts and commissions and expenses) were
approximately $34,000. The net proceeds to the Company will be used to repay
certain outstanding indebtedness. Supplementary pro forma net income per share,
assuming the net proceeds were used to reduce outstanding bank indebtedness as
of the beginning of fiscal 1996, would have been $1.12.
4. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of the allowances for doubtful
accounts of $3,036, $4,053 and $1,201 for fiscal 1996, 1995 and 1994,
respectively. Amounts written off against established allowances were $2,041,
$511 and $217 for the years ended September 30, 1996, 1995 and 1994,
respectively.
The Company grants uncollaterilized trade terms to its customers, most of
whom are located in the state of Georgia. As of September 30, 1996 and 1995,
$21,916 and $22,903, respectively, of the Company's accounts receivable balances
were due from customers located in this state. Net sales to one customer
represented 18% of consolidated net sales for all three fiscal years presented.
5. INVENTORY
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Finished goods.............................................. $ 22,555 $ 27,867
Work in progress............................................ 7,937 5,541
Raw materials............................................... 8,650 12,189
-------- --------
$ 39,142 $ 45,597
======== ========
</TABLE>
F-9
<PAGE> 98
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Prepaid supplies............................................ $ 8,283 $ 7,192
Deferred tax assets......................................... 4,765 5,465
Other....................................................... 1,607 2,051
-------- --------
$ 14,655 $ 14,708
======== ========
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Land........................................................ $ 4,458 $ 3,511
Buildings and improvements.................................. 29,298 23,457
Machinery and equipment and leasehold improvements.......... 179,386 151,921
-------- --------
213,142 178,889
Accumulated depreciation.................................... 75,168 62,160
-------- --------
$137,974 $116,729
======== ========
</TABLE>
Depreciation expense on property, plant and equipment was $13,008, $11,634 and
$9,152 in fiscal 1996, 1995 and 1994, respectively.
8. OTHER ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Excess of purchase price over net assets acquired........... $ 99,818 $ 99,818
Intangible assets........................................... 3,546 3,546
Deferred financing costs.................................... 12,331 12,230
-------- --------
115,695 115,594
Accumulated amortization.................................... 31,674 28,383
-------- --------
$ 84,021 $ 87,211
======== ========
</TABLE>
The excess of purchase price over net assets acquired arose from the
purchase of the Company's Common Stock. The Company was acquired by Synthetic
Industries L.P., a Delaware limited partnership (the "Partnership") on December
4, 1986. This acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the net assets
acquired based on estimates by independent appraisals and other valuations of
fair market value as of December 4, 1986, and resulted in a purchase price in
excess of net assets acquired of $99,818.
Amortization expense was $3,291, $3,303 and $3,238 in fiscal 1996, 1995 and
1994, respectively.
F-10
<PAGE> 99
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consists of the following at September 30:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Secured revolving credit facility (a):
Secured revolving credit portion............................ $ 3,993 $ 24,727
Term loan portion........................................... 45,000 26,000
12 3/4% senior subordinated debentures(b)................... 140,000 140,000
Capital lease obligation (Note 10).......................... 4,698 --
Other....................................................... 1,321 1,361
-------- --------
195,012 192,088
Less current portion........................................ 659 40
-------- --------
Total long-term portion..................................... $194,353 $192,048
======== ========
</TABLE>
(a) The Secured Revolving Credit Facility
On October 20, 1995, the Company and its lenders entered into a Fourth
Amended and Restated Revolving Credit Agreement (as amended to date, the "Credit
Facility"). The Company's term loan portion of the Credit Facility (the "Term
Loan") was increased to $45,000. The Credit Facility has a termination date of
October 20, 2001, and provides for Term Loan repayments of $10,000 in 1999 and
$17,500 in each of 2000 and 2001.
The revolving credit loan portion of the 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
increased to $40,000, of which $34,115 is available at September 30, 1996.
The Credit Facility permits borrowings which bear interest, at the
Company's option, (i) for domestic borrowings based on the lender's base rate
plus .75% or 1.00% for Revolver or Term Loan advances, respectively (9.00% and
9.25% at September 30, 1996 and 9.50% and 9.75% at September 30, 1995) or (ii)
for Eurodollar borrowings, based on the Interbank Eurodollar rate at the time of
conversion plus 2.50% and 2.75% for Revolver or Term Loan advances, respectively
(8.06% and 8.09% at September 30, 1996 and 8.50% and 8.625% at September 30,
1995).
The Credit Facility provides for borrowings under letters of credit of up
to $3,000, which borrowings reduce amounts available under the Revolver. At
September 30, 1996, there was $1,892 in letters of credit outstanding under the
Credit Facility. The Company is required to pay a .375% fee on the unused
portion of the commitment and an agency fee of $150 per annum.
The Credit Facility is collateralized 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 Credit Facility and the indenture relating to the Senior
Subordinated 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
principal amount, together with accrued interest, with declining redemption
prices thereafter. Interest on the Debentures is payable semi-annually on June 1
and December 1.
F-11
<PAGE> 100
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1996 is 107.0% of their face
amount, or $149,800.
Approximate aggregate minimum annual payments due on long-term debt and the
capital lease obligation, for the subsequent five years are as follows: 1997,
$659; 1998, $718; 1999, $10,783; 2000, $22,347; 2001, $19,470; and thereafter,
$141,036.
10. COMMITMENTS AND CONTINGENCIES
(c) Lease commitments
On May 15, 1996, the Company entered into a five year capital lease for
equipment which provides for payments over a five year period at an interest
rate of 8.42% The Company also leases certain factory and warehouse buildings
and equipment under long-term operating leases expiring through 2009.
Future minimum lease payments under noncancellable lease obligations at
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
---- ------- ---------
<S> <C> <C>
1997........................................................ $ 986 $3,786
1998........................................................ 986 2,262
1999........................................................ 986 1,622
2000........................................................ 986 991
2001........................................................ 1,993 362
Thereafter.................................................. -- 817
------ ------
Total minimum lease payments................................ $5,937 $9,840
======
Less amount representing interest........................... 1,239
------
Present value of net minimum lease payments................. 4,698
Less current maturities of capital lease obligation......... 614
------
Capital lease obligation.................................... $4,084
======
</TABLE>
Total rental expense for the above operating leases and other short-term
leases for the fiscal years 1996, 1995 and 1994 was $4,499, $3,731 and $4,684,
respectively.
(d) Capital Expenditures
In fiscal 1997, the Company plans a $40,000 expansion of its manufacturing
facilities, primarily to expand capacity and to continue to reduce manufacturing
costs, subject to prevailing market conditions, of which $7,084 is committed at
September 30, 1996.
(e) Litigation
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.
F-12
<PAGE> 101
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
The sources of income before provision for income taxes are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
----------------------------------
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
United States.......................................... $14,083 $4,546 $19,505
Foreign................................................ 919 890 515
------- ------ -------
Earnings before income taxes........................... $15,002 $5,436 $20,020
======= ====== =======
</TABLE>
The provision for income taxes attributable to the amounts shown above
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................ $2,600 $3,180 $3,770
State.................................................. 600 400 1,000
Foreign................................................ 300 275 --
------ ------ ------
3,500 3,855 4,770
------ ------ ------
Deferred:
Federal................................................ 3,200 (218) 3,405
State.................................................. 200 (137) 425
------ ------ ------
3,400 (355) 3,830
------ ------ ------
$6,900 $3,500 $8,600
====== ====== ======
</TABLE>
A reconciliation of US income tax computed at the statutory rate and actual
tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Amount computed at statutory rate........................ $5,250 $1,900 $7,007
State and local taxes -- less applicable federal income
tax benefit............................................ 550 270 747
Amortization of goodwill................................. 873 873 871
Other nondeductible expenses............................. 115 210 348
Other, net............................................... 112 247 (373)
------ ------ ------
$6,900 $3,500 $8,600
====== ====== ======
</TABLE>
F-13
<PAGE> 102
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant items comprising the Company's net deferred
tax liability are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
------------------
1996 1995
------- -------
<S> <C> <C>
Property, plant and equipment............................... $24,819 $22,121
Trademarks and patents...................................... 1,056 1,054
------- -------
Total deferred tax liabilities.............................. 25,875 23,175
------- -------
Receivables................................................. 996 1,609
Inventory................................................... 626 628
Accrued expenses............................................ 1,829 1,581
AMT credit carryforward (no expiration date)................ 1,314 1,647
------- -------
Total deferred tax assets................................... 4,765 5,465
------- -------
Net deferred tax liability.................................. $21,110 $17,710
======= =======
</TABLE>
The Company's United States income tax returns for fiscal years 1992 and
1993 have been examined and settled without material adjustment.
12. RETIREMENT PROGRAMS
For United States employees, the Company maintains a trusteed
profit-sharing plan (the "Plan") which is qualified under Section 401(k) of the
Internal Revenue Code. 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 Company may, but has not elected to, contribute a portion of its
profits to the Plan, as determined by the Board. Employer contributions vest
over 1 to 5 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 1996, 1995 and 1994, the Company contributed
$999, $921 and $891, respectively. The Plan provides for the Company to bear the
expense of the administration of the Plan. Pension expense on the foreign plans
is not significant.
13. STOCK OPTIONS
In August 1994, the Company adopted a stock option plan (the "Directors'
Plan"), pursuant to which non-qualified stock options to purchase an aggregate
of 125,261 shares of Common Stock were granted to the four non-employee
Directors of the Company at an exercise price of $6.83 per share which was
determined by reference to the fair market value of the Company's equity at the
time such Directors joined the Board. The stock options will be fully vested by
October 1, 1996 and have a term which expires on August 4, 2004. The Directors'
Plan does not provide for any further grants of options thereunder.
In August 1994, the Company adopted a stock option plan (the "1994 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 stock options. The maximum aggregate number of shares of Common
Stock that may be issued under the 1994 Plan is 491,413 shares.
In December 1995 and 1994, stock options for 174,716 and 316,697 shares of
Common Stock were granted to various employees under the 1994 Plan at an
exercise price of $10.72 per share. The stock options vest and become
exercisable at a rate of 25% per year over a four-year period and expire ten
years from the date of grant. As of September 30, 1996, 79,173 options were
exercisable under the 1994 Plan.
In May 1996, as amended on July 31, 1996, the Company adopted a stock
option plan (the "1996 Plan"), which provides for the grant of incentive stock
options and non-qualified stock options to any full time
F-14
<PAGE> 103
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employee of the Company under terms substantially the same as the 1994 Plan. The
maximum number of shares of Common Stock that may be issued under the 1996 Plan
is 289,062 shares. Options to purchase an aggregate of 21,723 shares have been
granted at an exercise price of $10.72 per share.
The purchase price of the shares of Common Stock subject to options under
the 1994 and 1996 Plans must be no less than the fair market value of the Common
Stock at the date of grant, provided, however, that the purchase price of shares
of Common Stock subject to Initial Stock Offerings ("ISOs") granted to any
optionee who owns shares possessing more than 10% of the combined voting power
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 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 Stockholders which must expire within five years
of the date of grant.
F-15
<PAGE> 104
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
----------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 1,190 $ 101
Accounts receivable, net of allowance for doubtful
accounts of $3,461 and $3,036, respectively............ 50,645 48,165
Inventory (Note 3)........................................ 61,006 39,142
Other current assets (Note 4)............................. 19,143 14,655
-------- --------
TOTAL CURRENT ASSETS.............................. 131,984 102,063
PROPERTY, PLANT AND EQUIPMENT, net (Note 5)................. 154,629 137,974
OTHER ASSETS................................................ 84,165 84,021
-------- --------
$370,778 $324,058
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 28,686 $ 20,227
Accrued expenses and other current liabilities............ 10,345 9,669
Income taxes payable (Note 7)............................. -- 1,407
Interest payable.......................................... 2,388 6,024
Current maturities of long-term debt (Note 6)............. 688 659
-------- --------
TOTAL CURRENT LIABILITIES......................... 42,107 37,986
LONG-TERM DEBT (Note 6)..................................... 212,029 194,353
DEFERRED INCOME TAXES (Note 7).............................. 25,875 25,875
-------- --------
STOCKHOLDERS' EQUITY (Note 8):
Common stock (par value $1.00 per share; authorized,
25,000,000; issued and outstanding, 8,656,250 and
5,781,250 shares, respectively)........................ 8,656 5,781
Additional paid-in capital (Note 8)....................... 94,325 63,519
Cumulative translation adjustments........................ 143 15
Deficit................................................... (12,357) (3,471)
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................ 90,767 65,844
-------- --------
$370,778 $324,058
======== ========
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE> 105
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales....................................... $ 75,358 $ 64,609 $ 146,215 $ 129,217
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales................................. 51,123 46,170 101,166 96,087
Selling expenses.............................. 7,246 6,236 14,184 11,952
General and administrative expenses........... 7,010 5,820 12,891 10,791
Amortization of excess purchase price over net
assets acquired and other intangibles...... 648 648 1,296 1,296
---------- ---------- ---------- ----------
66,027 58,874 129,537 120,126
---------- ---------- ---------- ----------
Operating income...................... 9,331 5,735 16,678 9,091
---------- ---------- ---------- ----------
Other expenses:
Interest expense.............................. 5,365 5,710 10,775 11,390
Amortization of deferred financing costs...... 163 175 339 348
---------- ---------- ---------- ----------
5,528 5,885 11,114 11,738
---------- ---------- ---------- ----------
Income (loss) before income tax provision
(benefit) and extraordinary item.............. 3,803 (150) 5,564 (2,647)
Income tax provision (benefit) (Note 7)......... 1,643 260 2,500 (340)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item......... 2,160 (410) 3,064 (2,307)
Extraordinary item -- Loss from early
extinguishment of debt (net of tax benefit of
$7,481)....................................... 11,950 -- 11,950 --
---------- ---------- ---------- ----------
NET LOSS........................................ $ (9,790) $ (410) $ (8,886) $ (2,307)
========== ========== ========== ==========
Net Income (loss) per share before extraordinary
item.......................................... $ 0.24 $ (0.07) $ 0.36 $ (0.39)
Extraordinary loss per share.................... $ (1.33) -- (1.42) --
---------- ---------- ---------- ----------
Net loss per share.............................. $ (1.09) $ (0.07) $ (1.06) $ (0.39)
========== ========== ========== ==========
Weighted average shares outstanding............. 8,957,155 5,930,502 8,413,922 5,930,502
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE> 106
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
---------------------
1997 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before extraordinary item............... $ 3,064 $ (2,307)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operations:
Depreciation and amortization of deferred financing and
organization costs and intangibles.................... 9,027 8,031
Provision for bad debts................................ 141 109
Deferred income taxes.................................. 3,110 (490)
Change in assets and liabilities, net of acquisition:
Decrease in accounts receivable........................ 58 4,697
(Increase) decrease in inventory....................... (20,501) 4,287
Decrease in other current assets....................... 577 900
Increase (decrease) in accounts payable................ 8,459 (3,110)
Increase (decrease) in accrued expenses and other
current liabilities................................... 200 (397)
Decrease in income taxes payable....................... (1,407) (1,207)
Decrease in interest payable........................... (3,636) (375)
--------- --------
Cash (used in) provided by operating activities...... (908) 10,138
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (18,909) (13,650)
Investment in business (Note 9)........................... (9,354) --
--------- --------
Cash used in investing activities................. (28,263) (13,650)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan................................ -- 19,500
Repayments under term loan................................ (20,000) (500)
Net borrowings (repayments) under revolving credit line... 625 (15,176)
Issuance of 9 1/4% Senior subordinated debentures......... 170,000 --
Redemption of 12 3/4% Senior subordinated debentures...... (132,597) --
Repayment costs on early extinguishment of debt........... (15,920) --
Proceeds from underwritten public offering................ 33,681 --
Debt issuance costs....................................... (5,290) (98)
Repayments of capital lease obligation and other long term
debt................................................... (323) (19)
--------- --------
Cash provided by financing activities.................. 30,176 3,707
Effect of exchange rate changes on cash 84 (37)
--------- --------
NET INCREASE IN CASH........................................ 1,089 158
CASH AT BEGINNING OF PERIOD................................. 101 108
--------- --------
CASH AT END OF PERIOD....................................... $ 1,190 $ 266
========= ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ 14,411 $ 11,765
Income taxes.............................................. 797 1,387
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE> 107
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE
PERIODS ENDING MARCH 31, 1997 AND 1996 IS UNAUDITED)
1. ORGANIZATION
Synthetic Industries, Inc., a Delaware corporation (the "Company"),
manufactures and markets a wide range of polypropylene-based fabric and fiber
products designed for industrial applications. The Company's diverse mix of
products are marketed to the floor covering, construction and technical textile
markets for such end-use applications as carpet backing, geotextiles, erosion
control, concrete reinforcement and furniture construction fabrics. The Company
manufactures and sells more than 2,000 products in over 65 end-use markets
predominately in North America, Europe and the Far East. Prior to November 1,
1996, the Company was a wholly owned subsidiary of Synthetic Industries, L.P. As
a result of the underwritten public offering (Note 8) on November 1, 1996,
Synthetic Industries, L.P. owns approximately 67% of the Company's outstanding
common stock as of March 31, 1997.
2. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of March 31, 1997 and for the
periods ended March 31, 1997 and 1996 included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the financial
position at March 31, 1997 and 1996, and the results of operations for the three
and six months then ended have been made on a consistent basis. Certain
information and footnote disclosures included in consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures herein are adequate to make the
information presented not misleading. It is suggested that these consolidated
financial statements be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the consolidated
financial statements of the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1996. Operating results for the three and six months
ended March 31, 1997 may not necessarily be indicative of the results that may
be expected for the full year.
3. INVENTORY
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
Finished goods.............................................. $35,381 $22,555
Work in process............................................. 9,854 7,937
Raw materials............................................... 15,771 8,650
------- -------
$61,006 $39,142
======= =======
</TABLE>
4. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
Prepaid supplies............................................ $ 9,288 $ 8,283
Deferred tax assets......................................... 9,136 4,765
Other....................................................... 719 1,607
------- -------
$19,143 $14,655
======= =======
</TABLE>
F-19
<PAGE> 108
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
Land........................................................ $ 4,458 $ 4,458
Buildings and improvements.................................. 29,298 29,298
Machinery and equipment and leasehold improvements.......... 203,433 179,386
-------- --------
237,189 213,142
Accumulated depreciation.................................... 82,560 75,168
-------- --------
$154,629 $137,974
======== ========
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
Secured revolving credit facility
Secured revolving credit portion.......................... $ 4,618 $ 3,993
Term loan portion......................................... 25,000 45,000
9 1/4% Senior Subordinated Notes, due 2007.................. 170,000 --
12 3/4% Senior Subordinated Debentures, due 2002........... 7,403 140,000
Capital lease obligation.................................... 4,397 4,698
Other....................................................... 1,299 1,321
-------- --------
212,717 195,012
Less current portion........................................ 688 659
-------- --------
Total long term portion..................................... $212,029 $194,353
======== ========
</TABLE>
On February 11, 1997, the Company issued $170,000 in aggregate principal
amount of 9 1/4% Senior Subordinated Notes due 2007 (the "Notes"), which
represent unsecured obligations of the Company. The Notes are redeemable at the
option of the Company at any time on or after February 15, 2002, initially at
104.625% of their amount, together with accrued interest, with declining
redemption prices thereafter. Interest on the Notes is payable semi-annually on
February 15 and August 15.
In connection with the issuance of the Notes, the Company redeemed
approximately $133,000 principal amount of its 12 3/4% Senior Subordinated
Debentures due 2002 (the "Debentures") at a redemption price of 111.07% of the
principal amount thereof. In addition, the Company repaid $20,000 of its
outstanding term loan borrowings as of March 5, 1997. In connection with the
early extinguishment of debt, the Company recorded an extraordinary loss of
$11,950 (representing call premium and prepayment fees of $15,920 and write off
of deferred financing costs of $3,511, net of an income tax benefit of $7,481)
during the second quarter of fiscal 1997.
On October 20, 1995, the Company and its lenders entered into the Fourth
Amended and Restated Revolving Credit Agreement (as amended to date, the
"Amended Credit Facility"). The Amended Credit Facility, with a termination date
of October 1, 2001, provided for potential borrowing capacity of up to $85,000
being comprised of term loan borrowings of $45,000 and a revolving credit loan
portion (the "Revolver") of $40,000. The term loan balance at March 31, 1997,
was $25,000, of which $10,000 is payable in 1999 and $15,000 is payable in 2000.
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 and reserves. These reserves include outstanding letters of
credit of $1,100 and the remaining balance due under the Debentures of $7,400.
Accordingly, at March 31, 1997, availability under the Revolver is $19,051.
F-20
<PAGE> 109
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The provision for income taxes before extraordinary item in the
consolidated statements of operations reflects the effective tax rate of 43% and
45% for the three and six months ended March 31, 1997.
This provision reflects the non-deductibility of certain expenses for
income tax purposes such as amortization of goodwill. Deferred income taxes
result from temporary differences between tax bases of assets and liabilities
and their reported amounts in the consolidated statements of operations.
8. UNDERWRITTEN PUBLIC OFFERING
On November 1, 1996, the Company sold 2,875,000 shares of Common Stock in
an underwritten public offering. The net proceeds to the Company from the sale
(after payment of underwriting discounts and expenses) were approximately
$34,000. As a result of its underwritten public offering, the Company currently
has 8,656,250 shares of Common Stock outstanding. Approximately 67% of the
issued and outstanding shares of Common Stock are owned by Synthetic Industries,
L.P.
9. BUSINESS ACQUISITION
On February 27, 1997, the Company acquired certain assets of the Spartan
Technologies division of Spartan Mills for approximately $9,400. The assets will
be used primarily in the manufacturing of nonwoven fabrics used in the
geotextile and furniture and bedding markets. The acquisition has been accounted
for using the purchase method of accounting, and, accordingly, the purchase
price has been allocated to the net assets acquired (accounts receivable,
inventory, and property, plant and equipment) based upon the fair market value
(which approximates cost) at the date of acquisition. The operating results of
the acquired business have been included in the consolidated statements of
operations from the date of acquisition.
F-21
<PAGE> 110
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or agent
in defending such action, provided that the director or officer undertakes to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation. A corporation may indemnify such
person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him or
her against the expenses (including attorneys' fees) which he or she actually
and reasonably incurred in connection therewith. The indemnification provided is
not deemed to be exclusive of any other rights to which an officer or director
may be entitled under any corporation's by-laws, agreement, vote or otherwise.
In accordance with Section 145 of the DGCL, Article VII of the Company's
Certificate of Incorporation, as amended and restated (the "Restated
Certificate") provides that the Company may indemnify, to the fullest extent
permitted by applicable law in effect from time to time, any person, and the
estate and personal representative of any such person, against all liability and
expense (including attorneys' fees) incurred by reason of the fact that such
person is or was a director, officer, fiduciary, or agent of the Company, or,
while serving as a director, officer, fiduciary or agent of the Company, is or
was serving at the request of the Company as a director, officer, partner,
trustee, employee, fiduciary, or agent of, or in any similar managerial or
fiduciary position of another domestic or foreign corporation or other
individual or entity or of an employee benefit plan to the extent and in the
manner provided in any bylaw, resolution of the directors, resolution of the
stockholders, contract, or otherwise so long as such indemnification is legally
permissible.
The foregoing statements are subject to the detailed provisions of Section
145 of the DGCL and Article VII of the Restated Certificate.
II-1
<PAGE> 111
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
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 SI
Holding Inc., including exhibits thereto.(1)
2.2 -- Plan and Agreement of Merger dated December 4, 1986.(1)
2.3 -- Asset Purchase Agreement dated October 12, 1990 between
Synthetic Industries, Inc. and Chicopee.(2)
3.1 -- Amended and Restated Limited Partnership Agreement of
Synthetic Industries, L.P. dated as of November 11, 1986
(with all amendments thereto).
3.2 -- Certificate of Incorporation of Synthetic Industries,
Inc. filed with the Secretary of the State of
Delaware.(10)
3.3 -- Amended and Restated By-Laws of Synthetic Industries,
Inc.(10)
4.1 -- Indenture dated as of December 14, 1992 between Synthetic
Industries, Inc. and United States Trust Company of New
York, Trustee, with respect to the 12 3/4% Senior
Subordinated Debentures due 2002.(4)
4.2 -- Supplemental Indenture dated as of October 20, 1995
between Synthetic Industries, Inc. and United States
Trust Company of New York, Trustee, with respect to the
12 3/4% Senior Subordinated Debentures due 2002.
4.3 -- Supplemental Indenture dated as of February 11, 1997
between Synthetic Industries, Inc. and United States
Trust Company of New York, Trustee, with respect to the
12 3/4% Senior Subordinated Debentures due 2002.
4.4 -- Indenture dated as of February 11, 1997 between Synthetic
Industries, Inc. and United States Trust Company of New
York, Trustee, with respect to the 9 1/4 Senior
Subordinated Notes due 2007.(16)
4.5 -- Registration Rights Agreement, dated as of February 11,
1997, between Synthetic Industries, Inc. and Bear,
Stearns & Co. Inc.(16)
4.6 -- Registration Rights Agreement, dated as of October 31,
1996, between Synthetic Industries, Inc. and Synthetic
Industries, L.P.(12)
5.1 -- Opinion of King & Spalding. (To be filed by amendment.)
8.1 -- Opinion of King & Spalding with respect to tax matters.
(To be filed by amendment.)
10.1 -- Fourth Amended and Restated Revolving Credit and Security
Agreement dated as of October 20, 1995 among Synthetic
Industries, Inc., BankBoston and other Lenders listed on
Schedule I thereto, and BankBoston, as agent on behalf of
the Lenders.(9)
10.2 -- Amendment No.1 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
December 1, 1995.(9)
10.3 -- Amendment No.2 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
February 14, 1996.(11)
10.4 -- Amendment No.3 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of March
15, 1996.(9)
10.5 -- US Patent No. 4,867,614, Reinforced Soil and Method (Exp.
December 13, 2003).(2)
</TABLE>
II-2
<PAGE> 112
<TABLE>
<C> <S>
10.6 -- US Patent No. 4,790,691, Fiber Reinforced Soil and Method
(Exp. December 13, 2003).(2)
10.7 -- US Patent No. 5,007,766, Shaped Barrier for Erosion
Control and Sediment Collection (Exp. April 16, 2008).(2)
10.8 -- Lease agreement dated November 22, 1971 between Murray
Sobel and Synthetic Industries, Inc. (including all
amendments to date).(1)
10.9 -- 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).(1)
10.10 -- Lease agreement dated December 17, 1990 between Chicopee
and Synthetic Industries, Inc.(2)
10.11 -- Lease agreement dated January 17, 1991 between Herchel L.
Webster and Allie Ree Webster and Synthetic Industries,
Inc. (the "Lumite Lease").(2)
10.12 -- Amendment to the Lumite Lease dated October 1, 1992.(6)
10.13 -- Consulting Agreement dated July 23, 1991 between Texpro
Limitada y Cia S.C.A. and Synthetic Industries,
Limited.(2)
10.14 -- Supply Contract between Eastman Chemical Products, Inc.
and Synthetic Industries, Inc. dated December 13,
1991.(7)
10.15 -- Agreement dated September 6, 1996 between Leonard Chill
and Synthetic Industries, Inc.(13)
10.16 -- Agreement dated September 6, 1996 between W. Wayne Freed
and Synthetic Industries, Inc.(13)
10.17 -- Agreement dated September 6, 1996 between Ralph A. Kenner
and Synthetic Industries, Inc.(13)
10.18 -- Agreement dated September 6, 1996 between William Gardner
Wright, Jr. and Synthetic Industries, Inc.(13)
10.19 -- Agreement dated September 6, 1996 between John M. Long
and Synthetic Industries, Inc.(13)
10.20 -- Agreement dated September 6, 1996 between Charles T.
Koerner and Synthetic Industries, Inc.(13)
10.21 -- Agreement dated September 1, 1984 between Robert J.
Breyley, Sr. and Fibermesh Company.(2)
10.22 -- Agreement dated September 6, 1996 between Joseph
Sinicropi and Synthetic Industries, Inc.(13)
10.23 -- Agreement dated September 6, 1996 between W.O.
Falkenberry and Synthetic Industries, Inc.(13)
10.24 -- Agreement dated September 6, 1996 between Bobby Callahan
and Synthetic Industries, Inc.(13)
10.25 -- 1994 Stock Option Plan for Non-Employee Directors.(8)
10.26 -- 1994 Stock Option Plan.(8)
10.27 -- 1996 Stock Option Plan.(11)
10.28 -- Incentive Compensation Plan Fiscal Year 1994/1995.(11)
10.29 -- Incentive Compensation Plan Fiscal Year 1995/1996.(11)
10.30 -- Amendment No. 4 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
September 27, 1996.(13)
</TABLE>
II-3
<PAGE> 113
<TABLE>
<S> <C>
10.31 -- Amendment No. 5 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
October 28, 1996.(14)
10.32 -- Amendment No. 6 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
January 29, 1997.(15)
10.33 -- Asset Sale Agreement by and between Spartan Mills and
Synthetic Industries, Inc. dated as of February 27, 1997.
(To be filed by amendment).
10.34 -- Lease Agreement by and between Spartan Mills and
Synthetic Industries, Inc. dated as of February 27, 1997.
(To be filed by amendment).
10.35 -- Agreement and Plan of Withdrawal and Dissolution.
(Incorporated by reference to Annex A to the Proxy
Statement and Prospectus.)
10.36 -- Agreement dated May 21, 1997 between Joseph F. Dana and
Synthetic Industries, Inc. (To be filed by amendment.)
21. -- List of Subsidiaries of Synthetic Industries, Inc.(2)
23.1 -- Consent of King & Spalding (included in Exhibit 5.1). (To
be filed by amendment.)
23.2 -- Consent of Deloitte & Touche LLP.
24 -- Powers of attorney (previously filed).
99.1 -- Press release, dated June 9, 1997, with respect to the
filing of this Registration Statement (previously filed).
99.2 -- Opinion of Patricof & Co. Capital Corp. (To be filed by
amendment).
99.3 -- Form of Proxy.
</TABLE>
- ---------------
(1) 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.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994 and incorporated herein by reference.
(9) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995 and incorporated herein by reference.
(10) Filed as an exhibit to the Company's Registration Statement on Form 8-A
(0-12357) as filed with the Securities and Exchange Commission on October
24, 1996 and incorporated herein by reference.
(11) Filed as an exhibit to the Company's Registration Statement on Form S-1
(333-09377) as filed with the Securities and Exchange Commission on August
1, 1996 and incorporated herein by reference.
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(12) Filed as an exhibit to Amendment No.1 to the Company's Registration
Statement on Form S-1 (333-09377) as filed with the Securities and Exchange
Commission on September 13, 1996 and incorporated herein by reference.
(13) Filed as an exhibit to Amendment No.2 to the Company's Registration
Statement on Form S-1 (333-09377) as filed with the Securities and Exchange
Commission on October 2, 1996 and incorporated herein by reference.
(14) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996 and incorporated herein by reference.
(15) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
three months ended December 31, 1996 and incorporated herein by reference.
(16) Filed as an exhibit to the Company's Registration Statement on Form S-4
(File No. 333-23167) as filed with the Securities and Exchange Commission
on March 12, 1997 and incorporated herein by reference.
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the forgoing provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into this Proxy
Statement/Prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chickamauga, State of Georgia, on the 8th day of August, 1997.
SYNTHETIC INDUSTRIES, INC.
By: /s/ LEONARD CHILL
------------------------------------
Leonard Chill
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LEONARD CHILL President, Chief Executive Officer August 8, 1997
- ----------------------------------------------------- and Director (Principal Executive
Leonard Chill Officer)
/s/ JOSEPH SINICROPI* Chief Financial Officer and Secretary August 8, 1997
- ----------------------------------------------------- (Principal Financial Officer and
Joseph Sinicropi Principal Accounting Officer)
/s/ JOSEPH F. DANA* Chief Operating Officer, General August 8, 1997
- ----------------------------------------------------- Counsel and Director
Joseph F. Dana
/s/ LEE J. SEIDLER* Director August 8, 1997
- -----------------------------------------------------
Lee J. Seidler
/s/ WILLIAM J. SHORTT* Director August 8, 1997
- -----------------------------------------------------
William J. Shortt
/s/ ROBERT L. VOIGT* Director August 8, 1997
- -----------------------------------------------------
Robert L. Voigt
*By: /s/ JOSEPH SINICROPI August 8, 1997
------------------------------------------------
Joseph Sinicropi
Attorney-in-Fact
</TABLE>
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<PAGE> 116
ANNEX A
AGREEMENT AND PLAN OF WITHDRAWAL AND DISSOLUTION
This Agreement and Plan of Withdrawal and Dissolution, made this day of
, 1997 [date of mailing], by and among the following parties
(collectively, the "Parties"): SYNTHETIC INDUSTRIES, INC., a Delaware
corporation (the "Company"); SYNTHETIC INDUSTRIES, L.P., a Delaware limited
partnership (the "Partnership"); and SI MANAGEMENT, L.P., a Delaware limited
partnership (the "General Partner").
WITNESSETH
WHEREAS, the Company currently has authorized capital stock of 25,000,000
shares of common stock, par value $1.00 per share (the "Common Stock"),
8,656,250 of which are issued and outstanding; and
WHEREAS, the sole asset of the Partnership is 5,781,250 shares (the
"Shares") of Common Stock; and
WHEREAS, the General Partner is the sole general partner of the
Partnership; and
WHEREAS, the Limited Partners have not had the opportunity to realize the
value of their investment in the Partnership due to the illiquidity of the
Partnership's limited partnership units (the "Units"); and
WHEREAS, the General Partner deems it desirable and in the best interests
of the Limited Partners to offer for the Limited Partners' approval a plan of
withdrawal and dissolution for the Partnership (the "Plan") which gives the
Limited Partners the opportunity to choose between selling some or all of the
Common Stock underlying their investment for cash based upon a value determined
by the public markets in an orderly underwritten public offering or continuing
to hold some or all of their investment in the Company's business by means of
freely tradeable shares of Common Stock; and
WHEREAS, to make such opportunity available, the Plan provides for (1) a
withdrawal (the "Withdrawal") of all or a specified portion of the Shares (the
"Withdrawn Shares") from the Partnership by Limited Partners who elect to
participate in an underwritten offer and sale (the "Underwritten Sale") of the
Withdrawn Shares that commences promptly following the adoption of the Plan and
(2) the subsequent dissolution of the Partnership (the "Dissolution") through up
to three liquidating distributions (each, a "distribution" and, collectively,
the "Distribution") of the portion of the Shares remaining in the Partnership
after the Withdrawal (the "Remaining Shares"); and
WHEREAS, the Plan requires, pursuant to Sections 11(a)(iii) and 12(h)(ii)
of the Amended and Restated Limited Partnership Agreement of Synthetic
Industries, L.P., dated as of November 11, 1986 (as amended, the "Partnership
Agreement"), the approval of a majority in interest of the Limited Partners; and
WHEREAS, a special meeting (the "Special Meeting") of the Partners of the
Partnership has been called by the General Partner for the purpose of obtaining
such approval; and
WHEREAS, in connection with its November 1, 1996 initial public offering of
Common Stock, the Company, pursuant to a certain Registration Rights Agreement,
dated as of October 31, 1996, between the Company and the Partnership (the
"Registration Rights Agreement"), has agreed that, upon the request of the
Partnership, the Company will register under the Securities Act of 1933, as
amended (the "Securities Act"), and applicable state securities laws the sale of
all or a requested portion of the Shares; and
WHEREAS, the General Partner has requested the Company to effect the
registration of the Underwritten Sale pursuant to the Registration Rights
Agreement; and
WHEREAS, pursuant to the Registration Rights Agreement, the Company is
obligated to pay all expenses incidental to such registration, excluding
underwriter's commissions and discounts; and
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WHEREAS, the General Partner and the Board of Directors of the Company have
adopted resolutions declaring the Plan to be advisable and authorizing and
approving certain actions necessary to the consummation of the Plan;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Parties agree as follows:
ARTICLE I
THE PLAN
Upon the terms and subject to the conditions set forth herein, the Parties
hereto agree that the following actions shall be taken with respect to the
Partnership:
SECTION 1.1. The Withdrawal Election. In connection with the Special
Meeting, each Limited Partner will be given the opportunity, at any time up to
the vote at the Special Meeting, to elect to withdraw from the Partnership (the
"Withdrawal Election") the Shares underlying 25%, 50%, 75% or 100% of the
Unit(s) (or fraction thereof) held by such Limited Partner. Shares withdrawn
from the Partnership pursuant to a Withdrawal Election (including fractional
Shares) are hereinafter referred to as "Withdrawn Shares." Limited Partners who
make a Withdrawal Election are hereinafter referred to as "Withdrawal Election
Partners."
In order to elect to become a Withdrawal Election Partner, a Limited
Partner must vote all of such Limited Partner's Units in favor of the Plan and
properly complete and execute a Proxy and Withdrawal Election Agreement (the
"Withdrawal Election Agreement") included with the Joint Proxy Statement and
Prospectus, dated , 1997 (the "Proxy Statement/Prospectus"),
distributed to the Limited Partners in connection with the Special Meeting. A
Withdrawal Election by a Limited Partner becomes irrevocable at the time of the
adoption of the Plan at the Special Meeting (the "Effective Time"). All Units
(or fractions thereof) included in a Withdrawal Election will be deemed to have
been redeemed on such date. All Withdrawn Shares must be included in the
Underwritten Sale. On or before the third Business Day following the Effective
Time (the "Withdrawal Date") the Partnership will distribute the Withdrawn
Shares on behalf of the Withdrawal Election Partners to [United States Trust
Company of New York], as the withdrawal agent (the "Withdrawal Agent"), which
will be appointed by the Withdrawal Election Partners in the Withdrawal Election
Agreement.
The General Partner shall participate in the Withdrawal with respect to its
general partner interest pro rata with the Withdrawal Election Partners, but
shall not be permitted to participate in the Underwritten Sale.
SECTION 1.2. The Underwritten Sale.
(a) Registration; Underwriters. The Company will file on or before the
Withdrawal Date a Registration Statement with respect to the Underwritten Sale,
which will be managed by a nationally recognized investment banking firm chosen
jointly by the General Partner and the Company (the "Managing Underwriter").
Pursuant to the power granted in the Withdrawal Election Agreement, the
Withdrawal Agent, on behalf of the Withdrawal Election Partners, will direct the
Managing Underwriter to commence marketing of the Withdrawn Shares as promptly
as reasonably possible after the Withdrawal Date. Each of the Withdrawal
Election Partners, pursuant to the Withdrawal Election Agreement, shall
authorize, empower and direct the Withdrawal Agent to execute and deliver on its
behalf an underwriting agreement and such other documents as may be necessary or
reasonably required by the underwriters to consummate the Underwritten Sale. The
form and substance of the underwriting agreement and any such other documents
shall also be acceptable to the Company and the General Partner.
(b) Pricing. The price at which the Withdrawn Shares will be sold in the
Underwritten Sale will be determined by a pricing committee (the "Pricing
Committee"), that will consist of Leonard Chill, William J. Shortt and Robert L.
Voigt. The Pricing Committee will use its best efforts to obtain the best
possible price for the Withdrawn Shares being sold, taking into account the
recommendation of the Managing Underwriter, as
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well as recent market prices for the Common Stock, discounts from market price
normally encountered in comparable underwritten secondary offerings, information
from the Managing Underwriter regarding the recent demand for the Common Stock,
general market conditions and any other factors the Pricing Committee deems
appropriate. The Pricing Committee will have the sole authority to set the price
for the Withdrawn Shares and will have the authority not to proceed with the
Underwritten Sale if the underwriters are unable to consummate the Underwritten
Sale at a public offering price that the Pricing Committee believes, in its
discretion, is reasonable, taking into account the aforementioned factors.
(c) Closing; Proceeds and Expenses. At the closing of the Underwritten Sale
(the "Closing"), the Withdrawal Agent, on behalf of the Withdrawal Election
Partners, will deliver the Withdrawn Shares to the underwriters against receipt
of the net proceeds from the sale of the Withdrawn Shares. Such net proceeds
will be distributed to the Withdrawal Election Partners by the Withdrawal Agent
promptly after the Closing. If the Underwritten Sale has, for any reason, not
been consummated before the date (the "Underwritten Sale Expiration Date") which
is one hundred eighty (180) days after the Effective Date (as defined in Section
8.1), the Withdrawal Agent will immediately thereafter deliver the Withdrawn
Shares to the Withdrawal Election Partners. No fractional Withdrawn Shares will
be distributed. The Company shall redeem for cash all fractional Withdrawn
Shares and the proceeds shall be distributed. The price to be paid for such
fractional Withdrawn Shares shall be the closing bid price of the Common Stock
on the Nasdaq National Market on the date which is five (5) Business Days prior
to the date of such distribution.
(d) Underwritten Sale Completed in Part. If (i) the underwriters determine
or advise the Pricing Committee that not all of the Withdrawn Shares can be sold
in the Underwritten Sale or (ii) the Pricing Committee determines that not all
of the Withdrawn Shares can be included in the Underwritten Sale at what it
deems to be a reasonable price, then the Pricing Committee may reduce the number
of Withdrawn Shares to be included in the Underwritten Sale. Such reduction
shall be made for each Withdrawal Election Partner pro rata with every other
Withdrawal Election Partner in the same proportion as the number of such
Withdrawal Election Partner's Withdrawn Shares bears to the total number of
Withdrawn Shares. The Withdrawn Shares that are not sold in the Underwritten
Sale will be delivered to the Withdrawal Election Partners on the one hundred
eightieth (180th) day following the Closing.
(e) Overallotment Option. Upon request of the Managing Underwriter, the
Company may include in the Underwritten Sale a number of shares of Common Stock
equal to up to fifteen percent (15%) of the total value of Withdrawn Shares
registered for the purpose of covering overallotments, if any; provided, that no
shares of Common Stock shall be sold by the Company in the Underwritten Sale
until all of the Withdrawn Shares are sold. If less than all of the Withdrawn
Shares are included in the Underwritten Sale, the underwriters' overallotment
option will first be comprised of Withdrawn Shares, which shall be sold first,
and will then be comprised of newly issued or treasury shares of Common Stock to
be sold by the Company.
SECTION 1.3. The Dissolution and Distribution.
(a) The General Partner shall cause the Partnership to dissolve pursuant to
Section 11 of the Partnership Agreement, effective upon the first Business Day
immediately following the Withdrawal Date (the "Dissolution Date"), and
thereafter shall make one or more liquidating distributions, in accordance with
the provisions set forth below and the provisions of Section 11(c) of the
Partnership Agreement, of all of the Partnership's Shares remaining (the
"Remaining Shares") after (i) completion of the Withdrawal and (ii) the
satisfaction of any remaining liabilities and expenses of the Partnership. The
Dissolution will be effected by up to three distributions of the Remaining
Shares. The first distribution will be made on the 180th day after the earlier
of the Closing or the distribution of the Withdrawn Shares by the Withdrawal
Agent to the Withdrawal Election Partners (the "First Distribution Date"). The
second distribution, if needed, of the Remaining Shares will be made on the
180th day following the First Distribution Date (the "Second Distribution
Date"). The balance of the Remaining Shares, if any, will be distributed on the
180th day following the Second Distribution Date (the "Third Distribution Date"
and, together with the First Distribution Date and the Second Distribution Date,
the "Distribution Dates"). The number of Shares to be distributed on each of the
First Distribution Date and Second Distribution Date will be equal to 25% of the
total number of shares of Common Stock owned by the public (the "Public Shares")
or, if it is less, the total number of Remaining Shares. The balance
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of the Remaining Shares, if any, will be distributed on the Third Distribution
Date. The Public Shares are equal to the total number of shares of Common Stock
outstanding as of each relevant Distribution Date (which, for purposes of this
Section 1.3(a), shall not include any treasury shares), less the Remaining
Shares not yet distributed.
(b) Notwithstanding Section 1.3(a) and subject to Section 1.3(c), at any
time on or after the earlier of the Underwritten Sale Expiration Date and the
First Distribution Date, the Company may require the General Partner to
accelerate the Distribution and distribute in a single distribution all of the
Remaining Shares then held by the Partnership if, in the sole discretion of the
Company's Board of Directors, such a distribution would be in the best interests
of the Company's stockholders.
(c) Notwithstanding Sections 1.3(a) and 1.3(b), the General Partner shall
not make any Distribution of the Remaining Shares pursuant to the Dissolution
unless a Registration Statement for the Distribution of the Remaining Shares has
become effective and is in effect on each of the Distribution Dates, and no
stop-order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
either of the General Partner or the Partnership, threatened by the Commission.
Notwithstanding the foregoing, the Company may delay the filing of any
Registration Statement, any amendment thereof or any supplement to the related
Prospectus, and may withhold efforts to cause any Registration Statement to
become effective, if the Company determines in good faith that such registration
would (1) interfere with or affect the negotiation or completion of any
transaction that is being contemplated by the Company (whether or not a final
decision has been made to undertake such transaction) at the time the right to
delay is exercised, or (2) involve initial or continuing disclosure obligations
not otherwise required by law or the rules and regulations of the Commission
that would not be in the best interest of the Company's stockholders.
SECTION 1.4. Payments and Distributions. All payments made to Withdrawal
Election Partners in connection with the Underwritten Sale and all distributions
of Withdrawn Shares to such Withdrawal Election Partners shall be sent by the
Withdrawal Agent to the Withdrawal Election Partners by first class U.S. mail to
the address of each Withdrawal Election Partner set forth on such Limited
Partner's Withdrawal Election Agreement (or if not specified therein, on the
records of the Partnership). All distributions of Remaining Shares to any
Limited Partners shall be sent by the General Partner to such Limited Partners
by first class U.S. mail to the address of each such Limited Partner set forth
on the books and records of the Partnership.
ARTICLE II
EXPENSES
SECTION 2.1. Expenses of the Plan. The Company agrees (except as provided
in Section 2.2) to advance to the Partnership all of the Partnership's costs and
expenses necessary to consummate the Plan, including, without limitation, all
registration and filing fees, solicitation and mailing expenses, Transfer Agent
fees, accounting fees and expenses, legal fees and expenses, Withdrawal Agent
fees and expenses, fees and expenses in connection with the fairness opinion,
Blue Sky qualification fees and expenses, printing and engraving costs and
expenses related to the Dissolution. Such costs and expenses, including the
$650,000 promissory note from the Partnership to the Company in respect of funds
previously advanced to the Partnership in connection with Partnership Expenses,
but not including the fees to be borne by the Company with respect to the
Underwritten Sale referred to in Section 2.2, are hereinafter referred to,
collectively, as the "Partnership Expenses." On the Effective Date, the
Partnership, in satisfaction of all Partnership Expenses theretofore incurred or
thereafter to be incurred by the Company in connection with the Plan, shall
deliver to the Company Shares. In the event that at the time of the
final Distribution of Shares, the aggregate Partnership Expenses incurred is
less than $ , then the Company shall issue to the Partnership a number
of shares of Common Stock determined by dividing the difference between
$ and the actual amount of Partnership Expenses incurred by the average
of the closing bid prices of the Common Stock on the Nasdaq National Market for
the ten trading days prior to the date of the final Distribution. The shares so
issued, if any, shall be distributed in such final Distribution. In the event
that at the time of the final Distribution of Shares, the aggregate Partnership
Expenses incurred is greater than $ , the Company
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shall not be entitled to any reimbursement of the difference between $
and the actual amount of Partnership Expenses incurred. If the Plan is not
approved, the Partnership shall execute a promissory note in favor of the
Company for the Partnership Expenses advanced by and owed to the Company. Such
promissory note shall bear interest equal to the Company's cost of funds under
its revolving credit facility and shall be due and payable immediately upon the
earliest of (i) any sale of Shares for cash that results in the Partnership
holding less than 95% of the Shares that it holds on the date hereof, (ii) the
acquisition or exchange for cash or securities of more than 25% of the Shares by
a third party or (iii) the dissolution of the Partnership.
SECTION 2.2. Expenses of the Underwritten Sale. Each of the Withdrawal
Election Partners and, if applicable under Section 1.2(e), the Company, shall
bear the underwriters' discounts and commissions attributable to the shares of
Common Stock sold by it in the Underwritten Sale. The Company shall bear the
following costs and expenses associated with the Underwritten Sale: including
Commission registration and filing fees, fees with respect to filings required
to be made with the National Association of Securities Dealers, Inc., printing
expenses, fees and disbursements of counsel for the Company and of all
independent certified public accountants of the Company (including the expenses
of any special audit and "cold comfort" letters required by or incident to the
Underwritten Sale) and the fees and expenses incurred in connection with the
listing of the Withdrawn Shares to be registered on each securities exchange on
which the Common Stock is then listed. All other expenses of the Partnership
incurred in connection with the Underwritten Sale, including all fees and
expenses of the Partnership's auditors, consultants, advisors, attorneys,
special experts and other professionals, all fees, discounts, commissions and
other consideration paid or incurred by or for any of the Withdrawal Election
Partners and all relevant taxes, including transfer taxes, will be borne by the
Partnership. Underwriting discounts and commissions in connection with the
Underwritten Sale will be allocated on a pro rata basis among the Withdrawal
Election Partners and, if applicable, the Company, in accordance with the number
of Withdrawn Shares sold on behalf of each Withdrawal Election Partner and the
Company, as the case may be.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the other Parties as follows:
SECTION 3.1. Organization and Good Standing of the Company. The Company is
a corporation duly formed, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own, lease, and operate its properties, and is duly qualified to do business and
in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would have a materially adverse effect on the business or
financial condition of the Company.
SECTION 3.2. Authority and Enforceability. The Company has the requisite
corporate power and the authority to enter into this Agreement and to perform
each of its obligations hereunder. The execution and delivery by the Company of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of the Company, and this Agreement is, or upon its execution and delivery and
satisfaction of the conditions precedent described in Article VII, will be, a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws affecting the enforcement of creditors rights generally and
by general equitable principles. Neither the execution and delivery by the
Company of this Agreement nor the consummation of the transactions contemplated
hereby, nor compliance by the Company with any of the provisions hereof, will
(i) conflict with or result in a breach of any provision of its certificate of
incorporation or bylaws, (ii) result in a material default (with due notice or
lapse of time or both) or the creation of any lien or give rise to any right of
termination, cancellation, or acceleration under any of the terms, conditions,
or provisions of any note, bond, mortgage, indenture, license, or agreement to
which the Company is a party or by which it or any of its properties or assets
may be bound, or (iii) violate any order, writ, injunction, decree, statute,
rule, or regulation applicable to the Company, or any of its properties or
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assets, assuming receipt of all routine governmental consents normally required
for the consummation of transactions such as transactions of the nature
contemplated by this Agreement.
SECTION 3.3. Necessary Governmental Authorizations. To the best knowledge
of the Company, neither the execution and delivery of, nor performance under,
this Agreement is prohibited by or requires any consent, authorization,
approval, or registration (other than the filing of the Registration Statements
described in Sections 5.2 and 5.3, such consents, authorizations, approvals or
registrations as may be required by state securities or "Blue Sky" laws and
those of a routine nature and customarily obtained subsequent to the
consummation of transactions such as transactions contemplated hereby) under any
law, rule, or regulation, or any judgment, order, writ, injunction, or decree
which is binding upon the Company.
SECTION 3.4. Registration Statement in Connection with the Plan and the
Dissolution. The Company has filed with Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 (No. 333-28817), including
the Proxy Statement/Prospectus which forms a part thereof, with respect to (i)
the solicitation of proxies for the Special Meeting and (ii) the Distribution of
the Shares pursuant to the Dissolution. Such registration statement, including
the Proxy Statement/Prospectus, financial statements, schedules, exhibits and
all other documents filed as a part thereof, as amended to the time of
effectiveness of the registration statement, is herein called the "Form S-4."
SECTION 3.5. Effectiveness; No Stop Orders. The Form S-4 has become
effective. No stop order suspending the effectiveness of the Form S-4,
preventing or suspending the use of the Proxy Statement/Prospectus, the Form S-4
or any amendment or supplement thereto or suspending the registration or
qualification of the Shares has been issued or, to the best knowledge of the
Company, threatened, by the Commission or the "Blue Sky" or securities authority
of any jurisdiction.
SECTION 3.6. No Consent. No consent, approval, authorization, order,
registration, filing, qualification, licence or permit of or with any court or
any public, governmental or regulatory agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their respective properties or
assets is required for the valid execution, delivery and performance of this
Agreement and the consummation by the Company of the transactions contemplated
hereby, except such consents, approvals, authorizations, orders, registrations,
filings qualifications, licenses and permits as may be required under the
Securities Act, the Exchange Act of 1934, as amended (the "Exchange Act") and
state securities or "Blue Sky" laws in connection with the Distribution of
Shares pursuant to the Dissolution.
SECTION 3.7. Registration Statement in Connection With the Underwritten
Sale. The Company has filed with the Commission a registration statement on Form
S-1 (No. 333-28817), including a prospectus which forms a part thereof, with
respect to the offer and sale of the Withdrawn Shares in accordance with the
Underwritten Sale. Such registration statement, including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof, as amended to the time of effectiveness of the registration
statement, is herein called the "Form S-1."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE GENERAL PARTNER
AND OF THE GENERAL PARTNER AS TO THE PARTNERSHIP
Each of the Partnership and the General Partner, as the case may be, hereby
represents and warrants to the other Parties as follows:
SECTION 4.1. Organization, Standing and Power. Each of the Partnership and
the General Partner is a limited partnership duly formed, validly existing, and
in good standing, under the laws of the State of Delaware and has all requisite
power and authority to own, lease, and operate its properties and to carry on
its business as now being conducted, and is duly qualified to do business and in
good standing in each jurisdiction in which the failure to be so qualified and
in good standing would have a materially adverse effect on its business or
financial condition.
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SECTION 4.2. Authority and Enforceability. Each of the Partnership and the
General Partner has the requisite power and the authority to enter into this
Agreement and to perform each of its obligations hereunder. The execution and
delivery by each of the Partnership and the General Partner of this Agreement
and the consummation of the transactions contemplated hereby will, upon
satisfaction of the conditions precedent described in Article VII, have been
duly and validly authorized by all necessary partnership action on its part, and
this Agreement is, or upon its execution and delivery will be, a valid and
binding obligation of it, enforceable against it in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws
affecting the enforcement of creditors rights generally and by general equitable
principles. Neither the execution and delivery by each of the Partnership and
the General Partner of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by each of the Partnership and the General
Partner with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of its certificate of limited partnership, (ii) result
in a material default (with due notice or lapse of time or both) or the creation
of any lien or give rise to any right of termination, cancellation, or
acceleration under any of the terms, conditions, or provisions of any note,
bond, mortgage, indenture, license, or agreement to which it is a party or by
which it or its properties or assets may be bound, or (iii) violate any order,
writ, injunction, decree, statute, rule, or regulation applicable to it or any
of its properties or assets, assuming receipt of all routine governmental
consents normally required for the consummation of transactions such as
transactions of the nature contemplated by this Agreement.
SECTION 4.3. Necessary Governmental Authorizations. To the best knowledge
of the General Partner, neither (i) execution and delivery of, nor performance
under, this Agreement by the General Partner or the Partnership is prohibited by
or requires any consent, authorization, approval, or registration (other than
those of a routine nature and customarily obtained subsequent to the
consummation of transactions such as transactions contemplated hereby) under any
law, rule, or regulation, or any judgment, order, writ, injunction, or decree
which is binding upon the Partnership or the General Partner, as the case may
be.
SECTION 4.4. No Other Assets. The sole asset of the Partnership as of the
date of this Agreement is 5,781,250 shares of Common Stock of the Company.
SECTION 4.5. No Consent. No consent, approval, authorization, order,
registration, filing, qualification, licence or permit of or with any court or
any public, governmental or regulatory agency or body having jurisdiction over
the Partnership or the General Partner or any of their respective properties or
assets is required for the valid execution, delivery and performance of this
Agreement and the consummation by each of the Partnership and the General
Partner of the transactions contemplated hereby, except such consents,
approvals, authorizations, orders, registrations, filings qualifications,
licenses and permits as may be required under the Securities Act, the Exchange
Act and state securities or "Blue Sky" laws in connection with the Distribution
of Shares pursuant to the Dissolution.
ARTICLE V
COVENANTS AND GENERAL UNDERTAKINGS OF THE PARTIES
SECTION 5.1. Solicitation of Proxies. As soon as practicable after the Form
S-4 has been declared effective by the Commission and this Agreement has been
executed and delivered by the Parties, the General Partner will take all action
necessary to hold the Special Meeting and will mail to the Limited Partners the
Proxy Statement/Prospectus in connection with the solicitation of proxies (each,
a "Proxy") to be voted at the Special Meeting of Limited Partners to be held in
Chickamauga, Georgia on , 1997 (the "Meeting Date"), and at any
adjournment or postponement thereof; provided, that the Special Meeting may not
be adjourned or postponed beyond , 1997. The General Partner shall,
by means of the Proxy Statement/Prospectus, solicit the approval of the Plan by
a majority in interest of the Limited Partners and shall be entitled to retain,
at the Partnership's expense, a solicitation agent to assist in the solicitation
of Proxies.
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SECTION 5.2. Registration Statement in Connection with the
Distribution. The Company shall prepare and file with the Commission such
amendments to the Form S-4 as may be necessary to keep the Form S-4 effective
until [six months] after the last Distribution Date (which period shall not
exceed [2 years and 9 months] from the date the Form S-4 was declared effective)
and cause the Proxy Statement/Prospectus included in the Form S-4 to be
supplemented by any required supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act. Alternatively, in lieu of keeping
the S-4 effective, the Company may prepare and file with the Commission a new
registration statement on the appropriate form under the Securities Act
(including, without limitation, a Form S-3, if available), which form shall be
available for the Distribution of Shares pursuant to the Dissolution, and shall
use all reasonable efforts to have such registration statement declared
effective under the Securities Act prior to the First Distribution Date and to
keep such registration statement effective until [six months] after the last
Distribution Date.
SECTION 5.3. Registration Statement in Connection with the Underwritten
Sale. The Company shall use all reasonable efforts to have the Form S-1 declared
effective under the Securities Act as promptly as possible after filing. The
Company shall prepare and file with the Commission such amendments to the Form
S-1 as may be necessary to keep the Form S-1 effective until the Underwritten
Sale is complete (which period shall not exceed [six months] from the date the
Form S-1 is declared effective) and cause the prospectus included in the Form
S-1 to be supplemented by any required supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Securities Act. The Company shall also take
all such other actions as may be reasonably required, including filing with the
Commission any and all other required documents, in order to consummate the
Underwritten Sale, to comply with the Securities Act and the rules and
regulations of the Commission promulgated thereunder and to comply with any
applicable "Blue Sky" or state securities laws to which the Underwritten Sale is
subject. The Company agrees to use its best efforts to facilitate the completion
of the Underwritten Sale as promptly as possible, and no later than the
Underwritten Sale Expiration Date.
SECTION 5.4. Action to Effect Consummation of the Plan. Each of the Parties
shall use all reasonable efforts to cause all the conditions precedent to the
consummation of the transactions contemplated hereby applicable to each of them
to be met as promptly as possible and to take all such other actions and execute
and deliver all such documents and instruments as may be reasonably necessary to
effect the consummation of the transactions contemplated hereby, including,
without limitation, the obtaining of any necessary consents from third parties.
SECTION 5.5. Dissolution. Upon the completion of the Distribution pursuant
to the Dissolution, in accordance with Section 11(d) of the Partnership
Agreement, the Partnership shall prepare and furnish to each Partner a statement
setting forth the assets and liabilities of the Partnership as of such date, and
the General Partner shall take all actions and execute, acknowledge and cause to
be filed on behalf of the Partnership all certificates and notices required by
law and the Partnership Agreement to terminate and dissolve the Partnership,
including, without limitation, a certificate of cancellation as required by the
Delaware Revised Uniform Limited Partnership Act.
SECTION 5.6. Registration Rights Agreement. Subject to the terms and
conditions of this Agreement, each of the Company and the Partnership agrees to
comply in all material respects with all of the terms and conditions of the
Registration Rights Agreement. If any of the terms or conditions of the
Registration Rights Agreement conflict with terms or conditions of this
Agreement, the terms or conditions of this Agreement will supersede the affected
terms or conditions in the Registration Rights Agreement and will apply.
ARTICLE VI
AMENDMENT OF PARTNERSHIP AGREEMENT
Upon the Effective Date, in order to conform the Partnership Agreement to
the Plan and to facilitate the transactions contemplated by the Plan, the
Partnership Agreement shall automatically and without any further action on the
part of the Limited Partners or the General Partner be amended as provided in
Exhibit A to this Agreement. The General Partner hereby consents to such
amendments of the Partnership Agreement pursuant to Section 12(h)(ii) of the
Partnership Agreement.
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ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1. Conditions Precedent to the Company's Obligations With Respect
to the Underwritten Sale. The obligations of the Company to consummate the
Underwritten Sale shall be subject to satisfaction of the following conditions
on or prior to the Closing Date, any or all of which may be waived by the
Company:
SECTION 7.1.1 No action or proceeding before any domestic or foreign court
or governmental agency or other regulatory or administrative agency or
commission shall be threatened or pending (i) seeking to restrain or prohibit
the making or consummation of the Underwritten Sale or seeking to obtain any
material damages or otherwise directly or indirectly relating to the
transactions contemplated by the Underwritten Sale, (ii) seeking to prohibit or
restrict the Company's ownership or operation of any material portion of its
business or assets, or to compel the Company to dispose of or hold separate all
or any material portion of its business or assets as a result of the
Underwritten Sale, (iii) seeking to make the purchase of, or payment for, some
or all of the Shares or the Plan illegal, (iv) resulting in a delay in the
ability of the Company to effect the Underwritten Sale, (v) imposing material
limitations on the ability of the prospective purchasers effectively to acquire
or hold or to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote the Shares on all matters properly
presented to the stockholders of the Company, (vi) which otherwise is reasonably
likely to materially adversely affect the Company or any of its subsidiaries or
the value of the Shares or (vii) which imposes any material condition
unacceptable to the Company.
SECTION 7.1.2 No statute, rule, regulation or order shall have been
enacted, promulgated, entered, or deemed applicable to the Underwritten Sale,
nor shall any legislation be pending, or any other action have been taken,
proposed or threatened, by any domestic government or governmental authority or
by any court, domestic or foreign, which, in the sole judgment of the Company,
is likely, directly or indirectly, to result in any of the consequences referred
to in subsections 7.2.1(i) through 7.2.1(vii).
SECTION 7.1.3 There shall have been obtained any and all material permits,
approvals, and consents of securities or "Blue Sky" commissions of any
jurisdiction and of any other governmental body or agency that may reasonably be
deemed necessary by the Company so that the consummation of the Underwritten
Sale will be in compliance with applicable laws.
SECTION 7.1.4 No order shall have been entered and remain in effect in any
action or proceeding before any foreign, federal or state court or governmental
agency or other foreign, federal or state regulatory or administrative agency or
commission that would prevent or make illegal the consummation of the
Underwritten Sale.
SECTION 7.1.5 The Company shall have obtained any and all consents,
waivers, and authorizations (including any governmental consents, waivers, and
authorizations) necessary or appropriate for consummation of the Underwritten
Sale.
SECTION 7.1.6 The business and properties of the Company shall not have
been adversely affected in any material way, whether by government ruling, act
of God, or otherwise, and there shall have been no other material change since
the date of this Agreement in the business, property or financial position of
the Company herein that is not contemplated by this Agreement.
SECTION 7.1.7 No action or proceeding shall have been instituted prior to
or at the Closing Date before any court or other governmental body, or
instituted or threatened by any public authority, the result of which could
prevent or make illegal the consummation of the Underwritten Sale.
SECTION 7.1.8 The representations and warranties of each of the
Partnership and the General Partner set forth in Article IV hereof shall be true
and correct in all material respects as of the Closing Date (and any subsequent
closing date with respect to the underwriters' overallotment option) as though
made on such date.
SECTION 7.1.9 Each of the Partnership and the General Partner shall have
performed in all material respects all covenants and undertakings required to be
performed by it under this Agreement prior to the Closing Date.
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SECTION 7.1.10 The Form S-1 shall have been declared effective, and no
stop-order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, threatened by the Commission. The Form S-1 shall not contain any
misstatement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Prospectus which forms a part thereof shall not contain any misstatement of
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
SECTION 7.2. Conditions Precedent to the Obligations of the Partnership and
the General Partner Under the Plan. Each of the Partnership's and the General
Partner's obligation to complete each element of the Plan applicable to it on
the terms set forth herein is subject to the fulfillment, at any time after the
Effective Date, of the following conditions:
SECTION 7.2.1 Limited Partners holding a majority in interest of the
outstanding Units shall have approved the Plan at the Special Meeting.
SECTION 7.2.2 The Partnership shall have received a written opinion from
Patricof & Co. Capital Corp., satisfactory in form and substance to the General
Partner as general partner of the Partnership, to the effect that the Plan is
fair, from a procedural point of view, to the Limited Partners.
SECTION 7.2.3 There shall have been obtained any and all material permits,
approvals, and consents of securities or "Blue Sky" commissions of any
jurisdiction and of any other governmental body or agency that may reasonably be
deemed necessary by the Partnership or the General Partner so that the
consummation of the Withdrawal, the Distribution and/or the Dissolution, as the
case may be, will be in compliance with applicable laws.
SECTION 7.2.4 No order shall have been entered and remain in effect in any
action or proceeding before any foreign, federal or state court or governmental
agency or other foreign, federal or state regulatory or administrative agency or
commission that would prevent or make illegal the consummation of the
Withdrawal, the Distribution or the Dissolution, as the case may be.
SECTION 7.2.5 The Partnership and the General Partner shall have obtained
any and all consents, waivers, and authorizations (including any governmental
consents, waivers, and authorizations) necessary or appropriate for consummation
of the Withdrawal, the Distribution or the Dissolution, as the case may be.
SECTION 7.2.6 With respect to the Distribution, there will be an effective
Registration Statement with respect to the Shares to be distributed, as provided
in Section 5.2(b).
SECTION 7.2.7 No action or proceeding shall have been instituted before
any court or other governmental body, or instituted or threatened by any public
authority, the result of which could prevent or make illegal the consummation of
the Withdrawal, the Distribution or the Dissolution, as the case may be.
SECTION 7.2.8 The representations and warranties of the Company set forth
in Article III hereof shall be true and correct in all material respects as of
the date of completion of each element of the Plan as though made on such date.
SECTION 7.2.9 The Company shall have performed in all material respects
all covenants and undertakings required to be performed by it under this
Agreement prior to the date of completion of each element of the Plan.
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ARTICLE VIII
EFFECTIVE DATE OF THE PLAN AND
TERMINATION OF THIS AGREEMENT
SECTION 8.1. Approval of Limited Partners; Effective Date. The Plan shall
become effective upon the approval of the Plan at the Special Meeting by Limited
Partners holding at least a majority in interest of the outstanding Units. The
date that the Plan becomes effective is referred to herein as the "Effective
Date." If the Plan is not approved by the Limited Partners, this Agreement shall
be terminated and of no force or effect, except for Section 2.1, which shall
survive any such termination.
SECTION 8.2. Termination of Agreement. This Agreement may be terminated at
any time prior to the Withdrawal Date by the General Partner in its sole and
absolute discretion in the event of adverse legislative developments or in the
event the General Partner, in the exercise of its fiduciary duties, determines
that consummation of the Plan otherwise is no longer in the best interests of
the Partners. This Agreement may also be terminated by the Board of Directors of
the Company at any time prior to the Withdrawal Date in the event the Board of
Directors, in the exercise of its fiduciary duties, determines that consummation
of the Plan otherwise is no longer in the best interests of the Company.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1. Governing Law. This Agreement and the legal relations between
the Parties shall be governed by and construed in accordance with the laws of
the State of New York without regard to principles of conflicts of laws
otherwise applicable to such determination.
SECTION 9.2. Business Day. Any action which is required under this
Agreement to take place on a day which is not a Monday, Tuesday, Wednesday,
Thursday or Friday which is not a day on which banking institutions in the City
of New York, State of New York are authorized or obligated by law, regulation or
executive order to close (a "Business Day") shall take place on the next
succeeding Business Day.
SECTION 9.3. Captions. The captions in this Agreement are for convenience
only and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
SECTION 9.4. Assignment. No Party hereto shall assign this Agreement or any
part thereof without the prior written consent of the other Parties.
SECTION 9.5. Non-Survival of Representations and Warranties. The
representations and warranties contained in Articles III and IV of this
Agreement shall expire on, and be terminated and extinguished at, the date that
the Partnership has completed the Distribution or upon the earlier termination
of this Agreement.
SECTION 9.6. No Third Party Beneficiaries. This Agreement has been and is
made solely for the benefit of and shall be binding upon the parties, as and to
the extent provided herein, and no other person shall acquire or have any rights
under or by virtue of this Agreement.
SECTION 9.7. Entire Agreement. This Agreement constitutes the entire
agreement, and supersedes all previous oral and written representations and
agreements, between the Parties with respect to the subject matter hereof.
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IN WITNESS WHEREOF, this Agreement has been signed by a duly authorized
representative of each of the Parties hereto, all as of the date first above
written.
SI MANAGEMENT L.P.
By: Synthetic Management G.P.,
General Partner
By: Chill Investments, Inc.,
Managing General Partner
By:
------------------------------------
Leonard Chill
President
SYNTHETIC INDUSTRIES, L.P.
By: SI Management L.P., General
Partner
By: Synthetic Management G.P.,
General Partner
By: Chill Investments, Inc.,
Managing General Partner
By:
------------------------------------
Leonard Chill
President
SYNTHETIC INDUSTRIES, INC.
By:
------------------------------------
Joseph Sinicropi
Secretary and Chief Executive
Officer
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EXHIBIT A TO ANNEX A
PROPOSED AMENDMENT TO
PARTNERSHIP AGREEMENT
WITHDRAWAL OF ASSETS, DISSOLUTION
AND DISTRIBUTION
Set forth below is a proposed amendment ("Amendment") to the Partnership
Agreement of the Partnership. This Amendment shall be immediately effective with
respect to the Partnership upon the approval pursuant to the Plan of at least a
majority in interest of the Limited Partners.
Amendment No. 2 to
Amended and Restated
Limited Partnership Agreement of
Synthetic Industries L.P.
Dated as of , 1997
Pursuant to Section 12(h)(ii) thereof
WHEREAS, SI Management L.P. (the "General Partner") and the Limited
Partners of Synthetic Industries, L.P. (the "Partnership") are parties to the
Amended and Restated Limited Partnership Agreement, dated as of November 11,
1986, of Synthetic Industries, L.P., as amended (the "Partnership Agreement");
WHEREAS, pursuant to Section 12(h)(ii) of the Partnership Agreement,
Limited Partners whose Interests in the aggregate exceed fifty percent (50%) of
the Limited Partners who are Partners in the Partnership have approved the
amendments effected hereby and agreed that such amendments shall be binding upon
them and the Partnership;
WHEREAS, the General Partner, the Partnership and Synthetic Industries,
Inc. (the "Company") have entered into an Agreement and Plan of Dissolution of
the Partnership (the "Plan"), to become effective upon the approval of the
amendments effected hereby.
NOW, THEREFORE, in consideration of the premises, the Partnership Agreement
is hereby amended as follows:
Section 1. The section of the Partnership Agreement entitled "Certain
Definitions" is hereby amended by adding thereto the following definitions:
"Business Day" shall mean a day which is a Monday, Tuesday, Wednesday,
Thursday or Friday which is not a day on which banking institutions in the City
of New York, State of New York are authorized or obligated by law, regulation or
executive order to close.
"Capital Account Percentage" shall mean, with respect to each Partner as of
any date, the percentage (rounded to the nearest tenth of a percent) obtained by
dividing (i) such Partner's Capital Account determined immediately prior to such
date by (ii) the aggregate Capital Accounts of all Partners determined
immediately prior to such date. For purposes of computing Capital Account
Percentages, Capital Accounts are to be determined by giving effect to all
contributions, distributions and allocations for all periods ending immediately
prior to such date.
"Common Stock" shall mean the shares of the common stock, par value $1.00
per share, of the Company owned by the Partnership.
"Company" shall mean Synthetic Industries, Inc., a Delaware corporation.
"Dissolution" shall mean the dissolution of the Partnership pursuant to the
Plan.
"Distribution Dates" shall mean, collectively, the First Distribution Date,
the Second Distribution Date and the Third Distribution Date.
"Effective Date" shall mean the date on which the Plan will become
effective in the manner set forth in the Plan.
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"First Distribution Date" shall mean the earlier of the 180th day after the
closing of the Underwritten Sale or the 180th day after the delivery of shares
of Common Stock by the Withdrawal Agent to the Withdrawal Election Partners as
provided in the Plan.
"General Partner Interest" shall mean all or any portion of the Interest of
the General Partner, as may be reduced from time to time in accordance with this
Partnership Agreement.
"General Partner Proportionate Interest" shall mean the portion of the
entire General Partner Interest that is in the same proportion to the total
General Partner Interest (determined immediately prior to the effective date of
any Withdrawal Election) as the total of all Withdrawn Limited Partner Interests
bear to the total of all Limited Partner Interests (determined immediately prior
to the effective date of any Withdrawal Election).
"Gross Asset Value" shall mean, with respect to any asset, the asset's
adjusted basis for U.S. federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the General Partner;
(ii) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective Mark-to-Market Values, as of the
following times: (A) the acquisition of an additional Interest by any new
or existing Partner in exchange for a capital contribution; (B) the
Distribution by the Partnership to a Partner of Partnership property as
consideration for all or a portion of such Partner's Interest; and (C) the
liquidation of the Partnership within the meaning of Treasury Regulation
Section 1.704-1(b)(2)(ii)(g); and
(iii) To the extent not adjusted pursuant to paragraph (ii), the Gross
Asset Value of any Partnership asset distributed to any Partner shall be
adjusted to equal its Mark-to-Market Value.
The Gross Asset Value of Partnership property shall be adjusted as otherwise
required to comply with the requirements of the substantial economic effect test
under Treasury Regulation Section 1.704-1.
"Limited Partner Interest" shall mean all or any portion of the Interest of
a Limited Partner, as may be reduced from time to time in accordance with this
Partnership Agreement.
"Liquidating Distribution" shall mean one or more liquidating Distributions
of the Remaining Assets pursuant to the Plan.
"Mark-to-Market Value" shall mean the gross fair market value of
Partnership assets as follows:
(a) The Mark-to-Market Value of Common Stock determined as of the
Withdrawal Date and each Distribution Date shall be equal to the gross fair
market value on each such date of the shares of Common Stock then owned by
the Partnership as determined by the General Partner; and
(b) The Mark-to-Market Value of any other Partnership property
determined as of any date (other than cash and cash equivalents which shall
have a value equal to the face amount) shall be equal to its gross fair
market value on such date as determined by the General Partner.
"Partnership Agreement" shall mean the Amended and Restated Limited
Partnership Agreement of the Partnership, dated as of November 11, 1986, as
amended by the Amendment to the Partnership Agreement, dated as of May , 1987
and this Amendment No. 2 to the Partnership Agreement, dated as of ,
1997.
"Plan" shall mean the Agreement and Plan of Withdrawal and Dissolution of
the Partnership as set forth in the Proxy Statement/Prospectus.
"Proxy Statement/Prospectus" shall mean the Joint Proxy Statement and
Prospectus constituting Part I of the Registration Statement of Synthetic
Industries, Inc. on Form S-1 (File No. 333-28817) in the form
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such Proxy Statement/Prospectus was filed with the Securities and Exchange
Commission pursuant to its Rule 424(b), as thereafter amended or supplemented.
"Public Shares" shall mean the total number of shares of common stock of
the Company, par value $1.00 per share, outstanding as of each of the First
Distribution Date and the Second Distribution Date, less any Remaining Shares.
For purpose of this definition, such outstanding common stock shall not include
treasury shares.
"Remaining Assets" shall mean the Partnership's assets remaining
immediately after completion of the Withdrawal Distribution, as reduced to
satisfy any remaining liabilities and expenses of the Partnership in accordance
with Section 11 hereof.
"Second Distribution Date" shall mean the 180th day following the First
Distribution Date.
"Third Distribution Date" shall mean 180th day following the Second
Distribution Date.
"Underwritten Sale" shall mean the underwritten offer and sale (as
described in the Proxy Statement/Prospectus) of the shares of Common Stock that
are distributed to the Withdrawal Election Partners pursuant to the Plan, that
is intended to commence as promptly as possible after the Withdrawal Date, but
in no event later than the Underwritten Sale Expiration Date.
"Underwritten Sale Expiration Date" shall mean one hundred eighty (180)
days after the Effective Date.
"Withdrawal Agent" shall mean [the financial institution] appointed by the
Withdrawal Election Partners to act as such pursuant to the Plan.
"Withdrawal Date" shall mean the date, on or before the third Business Day
following the Effective Date, on which shares of Common Stock are delivered to
the Withdrawal Agent, on behalf and at the request of each of the Withdrawal
Election Partners, as a Distribution to such Withdrawal Election Partner in
satisfaction and redemption of his or her Withdrawn Limited Partner Interest.
"Withdrawal Distribution" shall mean the Distribution, pursuant to the
Plan, of Common Stock to the Withdrawal Election Partners in satisfaction and
redemption of their Withdrawn Limited Partner Interests.
"Withdrawal Election" shall mean the election, pursuant to the Plan, by a
Limited Partner to withdraw from the Partnership 25%, 50%, 75% or 100% of his or
her Limited Partner Interest in order to participate in the Underwritten Sale.
"Withdrawal Election Partners" shall mean the Limited Partners who make a
valid Withdrawal Election pursuant to the Plan.
"Withdrawn Limited Partner Interest" shall mean all or that portion of a
Limited Partner Interest of a Withdrawal Election Partner that is subject to a
valid Withdrawal Election.
Section 2. Section 6 is amended as follows:
(A) Section 6(b) hereof shall be amended in its entirety to read:
"The terms "Profits" and "Losses" shall mean, respectively, the net
profits and net losses of the Partnership for Federal income tax purposes
for the Partnership's taxable year or other period, as determined by the
General Partner and approved by the Partnership's accountants, with the
following adjustments:
(i) Any income of the Partnership that is exempt from Federal income
tax and not otherwise taken into account in computing Profits or Losses
pursuant to this definition of "Profits" and "Losses" shall be added to
such taxable income or loss;
(ii) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses pursuant to this
definition of "Profits" and "Losses" shall be subtracted from such taxable
income or loss;
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(iii) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraphs (ii) or (iii) of the definition of
"Gross Asset Value," the amount of such adjustment, if positive, shall be
taken into account as gain or, if negative, shall be taken into account as
loss from the disposition of such asset for purposes of computing Profits
or Losses;
(iv) Gain or loss resulting from any disposition of any Partnership
asset with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
asset disposed of, notwithstanding that the adjusted tax basis of such
asset differs from its Gross Asset Value; and
(v) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account depreciation, amortization, or other cost
recovery for such period determined in accordance with Treasury Regulation
Section 1.704-1(b)(2)(iv)(g).
Consistent with Section 5(e)(iii) hereof, the definition of Profits and
Losses shall include all other adjustments as necessary to comply with Treasury
Regulation Section 1.704-1(b)(2). Profits and Losses as so defined shall include
all expenses and liabilities of the Partnership relating to the Plan, as
incurred or accrued as of the Withdrawal Date, and expresses and liabilities
related to the development of earlier restructuring proposals not completed,
unless previously allocated to the Partners."
(B) Section 6(i) hereof shall be amended in its entirety to read:
"Except as provided in Section 6(j) hereof, the General Partner shall
at all times be entitled to not less than an aggregate of 1% of each item
of income, gain, loss, deduction and credit."
(C) The following subsection 6(k) shall be inserted immediately after
subsection 6(j):
"(k) Notwithstanding any other provision of the Partnership Agreement to
the contrary:
(i) As of the Withdrawal Date, the value of all Partnership property
shall be equal to its Mark-to-Market Value and the Gross Asset Values of
all Partnership property shall be adjusted pursuant to the definition of
"Gross Asset Value." Profits and Losses for the period beginning on the
first day of the Partnership's taxable year during which the Withdrawal
Date occurs and ending on the Withdrawal Date shall be allocated 99% to the
Limited Partners (in accordance with the ratio of their Capital
Contributions) and 1% to the General Partner immediately before the
Withdrawal Distribution.
(ii) As of each Distribution Date, the value of all Partnership
property shall be equal to its Mark-to-Market Value and the Gross Asset
Values of all Partnership property shall be adjusted pursuant to the
definition of "Gross Asset Value." Profits and Losses for the period
beginning on the latter of the first day of the Partnership's taxable year
during which such Distribution Date occurs and the first day immediately
following any previous Distribution Date and ending on such Distribution
Date shall be allocated to the Partners in proportion to their Capital
Account Percentages; provided, however, that the General Partner shall not
be allocated more than 1% of the Profits.
(iii) Profits and Losses for any period beginning after the Withdrawal
Date and not described in subparagraph (ii) shall be allocated to the
Partners in proportion to their Capital Account Percentages; provided,
however, that the General Partner shall not be allocated more than 1% of
the Profits.
(iv) In the event that the Partnership recognizes any gain or loss
other than pursuant to Section 6(k)(i) hereof resulting from the
disposition of Common Stock, except with respect to any shares that it
sells or transfers specifically to pay transaction costs of the Plan as
identified in the definitions of "Profits" and "Losses", such gain or loss
shall be specially allocated 99 percent to the Withdrawal Election Partners
to the extent and in proportion to their applicable Capital Account
Percentages corresponding to their Withdrawn Limited Partner Interests and
one percent to the General Partner.
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Section 3. The following Section 13 shall be added in its entirety
immediately following Section 12 of the Partnership Agreement:
"13. Notwithstanding any other provision of the Partnership Agreement to
the contrary:
(a) Withdrawal of Assets
1. Elimination of Restrictions. No provision of the Partnership Agreement
shall prohibit, limit or prevent (i) the withdrawal by a Partner of all or a
specified portion of his or her Interest pursuant to and in accordance with the
terms of the Plan, (ii) the Distribution of the Partnership's assets as provided
in this Section 13 or (iii) any such withdrawal or Distribution from being
effective on the date or dates or in the manner contemplated by this Section 13
and the Plan. No consent of the Partnership or any Partner, opinion of counsel
for any party or other procedure shall be required in order to enable any
Partner or the Partnership to effect any such withdrawal or Distribution.
2. Withdrawal of Interests. Each Limited Partner may elect to withdraw from
the Partnership all or a specified portion of his or her Limited Partner
Interest and to participate in the Underwritten Sale pursuant to, and subject to
the terms and conditions of, the Plan. Such withdrawals shall become effective
upon the Withdrawal Date, subject to the effectiveness of this Section 13 and
the conditions and limitations contained in the Plan.
The General Partner shall withdraw its General Partner Proportionate
Interest in accordance with the Plan.
The withdrawal by the General Partner of all or a portion of its General
Partner Interest shall not constitute the transfer to, or assumption by, any
person of the powers, responsibilities or liabilities of the General Partner,
and the General Partner shall continue as the general partner of the Partnership
with respect to its remaining General Partner Interest, if any, in the
Partnership unless and until it ceases to be a general partner pursuant to
another provision of the Partnership Agreement.
3. Distribution of Assets Attributable to Withdrawn Limited Partner
Interests. On the Withdrawal Date, after giving effect to Section 6(j) hereof,
the General Partner shall cause the Partnership to deliver to the Withdrawal
Agent, on behalf and at the request of each of the Withdrawal Election Partners,
as a Distribution to each such Withdrawal Election Partner in satisfaction and
redemption of his or her Withdrawn Limited Partner Interest, shares of Common
Stock having a Mark-to-Market Value as of the Withdrawal Date equal to the
balance of such Withdrawal Election Partner's Capital Account corresponding to
his or her Withdrawn Limited Partner Interest.
4. Distribution of Assets Attributable to General Partner Interest. The
General Partner, concurrently with the delivery to the Withdrawal Agent of the
Common Stock attributable to the Withdrawn Limited Partner Interests, in
satisfaction and redemption of the General Partner Proportionate Interest, shall
cause the Partnership to distribute to the General Partner shares of Common
Stock having a Mark-to-Market Value as of the Withdrawal Date equal to the
balance of the General Partner's Capital Account corresponding to the General
Partner Proportionate Interest.
5. Termination of Partner Interests. Upon the withdrawals and Distributions
contemplated by the provisions of this Section 13(a), the portions of Limited
Partner Interests and portion of the General Partner Interest with respect to
which such withdrawals and Distributions are made shall terminate. The assets so
distributed shall be owned by the respective distributee Partners free and clear
of any claim by the Partnership or any Partner thereof.
(b) Dissolution and Distribution.
1. Dissolution. The General Partner shall cause the Partnership to commence
dissolution pursuant to Section 11 of the Partnership Agreement, and shall make
the Distribution, in accordance with the provisions set forth below, of all of
the Remaining Assets. Such dissolution shall commence upon the first Business
Day immediately following the Withdrawal Date and shall be completed promptly
after the Distribution is complete.
2. Distribution. The Dissolution will be effected by one to three
Distributions of the Remaining Assets, depending upon the number of shares of
Common Stock to be distributed, to be made on the Distribution Dates, as
described below. Section 6(j) hereof shall be given effect immediately prior to
each Distribution.
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The number of shares of Common Stock to be distributed on each of the First
Distribution Date and, if needed, the Second Distribution Date shall be equal to
25% of the Public Shares, or if it is less, the total number of Remaining
Shares. The balance of the Remaining Shares, if any, will be distributed on the
Third Distribution Date. Any Remaining Assets other than Common Stock shall be
distributed on the last applicable Distribution Date.
3. Acceleration of Distribution by the Company. Notwithstanding Section
13(b)(2) and subject to Section 13(b)(4) hereof, at any time on or after the
earlier of the Underwritten Sale Expiration Date and the First Distribution
Date, the Company, as provided in the Plan, may require the General Partner to
cause the Partnership to accelerate the Distribution and distribute in a single
Distribution all of the Remaining Assets then held by the Partnership if, in the
sole discretion of the Company's Board of Directors, such a Distribution would
be in the best interests of the Company's stockholders.
4. No Distribution Without Effective Registration Statement.
Notwithstanding Sections 13(b)(2) and 13(b)(3) hereof, the General Partner shall
not cause the Partnership to make any Distribution of the Common Stock remaining
in the Partnership after the Withdrawal unless a registration statement for the
Distribution of such Common Stock has become effective and is in effect on each
of the Distribution Dates, and no stop-order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose shall have
been initiated or, to the knowledge of either of the General Partner or the
Partnership, threatened by the Securities and Exchange Commission.
(c) Authority of the General Partner; This Section Controlling. The General
Partner shall execute, acknowledge and deliver, for, in the name and on behalf
of the Partnership, any and all documents and shall do and perform all acts and
things required by any applicable law or which the General Partner deems
necessary or desirable in order to give effect to this Section 13 and the
transactions contemplated hereby.
Section 4. (a) Except as otherwise provided in this Amendment No. 2 to the
Partnership Agreement, the Partnership Agreement shall remain in full force and
effect without any other amendment, modification or alteration.
(b) The provisions of this Amendment No. 2 shall control over all other
provisions of the Partnership Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Amendment No. 2 on
, 1997.
SI MANAGEMENT L.P.,
in its capacity as General Partner
and on behalf of the Limited
Partners
as contemplated by Section 12(h)(ii)
of the Partnership Agreement
By: Synthetic Management G.P.,
General Partner
By: Chill Investments, Inc.,
Managing General Partner
By:
----------------------------------
Name: Leonard Chill
Title: President
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ANNEX B
NAMES(S) OF REGISTERED HOLDER OF UNITS (LIMITED PARTNER(S)):
------------------------------------------------------------------
NUMBER (OR FRACTION) OF UNITS HELD:
------------------------
WITHDRAWAL ELECTION AGREEMENT
RELATING TO
THE PLAN OF WITHDRAWAL AND DISSOLUTION
OF
SYNTHETIC INDUSTRIES, L.P.
A DULY EXECUTED AND PROPERLY COMPLETED COPY OF THIS WITHDRAWAL ELECTION
AGREEMENT MUST BE RECEIVED ON OR BEFORE 5:00 P.M., NEW YORK CITY TIME, ON
, 1997 (THE "INITIAL SOLICITATION EXPIRATION DATE"), UNLESS EXTENDED
BY THE GENERAL PARTNER IN ITS SOLE DISCRETION TO NOT LATER THAN 5:00 P.M., NEW
YORK CITY TIME, ON , 1997 (AS EXTENDED, THE "SOLICITATION EXPIRATION
DATE"), AT THE FOLLOWING ADDRESS:
D.F. KING & CO., INC.
77 WATER STREET
20TH FLOOR
NEW YORK, NEW YORK 10005
(800) 488-8095 (TOLL FREE)
Delivery of this Withdrawal Election Agreement (the "Withdrawal Election
Agreement") to an address other than as set forth above will not constitute a
valid delivery. Telephonic inquiries concerning this Withdrawal Election
Agreement and the applicable procedures may be addressed to D.F. King & Co.,
Inc. (the "Solicitation Agent") at the above telephone number.
All capitalized terms used but not defined herein shall have the meanings
given such terms in the Proxy Statement/Prospectus.
The undersigned has completed, executed and delivered this Withdrawal
Election Agreement to indicate the action the undersigned desires to take with
respect to the proposed Withdrawal Election and to evidence the undersigned's
agreement to the terms and conditions set forth herein.
PLEASE READ THIS ENTIRE WITHDRAWAL ELECTION AGREEMENT CAREFULLY BEFORE
CHECKING ANY BOX BELOW.
In order to participate in the proposed Underwritten Sale, a Holder of
Units (or a fraction thereof) must complete, sign, date and mail or otherwise
deliver this Withdrawal Election Agreement to the Solicitation Agent at the
address set forth on the cover page hereof prior to the Solicitation Expiration
Date.
HOLDERS WHO ABSTAIN OR VOTE AGAINST THE PLAN MAY NOT MAKE THE WITHDRAWAL
ELECTION TO PARTICIPATE IN THE UNDERWRITTEN SALE.
IN ORDER TO MAKE A VALID WITHDRAWAL ELECTION TO PARTICIPATE IN THE
UNDERWRITTEN SALE PURSUANT TO THE PLAN, YOU MUST PROPERLY COMPLETE AND SIGN THE
ENCLOSED PROXY (THE "PROXY") AND VOTE ALL OF YOUR UNITS (OR FRACTION THEREOF) IN
FAVOR OF THE PLAN. You must also properly complete and sign below indicating the
specified percentage, 25%, 50%, 75% or 100%, of your Units (or fraction thereof)
of which the Shares underlying such Units (or fraction thereof) you desire to
have included in the Underwritten Sale. No
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Withdrawal Election shall have been validly made unless the Solicitation Agent
shall have received this Withdrawal Election Agreement and a properly completed
and executed Proxy by 5:00 p.m., New York City time, on the Solicitation
Expiration Date (the "Election Deadline"). IF, AS OF THE ELECTION DEADLINE, THE
SOLICITATION AGENT HAS NOT RECEIVED THIS WITHDRAWAL ELECTION AGREEMENT AND A
PROXY FROM YOU, YOU SHALL BE DEEMED NOT TO HAVE MADE A WITHDRAWAL ELECTION WITH
RESPECT TO YOUR UNITS. If you make a Withdrawal Election by submitting this
Withdrawal Election Agreement and a Proxy to the Solicitation Agent, you may at
any time prior to the Election Deadline change or revoke your Withdrawal
Election by submitting a revised Withdrawal Election Agreement, properly
completed and signed, that is received by the Solicitation Agent prior to the
Election Deadline, or by voting in person at the Special Meeting. The Withdrawal
Election will be irrevocable upon the time of the adoption of the Plan at the
Special Meeting.
It is also important that each Holder complete the Form W-9 included
herein.
NO WITHDRAWAL ELECTION SHALL BE EFFECTED IF THE PLAN IS NOT APPROVED BY THE
LIMITED PARTNERS AND THERE CAN BE NO ASSURANCE THAT, IF THE PLAN IS APPROVED,
THE UNDERWRITTEN SALE WILL BE CONSUMMATED IN WHOLE OR IN PART.
If the undersigned is an "affiliate" of the Company as that term is defined
under Rule 144 ("Rule 144") under the Securities Act of 1933, as amended (the
"Securities Act"), the undersigned agrees to be bound by the provisions of Rule
144, including, without limitation, the restrictions on transfer of the Common
Stock of the Company.
The undersigned understands that a Withdrawal Election Agreement delivered
pursuant to any one of the procedures described under the caption "Proxy and
Withdrawal Election Procedures" in the Proxy Statement/Prospectus and in the
instructions hereto will constitute a legal and binding agreement and power of
attorney between the undersigned, the Partnership, the Company and the
Withdrawal Agent, as the case may be, upon the terms and subject to the
conditions set forth in the Proxy Statement/Prospectus and in this Withdrawal
Election Agreement and that each of the Partnership, the Company and the
Withdrawal Agent will rely on this Agreement in carrying out the Withdrawal, the
Underwritten Sale and the Distribution, as the case may be.
WITHDRAWAL ELECTION
The undersigned desires to make a Withdrawal Election to participate in the
Underwritten Sale and hereby makes the following Withdrawal Election:
I would like to withdraw from the Partnership the Shares
underlying the following percentage of my Unit(s) (or fraction
thereof), which Shares I desire to have included in the
Underwritten Sale [check appropriate box]:
[ ] 25%
[ ] 50%
[ ] 75%
[ ] 100%
The undersigned acknowledges that its Withdrawal Election percentage, to
the extent that the Underwritten Sale is completed only in part, is subject to
the pro rata adjustment more fully described in the Proxy Statement/Prospectus.
The undersigned also acknowledges that if the Underwritten Sale is not
consummated as provided in the Proxy Statement/Prospectus, or is consummated in
part, the Withdrawn Shares, or potion thereof, as the case may be, will be
delivered by the Withdrawal Agent to the Withdrawal Election Partners one
hundred eighty (180) days after approval of the Plan or the Closing, as the case
may be. The undersigned also acknowledges that, upon approval of the Plan, the
Withdrawal will be effected and the undersigned will no longer be a Limited
Partner with respect to the Units subject to the Withdrawal and will receive the
Withdrawn Shares in exchange for his or her interest in the Partnership. See
"The Plan of Withdrawal and Dissolution -- The Withdrawal Election" in the Proxy
Statement/Prospectus.
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<PAGE> 136
A WITHDRAWAL ELECTION WILL NOT BE EFFECTIVE WITH RESPECT TO ANY HOLDER WHO
VOTES "AGAINST" THE PLAN OR WHO ABSTAINS. IN ORDER FOR A WITHDRAWAL ELECTION TO
BE EFFECTIVE, YOU MUST HAVE VOTED "FOR" THE PLAN.
APPOINTMENT OF WITHDRAWAL AGENT
The undersigned hereby appoints [United States Trust Company of New York
("U.S. Trust")], as withdrawal agent (the "Withdrawal Agent"), to act on behalf
of the undersigned in connection with the Withdrawal, the Underwritten Sale and,
if the Underwritten Sale is not consummated or is consummated in part, the
distribution of all or any remaining Withdrawn Shares to the undersigned. The
Withdrawal Agent, on the undersigned's behalf, will receive the Withdrawn Shares
from the Partnership and hold such Shares in custody, deliver the Withdrawn
Shares to the Underwriters (as defined below) at the closing of the Underwritten
Sale and deliver payment therefor to the undersigned and any Withdrawn Shares
not sold in the Underwritten Sale. Any payment and/or delivery of Shares shall
be sent to the undersigned via first class mail at the address indicated below.
IRREVOCABLE POWER OF ATTORNEY WITH RESPECT TO THE UNDERWRITTEN SALE
The undersigned hereby irrevocably constitutes and appoints [U.S. Trust],
with full power and authority to act alone in any matter hereunder and with full
power of substitution and re-substitution, the true and lawful attorney-in-fact
of the undersigned with full power in the name of, for and on behalf of, the
undersigned with respect to all matters arising in connection with the sale of
Common Stock by the undersigned in the Underwritten Sale or, if the Underwritten
Sale is not consummated or is consummated in part, the delivery of Withdrawn
Shares to the undersigned including, but not limited to, the power and authority
to take any and all of the following actions:
(1) To sell and deliver to the several Underwriters up to the number
of shares of Common Stock as underlies the percentage of Units (or fraction
thereof) set forth above, rounded to the nearest whole number (such total
number of shares as is finally determined by the Withdrawal Agent and to be
set forth opposite the name of the undersigned in a schedule to the
Underwriting Agreement (as defined below) are hereinafter referred to as
the "Securities"), such Securities to be represented by certificates
deposited by the Partnership with the Withdrawal Agent on behalf of the
Withdrawal Election Partners pursuant to the Custody Agreement (the
"Custody Agreement") set forth below, at a purchase price per share to be
paid by the Underwriters as the Pricing Committee, in its sole discretion,
shall determine, but at the same price per share at which the Company, if
necessary to cover the Underwriters' overallotment option, and all other
Withdrawal Election Partners sell shares of Common Stock in the
Underwritten Sale and on such other terms as are determined by the Pricing
Committee;
(2) For the purpose of effecting the Underwritten Sale, to execute,
deliver and perform on behalf of the undersigned the Underwriting Agreement
(the "Underwriting Agreement") among the Company, certain Withdrawal
Election Partners including the undersigned, and [ ], as the
representative (the "Representative") of and on behalf of each of the
several underwriters to be named in the Underwriting Agreement (the
"Underwriters"), with full power to make such amendments to the
Underwriting Agreement as the Withdrawal Agent in its sole discretion may
deem advisable;
(3) (a) To give such orders and instructions to BankBoston (the
"Transfer Agent") as the Withdrawal Agent may determine with respect to (i)
the transfer on the books of the Company of any shares of Common Stock to
be sold by the undersigned in the Underwritten Sale in order to effect the
Underwritten Sale (including the names in which new certificates for shares
of Common Stock are to be issued and the denominations thereof), (ii) the
delivery to or for the account of the Underwriters of the certificates for
the Securities against receipt by the Transfer Agent or its agent of the
purchase price to be paid therefor, (iii) the payment, out of the proceeds
(net of underwriting discounts and commissions) from the sale of the
Securities by the undersigned in the Underwritten Sale, of any expense
incurred in accordance with the Underwriting Agreement which is not payable
by the Company, and (iv) the return
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<PAGE> 137
to the undersigned of new certificates representing the number of shares of
Common Stock, if any, represented by certificates deposited with the
Transfer Agent which are in excess of the number of shares of Common Stock
sold by the undersigned in the Underwritten Sale; and (b) to amend the
Underwriting Agreement and any related documents in such manner as the
Withdrawal Agent may determine to be in the best interests of the
undersigned;
(4) On behalf of the undersigned, to make the representations and
warranties and enter into the agreements contained in the Underwriting
Agreement (including, without limitation, the restriction on sales or other
dispositions of shares of Common Stock and securities convertible into or
exercisable or exchangeable for shares of Common Stock by the undersigned);
(5) To incur any necessary or appropriate expense in connection with
the Underwritten Sale as contemplated by the Plan;
(6) To approve on behalf of the undersigned any amendments to the
Registration Statement to be filed in connection with the Underwritten Sale
(the "Registration Statement") or the Prospectus which forms a part thereof
(the "Prospectus");
(7) To retain legal counsel to represent the undersigned in connection
with any and all matters referred to herein (which counsel may, but need
not be, counsel for the Company);
(8) To make, execute, acknowledge and deliver all such other
contracts, stock powers, orders, receipts, notices, instructions,
certificates, letters and other writings, including, without limitation,
requests for the acceleration of the effectiveness of the Registration
Statement, and other communications to the Securities and Exchange
Commission (the "Commission"), and amendments to the Underwriting
Agreement, and in general to do all things and to take all actions which
the Withdrawal Agent, in its sole discretion, may consider necessary or
appropriate in connection with or to carry out the Underwritten Sale, as
fully as could the undersigned if personally present and acting;
(9) To make, acknowledge, verify and file on behalf of the undersigned
applications, consents to service of process and such other undertakings or
reports as may be required by law with state commissioners or officers
administering state securities laws;
(10) If necessary, to endorse (in blank or otherwise) on behalf of the
undersigned the certificate or certificates representing the Securities, or
a stock power or powers attached to such certificate or certificates;
(11) To sell, pursuant to the Underwriting Agreement, a number of
shares of Common Stock fewer than the shares of Common Stock underlying the
percentage of the Unit(s) (or fraction thereof) set forth in the Withdrawal
Election above; and
(12) To sign such other underwriting documents, agreements and
certificates as are necessary to consummate the Underwritten Sale.
The undersigned hereby authorizes and empowers the Withdrawal Agent to
determine in its sole discretion the time or times when, purpose for and manner
in which any power herein conferred upon it shall be exercised, and the
conditions, provisions or covenants of any instrument or document which may be
executed by it pursuant hereto.
Upon the execution and delivery of the Underwriting Agreement by the
Withdrawal Agent on behalf of the Withdrawal Election Partners, the undersigned
agrees to be bound by and to perform each and every covenant and agreement
therein of the undersigned as a selling Securityholder.
The undersigned agrees, if so requested in writing, to provide an opinion
of counsel, addressed to King & Spalding, which opinion shall expressly permit
reliance thereon by King & Spalding, setting forth such matters as King &
Spalding may reasonably request in rendering its opinion to the Underwriters
pursuant to the Underwriting Agreement.
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The undersigned agrees that this Power of Attorney and all authority
conferred hereby are granted and conferred subject to and in consideration of
the interests of the several Underwriters, the Company and the other Withdrawal
Election Partners who may become parties to the Underwriting Agreement, and for
the purposes of completing the transactions contemplated by this Power of
Attorney.
The undersigned agrees that this Power of Attorney is an agency coupled
with an interest and all authority conferred hereby shall be irrevocable, and
shall not be terminated by any act of the undersigned or by operation of law,
whether by the death or incapacity of the undersigned (or either or any of them)
or by the occurrence of any other event or events (including, without limiting
the foregoing, the termination of any trust or estate for which the undersigned
is acting as a fiduciary or fiduciaries or the dissolution or liquidation of any
corporation or partnership). If after the execution hereof the undersigned (or
either or any of them) should die or become incapacitated, or if any trust or
estate should be terminated, or if any corporation or partnership should be
dissolved or liquidated, or if any other such event or events shall occur,
before the completion of the transactions contemplated by this Power of
Attorney, certificates representing the Securities shall be delivered by or on
behalf of the undersigned in accordance with the terms and conditions of the
Underwriting Agreement executed by the Withdrawal Agent, and actions taken by
the Withdrawal Agent hereunder shall be as valid as if such death, incapacity,
termination, dissolution, liquidation or other event or events had not occurred,
regardless of whether or not the Transfer Agent, the Withdrawal Agent, the
Underwriters or any one of them, shall have received notice of such death,
incapacity, termination, dissolution, liquidation or other event.
It is understood and agreed that the Withdrawal Agent assumes no
responsibility or liability to any person other than to deal with the
certificates for shares of Common Stock deposited with it and the proceeds from
the sale of shares of Common Stock represented thereby in the Underwritten Sale,
or if the Underwritten Sale is not consummated, to deliver the shares of Common
Stock to the Withdrawal Election Partners in accordance with the provisions
hereof and of the Plan. The Withdrawal Agent makes no representations with
respect to and shall have no responsibility for the Registration Statement or
the Prospectus nor, except as herein expressly provided, for any aspect of the
Underwritten Sale, and the Withdrawal Agent shall not be liable for any error of
judgment or for any act done or omitted or for any mistake of fact or law except
for the Withdrawal Agent's own gross negligence or bad faith. The undersigned
agrees to indemnify the Withdrawal Agent for and to hold the Withdrawal Agent
free from and harmless against any and all loss, claim, damage, liability or
expense incurred by or on behalf of the Withdrawal Agent arising out of or in
connection with acting as Withdrawal Agent under this Power of Attorney, as well
as the cost and expense of defending against any claim of liability hereunder,
and not due to the Withdrawal Agent's own gross negligence or bad faith. The
undersigned agrees that the Withdrawal Agent may consult with counsel of their
choice (which may but need not be counsel for the Company) and the Withdrawal
Agent shall have full and complete authorization and protection for any action
taken or suffered by the Withdrawal Agent in good faith and in accordance with
the opinion of such counsel.
WITHDRAWAL ELECTION PARTNER'S CUSTODY AGREEMENT
The undersigned hereby authorizes the Partnership to deliver to the
Withdrawal Agent certificates representing the Withdrawn Shares underlying the
Units (or fraction thereof) as set forth above. The stock certificates are to be
held by the Withdrawal Agent for the account of the undersigned and are to be
disposed of by the Withdrawal Agent in accordance with this Agreement.
If the undersigned is acting as a fiduciary, officer, partner or agent, the
undersigned has also delivered certified copies of the appropriate instruments
pursuant to which the undersigned is authorized to act hereunder.
The undersigned agrees to deliver to the Withdrawal Agent such additional
documentation as the Withdrawal Agent, the Company or the Representative or any
of their respective counsel may request to effectuate or confirm compliance with
any of the provisions hereof or of the Underwriting Agreement, all of the
foregoing to be in form and substance satisfactory in all respects to the
Withdrawal Agent or such counsel.
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The undersigned hereby authorizes and directs the Withdrawal Agent to hold
the Withdrawn Shares deposited with it in its custody, and on the closing date
of the Underwritten Sale (the "Closing Date") or such other date specified in
the Underwriting Agreement it shall, in accordance with the Plan, (i) take all
necessary action to cause the Withdrawn Shares to be sold; (ii) to deliver the
certificates representing the Withdrawn Shares to the Representative, for the
accounts of the several Underwriters, in exchange for payment for such Withdrawn
Shares at the purchase price per share as determined in accordance with the
Underwriting Agreement, and give receipt for such payment; (iii) deposit the
same to its account as custodian; and (iv) transmit to the undersigned the net
amount (after the deduction of underwriters' discounts and commissions) received
by it as payment for the undersigned's Withdrawn Shares. Such balance is to be
paid by check sent to the undersigned via first class mail at the address
indicated in the Withdrawal Election Agreement or in such manner as the
Withdrawal Agent, in accordance with the terms thereof, shall deem appropriate.
In accordance with the Plan, one hundred eighty (180) days after the Closing
Date, the Withdrawal Agent shall also return to the undersigned new certificates
representing the number of shares of Common Stock of the Company, if any,
represented by the number of Withdrawn Shares deposited which are in excess of
the number of Withdrawn Shares sold by the undersigned to the Underwriters.
If the Underwritten Sale shall not have been consummated prior to the
Underwritten Sale Expiration Date, then, promptly following the Underwritten
Sale Expiration Date, the Withdrawal Agent shall deliver to the undersigned the
Withdrawn Shares deposited with it hereunder as provided in the Plan.
The undersigned agrees that the certificates deposited with the Withdrawal
Agent hereunder and the Withdrawal Agent's authority hereunder are subject to
the interests of the several Underwriters, the Company and the other Withdrawal
Election Partners, and this Agreement and the Withdrawal Agent's authority
hereunder are irrevocable and are not subject to termination by the undersigned
or by operation of law, whether by the death or incapacity of the undersigned,
the termination of any trust or estate, the death or incapacity of one or more
trustees, guardians, executors or administrators under such trust or estate, the
dissolution or liquidation of any corporation or partnership or the occurrence
of any other event. If the undersigned should die or become incapacitated, if
any trust or estate should be terminated, if any corporation or partnership
should be dissolved or liquidated, or if any other such event should occur
before the delivery of the Withdrawn Shares to be sold by the undersigned under
the Underwriting Agreement, certificates for such Withdrawn Shares shall be
delivered by the Withdrawal Agent on behalf of the undersigned in accordance
with the terms and conditions of the Underwriting Agreement and this Agreement,
and action taken by the Withdrawal Agent pursuant to this Agreement shall be as
valid as if such death or incapacity, termination, dissolution, liquidation or
other event had not occurred, regardless of whether or not the Withdrawal Agent
shall have received notice of such death, incapacity, termination, dissolution,
liquidation or other event. The General Partner has authority to instruct the
Withdrawal Agent on irregularities or discrepancies in letters of transmittal,
discrepancies in the form of Withdrawn Shares and accompanying documents.
Until payment of the purchase price for the Withdrawn Shares has been made
to the Withdrawal Agent, the undersigned shall remain, from the time of the
Withdrawal, the owner of the Withdrawn Shares and shall have the right to vote
the Withdrawn Shares represented by the certificates deposited with the
Withdrawal Agent hereunder and to receive any and all dividends and
distributions thereon.
The Withdrawal Agent shall be entitled to act and rely upon any statement,
request, notice or instructions respecting this Agreement given to the
Withdrawal Agent on behalf of the undersigned, if the same shall have been made
or given to the Withdrawal Agent by the undersigned; provided, however, that the
Withdrawal Agent shall not be entitled to act on any statement or notice to it
with respect to the date of delivery under the Underwriting Agreement, or with
respect to the non-effectiveness or termination of the Underwriting Agreement,
or advising that the Underwriting Agreement has not been executed and delivered,
unless such statement or notice shall have been confirmed in writing to the
Withdrawal Agent by the Representative.
In taking any action requested or directed by the Representative under the
terms of this Agreement, the Withdrawal Agent will be entitled to rely upon a
writing signed by an authorized employee of [ ].
It is understood and agreed that the Withdrawal Agent assumes no
responsibility or liability to any person other than to deal with the
certificate(s) deposited with the Withdrawal Agent hereunder and the proceeds
B-6
<PAGE> 140
from the sale of all or a portion of the securities represented thereby in
accordance with the provisions of this Agreement, and the undersigned agrees to
indemnify and hold the Withdrawal Agent harmless with respect to anything done
by it in good faith in accordance with the foregoing instructions.
The undersigned hereby represents and warrants that:
(1) Such Withdrawal Election Partner will be, upon approval of the
Plan by the Limited Partners and the Withdrawal, the lawful owner of the
Withdrawn Shares to be sold by such Withdrawal Election Partner pursuant to
the Underwriting Agreement and will have, upon approval of the Plan by the
Limited Partners and the Withdrawal, and on the Closing Date, good and
valid title to such Withdrawn Shares, free of all restrictions on transfer,
liens, encumbrances, securities interests and claims whatsoever, except
pursuant to the Plan.
(2) Upon delivery of payment for such Withdrawn Shares pursuant to the
Underwriting Agreement, good and valid title to such Withdrawn Shares will
pass to the Underwriters, free of all restrictions on transfer, liens,
encumbrances, security interests and claims whatsoever.
(3) Such Withdrawal Election Partner has, and on the Closing Date will
have, full legal right, power and authority to enter into the Underwriting
Agreement and to sell, assign, transfer and deliver such Withdrawn Shares
in the manner provided therein, and the Underwriting Agreement will be duly
authorized, executed and delivered by the Withdrawal Agent on behalf of
such Withdrawal Election Partner and the Underwriting Agreement will be a
valid and binding agreement of such Withdrawal Election Partner enforceable
in accordance with its terms, except as rights to indemnity and
contribution contained in the Underwriting Agreement may be limited by
applicable law.
(4) The Withdrawal Election Agreement signed by such Withdrawal
Election Partner appointing [U.S. Trust] as his or her attorney-in-fact to
the extent set forth therein has been duly authorized, executed and
delivered by or on behalf of such Withdrawal Election Partner and is a
valid and binding instrument of such Withdrawal Election Partner,
enforceable in accordance with its terms and, pursuant to the Withdrawal
Election Agreement, such Withdrawal Election Partner has authorized [name
of Withdrawal Agent] to execute and deliver on his or her behalf the
Underwriting Agreement and any other document necessary or desirable in
connection with transactions contemplated thereby and to deliver the
Withdrawn Shares to be sold by such Withdrawal Election Partner pursuant to
the Underwriting Agreement.
(5) Such Withdrawal Election Partner will not take, directly or
indirectly, any action designed to, or which might reasonably be expected
to, cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Withdrawn Shares
pursuant to the distribution contemplated by the Underwritten Sale, and
other than as permitted by the Securities Act, the Withdrawal Election
Partner will not distribute any prospectus or other offering material in
connection with the Underwritten Sale.
(6) The execution, delivery and performance of the Underwriting
Agreement by such Withdrawal Election Partner, compliance by such
Withdrawal Election Partner with all the provisions thereof and the
consummation of the Underwritten Sale and, if the Underwritten Sale is not
consummated or is consummated in part, the distribution of Withdrawn Shares
to Withdrawal Election Partners will not require any consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body (except as such may be required under the
Securities Act or state securities laws or "Blue Sky" laws) and will not
conflict with or constitute a breach of any of the terms or provisions of,
or a default under, organizational documents of such Withdrawal Election
Partner, if not an individual, or any agreement, indenture or other
instrument to which such Withdrawal Election Partner is a party or by which
such Withdrawal Election Partner or property of such Withdrawal Election
Partner is bound, or violate or conflict with any laws, administrative
regulation or ruling or court decree applicable to such Withdrawal Election
Partner or property of such Withdrawal Election Partner.
(7) Such Withdrawal Election Partner is not a member, an affiliate of
a member or a person associated with a member of the National Association
of Securities Dealers, Inc. (the "NASD"). [The
B-7
<PAGE> 141
NASD defines "member" to mean any broker or dealer admitted to the NASD and
defines "person associated with a member" to mean every sole proprietor,
partner, officer, director or branch manager of any member, or any natural
person occupying a similar status or performing similar functions, or any
natural person engaged in investment banking or securities business who is
directly or indirectly controlling or controlled by such member (i.e., an
employee), whether or not such person is registered or exempt from
registration with the NASD.]
(8) The information regarding such Withdrawal Election Partner set
forth in this Withdrawal Election Agreement does not, and will not on the
Closing Date (and any subsequent closing date with respect to the
Underwriters' overallotment option, if applicable), contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
circumstances under which they were made, not misleading. If there is any
change in such information, such Withdrawal Election Partner shall
immediately notify the Withdrawal Agent of such change.
The foregoing representations, warranties and agreements are made for the
benefit of, and may be relied upon by, the other Withdrawal Election Partners,
the Withdrawal Agent, the Company, the Partnership, the Underwriters and the
Transfer Agent and their respective representatives, agents and counsel.
------------------------------------------------
This Withdrawal Election Agreement (including the Power of Attorney and
Custody Agreement) shall terminate immediately upon the sale or distribution of
all of the Withdrawn Shares; provided, that if the Underwritten Sale is
completed in whole or in part, the representations, warranties and covenants of
the undersigned Withdrawal Election Partner as set forth in the above Custody
Agreement shall survive. Notwithstanding any of the foregoing provisions, if the
Underwritten Sale is not completed prior to the Underwritten Sale Expiration
Date, then immediately following the distribution of the Withdrawn Shares to the
Withdrawal Election Partners in accordance with the terms of the Plan, this
Withdrawal Election Agreement (including the Power of Attorney and Custody
Agreement) shall terminate and be of no further force or effect.
This Withdrawal Election Agreement, including the Power of Attorney, shall
be governed by and construed in accordance with the laws of the State of New
York.
B-8
<PAGE> 142
WITNESS the due execution of the foregoing Withdrawal Election Agreement by
the undersigned, intending to be legally bound, as of the date written below.
Unless otherwise indicated under "Special Issuance Instructions," please
issue any Common Stock to be delivered to the undersigned in the name(s) of the
undersigned. Unless otherwise indicated under "Special Payment Instruction,"
please issue the check for any payment for Withdrawn Shares sold in the
Underwritten Sale in the name(s) of the undersigned. Similarly, unless otherwise
indicated under "Special Delivery Instructions," please issue such shares of
Common Stock and/or mail such check to the undersigned at the address shown
below the undersigned's signature.
<TABLE>
<S> <C>
- ----------------------------------------------------- * ---------------------------------------------- , 1997
- ----------------------------------------------------- * ---------------------------------------------- , 1997
Signature(s) of Holders(s) or Date
Authorized Signatory
</TABLE>
Print Name and Address of Holder(s) and
Name and Title of Person signing as Agent or
Fiduciary:
Name(s):
- ------------------------------------
- ------------------------------------
- ------------------------------------
(Please Print)
Capacity:
- ------------------------------------
Address:
- ------------------------------------
- ------------------------------------
(Include Zip Code)
Area Code and
Telephone Number: ( )
- -------------------------------------------------------------------
- ---------------
* To be signed in exactly the same manner as the Units are registered. If
signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
above. See Instruction 4 below.
B-9
<PAGE> 143
SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 4, 6 and 7)
To be completed ONLY if the check in payment of Withdrawn Shares sold in
the Underwritten Sale is to be issued in the name of someone other than the
Holder.
Name:
--------------------------------------------------
(Please Print)
Address:
--------------------------------------------------
- ---------------------------------------------------
(Include Zip Code)
(Complete Form W-9)
- ---------------------------------------------------
(Tax Identification or
Social Security Number)
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4, 6 and 7)
To be completed ONLY if a check and/or the certificates for shares of
Common Stock are to be sent to someone other than the Holder at an address other
than as indicated above.
Mail: [ ] check
[ ] Common Stock certificate
Name:
--------------------------------------------------
(Please Print)
Address:
--------------------------------------------------
- ---------------------------------------------------
(Include Zip Code)
(Complete Form W-9)
- ---------------------------------------------------
(Tax Identification or
Social Security Number)
B-10
<PAGE> 144
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 4, 6 AND 7)
To be completed ONLY if certificates for shares of Common Stock are to be
issued in the name of someone other than the Holder:
Issue to:
Name
- ----------------------------------------------
(Please Print)
Address
- --------------------------------------------
- ------------------------------------------------------
(Include Zip Code)
(Complete Form W-9)
- ------------------------------------------------------
(Tax Identification or
Social Security Number)
B-11
<PAGE> 145
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE WITHDRAWAL ELECTION AGREEMENT
(1) DELIVERY OF THIS WITHDRAWAL ELECTION AGREEMENT. A completed and duly
executed copy of this Withdrawal Election Agreement, a Substitute Form W-9 (or
facsimile thereof) and any other documents required by this Withdrawal Election
Agreement must be received by the Solicitation Agent at its address set forth on
the cover page hereof prior to the Solicitation Expiration Date if the Holder
desires to participate in the Underwritten Sale. The method of delivery of this
Withdrawal Election Agreement and all other required documents to the
Solicitation Agent is at the election and risk of the Holder, but, except as
otherwise provided below, the delivery will be deemed made only when actually
received by the Solicitation Agent. IF SUCH DELIVERY IS BY MAIL, CERTIFIED MAIL
WITH RETURN RECEIPT REQUESTED OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
(2) QUESTIONS REGARDING VALIDITY, FORM, ELIGIBILITY, ETC. All questions as
to the validity, form, eligibility (including time of receipt) and acceptance of
Withdrawal Election Agreements will be determined by the General Partner in its
sole discretion, which determination will be final and binding. The General
Partner reserves the right to reject any and all Withdrawal Election Agreements
not properly completed or any Withdrawal Election Agreements the General
Partner's acceptance of which would, in the opinion of the General Partner or
its counsel, be unlawful. The General Partner also reserves the right to waive
any defects or irregularities or conditions of the Withdrawal. The
interpretation of the terms and conditions of the Withdrawal (including this
Withdrawal Election Agreement and the instructions hereto) by the General
Partner shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with deliveries of Withdrawal Election Agreements
must be cured within such time as the General Partner may determine. Neither the
General Partner nor any other person shall be under any duty to give
notification of defects or irregularities with respect to deliveries of
Withdrawal Election Agreements, nor shall any of them incur any liability for
failure to give such notification.
(3) WITHDRAWAL ELECTION. Only a registered Holder of the Units (or a
fraction thereof) or his legal representative or attorney-in-fact who has voted
"FOR" the Plan may elect to participate in the Underwritten Sale and deliver a
Withdrawal Election Agreement.
(4) SIGNATURES ON THIS WITHDRAWAL ELECTION AGREEMENT. This Withdrawal
Election Agreement must be signed by the registered Holder(s) of the Units.
Signatures must correspond with the names as contained on the books of the
Partnership without alteration, enlargement or any change whatsoever. If any of
such Units are owned of record by two or more joint owners, all such owners must
sign this Withdrawal Election Agreement.
If this Withdrawal Election Agreement is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing and submit evidence satisfactory to the General Partner of
their authority so to act with this Withdrawal Election Agreement.
If the boxes entitled "Special Payment Instructions," "Special Delivery
Instructions," and "Special Issuance Instructions" are filled out, signatures on
this Withdrawal Election Agreement must be guaranteed by a commercial bank or
trust company having an office or correspondent in the United States or a firm
that is a member of a registered national securities exchange or the national
Association of Securities Dealers, Inc. (each, an "Eligible Institution"),
unless the Withdrawal Election Agreement made pursuant hereto is for the account
of an Eligible Institution.
(5) REVOCATION OF WITHDRAWAL ELECTION AGREEMENT. Any Holder who has
elected to participate in the Underwritten Sale may revoke such Withdrawal
Election (including the Power of Attorney) by delivering written notice of such
revocation to the Solicitation Agent at any time prior to the Solicitation
Expiration Date. Thereafter, Withdrawal Election Agreements will no longer be
revocable, except if a Holder attends the Special Meeting and votes against the
Plan. Any such notice of revocation, to be effective, must indicate the
B-12
<PAGE> 146
Units (or fraction thereof) to which relates to be signed by the Holder in the
same manner as the original Withdrawal Election Agreement.
(6) SPECIAL ISSUANCE, PAYMENT AND DELIVERY INSTRUCTIONS. Holders should
indicate in the applicable box or boxes, the name and address to which the check
for any payment for Withdrawn Shares sold in the Underwritten Sale and/or the
certificates of Common Stock is to be issued or sent, if different from the name
and address of the person signing this Withdrawal Election Agreement. In the
case of issuance in a different name, the taxpayer identification or social
security number the persons named must also be indicated.
(7) TAXPAYER IDENTIFICATION NUMBER. A Holder must provide the [Withdrawal
Agent] (as payor) with his or her current taxpayer identification number ("TIN")
to avoid backup withholding with respect to any payment for Withdrawn Shares
sold in the Underwritten Sale. In the case of a Holder who is an individual, the
Holder's TIN is his or her social security number. If the [Withdrawal Agent] is
not provided with the correct TIN, the Holder will be subject to backup
withholding equal to 31% of any payments made to Holder and may be subject to
penalties imposed by the Internal Revenue Service (the "IRS"). Backup
withholding is not an additional tax. Rather, the tax liability of persons
subject to back up withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained if
certain conditions are met. Exempt Holders (including, among others, all
corporations) are not subject to these backup withholding and reporting
requirements if they certify their exempt status in the manner required. Foreign
Holders should consult their own tax advisors with respect to the tax
consequences (including backup withholding requirement) of the Solicitation and
Plan. See the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional instructions.
To prevent backup withholding, each nonexempt Holder must provide his or
her correct TIN by completing the Substitute Form W-9 included herein,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the Holder has not been notified by the IRS that he, she or it
is subject to backup withholding as a result of failure to report all interest
or dividends or (ii) the IRS has notified the Holder that he or she is no longer
subject to backup withholding. If the Units are registered in more than one name
or are not in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report.
(8) WAIVER OF CONDITIONS. Subject to applicable law, the General Partner
reserves the absolute right to amend, waive or modify specified conditions of
the Withdrawal.
(9) REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the Withdrawal and the Underwritten Sale or the procedure for making a
Withdrawal Election as well as requests for assistance or for additional copies
of the Proxy Statement/Prospectus and this Withdrawal Election Agreement may be
directed to the Solicitation Agent at the address and telephone number indicated
on the cover of this Withdrawal Election Agreement.
B-13
<PAGE> 147
TO BE COMPLETED BY ALL HOLDERS
(SEE INSTRUCTION 7)
PAYOR NAME: [WITHDRAWAL AGENT]
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT Social Security OR
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW Taxpayer Identification Number
-------------------------------
-------------------------------------------------------------------------------------
DEPARTMENT OF TREASURY PART 2 -- Check the box if you are NOT subject to backup withholding under the
INTERNAL REVENUE SERVICE provisions of Section 3406(a)(1)(C) of the Internal Revenue Code because (1) you have
not been notified that you are subject to backup withholding as a result of failure
to report all interest or dividends or (2) the Internal Revenue Service has notified
you that you are no longer subject to backup withholding. [
]
-------------------------------------------------------------------------------------
PAYORS REQUEST FOR CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I PART 3 -- Check if Awaiting TIN [
TAXPAYER IDENTIFICATION CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM ]
NUMBER (TIN) IS TRUE, CORRECT, AND COMPLETE.
SIGNATURE: ----------------------- DATE:
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU.
]PLEASE REVIEW ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
B-14
<PAGE> 148
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
NUMBER DESCRIPTION
-------- -----------
<C> <S>
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 SI
Holding Inc., including exhibits thereto.(1)
2.2 -- Plan and Agreement of Merger dated December 4, 1986.(1)
2.3 -- Asset Purchase Agreement dated October 12, 1990 between
Synthetic Industries, Inc. and Chicopee.(2)
3.1 -- Amended and Restated Limited Partnership Agreement of
Synthetic Industries, L.P. dated as of November 11, 1986
(with all amendments thereto).
3.2 -- Certificate of Incorporation of Synthetic Industries,
Inc. filed with the Secretary of the State of
Delaware.(10)
3.3 -- Amended and Restated By-Laws of Synthetic Industries,
Inc.(10)
4.1 -- Indenture dated as of December 14, 1992 between Synthetic
Industries, Inc. and United States Trust Company of New
York, Trustee, with respect to the 12 3/4% Senior
Subordinated Debentures due 2002.(4)
4.2 -- Supplemental Indenture dated as of October 20, 1995
between Synthetic Industries, Inc. and United States
Trust Company of New York, Trustee, with respect to the
12 3/4% Senior Subordinated Debentures due 2002.
4.3 -- Supplemental Indenture dated as of February 11, 1997
between Synthetic Industries, Inc. and United States
Trust Company of New York, Trustee, with respect to the
12 3/4% Senior Subordinated Debentures due 2002.
4.4 -- Indenture dated as of February 11, 1997 between Synthetic
Industries, Inc. and United States Trust Company of New
York, Trustee, with respect to the 9 1/4 Senior
Subordinated Notes due 2007.(16)
4.5 -- Registration Rights Agreement, dated as of February 11,
1997, between Synthetic Industries, Inc. and Bear,
Stearns & Co. Inc.(16)
4.6 -- Registration Rights Agreement, dated as of October 31,
1996, between Synthetic Industries, Inc. and Synthetic
Industries, L.P.(12)
5.1 -- Opinion of King & Spalding. (To be filed by amendment.)
8.1 -- Opinion of King & Spalding with respect to tax matters.
(To be filed by amendment.)
10.1 -- Fourth Amended and Restated Revolving Credit and Security
Agreement dated as of October 20, 1995 among Synthetic
Industries, Inc., BankBoston and other Lenders listed on
Schedule I thereto, and BankBoston, as agent on behalf of
the Lenders.(9)
10.2 -- Amendment No.1 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
December 1, 1995.(9)
10.3 -- Amendment No.2 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
February 14, 1996.(11)
10.4 -- Amendment No.3 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of March
15, 1996.(9)
10.5 -- US Patent No. 4,867,614, Reinforced Soil and Method (Exp.
December 13, 2003).(2)
</TABLE>
<PAGE> 149
<TABLE>
<CAPTION>
EXHIBITS
NUMBER DESCRIPTION
-------- -----------
<C> <S>
10.6 -- US Patent No. 4,790,691, Fiber Reinforced Soil and Method
(Exp. December 13, 2003).(2)
10.7 -- US Patent No. 5,007,766, Shaped Barrier for Erosion
Control and Sediment Collection (Exp. April 16, 2008).(2)
10.8 -- Lease agreement dated November 22, 1971 between Murray
Sobel and Synthetic Industries, Inc. (including all
amendments to date).(1)
10.9 -- 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).(1)
10.10 -- Lease agreement dated December 17, 1990 between Chicopee
and Synthetic Industries, Inc.(2)
10.11 -- Lease agreement dated January 17, 1991 between Herchel L.
Webster and Allie Ree Webster and Synthetic Industries,
Inc. (the "Lumite Lease").(2)
10.12 -- Amendment to the Lumite Lease dated October 1, 1992.(6)
10.13 -- Consulting Agreement dated July 23, 1991 between Texpro
Limitada y Cia S.C.A. and Synthetic Industries,
Limited.(2)
10.14 -- Supply Contract between Eastman Chemical Products, Inc.
and Synthetic Industries, Inc. dated December 13,
1991.(7)
10.15 -- Agreement dated September 6, 1996 between Leonard Chill
and Synthetic Industries, Inc.(13)
10.16 -- Agreement dated September 6, 1996 between W. Wayne Freed
and Synthetic Industries, Inc.(13)
10.17 -- Agreement dated September 6, 1996 between Ralph A. Kenner
and Synthetic Industries, Inc.(13)
10.18 -- Agreement dated September 6, 1996 between William Gardner
Wright, Jr. and Synthetic Industries, Inc.(13)
10.19 -- Agreement dated September 6, 1996 between John M. Long
and Synthetic Industries, Inc.(13)
10.20 -- Agreement dated September 6, 1996 between Charles T.
Koerner and Synthetic Industries, Inc.(13)
10.21 -- Agreement dated September 1, 1984 between Robert J.
Breyley, Sr. and Fibermesh Company.(2)
10.22 -- Agreement dated September 6, 1996 between Joseph
Sinicropi and Synthetic Industries, Inc.(13)
10.23 -- Agreement dated September 6, 1996 between W.O.
Falkenberry and Synthetic Industries, Inc.(13)
10.24 -- Agreement dated September 6, 1996 between Bobby Callahan
and Synthetic Industries, Inc.(13)
10.25 -- 1994 Stock Option Plan for Non-Employee Directors.(8)
10.26 -- 1994 Stock Option Plan.(8)
10.27 -- 1996 Stock Option Plan.(11)
10.28 -- Incentive Compensation Plan Fiscal Year 1994/1995.(11)
10.29 -- Incentive Compensation Plan Fiscal Year 1995/1996.(11)
</TABLE>
<PAGE> 150
<TABLE>
<CAPTION>
EXHIBITS
NUMBER DESCRIPTION
-------- -----------
<C> <S>
10.30 -- Amendment No. 4 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
September 27, 1996.(13)
10.31 -- Amendment No. 5 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
October 28, 1996.(14)
10.32 -- Amendment No. 6 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
January 29, 1997.(15)
10.33 -- Asset Sale Agreement by and between Spartan Mills and
Synthetic Industries, Inc. dated as of February 27, 1997.
(To be filed by amendment).
10.34 -- Lease Agreement by and between Spartan Mills and
Synthetic Industries, Inc. dated as of February 27, 1997.
(To be filed by amendment).
10.35 -- Agreement and Plan of Withdrawal and Dissolution.
(Incorporated by reference to Annex A to the Proxy
Statement and Prospectus.)
10.36 -- Agreement dated May 21, 1997 between Joseph F. Dana and
Synthetic Industries, Inc. (To be filed by amendment.)
21. -- List of Subsidiaries of Synthetic Industries, Inc.(2)
23.1 -- Consent of King & Spalding (included in Exhibit 5.1). (To
be filed by amendment.)
23.2 -- Consent of Deloitte & Touche LLP.
24 -- Powers of attorney (previously filed).
99.1 -- Press release, dated June 9, 1997, with respect to the
filing of this Registration Statement (previously filed).
99.2 -- Opinion of Patricof & Co. Capital Corp. (To be filed by
amendment).
99.3 -- Form of Proxy.
</TABLE>
- ---------------
(1) 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.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994 and incorporated herein by reference.
(9) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995 and incorporated herein by reference.
<PAGE> 151
(10) Filed as an exhibit to the Company's Registration Statement on Form 8-A
(0-12357) as filed with the Securities and Exchange Commission on October
24, 1996 and incorporated herein by reference.
(11) Filed as an exhibit to the Company's Registration Statement on Form S-1
(333-09377) as filed with the Securities and Exchange Commission on August
1, 1996 and incorporated herein by reference.
(12) Filed as an exhibit to Amendment No.1 to the Company's Registration
Statement on Form S-1 (333-09377) as filed with the Securities and Exchange
Commission on September 13, 1996 and incorporated herein by reference.
(13) Filed as an exhibit to Amendment No.2 to the Company's Registration
Statement on Form S-1 (333-09377) as filed with the Securities and Exchange
Commission on October 2, 1996 and incorporated herein by reference.
(14) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996 and incorporated herein by reference.
(15) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
three months ended December 31, 1996 and incorporated herein by reference.
(16) Filed as an exhibit to the Company's Registration Statement on Form S-4
(File No. 333-23167) as filed with the Securities and Exchange Commission
on March 12, 1997 and incorporated herein by reference.
<PAGE> 1
EXHIBIT 3.1
AMENDMENT TO AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF SYNTHETIC INDUSTRIES L.P.
Dated as of November 11, 1986
Pursuant to Section 7(c)(xvi) thereof
B A C K G R O U N D
SI Management L.P. (the "GENERAL PARTNER") desires to amend the Amended
and Restated Limited Partnership Agreement dated as of November 11, 1986 of
Synthetic Industries L.P. (the "AGREEMENT") pursuant to Section 7(c)(xvi) of
the Agreement in order to comply with comments received from the Securities
Division of the Tennessee Department of Commerce and Insurance. The Limited
Partners have agreed, by their execution and delivery of the Agreement as
Limited Partners that the amendments effected hereby shall be binding upon them
and the Partnership. Capitalized terms used herein without definition shall
have the meanings ascribed to them in the Agreement.
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. The section of the Agreement entitled "Certain Definitions" is
hereby amended by adding thereto the following definitions solely for the
purpose of calculating in Section 5 hereof compliance with the Statement of
Policy of the North American Securities Administrators Association, Inc. on
Real Estate Programs adopted on November 20, 1986 (the "GUIDELINES"):
"ACQUISITION EXPENSES" The total of all expenses paid by any
party in connection with the Investment in Stock of the Synthetic Group,
including, but not limited to, legal fees and expenses, travel and
communication expenses, costs of appraisals and accounting fees and
expenses.
"ACQUISITION FEES" The total of all fees and commissions paid by
any party in connection with the Investment in Stock of the Synthetic
Group, including, but not limited to, a Development Fee (except a
Development Fee paid to a person other than the General Partner or its
Affiliates) or any fee of a similar nature, however designated.
"AFFILIATE" As defined in subparagraph 7(f)(v) hereof.
"CASH FLOW" Program cash funds provided from operations of the
Partnership after deducting cash funds used to pay all other expenses,
debt payments, capital improvements and replacements.
"CASH AVAILABLE FOR DISTRIBUTION" Cash Flow less amounts set
aside for restoration, increase or creation of reserves.
<PAGE> 2
2
"DEVELOPMENT FEE" A fee for packaging of properties acquired or
to be acquired by the Partnership, including negotiating and approving
plans and undertaking to assist in obtaining necessary financing for the
Purchase Price of the Stock of the Synthetic Group, either initially or
at a later date.
"EQUITY LOAN" The loan in the amount of $64,000,000 obtained by
the Partnership from IR Synthetic Credit Corp., the proceeds of which
were used, among other things, to pay a portion of the Purchase Price of
the Stock of Synthetic Group.
"FRONT END FEES" Fees and expenses paid by any party for any
services rendered during the Partnership's organizational or acquisition
phase, including Organizational and Offering Expenses, Acquisition Fees,
Acquisition Expenses, and any other similar fees however designated by
the General Partner or its Affiliates.
"INVESTMENT IN STOCK OF THE SYNTHETIC GROUP" The amount of
Capital Contributions used, indirectly through payment of the Equity
Loan, to pay a portion of the Purchase Price of the Stock of the
Synthetic Group, including working capital reserves allocable thereto
(except that working capital reserves in excess of 5% shall not be
included), and other cash payments such as interest and taxes but
excluding Front End Fees.
"ORGANIZATIONAL AND OFFERING EXPENSES" Those expenses incurred in
connection with and in preparing the offering of Interests pursuant to a
private offering exemption from registration under Regulation D
promulgated under Section 4(2) of the Securities Act of 1933, and for
exemption or registration under the various state "Blue Sky" laws; and
subsequently offering and distributing it to qualified investors,
including sales commissions paid to broker-dealers in connection with
distribution of the Interests, printing fees and "Blue Sky" filing and
registration fees.
"PURCHASE PRICE OF THE STOCK OF THE SYNTHETIC GROUP" The
aggregate amount paid upon the purchase of stock of members of the
Synthetic Group, including interest expense incurred (from November 8,
1986 and through December 4, 1986) in connection with such purchase of
stock, and Acquisition Fees and satisfaction of outstanding loans and
obligations of such companies, but excluding points and prepaid
interest.
"SYNTHETIC GROUP" Synthetic Industries, Inc., Polyweave
Corporation and Synthetic Industries Limited.
2. Paragraph 7 is amended as follows:
(a) The seventeenth line of subparagraph 7(f)(ii) is amended
and restated in its entirety to read: "broker-dealer selling the
Interests."
<PAGE> 3
3
(b) The thirty-fourth and thirty-fifth lines of subparagraph
7(f)(ii) are amended and restated in their entirety to read: "securities
laws violations, the party seeking indemnification."
(c) The third line of subparagraph 7(f)(iii) is amended by
deleting "any Corporation."
(d) The sixth line of subparagraph 7(f)(iii) is amended by
deleting "or any such Corporation."
(e) The seventh line of subparagraph 7(f)(iii) is amended by
deleting "each such Corporation."
(f) The nineteenth line of subparagraph 7(f)(iii) is amended
by deleting "or any Corporation."
(g) The first and second lines of subparagraph 7(f)(v) are
amended and restated in their entirety to read as follows: "'Affiliate'
shall mean any person performing."
(h) The first line of subparagraph 7(g)(i) is amended to
replace "12(d)" by "12(e)."
(i) The twelfth line of subparagraph 7(g)(i) is amended by
deleting "and".
(j) The thirteenth line of subparagraph 7(g)(i) is deleted in
its entirety.
(k) The fourteenth line of subparagraph 7(g)(i) is amended by
deleting "sole General Partner."
(l) Subparagraph 7(g)(ii) is amended and restated in its
entirety to read as follows:
"In the event that the General Partner is terminated pursuant to
this subparagraph 7(g) or the General Partner voluntarily
withdraws as a general partner, the Partnership shall have the
option either: (i) to permit the General Partner to retain its
entire Interest other than any interest transferred pursuant to
subparagraph 7(g)(i) above (the "TRANSFERRED INTEREST") (the
interest of the General Partner other than the Transferred
Interest being referred to as the "REMAINING INTEREST"), or (ii)
to purchase from the General Partner all of the interest of the
General Partner except (A) the Transferred Interest and (B) a
7.5% interest in the Partnership from and after receipt by the
Partners of the Priority Return (the "RETAINED INTEREST") (the
interest of the General Partner other than the Transferred
Interest and the Retained Interest being referred to as the
"PURCHASED INTEREST"). The Remaining
<PAGE> 4
4
Interest or the Retained Interest, as the case may be, shall
automatically be converted to the interest of a Special Limited
Partner, which shall be entitled to distributions pursuant to
subparagraph 6(f) hereof to the extent of said interest, and no
more, provided that it shall at a minimum be entitled to one-
quarter of the distribution provided for in clause (iii) of
subparagraph 6(f) and shall have no right otherwise to
participate in distributions to the Limited Partners pursuant
hereto or to participate in management of the affairs of the
Partnership or to vote with the other Limited Partners, and the
Special Limited Partner's interest shall be disregarded in
determining whether action has been taken by the Limited
Partners. The purchase price payable by the Partnership to the
General Partner for the Purchased Interest, if any, shall be the
appraised value of the Purchased Interest as determined in
accordance with Section 12(j) and shall be payable in five equal
annual installments of principal, commencing on the first
anniversary of the effective date of such purchase, plus, if, and
only if, the General Partner is terminated pursuant to this
subparagraph 7(g), interest calculated at the annual rate,
compounded daily, announced by Chemical Bank, New York, as its
prime or reference rate, such rate to change as such prime or
reference rate changes from time to time. The obligation of the
Partnership to make such payment shall be evidenced by the
Partnership's promissory note to the General Partner; provided,
however, that the entire unpaid principal amount, together with
all accrued and unpaid interest thereon, shall be immediately due
and payable at the time of any Sale of Business or Public
Offering; and provided, further, that, if, and only if, the
General Partner has voluntarily withdrawn as a general partner,
such promissory note shall be payable only to the extent of the
distributions which the General Partner would have received had
the Partnership not purchased the Purchased Interest."
(m) Subparagraph 7(h) is amended by:
(A) amending and restating the first sentence thereof
to read in its entirety as follows:
"Upon the occurrence of any event described in
subparagraph 11(a)(iv), the Limited Partners having one
hundred percent (100%) of the Interests of the Limited
Partners who are then Partners in the Partnership shall
have ninety (90) days after the occurrence of such event
to agree in writing to continue the business of the
Partnership and to appoint, as of the date of the
occurrence of such event, one or more additional general
partners (the "NEWLY-APPOINTED PARTNER(S)"), in which
event the Partnership shall not be dissolved"; and
<PAGE> 5
5
(B) replacing the word "remaining" in the second
sentence of subparagraph 7(h) and in subparagraphs 7(h)(i) and
7(h)(ii) by the words "Newly-Appointed Partner(s)."
(n) Subparagraph 7(i) is deleted in its entirety.
(o) Subparagraph 7(j) is renumbered Subparagraph 7(i).
3. Paragraph 11 is amended as follows:
(a) The first line of subparagraph 11(a)(iii) is amended by
deleting "all of the General Partner, concurred in by".
(b) The third line of subparagraph 11(a)(iv) is amended by
deleting "or 7(h)".
(c) The third line of subparagraph 11(b) is amended by
correcting "ahlal" to read "shall."
(d) The eighth line of subparagraph 11(c) is amended and
restated in its entirety to read:
"cash and/or securities subject to any liabilities of the".
(e) The tenth line of subparagraph 11(c) is amended by
replacing the section reference after the word "subparagraph" to read
"6(f)."
(f) The eleventh line of subparagraph 11(c) is amended and
restated in its entirety to read:
"to this subparagraph is made in securities, the securities so".
4. Paragraph 12 is amended as follows:
(a) The seventeenth line of subparagraph 12(d) is amended by
deleting "7(h)".
(b) Subparagraph 12(e) of the Agreement is hereby amended and
restated to read in its entirety as follows:
"(e) The Balance Sheet of the Partnership as at the end of each
fiscal year, as well as statements of income, of changes in
financial position and of partners' equity for the year then
ended shall be prepared by the Partnership and examined by the
Partnership's accountants, and the General Partner shall furnish
each Limited Partner with a copy of such statements and the
report of such accountants,
<PAGE> 6
6
together with an unaudited statement of cash flow for such fiscal
year, without reference to non-cash items such as depreciation,
not later than March 31 following the end of such fiscal year."
(c) Subparagraph 12(j) is amended and restated to read in its
entirety as follows:
"(j) For the purposes of this Agreement, the appraised value of
an Interest shall be determined by an independent appraiser of
recognized professional standing who is in the regular business
of appraising businesses similar to the Business. Such appraiser
shall be selected, at the request of the General Partner, by any
authorized representative of the American Arbitration Association
or any successor organization thereto; provided, however, in the
event of removal of the General Partner pursuant to subparagraph
7(g) the appraisal of the Purchased Interest of the General
Partner shall be made jointly by an appraiser selected and paid
for by the Limited Partners and an appraiser selected and paid
for by the General Partner; provided, further, that in the event
the appraisers referred to in the preceding proviso cannot agree
upon a value for the Purchased Interest, the two appraisers shall
appoint a third appraiser, at the expense equally of the General
Partner, on the one hand, and the Limited Partners, on the other,
whose determination shall be binding and conclusive. Except as
otherwise provided in the preceding sentence, the appraisal made
by such appraiser shall be binding and conclusive as between the
selling Partner or Partners and the person purchasing such
Interest. The cost of such appraisal shall be borne equally by
the selling and purchasing parties, and by the latter, among
themselves, in proportion to their respective shares, except that
in the case of any transfer resulting from an event described in
subparagraph 10(a), the entire cost of appraisal shall be borne
by the selling Partner."
5. In accordance with the Guidelines, a percentage of Capital
Contributions must be committed to Investment in Stock of the Synthetic Group
which is equal to the greater of: (a) 80% of the Capital Contributions reduced
by .1625% for each 1% of financing of the Purchase Price of the Stock of the
Synthetic Group. To calculate the percent of financing of the Purchase Price
of the Stock of the Synthetic Group, in accordance with the Guidelines, the
amount of financing is divided by the Purchase Price of the Stock of the
Synthetic Group, excluding Front End Fees; the quotient is multiplied by .1625%
to determine the percentage to be deducted from 80%. The following are
examples of application of the formula using Capital Contributions of $1
Million in each case: (1) No financing -- 80% to be committed to Investment in
Stock of the Synthetic Group; (2) 50% financing -- 50% x .1625% = 8.125%; 80% -
8.125% = 71.875% to be committed to Investment in Stock of the Synthetic Group;
(3) 80% financing -- 80 x .1625% = 13%; 80% - 13% = 67% to be committed to
Investment in Stock of the Synthetic Group. Pursuant to this formula, the
percentage financed was 72.6%, calculated by dividing the amount financed of
$137,887,000 by the Purchase Price of the Stock of the Synthetic Group,
excluding
<PAGE> 7
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Front End Fees, of $189,700,000; the minimum Investment in Stock of the
Synthetic Group is 68.21%, computed by multiplying 72.6% x .1625% = 11.79% and
subtracting 80% - 11.79% = 68.21%. The General Partner hereby represents to
the Limited Partners that not less than 77.5% of the aggregate proceeds of the
Capital Contributions of the Limited Partners made to the Partnership pursuant
to the Equity Sale will be applied, for purposes of the Guidelines, toward
Investment in Stock of the Synthetic Group, i.e., of the Capital Contributions
of the Limited Partners of $78,400,000, at least $60,829,252, or 77.5%, will be
used, through payment of the Equity Loan, to make such Investment in Stock of
the Synthetic Group.
6. Except as otherwise provided in this Amendment to Amended and
Restated Limited Partnership Agreement, the Agreement shall remain in full
force and effect without any other amendment, modification or alteration.
IN WITNESS WHEREOF, the undersigned has executed this Amendment on May
__, 1987, effective as of November 11, 1986.
SI MANAGEMENT L.P.
By: SI Management Service Corp.,
general partner
By
-----------------------------------
Name:
Title:
<PAGE> 8
THE INTERESTS IN SYNTHETIC INDUSTRIES L.P. HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE RESOLD UNLESS SUBSEQUENTLY
REGISTERED UNDER SUCH ACT OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. ADDITIONAL RESTRICTIONS ON TRANSFERABILITY ARE CONTAINED IN
PARAGRAPH 9 OF THIS AGREEMENT.
SYNTHETIC INDUSTRIES L.P.
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
AGREEMENT by and among SI MANAGEMENT L.P. (the "GENERAL PARTNER") as
general partner (collectively with each person who shall at any time become a
general partner, herein referred to as the "GENERAL PARTNER" or "GENERAL
PARTNERS") and SI INVESTING CO. ("INITIAL LIMITED PARTNER"), as limited partner,
and each person who shall at any time become a limited partner under this
Agreement by executing a signature page hereof as a limited partner (such
persons including the Initial Limited Partner are herein collectively referred
to as the "LIMITED PARTNERS"). Dated as of November 11, 1986.
Dated as of November 11, 1986
WHEREAS, the General Partner and the Initial Limited Partner have formed
Synthetic Industries L.P. as a limited partnership under the laws of the State
of Delaware by executing and delivering a Limited Partnership Agreement dated
as of November 11, 1986 (the "ORIGINAL AGREEMENT") and causing a Certificate of
Limited Partnership to be filed in the office of the Secretary of State of the
State of Delaware;
WHEREAS, the General Partner and the Initial Partner desire to amend and
restate the Original Agreement as set forth herein; and
WHEREAS, the General Partner and the Initial Limited Partner desire that
Additional Limited Partners be admitted after the date hereof in reduction of
the Interest (as hereinafter defined) of the Initial Limited Partner as
contemplated hereby;
NOW, THEREFORE, in consideration of the premises, the Partners hereby
agree as follows:
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following respective meanings:
"ACT" The Delaware Revised Uniform Limited Partnership Act, as
amended.
<PAGE> 9
2
"ADDITIONAL LIMITED PARTNERS" Limited Partners, other than the
Initial Limited Partner, admitted to the Partnership as a result of, or
subsequent to, the Equity Sale.
"BUSINESS" The acquisition, ownership and operation of the assets
and business of Synthetic Industries, Inc., a converter of polypropylene
resins into woven products, and such other ancillary and related
businesses as the General Partner shall determine to be desirable.
"CAPITAL ACCOUNT" The account maintained by the General Partners
for each Partner pursuant to subparagraph 5(e) hereof.
"CAPITAL CONTRIBUTION" The amount of cash contributed by the
Partners to the Partnership in accordance with subparagraph 5(a).
"CERTIFICATE" The Certificate of Limited Partnership and any
amendment thereto required to be filed by the Partnership pursuant to
the laws of the State of Delaware.
"CODE" The Internal Revenue Code of 1986, as amended.
"CORPORATION" As defined in subparagraph 7(c) - (xii) hereto.
"DISTRIBUTIONS" Distributions of cash or other property made by
the Partnership to the Partners from any source.
"EQUITY SALE" The proposed sale by the Partnership of Units to
Additional Limited Partners which shall be deemed to have commenced on
the first day of the calendar month in which the first purchaser of an
Interest is admitted to the Partnership pursuant to subparagraph 3(c)
hereof and to have terminated on the first day of the calendar month in
which the last purchaser of an Interest is admitted to the Partnership
pursuant to subparagraph 3(c) hereof.
"GENERAL PARTNER" The general partner or general partners, from
time to time, of the Partnership, including SI Management L.P. and any
additional or successor general partner or general partners.
"INITIAL LIMITED PARTNER" SI Investing Co.
"INTEREST" The individual interest of each Partner in the
Partnership.
"LIMITED PARTNERS" The limited partner or limited partners, from
time to time, of the Partnership, including the Initial Limited Partner
and any additional or successor limited partner or limited partners
admitted to the Partnership pursuant to the terms of this Agreement.
<PAGE> 10
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"PARTNER" A partner in the Partnership.
"PARTNERSHIP" Synthetic Industries L.P.
"PRIORITY RETURN" As defined in subparagraph 6(d) hereof.
"PUBLIC OFFERING" A transaction described in subparagraph 6(g)
and 7(c) - (xii) hereof.
"SCHEDULE OF PARTNERS' CONTRIBUTIONS" The Schedule attached to
each counterpart of this Agreement setting forth the Capital
Contribution and the Interest of the Partner(s) signatory to such
counterpart.
"TRANSFER" Any sale, transfer, gift, assignment or pledge or
grant of a security interest, by operation of law or otherwise, in or of
an Interest, excluding, however, any grant of such a security interest
in favor of the Partnership or any lender or surety approved by the
Partnership, and each of their assigns.
"UNIT" An Interest in the Partnership, of a size described in the
Confidential Memorandum distributed in connection with the Equity Sale,
to be sold pursuant to the Equity Sale to investors who will become
Additional Limited Partners.
FORMATION AND PURPOSE;
ADMISSION OF LIMITED PARTNERS
1. The Partnership has been formed in accordance with the laws of
the State of Delaware. The General Partner, on behalf of the Partnership, has
caused to be executed and filed in the office of the Secretary of State of the
State of Delaware a Certificate of Limited Partnership, and shall take such
further action as it may deem necessary or proper to permit the Partnership to
conduct business as a limited partnership in any state.
2. The Partnership is called Synthetic Industries L.P. The address
of the partnership will be c/o the General Partner at 666 Third Avenue, New
York, New York 10017, or such other address as may be designated from time to
time by the General Partner. The agent for service of process upon the
Partnership shall be Delaware Corporate Organizers, Inc., 1105 North Market
Street, P.O. Box 1347, Wilmington, New Castle County, Delaware 19899, or such
other agent as may be designated from time to time by the General Partner. The
registered office of the Partnership in the State of Delaware shall be c/o such
agent for service of process or such other address as may be designated from
time to time by the General Partner.
3. (a) The term of the Partnership shall end on December 31, 2035,
unless sooner terminated in accordance with this Agreement.
<PAGE> 11
4
(b) The General Partner of the Partnership is SI Management L.P.
(c) Subject to the provisions of Paragraph 9 relating to Transfers,
each Limited Partner signatory to this Agreement shall become a Limited Partner
upon the execution of a counterpart of this Agreement by such signatory and the
General Partner.
(d) To the extent that any Units are not sold in the Equity Sale, at
the time of termination of the Equity Sale, SI Management Service Corp., the
general partner of the General Partner, shall purchase such unsold Units or
portion thereof and shall obtain an Interest as a Limited Partner equal to the
Interests represented by the unsold Units. Upon termination of the Equity
Sale, the Initial Limited Partner shall withdraw as a Limited Partner effective
as of such date.
(e) In the event that any Additional Limited Partner shall lawfully
rescind his purchase of an Interest, the Interest of said rescinding Additional
Limited Partner shall be reallocated to SI Management Service Corp. effective
as of the date on which the Interest was sold to the rescinding Additional
Limited Partner, and SI Management Service Corp. shall make a Capital
Contribution equal to the sales price of the Units or portion thereof
representing such Interest. The General Partner may use its best efforts to
resell any such Interest on behalf of the Partnership at the sole cost and
expense of the Partnership.
4. The purposes of the Partnership shall be to engage in the
Business and, directly or indirectly, through one or more subsidiaries, to own,
operate, manage, finance, mortgage, sell and lease or otherwise dispose of the
Business or any part thereof. In furtherance of the purposes of the
Partnership, the Partnership shall have the power to do any and all other
things whatsoever necessary or desirable in connection with the foregoing or
otherwise contemplated by this Agreement.
CONTRIBUTIONS
5. (a) The Capital Contribution of each Partner signatory to this
Agreement shall be as specified in the Schedule of Partners' Contributions
attached to this counterpart and shall be made at the time he becomes a party
to this Agreement.
(b) No Partner shall be required or obligated to make any further
contribution, except as provided in this Paragraph 5 and subparagraph 3(d) and
3(e) hereof, and except that upon the admission of Limited Partners as a result
of the Equity Sale, the General Partner shall contribute additional capital to
the Partnership so that the General Partner will have contributed an aggregate
of 1% of the Capital Contributions of all Partners.
(c) If a Partner advances any funds to the Partnership in excess of
his Capital Contribution, such advances shall be treated as loans to the
Partnership the rate per annum equal to 1% in excess of the rate announced from
time to time by Chemical Bank, N.A. as its prime or
<PAGE> 12
5
reference rate, such rate to change as such prime or reference rate changes
(but in no event more than the applicable maximum legal rate of interest).
Such loans shall be repaid before any Distributions are made to any of the
Partners pursuant to Paragraph 6, but no such loans shall be repaid to any
General Partner as long as the Partnership is indebted to any Limited Partner
for any such loan. Notwithstanding the foregoing, no Limited Partner shall be
required or obligated to make any such loans, and nothing in this subparagraph
5(c) shall prevent a Partner or an affiliate or affiliates of any Partner, with
the consent of the General Partners, from making loans to the Partnership
bearing interest in excess of the rate set forth above.
(d) The General Partner is hereby authorized to complete or cause to
be completed any items omitted from this Agreement, or the Schedules or
Exhibits annexed or relating hereto, to reflect such omitted items, including,
without limitation, the Capital Contribution and Interest and other information
called for by the Schedule of Partners' Contributions attached to this
counterpart, and to modify or correct any such Schedule or Exhibit or cause the
same to be modified or corrected. Such completion, modification or correction
may be made from time to time as and when the General Partner considers it
appropriate in order to reflect the Agreement of the parties or the Capital
Contributions made by, subscribed for or agreed to by the Partners. From time
to time the General Partner may make or cause to be made a composite Schedule
of Partners' Contributions and Interests based on the then current Capital
Contributions, Interests and other information relating to the Partners, and
such composite Schedule of Partners' Contributions and Interests shall be
conclusive as to the Capital Contributions and Interest of each Partner absent
manifest error.
(e) (i) The General Partner shall maintain a capital account (the
"CAPITAL ACCOUNT") for each Partner.
(ii) Each Partner's Capital Account shall be credited with all
Capital Contributions of such Partner to the Partnership and such
Partner's allocable share of all Partnership profits, and shall be
charged with all Distributions to such Partner and such Partner's
allocable share of all Partnership losses.
(iii) The foregoing provisions of this paragraph 5(e) are
intended to comply with Treasury Regulation Section 1.704-1, and shall
be interpreted and applied in a manner consistent with such Regulation.
DISTRIBUTIONS AND ALLOCATIONS
6. (a) (i)(A) Except as provided in clause (B), below, prior to
the admission of the last Additional Limited Partner pursuant to
the Equity Sale, for all purposes including, without limitation,
federal, state and local income tax purposes, income, gains,
losses, deductions and credits shall be allocated 1% to the
General Partner and 99% to the Initial Limited Partner.
<PAGE> 13
6
(B) The Interests in the Partnership sold pursuant to
the Equity Sale shall reduce the Interest held by the Initial
Limited Partner.
(ii) Notwithstanding any provision in this Agreement to the
contrary, and notwithstanding the actual Capital Contribution of the
Initial Limited Partner, until the date as of which purchasers of all
Units are admitted to the Partnership as Limited Partners, the Initial
Limited Partner shall be entitled to the aggregate percentage of all
allocations and Distributions to be allocated or made to the Limited
Partners pursuant to this Agreement not attributable to the Interests of
purchasers of Units who have been admitted to the Partnership as Limited
Partners prior to such date.
(iii) The allocation to the Initial Limited Partner and to the
General Partner as specified in this subparagraph is subject to
adjustment pursuant to subparagraphs 7(a)(i), 7(c)(viii) and (ix),
7(g)(ii) and 10(b)(iii) and Paragraph 9.
(b) The terms "PROFITS" and "LOSSES" shall mean, respectively, the
net profits and the net losses of the Partnership for Federal income tax
purposes, as determined by the General Partner and approved by the
Partnership's accountants.
(c) (i) Profits of the Partnership (other than gain recognized by
the Partnership from the sale or other disposition of all or
substantially all of its assets not in connection with establishment of
a Corporation [a "SALE OF BUSINESS"], or upon liquidation and
termination of the Partnership) shall be allocated among the Partners in
the following manner:
(A) Prior to the admission of the last Additional
Limited Partner pursuant to the Equity Sale, in the same
proportions as cash or other property is distributable in
accordance with the provisions of clause (ii) of subparagraph
6(f);
(B) Thereafter until the aggregate amount of Profits
allocated to the Partners pursuant to this clause equals the
aggregate amount of cash or other property distributed to the
Partners pursuant to the provisions of clause (iii)(A) of
subparagraph 6(f) in the same proportions as cash or other
property is distributable in accordance with the provisions of
clause (iii)(A) of subparagraph 6(f); and
(C) Thereafter, in the same proportions as cash or
other property is distributable in accordance with the provisions
of clause (iii)(B) of subparagraph 6(f).
(ii) Losses of the Partnership shall be allocated among and
charged to the Capital Accounts in the following manner and order of
priority:
<PAGE> 14
7
(A) First, to the Partners, pro rata, to the extent of
and in proportion to any positive difference obtained by
subtracting from their Capital Contributions the sum of (x) prior
Losses allocated to such Partners in excess of Profits credited
to such Partners pursuant to clause (i) of this subparagraph 6(c)
and (y) Distributions made to such Partners pursuant to clause
(iii)(A) of subparagraph 6(f) hereof;
(B) Second, pro rata to the Partners to the extent of,
and in proportion to, their respective Capital Accounts; and
(C) Third, to the Partners in the same proportions as
Profits are allocated in accordance with clause (i) of this
subparagraph 6(c).
(d) The "PRIORITY RETURN" shall be deemed to occur at such time as
the amount distributed to the Partners shall have equaled the aggregate Capital
Contributions of the Partners, plus a return of 6% per annum, compounded
annually on the amount from time to time equal to the excess of the aggregate
Capital Contributions of the Partners over the aggregate Distributions to the
Partners.
(e) (i) Except as set forth in clause (ii) of this subparagraph
6(e), for purposes of Subchapter K of the Code, the distributive shares
of the Partners in each item of Partnership taxable income and gains or
losses, deductions and credits for any fiscal year of the Partnership
shall be in the same proportions as their respective shares of Profits
allocated under subparagraph 6(c) hereof, in fiscal years in which the
Partnership has Profits and the distributive share of such items for any
fiscal year of the Partnership will be in the same proportions as their
respective shares of Losses allocated under subparagraph 6(c) hereof in
fiscal years in which the Partnership has Losses.
(ii) Any gain after the Equity Sale (including ordinary income)
recognized by the Partnership upon a Sale of Business or upon the
liquidation and termination of the Partnership shall be credited to the
Partners (after giving effect to all charges and credits thereto for the
then current fiscal year of the Partnership pursuant to subparagraphs
6(c), 6(e)(i) and 6(f) and all prior charges, credits and Distributions,
if any, during such fiscal year of the Partnership pursuant to this
clause (ii) of subparagraph 6(e), but not including any charges, credits
or Distributions pursuant to this clause (ii) of subparagraph 6(e) with
respect to the transaction pursuant to which the gain is then being
allocated) and distributions shall be made as specifically set forth in
this subparagraph 6(e)(ii) as follows:
If the Capital Account of a Partner or Partners, including the Capital
Account of a General Partner, has a debit balance, such gain (which
shall first be the long-term capital gain portion thereof to the extent
possible) shall be first credited to any such Partner or Partners whose
Capital Account has a debit balance in the ratio of such respective
debit balances, until the balance of each such Partner's Capital Account
is equal to zero; then there shall be distributed to the Partners the
amount of the balance in their Capital Accounts until the
<PAGE> 15
8
Priority Return shall have occurred; then, until the Priority Return
shall have occurred, there shall be allocated to the Partners in the
ratio of 99% to the Limited Partners (in accordance with the ratio of
their Capital Contributions) and 1% to the General Partner an amount of
long-term capital gain which, if the amount so allocated to the Limited
Partners were thereupon distributed to them, would cause the Priority
Return to have occurred, and such amount of long-term capital gain so
allocated to the Partners shall be distributed. In the event that the
amount of long-term capital gain so distributed is insufficient to cause
the Priority Return to have occurred, there shall be allocated to
Partners in the ratio of 99% to the Limited Partners (in accordance with
the ratio of their Capital Contributions) and 1% to the General Partner
an amount of short-term capital gain and ordinary income attributable to
such sale (including the aggregate amount which would be treated as
ordinary income under Section 1245 or Section 1250 of the Code) which,
if the amount so allocated to the Limited Partners were distributed to
them, would cause the Priority Return to have occurred, and such amount
of short-term capital gain and ordinary income so allocated to the
Partners shall be distributed to them. In the event that the Priority
Return shall have been received prior to such sale, or shall have been
received as a result of the allocations and distributions of the
proceeds of such sale as set forth in the preceding two sentences, the
balance, if any, of the gain shall be allocated so that first, the
balance, if any, of the long-term capital gain shall be allocated to the
least extent necessary to cause the aggregate Capital Accounts of the
General Partner and of the Limited Partners to be in a ratio to each
other of 30% for the General Partner and 70% for the Limited Partners
(in accordance with the ratio of their Capital Contributions); second,
the balance, if any, of the long-term capital gain shall be allocated
30% to the General Partner and 70% to the Limited Partners (in
accordance with the ratio of their Capital Contributions); and, third,
the balance, if any, of the gain which is short-term capital gain and
ordinary income shall be allocated between the General Partner and the
Limited Partners in the same ratio as the aggregate gain has been
allocated without giving effect to this clause third.
(f) (i) In addition to the Distributions specifically required to
be made pursuant to subparagraph 6(e)(ii) hereof, from time to time, the
General Partner shall determine the amount of cash or other property,
including, without limitation, securities of a Corporation (as defined
in subparagraph 7(c)(xii)), available for distribution to the Partners,
taking into consideration the current financial condition of the
Partnership, anticipated operating income and expenses, interest on and
amortization of any debt of the Partnership, restrictions, if any,
imposed on the Partnership from time to time, by its lenders, and those
of its subsidiaries and affiliates, capital expenditures, working
capital needs and such reserves as shall be deemed necessary and prudent
by the General Partner. The General Partner shall, consistent with the
foregoing and the restrictions, if any, imposed on the Partnership, from
time to time, by its lenders, and those of its subsidiaries and
affiliates, seek to maximize the amount of cash or other property
available for distribution, provided that nothing in this subparagraph
6(f) shall be deemed to require the General Partner to sell the Business
at any time.
<PAGE> 16
9
(ii) Prior to the Equity Sale distributions shall be made in
accordance with Capital Accounts after the application of subparagraph
6(a)(i)(A) hereof.
(iii) After the Equity Sale, and until immediately prior to the
sale referred to in subparagraph 6(e)(ii) hereof, after such
determination in clause 6(f)(i) has been made, Distributions shall be
made (A) until the Priority Return shall have occurred as provided in
subparagraph 6(d), 1% to the General Partner and 99% to the Limited
Partners (in accordance with the ratio of their Capital Contributions);
and (B) after the Priority Return shall have occurred as provided in
subparagraph 6(d), 30% in the aggregate to the General Partners and in
the aggregate 70% to the Limited Partner (in accordance with the ratio
of their Capital Contributions).
(iv) If property other than cash, including securities of a
Corporation, is distributed to the Partners, then, for all purposes of
this Agreement, including, without limitation, for the purpose of
charging the Capital Accounts and determining whether the Priority
Return has occurred, it shall be valued at its fair value as determined
by the General Partner. The General Partner shall notify the Partners
of the fair value of any such property at the time Distribution thereof
is made.
(v) After the Sale of Business or liquidation referred to in
subparagraph 6(e)(ii) hereof, distributions shall be made pro rata in
accordance with Capital Accounts (after taking into account the
allocations in such subparagraph and subparagraph 6(c)(ii)).
(g) Notwithstanding the provisions of this Paragraph 6, if the
General Partner determines to cause the Partnership to engage in a transaction
pursuant to which a Corporation (as defined in clause (xii) of subparagraph
7(c)) would make a public offering of its equity securities ("PUBLIC
OFFERING"), the General Partner shall have the right to do all of the
following:
(i) in good faith, estimate the anticipated date of the Public
Offering (the "ESTIMATED PUBLIC OFFERING DATE") and the results of the
operations of the Business through the Estimated Public Offering Date,
including estimates of the amount of cash which will be available for
Distribution to the Partners during such period ("ESTIMATED CASH FLOW
DISTRIBUTION");
(ii) in good faith, estimate the cash, the value of other
property, and the amount of securities (both equity and debt) the
Partnership holds or would receive from the Corporation and the cash the
Partnership would receive as a result of the Public Offering (which may
include cash to be realized by the Corporation to be used to repay debt
securities delivered to the Partnership in connection with the
transaction and the net proceeds of the Corporation's equity securities,
if any, to be sold by the Partnership as part of the Public Offering);
and
<PAGE> 17
10
(iii) determine the amount of the Distributions to the Partners
after the Estimated Public Offering Date, i.e., above the Estimated Cash
Flow Distribution, which would cause the Priority Return to occur (the
"ESTIMATED PRIORITY RETURN DISTRIBUTION").
For purposes of subparagraphs 6(d) and 6(f), the Priority Return shall
be deemed to have occurred as of the Estimated Public Offering Date if, by the
60th day following the closing date of the sale of the Corporation's securities
offered in the Public Offering, the Partnership has made cash Distributions to
the Partners equal to the sum of the Estimated Cash Flow Distribution and the
Estimated Priority Return Distribution (the "FINAL PRIORITY RETURN
DISTRIBUTIONS"), which Distributions shall be made to the Partners in
accordance with clause (iii)(A) of subparagraph 6(f). Any other Distributions,
whether in cash or property, including securities received from the
Corporation, shall be made in accordance with clause (iii)(B) of subparagraph
6(f) at such time as the General Partner deems appropriate, even if such
Distributions are made prior to the actual receipt by the Partners of all or a
portion of the Final Priority Return Distributions.
The General Partner shall have the right to revise the estimates
referred to in clauses (i), (ii) and (iii) of this subparagraph 6(g) to account
for any changes which become known to the General Partner in the assumptions
made by the General Partner upon which such estimates were based, including,
without limitation, delays in the commencement, or the closing date of the sale
of the Corporation's securities offered in the Public Offering, or changes in
the anticipated public offering price of the Corporation's securities. Unless,
for any reason, the General Partner determines to abandon a proposed Public
Offering, the estimates made by the General Partner pursuant to clauses (i),
(ii) and (iii) of this subparagraph 6(g), and the computations based thereon,
shall be binding on the Partners for the purposes of this subparagraph 6(g) and
subparagraphs 6(d) and 6(f), notwithstanding that the actual amounts of the
items estimated differ in amount from such estimates.
(h) Any item of income, gain, loss, deduction, or credit of the
Partnership arising during any calendar month in which a purchaser of an
Interest is admitted to the Partnership shall be allocated and credited to the
Capital Account of such Limited Partner by treating such Limited Partner in
accordance with subparagraphs 3(c) hereof as having made his Capital
Contribution on the first day of the calendar month in which such Limited
partner is admitted to the Partnership.
(i) Any other provision of this Agreement notwithstanding, the
General Partner shall at all times be entitled to not less than an aggregate of
1% of each item of income, gain, loss, deduction and credit.
(j) The General Partner is also authorized to make such other and
further special allocations as are permitted by law and are necessary, in its
opinion, to insure that the allocation of Profits and Losses for tax purposes
have substantial economic effect.
<PAGE> 18
11
GENERAL PARTNER
POWERS AND DUTIES
7. (a) Except as set forth in this Section 7(a), each General
Partner shall have the power and right to:
(i) transfer all or part of his Interest by will or intestacy
if the remaining General Partner(s), if any, elects to continue the
business of the Partnership pursuant to subparagraph 10(b); upon
satisfaction of the conditions in subparagraphs 10(b) and (c), the
transferee shall be admitted as a Limited Partner;
(ii) engage in or possess any interest in other business
ventures of every nature and description, independently or with others,
including, but not limited to, those in competition with the operations
of the Partnership, and neither the Partnership nor any other Partner
shall, as a result of his interest in the Partnership, have any rights
in or to such business venture or the income or profits derived
therefrom.
(b) The Partnership shall be managed by the General Partner, and the
conduct of the Partnership's business shall be controlled and conducted solely
by the General Partner subject to and in accordance with this Agreement. The
General Partner shall devote such time to the affairs of the Partnership as is
reasonably necessary for the performance by the General Partner of its duties
(including its fiduciary duty to the Limited Partners).
(c) In addition to and not in limitation of any rights and powers
conferred by law or other provisions of this Agreement, and except as limited,
restricted or prohibited by the express provisions of this Agreement, each
General Partner shall have and may exercise on behalf of the Partnership all
powers and rights necessary, proper, convenient or advisable to effectuate and
carry out the purposes, business and objectives of the Partnership, subject to
subparagraph 7(e). Such powers and rights, which shall be exclusive to the
General Partner, shall include, without limitation, the power and right to:
(i) manage the Business, including through persons employed by
the General Partner for such purpose;
(ii) execute such documents as it may deem necessary or
desirable in connection with the management of the Business or for other
Partnership purposes;
(iii) acquire, sell, assign, finance, convey, lease, mortgage or
otherwise dispose of all or any part of the Business;
(iv) borrow money;
<PAGE> 19
12
(v) perform or cause to be performed all of the Partnership's
obligations under any Agreement to which the Partnership is a party or
any obligations of the Partnership or otherwise in respect of any
indebtedness secured in whole or in part by, or by lien on, or security
interest in, any portion of the Business and/or other property of the
Partnership;
(vi) employ, engage, retain or deal with any persons, firms or
corporations to act as managing agents, brokers, accountants or lawyers
or in such other capacity as the General Partner may deem necessary or
desirable, provided the compensation for such services is reasonable.
The fact that a General Partner or an employee or affiliate of a General
Partner or a Limited Partner is employed by, or is directly or
indirectly affiliated or connected with, any such person, firm or
corporation shall not prohibit the General Partner or the Partnership
from employing or otherwise dealing with such person, firm or
corporation;
(vii) sign checks on Partnership bank accounts and execute
and/or accept any instrument or agreement incident to the Partnership
business and in furtherance of its purposes. Any such instrument or
agreement so executed or accepted for the Partnership by a General
Partner in its name shall be deemed executed and accepted on behalf of
the Partnership by such General Partner;
(viii) admit additional Limited Partners;
(ix) admit one or more additional General Partners. In the
event of the admission to the Partnership of additional General
Partners, and except as otherwise expressly provided in this Agreement,
the aggregate share of income, gains, losses, deductions and credits and
of Distributions of the Partnership which are allocable to the General
Partners pursuant to this Agreement shall, for so long as there is more
than one General Partner, be allocated among the General Partners in
such manner as the General Partners shall have agreed;
(x) sue, defend, compromise, and settle lawsuits in the name
of or on behalf of the Partnership;
(xi) act as the Partnership's "tax matters partner," as defined
in Section 6231(a)(7) of the Code, file tax returns, represent the
Partnership in connection with all examinations of the Partnership's
affairs by tax authorities, including, without limitation, resulting
administrative and judicial proceedings, and make such elections under
the Code, including, without limitation, adjustments pursuant to Section
754 of the Code, as it shall determine to be in the best interest of the
Partnership (and, in such connection, each Limited Partner agrees to
cooperate with the tax matters partner and to do all things reasonably
requested by the tax matters partners, including, without limitation,
refraining from taking action, if so requested); provided, however, that
so long
<PAGE> 20
13
as SI Management L.P. is a General Partner, it shall act as the "tax
matters partner" of the Partnership;
(xii) effect a Public Offering of securities of a corporation (a
"Corporation") owned in whole or in part, directly or indirectly, and
controlled by, the Partnership (and to which any of the assets of the
Partnership or another Corporation may have been transferred in
anticipation of such Public Offering or otherwise); cause any
Corporation to make, from time to time, one or more public offerings of
its securities in addition to the offering specified above; and cause
the Partnership to sell all or any portion of any Corporation's
securities from time to time owned by the Partnership in any of such
public offerings, provided, however, the General Partner shall not
permit any Partner to sell all or a portion of the Corporation's
securities in any such public offering without affording a similar
opportunity to all Partners pro rata in accordance with the relative
amounts of the Corporation's securities owned by the Partners;
(xiii) subject to subparagraph 7(j), sell or otherwise transfer
any or all of the assets of the Partnership or any Corporation,
including, without limitation, by merger or dissolution of any such
Corporation;
(xiv) appoint persons to act as officers of the Partnership and
delegate to such persons such authority to act on behalf of the
Partnership and such duties and functions as the General Partner shall
determine, including such duties as would normally be delegated to
officers of a corporation holding similar offices;
(xv) amend the provisions of Paragraph 6 of this Agreement if
the Partnership is advised at any time by the Partnership's accountants
or attorneys that the allocations of income, gains, losses, deductions,
credits and distributions among Partners in accordance with Paragraph 6
hereof are unlikely to be respected for Federal income tax purposes
either because of the promulgation of Treasury Regulations under Section
704 of the Code or other developments in the law, but only to the
minimum extent necessary in accordance with the advice of such
accountants or attorneys so as to maintain to the maximum extent
possible the method of allocations and distributions provided in this
Agreement. The General Partner shall be entitled to rely upon the
advice of the Partnership's accountants or attorneys with respect to the
matter referred to in this subparagraph 7(c)(xv) and shall incur no
liability in connection with any such amendments of allocations or
Distributions made in reliance thereon, and no such amendments or
allocations or Distributions shall give rise to any claim or cause of
action by any Limited Partner;
(xvi) amend the provisions of this Agreement to delete or add
any provisions required to be so deleted or added by a State "Blue Sky"
commissioner or similar such official; provided, however, that no
amendment shall be adopted pursuant to this subparagraph 7(c)(xvi)
unless the adoption thereof (A) is consistent with the remainder of
subparagraph 7(c) hereof, (B) does not affect the method of allocation
of cash distributions
<PAGE> 21
14
or the method of allocation of Profits or Losses provided in Paragraph 6
hereof, except to the extent such amendment is permitted by subparagraph
7(c)(xv), (C) is for the benefit of, and not adverse to, the interests
of the Limited Partners, and (D) does not affect the limited liability
of the Limited Partners or the status of the Partnership as a
partnership for Federal income tax purposes;
(xvii) without limiting the generality of any other power granted
to the General Partner pursuant to this Agreement, to cause cash funds
of the Partnership, the Company or any Affiliate to be deposited in non-
interest bearing accounts at banks with which Integrated Resources, Inc.
and/or its Affiliate maintain banking relations, including banks from
which Integrated Resources, Inc., and/or its Affiliates borrow funds and
with which informal arrangements exist pursuant to which Integrated
Resources, Inc., and/or its Affiliates maintain compensating balances.
Each Partner consents to the maintenance of such banking arrangements
and to the realization by Integrated Resources, Inc. and/or its
Affiliates of any benefits resulting from treatment by such banks of the
Partnership's, the Company's or such Affiliate's funds deposited in such
accounts as being applicable towards the informal compensating balance
arrangements of Integrated Resources, Inc. and/or its Affiliates;
(xviii) without limiting the generality of any other power
granted to the General Partner pursuant to this Agreement, to cause cash
funds of the Partnership, the Company or any Affiliate to be utilized to
purchase shares in money market funds sponsored by Integrated Resources,
Inc. and/or its Affiliates, on the same terms and conditions which third
parties purchase shares of such money market funds. Each Partner
acknowledges that Integrated Resources, Inc. and/or its Affiliates will
earn its customary fees as sponsor of such money market funds and that
it is possible that such funds may have a lower rate of return than
other money market funds. Each Partner consents to such arrangements
and to the realization by Integrated Resources, Inc. and/or its
Affiliates of the benefits resulting therefrom;
(xix) appoint one or more attorneys-in-fact authorized pursuant
to general or limited powers of attorney, as the General Partner shall
deem appropriate, to act on behalf of the Partnership with the same
authority as may be exercised by the General Partner thereunder; and
(xx) perform any other act deemed by the General Partner to be
necessary or appropriate to the business of the Partnership.
(d) The General Partner shall, at all times during the term of the
Partnership, accurately record or cause to be recorded each transaction of the
Partnership, including all transactions relating to the operation of the
Business, and keep or cause to be kept full and accurate books of the
Partnership. Such books, and a certified copy of the Certificate and
<PAGE> 22
15
amendments thereto, shall be open for reasonable inspection and examination by
the Limited Partners or their duly authorized representatives.
(e) The General Partner shall be responsible for the management of
the affairs of the Partnership, operation of the business of the Partnership,
and performance of the duties described in this Paragraph 7.
(f) (i) Subject to the limitations set forth in clauses (ii)
through (v) of this subparagraph 7(f), all expenses incurred by the
Partnership shall be paid by the Partnership. A General Partner shall
be entitled to reimbursement from the Partnership for reasonable,
documented, out-of-pocket expenses incurred by it on behalf of the
Partnership; provided that expenses incurred by a General Partner in the
ordinary course of its business as a General Partner of the Partnership,
including expenses in respect of the employees of any General Partner or
in respect of the other normal overhead expenses of any General Partner,
shall not be reimbursed.
(ii) The General Partner and its Affiliates (as defined in
subparagraph 7(f)(v) below) shall not be liable, responsible or
accountable in damages or otherwise to the Partnership, any Corporation
or any Partner, and the General Partner and its Affiliates shall be
indemnified by the Partnership against any losses, judgments,
liabilities, expenses and amounts paid in settlement, sustained by it in
connection with the Partnership or any Corporation, provided that the
General Partner or its Affiliates in good faith determine that such
course of conduct was in the best interest of the Partnership and that
such course of conduct did not constitute negligence or misconduct on
its or their part. Notwithstanding the foregoing, the General Partner,
its Affiliates and any person acting as a broker-dealer with respect to
the sale of Interests shall not be indemnified by the Partnership or any
Limited Partner for any losses, liabilities or expenses arising under
federal or state securities laws unless: (1) there has been a successful
adjudication on the merits of each count involving alleged securities
law violations as to the particular indemnitee, or (2) such claims have
been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee or (3) a court of competent
jurisdiction either approves a settlement of the claims against a
particular indemnitee and finds that indemnification of the settlement
and related costs should be made or approves indemnification of
litigation costs if a successful defense is made. In any claim for
indemnification for federal or state securities law violations with
respect to the sale of Interests, the party seeking indemnification
shall apprise the court of the position of the Securities and Exchange
Commission and any applicable state securities regulatory authority,
including, without limitation, the Massachusetts Securities Division,
with respect to the issue of indemnification for securities law
violations.
(iii) In the event that any action, suit or proceeding is
instituted against the Partnership, any Corporation or any General
Partner or any of their Affiliates with respect to the business, assets,
liabilities or activities of the Partnership or any such Corporation,
<PAGE> 23
16
the Partnership and each such Corporation, General Partner or Affiliate
may obtain separate legal counsel and other expert assistance to defend
or assist in defending any such action, suit or proceeding. Each such
General Partner or Affiliate shall have advanced to it by the
Partnership, at its request, funds for payment of all expenses and costs
reasonably incurred in connection with the defense of any action, suit
or proceeding only if (1) such action, suit or proceeding relates to the
performance of duties or services by the General Partner or Affiliate
thereof of the behalf of the Partnership or any Corporation; and (2)
such action, suit or proceeding is initiated by a third party who is not
a Limited Partner of the Partnership; and (3) such General Partner or
Affiliate, as the case may be, undertakes to repay the advanced funds to
the Partnership, without interest, if it is determined that such General
Partner or Affiliate is not entitled to indemnification under this
Paragraph. No General Partner or Affiliate shall be advanced funds from
the Partnership for legal expenses and other related costs incurred as a
result of any legal action, suit or proceeding initiated by a Limited
Partner of the Partnership against such General Partner or Affiliate.
(iv) The Partnership shall not incur the cost of that portion
of any insurance, other than public liability insurance, which insures
any party against any liability the indemnification of which is not
permitted under this Paragraph.
(v) "AFFILIATE" for purposes of this subparagraph 7(f) only
shall mean any person performing services on behalf of the Partnership
who, (w) directly or indirectly controls, is controlled by or is under
common control with a General Partner; or (x) owns or controls ten
percent (10%) or more of the outstanding voting securities of a General
Partner; or (y) is an officer, director, partner or trustee of a General
Partner; or (z) if a General Partner is an officer, director, partner or
trustee, is any company for which such General Partner acts in any such
capacity.
(g) (i) Subject to subparagraph 12(d) hereof, if at any time after
the admission of Limited Partners pursuant to the Equity Sale, Limited
Partners whose Interests in the aggregate exceed fifty percent (50%) of
the Interests of all Limited Partners determine in their discretion that
a General Partner is not fully performing its powers, duties and
obligations in the best interest of the Partnership, or that it is
otherwise in the best interest of the Partnership to do so, they may, at
a meeting convened in accordance with subparagraph 12(d) hereof, remove
such General Partner from such office, and, in the event the removed
General Partner is the sole General Partner, the Limited Partners
holding 100% of the Interests of the Limited Partners may designate a
successor general partner. In the event of such removal, (A) such
General Partner shall cease to function as such but shall continue to be
entitled to receive Distributions pursuant to clause (iv) of
subparagraph 6(f) after the Partners have received the Priority Return
and clause (vi) of subparagraph 6(f), and (B) the Partners shall be
required to transfer to the successor general partner no less than a 1%
Interest in the Partnership for the value of such Interest as determined
in accordance with Paragraph 12(j) hereof, which Interest shall be
allocated
<PAGE> 24
17
from the removed General Partner and the Limited Partners (and from each
of the Limited Partners pro rata based on their respective Capital
Contributions), respectively, as follows: prior to the receipt by the
Partners of the Priority Return, 1% of such interest from the removed
General Partner and 99% of such interest from the Limited Partners, and,
after the receipt by the Partners of the Priority Return, 30% of such
interest from the removed General Partner and 70% of such interest from
the Limited Partners.
(ii) In the event that the General Partner is terminated
pursuant to this subparagraph 7(g) and retains any interest in the
Partnership, its interest shall automatically be converted to the
interest of a Special Limited Partner, which shall be entitled to
distributions pursuant to subparagraph 6(f) hereof to the extent of said
interest, and no more, provided that it shall at a minimum be entitled
to the distribution provided for in clause (iii) of subparagraph 6(f)
and shall have no right otherwise to participate in distributions to the
Limited Partners pursuant hereto or to participate in management of the
affairs of the Partnership or to vote with the other Limited Partners,
and the Special Limited Partner's interest shall be disregarded in
determining whether action has been taken by the Limited Partners.
(h) Upon the occurrence of any event described in subparagraph
11(a)(iv) at a time when there is more than one General Partner, the remaining
General Partner or General Partners shall have sixty (60) days after the
occurrence of such event to elect to continue the business of the Partnership
(such election requiring the unanimous consent of the remaining General
Partners), during which period the Partnership shall not be dissolved. If the
remaining General Partner or General Partners elect to continue the business of
the Partnership, the Partnership shall be continued and the following
provisions shall apply:
(i) In the event of the bankruptcy or insolvency of a General
Partner which is not discharged or vacated within (90) days from the
date thereof, or the dissolution of a General Partner, the remaining
General Partner or General Partners shall succeed pro rata, in
proportion to their respective proportionate Interests, to the Interest
of the bankrupt, insolvent or dissolved General Partner and the latter
shall not be entitled to any compensation for its Interest.
(ii) In the event of the retirement or resignation of a General
Partner, unless such event shall occur as the result of the Transfer of
the Interest of such General Partner in accordance with the provisions
of this Agreement, the remaining General Partner or General Partners so
electing to continue the business of the Partnership shall succeed pro
rata, in proportion to their respective Interests, to the Interest of
the retiring or resigning General Partner, and the latter shall not be
entitled to any compensation for its Interest.
(iii) In the event of the death of a General Partner, the
provisions of subparagraph 7(a)(i) shall apply. In the event of the
insanity of a General Partner, the
<PAGE> 25
18
legal representative of the insane General Partner shall be considered
the transferee of the insane General Partner by intestacy, and the
provisions of subparagraph 7(a)(i) shall apply.
(i) Subparagraph 7(h) hereof shall not apply to matters as to which
subparagraph 7(g) specifically applies.
(j) Notwithstanding the general grant of authority to the General
Partner in subparagraph 7(c), subject to subparagraph 12(d) hereof, after the
Equity Sale, the General Partner, without the consent, approval or ratification
of two-thirds in Interest of the Limited Partners, may not cause the
Partnership or a Corporation, as the case may be, to sell, exchange, mortgage,
pledge, transfer, finance or refinance all or substantially all of the assets
of the Partnership or such Corporation, as the case may be, other than in the
ordinary course of the business of the Partnership or such Corporation, as the
case may be, or in connection with the establishment of a Corporation wholly-
owned, directly or indirectly, by the Partnership, or to sell additional
Interests in the Partnership, unless the General Partner shall have given the
Limited Partners 30 days notice of its intention to enter into such a sale,
exchange, mortgage, pledge, transfer, financing or refinancing, or sale of
Interests to persons who, upon purchase, would become limited partners and the
Limited Partners shall not have obtained the opinion of counsel described in
subparagraph 12(d). In the event of any sale of such additional Interests,
whether or not consent of the Limited Partners is obtained or is not required,
the General Partner shall be required to offer to sell such interests to the
Limited Partners on a pro rata basis prior to any offer to persons who are not
Limited Partners.
LIMITED PARTNERS
RESTRICTIONS AND LIMITATIONS
8. (a) No Limited Partner shall take part in the management or
control of the business of the Partnership. Limited Partners shall have no
rights other than those provided for herein or granted by law where not
inconsistent with a valid provisions hereof.
(b) In no event shall any Limited Partner be liable to pay for any
loss beyond the amount of his Capital Contribution, nor shall he be personally
liable for any debts of the partnership. Each Limited Partner understands,
however, that, to the extent required by applicable partnership law, if he
receives the return in whole or in part of his Capital Contribution, he may be
liable to the Partnership for any sum, not in excess of the amount so returned
with interest, necessary to discharge the Partnership's liabilities to all
creditors who extended credit or whose claims arose before such return.
(c) No Limited Partner shall have (i) the right to withdraw or reduce
his Capital Contribution except as provided in this Agreement or (ii) except
pursuant to subparagraph 5(c), priority over any other Limited Partner either
as to return of capital or as to income, gains, losses, deductions or credits
of the Partnership.
<PAGE> 26
19
9. (a) A Limited Partner may not Transfer his Interest in the
Partnership or any part thereof except as permitted in this Agreement, and any
act in violation of this Paragraph 9 shall not be binding upon or recognized by
the Partnership regardless of whether any General Partner shall have knowledge
thereof.
(b) Except as hereinafter provided in subparagraph 9(d), no Transfer
by a Limited Partner of all or any part of his Interest or of his right to
receive Distributions when made shall be effective, nor shall any proposed
transferee of all or any part of his Interest be admitted to the Partnership as
a Limited Partner or be entitled to receive Distributions from the Partnership
applicable to the Interest acquired by reason of such Transfer, unless:
(i) the transferor has executed and delivered to the General
Partner an assignment in form satisfactory to the General Partner; and
(ii) the written consent of the General Partner to such
Transfer has been obtained, which consent may be withheld in the
complete discretion of the General Partner.
(c) No consent by the General Partner to any Transfer of all or any
part of a Limited Partner's Interest or to the admission of a proposed
transferee as a Limited Partner in the Partnership shall be effective unless:
(i) the transferee executes and delivers to the General
Partner an undertaking of the transferee to be bound by all the terms
and provisions of this Agreement, and such other instruments as may be
required by law, and, where the transferee is to be admitted as a
Limited Partner, a counterpart of this Agreement;
(ii) the transferee executes and delivers to the General
Partner a confirmation that the proposed transferee is acquiring the
Interest for his own account, for investment only and not with a view
toward the resale or distribution thereof; and
(iii) if requested by the General Partner, the transferee
executes and delivers to the General Partner an undertaking to pay all
reasonable expenses incurred by the Partnership in connection with the
Transfer, including, but not limited to, the cost of preparing, filing
and publishing such amendments to the Certificate as may be required by
law.
(d) Notwithstanding the provisions of subparagraph 9(b), any Limited
Partner may, without obtaining the General Partner's consent, transfer all or
any part of his Interest by will or intestacy; provided, however, that in no
event shall such Transfer be deemed effective to entitle the transferee to be
admitted as a Limited Partner unless and until all the conditions of
subparagraphs 9(b) and (c) are complied with.
<PAGE> 27
20
(e) Anything to the contrary contained herein notwithstanding:
(i) No Transfer of an Interest may be made in any 12 month
period by a Limited Partner if such Transfer, when added to all other
Transfers of Interests by Partners which have already taken place in
such period, would represent a Transfer by Partners who have made
Capital Contributions aggregating forty-nine (49%) per cent or more of
the aggregate Capital Contributions of all Partners. This limitation is
herein referred to as the "forty-nine (49%) per cent limitation".
(ii) Subparagraph 9(e)(i) hereof shall not apply to a Transfer
by gift, bequest or inheritance, or to a Transfer to the Partnership in
liquidation of a Partner's Interest pursuant to subparagraph 9(e)(iii),
and, for purposes of the forty-nine (49%) per cent limitation, any such
Transfer shall not be treated as such.
(iii) If, after the forty-nine (49%) per cent limitation is
reached in any 12 month period, a Transfer of an Interest would
otherwise take place by operation of law, or if any Transfer of an
Interest would otherwise take place by operation of law which would
cause a violation of the forty-nine (49%) per cent limitation (but not
including any Transfer referred to in subparagraph 9(e)(ii) hereof),
then, unless the General Partner rejects such Transfer pursuant to
subparagraph 9(e)(iv), said Interest shall be deemed transferred by the
transferor to the Partnership in liquidation of said Interest
immediately prior to the date on which such Transfer would otherwise
have taken place for a price equal to the fair market value of said
Interest on the date on which such Transfer would otherwise have taken
place. The price shall be paid within ninety (90) days after the date
on which such Transfer is deemed to have occurred. If the General
Partner and the transferor do not agree upon the fair market value of
the Interest, the liquidation price shall be the appraisal value
thereof, determined in accordance with Paragraph 11. The liquidation
price shall be paid in cash within thirty (30) days after such
determination.
(iv) Notwithstanding the provisions of subparagraph 9(e)(iii),
the General Partner shall have 90 days after receipt of notice or
obtaining actual knowledge of a Transfer described in subparagraph
9(e)(iii) to determine, in its discretion, whether to reject any such
Transfer to the Partnership in liquidation of such Interest. The
General Partner shall notify the transferring Partner of its
determination within said 90 day period.
(f) Each Limited Partner hereby indemnifies the Partnership and each
Partner against any and all loss, damage or expense (including, without
limitation, tax liabilities or loss of tax benefits) arising, directly or
indirectly, as a result of any Transfer or purported Transfer by that Limited
Partner in violation of any provision contained in this Paragraph 9. Each
Limited Partner also indemnifies and holds harmless the Partnership, the
General Partner, any corporation or entity affiliated with any of the above,
the officers, directors and employees of any of the foregoing and any
professional advisors thereto from and against any and all loss, damage,
liability or expense, including costs and reasonable attorneys' fees, to which
the Partnership or
<PAGE> 28
21
any such person may be put or which it may incur by reason of or in connection
with any misrepresentation made by the Limited Partner, any breach of any of
his warranties or his failure to fulfill any of his covenants or agreements
under this Agreement. Moreover, with respect to any action to which the
General Partner is a party, the Partnership shall indemnify and hold harmless
the General Partner, provided its actions were taken in good faith and did not
involve misconduct or negligence.
(g) No Limited Partner shall have the right to bring an action for
partition against the Partnership.
10. (a) The Interest of a Limited Partner shall be deemed offered for
sale to a purchaser designated by the General Partner upon the happening of any
of the following events:
(i) a petition under any bankruptcy, insolvency or
reorganization law or statute having been filed by such Limited Partner
or such Limited Partner having made an assignment for the benefit of
creditors, having admitted in writing his inability to pay his debts as
they mature or having been adjudicated a bankrupt; or
(ii) a petition under any bankruptcy, insolvency or
reorganization law or statute having been filed against such Limited
Partner and not having been dismissed within ninety (90) days from the
date of such filing; or
(iii) a receiver having been appointed to manage such Limited
Partner's property; or
(iv) a creditor of such Limited Partner having attached his
Interest, and such attachment not having been discharged or vacated
within ninety (90) days from the date it became effective.
The General Partner shall have ninety (90) days after receipt of notice
or actual knowledge of the occurrence of any of the foregoing within which to
designate such a purchaser and transmit written notice thereof to such Limited
Partner. If the General Partner does not make such designation within ninety
(90) days, as aforesaid, the offer shall be deemed withdrawn. The purchase
price for such Interest in the case of (i), (ii), (iii) or (iv) above shall be
its appraised value as determined in accordance with Paragraph 12(j). The
purchaser shall tender to the selling Limited Partner the purchase price, in
cash, within ten (10) days after such determination. Upon tender of payment of
the purchase price to the selling Limited Partner, his Interest shall be deemed
transferred to the aforesaid purchaser.
DISSOLUTION
11. (a) Except as otherwise herein provided, the Partnership shall be
dissolved upon the earliest of:
<PAGE> 29
22
(i) the expiration of its term as provided in this Agreement;
(ii) the sale or other disposition of all or substantially all
of the assets of the Business (other than to a Corporation);
(iii) a determination by all of the General Partner, concurred
in by the written consent of Limited Partners whose Interests in the
aggregate exceed fifty percent (50%) of the Interests of the Limited
Partners who are then Partners of the Partnership, to dissolve the
Partnership; or
(iv) subject to the provisions of subparagraphs 7(g) and 7(h),
the removal, pursuant to subparagraphs 7(g) or 7(h), retirement, death,
dissolution, insanity or resignation of a General Partner, or the
bankruptcy or insolvency of a General Partner which is not discharged or
vacated within ninety (90) days from the date thereof.
(b) Upon dissolution, all certificates or notices thereof required by
law shall be filed and the Partnership business shall be concluded as
hereinafter provided.
(c) Upon dissolution, unless the business of the Partnership is
continued pursuant to subparagraph 11(e), all property of the Partnership,
including, without limitation, securities held by the Partnership in any
Corporation, to the extent available after payment or making provision for
payment, when due, of any debts of the Partnership, shall be distributed to the
Partners in cash and/or in kind subject to any liabilities of the Partnership,
in accordance with the provisions of subparagraph 6(f). In the event a
Distribution pursuant to this subparagraph is made in kind, the property so
distributed shall be valued at its fair value for the purpose of charging the
Capital Accounts of the Partners and determining whether the Priority Return
has occurred, and, for the purpose of determining gain or loss to be allocated
among the Partners as provided in this Agreement, shall be deemed to have been
sold for cash for its fair value.
(d) The Partnership shall prepare and furnish to each Partner a
statement setting forth the assets and liabilities of the Partnership as of the
date of complete liquidation. Upon complete liquidation of the Partnership
property, the Limited Partners shall cease to be such and the General Partner
shall execute, acknowledge and cause to be filed all certificates necessary to
terminate the Partnership.
(e) Upon the occurrence of any of the events specified in
subparagraph 11(a)(iv), if for any reason the business of the Partnership is
not continued pursuant to subparagraph 7(g) or 7(h), then, and in such event,
the Limited Partners having one hundred (100%) percent of the Interests of the
Limited Partners who are then Partners of the Partnership may elect within one
hundred and twenty (120) days of the occurrence of any such event to form a new
limited partnership on substantially identical terms to the Partnership to
carry on the business of the Partnership and may, by unanimous vote or action,
select a general partner or such new limited partnership. In such event, the
general partner of such new limited partnership shall succeed to
<PAGE> 30
23
the Interest of the General Partner or General Partners, in which event the
general partner of such new limited partnership shall pay each General Partner
whom he succeeds an amount equal to the appraised value of the Interest of such
General Partner. The new limited partnership shall succeed to all rights and
assets of the Partnership subject to all liabilities of the Partnership. Each
Limited Partner shall be a limited partner of any limited partnership formed
pursuant to this paragraph and agrees to execute all documents and take such
further action as may be necessary in connection therewith. Until such time as
the new limited partnership agreement is executed by all of the partners, this
Agreement shall continue to be binding on all of the Limited Partners; and upon
execution of a declaration to be bound by the terms of this Agreement and
delivery of such declaration to any Limited Partner, the general partner of
such new limited partnership shall succeed to all the rights and liabilities of
the General Partner under this Agreement.
GENERAL PROVISIONS
12. (a) Each General Partner may also be a Limited Partner in the
Partnership.
(b) Each Limited Partner irrevocably constitutes and appoints each
General Partner acting singly, with full power of substitution, as his true and
lawful attorney in his name, place and stead to make, execute, acknowledge,
deliver, swear to, record, and file:
(i) any counterparts of this Agreement;
(ii) any certificate of limited partnership required by law or
considered necessary or desirable by the General Partner, and all
amendments thereto, including, but not limited to, (A) any amendments
reflecting the admission of a signatory to this Agreement or a
counterpart thereof as a Partner in the Partnership, and (B) any
amendment reflecting any increase in the Capital Contribution of a
Partner;
(iii) all certificates and other instruments necessary to
qualify or continue the qualification of the Partnership in the states
where it may be doing business;
(iv) all assignments, conveyances or other instruments or
documents necessary to effect the dissolution of the Partnership;
(v) all other filings with agencies of the federal government,
of any state or local government, or of any other jurisdiction which the
General Partner considers necessary or desirable for Partnership
purposes;
(vi) any changes in this Agreement as are required in the
judgment of the General Partner in order to comply with the laws of the
United States, including, without limitation, the Code, the State of
Delaware and/or any other state in which the Partnership transacts
business; and
<PAGE> 31
24
(vii) any and all documents and instruments relating to the
incorporation of a Corporation or a public offering of the Corporation's
securities, including a Public Offering.
It is expressly intended by each Partner that said power of attorney is coupled
with an interest, that it shall be irrevocable; and that it shall survive the
dissolution, death or incapacity of such Partner or the transfer by such
Partner of the whole or any part of his Interest. The General Partner will not
be required to deliver to any Limited Partner a copy of each document filed
with the Secretary of State of the State of Delaware pursuant to the Act.
(c) All notices or offers required or permitted pursuant to this
Agreement shall be in writing and shall be deemed to be sufficiently given or
served for all purposes when presented personally or sent by registered mail:
(i) to the Partnership or the General Partner at the address
of the General Partner shown on the Schedule of Partners' Contributions
attached hereto, or to such other address or addresses as the General
Partner may hereafter specify by notice to the Partners; or
(ii) to any Limited Partner at its address specified in the
Schedule of Partners' Contributions attached hereto, or as any Limited
Partner may hereafter specify by notice to the Partnership.
(d) Except as provided below, meetings of the Partners may be called
by the General Partner, or by the Limited Partners holding more than ten
percent (10%) of the then outstanding Interest for any matters for which the
Partners may vote as set forth in this Agreement or for a report from the
General Partner on matters pertaining to the Partnership business and
activities. Within seven (7) days after receipt of a written request, either
in person or by registered mail, stating the purpose of the meeting, the
General Partner shall mail to all Partners written notice of the place and
purpose of such meeting to be held on a date not less than fourteen (14) nor
more than twenty-eight (28) days after receipt of said request. Anything in
this Agreement to the contrary notwithstanding, the rights of the Limited
Partners as outlined in this subparagraph 12(d) and in subparagraphs 7(g), 7(h)
and 12(h)(ii) shall not come into existence or be effective in any manner unless
and until (a) the Partnership has received an unqualified opinion of counsel of
recognized standing, which counsel is selected by Limited Partners whose
aggregate Interests exceeds 10% of the aggregate Interests of all of the Limited
Partners ("SPECIAL COUNSEL"), and which opinion is affirmatively approved in
writing by the same percentage in Interest of the Limited Partners as is
required to take the action to which the opinion relates, as to the legality of
such action, and (b) either (i) the Partnership has received an opinion of
Special Counsel, which opinion is affirmatively approved in writing by the same
percentage in Interest of the Limited Partners as is required to take the action
to which the opinion relates, that such action may be effected without
subjecting any Limited Partner to liability as a general partner under the laws
of the State of Delaware or of any other jurisdiction in which the Partnership
is doing business, or (ii) a court
<PAGE> 32
25
or courts having appropriate jurisdiction has entered a judgment to the
foregoing effect, and (c) either (i) the Partnership has received an opinion of
Special Counsel, which opinion is affirmatively approved in writing by the same
percentage in Interest of the Limited Partners as is required to take the
action to which the opinion relates, that such action may be effected without
changing the Partnership's status for tax purposes, or (ii) either a court
having appropriate jurisdiction has entered a judgment, or the Internal Revenue
Service has issued a ruling, to the foregoing effect.
(e) An annual statement showing the income, expenses, assets and
liabilities of the Partnership at the end of the fiscal year shall be prepared
by the General Partner and examined by the Partnership's accountants, and the
General Partner shall furnish each Limited Partner with a copy of such
statement not later than the March 31 following the end of such fiscal year.
(f) Unless and until otherwise determined by the General Partner, the
fiscal year of the Partnership shall be the calendar year, except in the year
the Partnership commences or, if the Partnership terminates for any reason, in
the year of termination, in which cases the then current fiscal year shall
either begin on the date of commencement or end on the date of such
termination, as the case may be. The Partnership shall use the method of
accounting directed by the General Partner.
(g) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
(h) (i) This Agreement constitutes the entire agreement among the
Partners concerning the subject matter hereof. No covenant,
representation or condition not expressed in this Agreement shall affect
or be effective to interpret, change, or restrict the express provisions
of this Agreement. The provisions of this Agreement may not be modified
or waived except by written agreement executed by the parties to be
bound thereby.
(ii) Notwithstanding the foregoing, subject to subparagraph
12(d), this Agreement shall be amended upon the written request of
Limited Partners whose Interests in the aggregate exceed fifty percent
(50%) of the Interests of the Limited Partners who are then Partners in
the Partnership setting forth the terms of the amendment so requested.
Amendments made upon the request of such majority in Interest of the
Limited Partners shall be made in accordance with the terms set forth in
such written request, provided, however, that no such amendment shall in
any way (A) alter, modify or expand the rights, obligations and
liabilities of a General Partner without the consent of all General
Partners, (B) alter or modify the percentage of Distributions or the
Distributions allocated to each Partner, (C) increase the liability or
the required Capital Contribution of any Partner without the consent of
such Partner, (D) diminish the rights, obligations and liabilities of
any Limited Partner without the consent of such Limited Partner, or (E)
amend the specific rights granted to the Limited Partners herein.
<PAGE> 33
26
(i) The Partners will execute and deliver such further instruments
and do such further acts and things as may be required to carry out the purpose
and intent of this Agreement.
(j) For the purposes of this Agreement, the appraised value of an
Interest shall be determined by an independent appraiser of recognized
professional standing who is in the regular business of appraising businesses
similar to the Business. Such appraiser shall be selected, at the request of
the General Partner, by any authorized representative of the American
Arbitration Association or any successor organization thereto. The appraisal
made by such appraiser shall be binding and conclusive as between the selling
Partner or Partners and the person purchasing such Interest. The cost of such
appraisal shall be borne equally by the selling and purchasing parties, and by
the latter, among themselves, in proportion to their respective shares, except
that in the case of any transfer resulting from an event described in
subparagraph 10(a), the entire cost of appraisal shall be borne by the selling
Partner.
(k) Except as otherwise herein provided, this Agreement shall be
binding upon and inure to the benefit of the Partners and their successors,
personal representatives, heirs and assigns. None of the provisions of this
Agreement shall be for the benefit of or enforceable by any creditors of the
Partnership.
(l) This Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes constitute one Agreement,
binding on all the Partners, notwithstanding that all Partners are not
signatories to the same counterpart. All references herein to this Agreement
are deemed to refer to all such counterparts.
(m) Whenever the singular number is used in this Agreement and when
required by the context, the same shall include the plural, and the masculine
gender shall include the feminine and neuter genders.
<PAGE> 34
27
IN WITNESS WHEREOF, this Agreement has been executed by the Partners as
of the day and year first above written.
GENERAL PARTNER:
SI MANAGEMENT L.P.
By: SI Management Service Corp.,
general partner
By
--------------------------------
AGREED AND
CONSENTED TO:
LIMITED PARTNERS:
INITIAL LIMITED PARTNER:
SI MANAGEMENT SI INVESTING CO.
SERVICE CORP.
By By
------------------------------- ----------------------------------
Each person having executed a signature
page attached hereto.
<PAGE> 35
SCHEDULE OF PARTNERS' CONTRIBUTIONS
(Before Equity Sale)
<TABLE>
<CAPTION>
Initial Allocation
Capital Contribution of Profits
-------------------- ------------------
<S> <C> <C>
GENERAL PARTNER:
NAME: SI Management L.P. $1.00 1%
ADDRESS: c/o Integrated Resources, Inc.
666 Third Avenue
New York, New York 10017
INITIAL LIMITED PARTNER:
NAME: SI Investing Co. $99.00 99%
ADDRESS: c/o Integrated Resources, Inc.
666 Third Avenue
New York, New York 10017
LIMITED PARTNERS:
NAME:
ADDRESS:
NAME:
ADDRESS:
</TABLE>
<PAGE> 1
EXHIBIT 4.2
SUPPLEMENTAL INDENTURE, dated as of October 20, 1995, between SYNTHETIC
INDUSTRIES, INC., a Delaware corporation, as Issuer (the "Company"), and UNITED
STATES TRUST COMPANY OF NEW YORK, a New York banking corporation, as trustee
(the "Trustee").
RECITALS OF THE COMPANY
The Company and the Trustee entered into an Indenture, dated as of
December 14, 1992 (the "Indenture"), pursuant to which $140,000,000 aggregate
principal amount of the Company's 12-3/4% Senior Subordinated Debentures due
2002 (the "Securities") were issued. Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in the Indenture.
The Trustee has been acting as Trustee under the Indenture.
Section 901 of the Indenture provides that, without the consent of any
Holders, the Company, when authorized by a Board Resolution, and the Trustee,
at any time and from time to time, may enter into one or more indentures
supplemental thereto in form satisfactory to the Trustee, inter alia, to cure
any ambiguity, to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein, or to make any
other provisions with respect to matters or questions arising under this
Indenture; provided that, in each case, such provisions shall not adversely
affect the interests of the Holders.
The undersigned officers of the Company have been authorized, empowered
and directed by a Board Resolution to execute this supplemental indenture.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises and the covenants contained
herein, the Company and the Trustee agree as follows:
1. Clause (i) of the definition of "Permitted Indebtedness"
contained in Section 101 of the Indenture is hereby amended and restated as
follows:
(i) Subject to clause (x) of this definition, Indebtedness of
the Company under the Bank Credit Agreement or refinancing thereof
permitted under clause (vii) of this definition, in an aggregate
principal amount at any one time outstanding not to exceed $75,000,000,
less, on the date of any determination hereunder, the amount of
Indebtedness then outstanding under clause (i) of the definition of
Permitted Subsidiary Indebtedness or refinancing thereof permitted by
clause (vi) of such definition;
<PAGE> 2
2
2. Clause (vii) of the definition of "Permitted Indebtedness"
contained in Section 101 of the Indenture is hereby amended and restated as
follows:
(vii) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by the
Company of any Indebtedness of the Company, including any successive
refinancings by the Company, so long as (A) any such new Indebtedness
shall be in a principal amount that does not exceed the principal amount
(or, if such Indebtedness being refinanced provides for an amount less
than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date
of determination) so refinanced, plus the amount of any premium required
to be paid under the terms of the instrument governing such Indebtedness
being so refinanced or the amount of any premium reasonably determined
by the Company as necessary to accomplish such refinancing through means
of a tender offer or privately negotiated transaction (it being
understood that, with respect to the refinancing of the Indebtedness
permitted to be incurred under clause (i) above, the amount of such
Indebtedness outstanding pursuant to such clause (i), together with any
refinancing thereof, shall not at any one time exceed $75,000,000 plus
the amount of Indebtedness permitted to be incurred under clause (x) of
this definition, less the amount of Permitted Subsidiary Indebtedness
then outstanding under clause (i) of the definition of Permitted
Subsidiary Indebtedness and refinancings thereof permitted by clause
(vi) of such definition), and (B) in the case of any refinancing of Pari
Passu Indebtedness or Subordinated Indebtedness, (1) such new
Indebtedness is made pari passu with or subordinate to the Securities at
least to the same extent as the Indebtedness being refinanced and (2) if
such Indebtedness being refinanced is Specified Pari Passu Indebtedness
or Specified Subordinated Indebtedness, such new Indebtedness has an
Average Life and final Stated Maturity of principal that exceeds the
Average Life and final Stated Maturity of the Securities;
3. Clause (x) of the definition of "Permitted Indebtedness"
contained in Section 101 of the Indenture is hereby amended and restated as
follows:
(x) Indebtedness (which may consist in whole or in part of
additional Indebtedness under the Bank Credit Agreement pursuant to
clause (i) of this definition, as well as one or more of the other types
of Indebtedness permitted to be incurred pursuant to the other clauses
of this definition) in addition to that permitted to be incurred
pursuant to clauses (i) through (ix) above and clause (xi) below, which,
together with any other outstanding Indebtedness incurred pursuant to
this clause (x), has an aggregate principal amount not in excess of
$10,000,000 outstanding at any one time; and
4. All other provisions of the Indenture shall remain in full force
and effect.
<PAGE> 3
3
5. This supplemental indenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
conflicts of laws principles thereof.
6. This supplemental indenture is executed by the Company and the
Trustee pursuant to the provisions of Article 9 of the Indenture, and the terms
and conditions hereof shall be, and shall from and after the date hereof be
deemed to be, part of the terms and conditions of the Indenture for any and all
purposes. Any reference to the Indenture shall be deemed to be a reference to
the Indenture as supplemental hereby.
7. All covenants and agreements in this supplemental indenture by
the Company shall bind its successors and assigns, whether so expressed or not.
This supplemental indenture may be signed in any number of counterparts
with the same effect as if the signatures to each counterpart were upon a
single instrument, and all such counterparts together shall be deemed an
original of this supplemental indenture.
IN WITNESS WHEREOF, the parties hereto have caused this supplemental
indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
SYNTHETIC INDUSTRIES, INC.
By:
---------------------------------
Leonard Chill
President
Attest:
---------------------------
Jon P. Beckman
Vice President-Finance
UNITED STATES TRUST COMPANY
OF NEW YORK
By:
---------------------------------
Name: Patricia Stermer
Title: Assistant Vice President
Attest:
---------------------------
Name: Cynthia Chaney
Title: Assistant Vice President
<PAGE> 4
4
STATE OF GEORGIA )
) ss.:
COUNTY OF WALKER )
On the 20th day of October, 1995, before me personally came Leonard
Chill, to me known, who, being by me duly sworn, did depose and say that he
resides in Chattanooga, Tennessee; that he is President of Synthetic
Industries, Inc., one of the corporations described in and which executed the
above instrument; that he knows the corporate seal of such corporation; that
the seal affixed to said instrument is such corporate seal; that it was so
affixed pursuant to authority of the Board of Directors of such corporation;
and that he signed his name thereto pursuant to like authority
-------------------------------------
(Notarial Seal)
<PAGE> 5
5
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 18th day of October, 1995, before me personally came Patricia
Stermer, to me known, who, being by me duly sworn, did depose and say that s/he
resides at [illegible], that s/he is Assistant Vice President of United States
Trust Company of New York, one of the corporations described in and which
executed the above instrument; that s/he knows the corporate seal of such
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed pursuant to authority of the Board of Directors of such
corporation; and that s/he signed her/his name thereto pursuant to like
authority
-------------------------------------
(Notarial Seal)
<PAGE> 6
October 20, 1995
Mr. Jon P. Beckman
Synthetic Industries, Inc.
309 LaFayette Road
Chickamauga, Georgia 30707
Re: Supplemental Indenture dated October 20, 1995
Ladies and Gentlemen:
Reference is made to the Fourth Amended and Restated Revolving Credit
and Security Agreement dated October 20, 1995 among Synthetic Industries, Inc.
("Synthetic"), The First National Bank of Boston, as Agent and as a Lender, and
the Lenders (as amended, the "Credit Agreement"). Each capitalized term used
and not defined herein shall have the meaning given to said term in the Credit
Agreement.
Section 10.17 of the Credit Agreement prohibits the amendment in any
material respect of any term or provision contained in a certain Indenture
dated as of December 14, 1992 between Synthetic and the United States Trust
Company, as trustee (the "Indenture"), without the consent of the Majority
Lenders. Synthetic has requested that the Lenders waive the application of
Section 10.17, to the extent applicable, in connection with Synthetic's
execution and delivery of the Supplemental Indenture dated October 20, 1995, a
copy is attached to this letter (the "Supplemental Indenture").
By their signature below the Lenders hereby waive the application of
Section 10.17, as it may apply to Synthetic, to permit Synthetic to execute and
deliver the Supplemental Indenture. The waiver set forth in this letter shall
be limited precisely as written and except as expressly set forth herein, shall
not be deemed to be a consent to any waiver or modification of any other term
or condition of the Credit Agreement or any Loan Document.
This letter may be executed in any number of counterparts and by the
different parties on separate counterparts and each such counterpart shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same letter agreement.
THE FIRST NATIONAL BANK OF BOSTON,
as Agent and as a Lender
By:
---------------------------------
William C. Purinton
Vice President
<PAGE> 7
Mr. Jon P. Beckman
October 20, 1995
Page 2
SANWA BUSINESS CREDIT CORPORATION,
as a Lender
By:
---------------------------------
Name:
Title:
SOUTHTRUST BANK OF GEORGIA, N.A.,
as a Lender
By:
---------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4.3
EXECUTION COPY
================================================================================
SYNTHETIC INDUSTRIES, INC.,
Issuer,
$140,000,000
12 3/4% SENIOR SUBORDINATED DEBENTURES
DUE 2002
--------------------
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF FEBRUARY 11,1997
--------------------
UNITED STATES TRUST COMPANY OF NEW YORK,
Trustee
================================================================================
First Supplemental Indenture to Indenture, dated as of December 14, 1992,
between Synthetic Industries. Inc., as issuer, and United States Trust Company
of New York, as trustee.
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FIRST SUPPLEMENTAL INDENTURE, dated as of February 11, 1997, between
SYNTHETIC INDUSTRIES, INC., a Delaware corporation (the "Company"), and UNITED
STATES TRUST COMPANY OF NEW YORK, a New York corporation, as Trustee, under the
Indenture hereinafter mentioned (in such capacity, the "Trustee").
WHEREAS, the Company and the Trustee have heretofore executed and
delivered to each other an Indenture, dated as of December 14, 1992 (the
"Indenture"), pursuant to which the Company issued $140,000,000 principal
amount of its 12 3/4% Senior Subordinated Debentures due 2002 (the
"Securities"); and
WHEREAS. the Company has commenced an offer to purchase for cash any and
all of the outstanding Securities and a solicitation of consents to amend the
Indenture (the "Purchase Offer and Consent Solicitation"), upon the terms and
conditions set forth in the Offer to Purchase and Consent Solicitation dated
January 8, 1997, as amended (the "Offer to Purchase"); and
WHEREAS. Section 902 of the Indenture provides, among other things that
the Company, when authorized by a resolution of the Board of Directors of the
Company, and the Trustee may amend the Indenture in certain respects with the
consent of the Holders of at least a majority in principal amount of the
Securities then outstanding; and
WHEREAS, the execution and delivery of this First Supplemental Indenture
has been authorized by a resolution of the Board of Directors of the Company;
and
WHEREAS. the Company has delivered to the Trustee the written consents of
the Holders of at least a majority in principal amount of the outstanding
Securities to the amendments hereinafter set forth; and
WHEREAS. pursuant to Section 903 of the Indenture, the Trustee has
requested, and the Company has furnished the Trustee with, an Officers'
Certificate and an Opinion of Counsel stating that the execution of this First
Supplemental Indenture is authorized or permitted by the Indenture; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other valuable consideration, each party hereto agrees
for the equal and ratable benefit of the Holders of the Securities:
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ARTICLE I
Definitions
SECTION 1.1 DEFINITIONS.
The definitions set forth or incorporated by reference in Article One of
the Indenture shall be applicable to this First Supplemental Indenture,
including the recitals hereto, as fully and to the same extent as if set forth
herein, except as otherwise expressly provided herein.
SECTION 1.2 AMENDMENT TO ARTICLE ONE.
Article One of the Indenture is hereby amended to add the following term
and definition:
"Purchase Offer" means the tender offer for Securities made by the
Company, pursuant to an Offer to Purchase and Consent Solicitation, dated
January 8, 1997, a supplement thereto dated January 23, 1997 and the
related Consent and Letter of Transmittal circulated therewith.
SECTION 1.3 AMENDMENTS TO DEFINITIONS.
Article One of the Indenture is hereby amended to delete in their entirety
the following terms and their respective definitions:
(a) "Acquired Indebtedness
(b) "Asset Sale"
(c) "Change in Control"
(d) "Change in Control Triggering Event"
(e) "Consolidated Adjusted Net Income (Loss)"
(f) "Consolidated Fixed Charge Coverage Ratio"
(g) "Consolidated Interest Expense"
(h) "Consolidated Net Worth"
(i) "Consolidated Non-cash Charges"
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(j) "Consolidated Tax Expense"
(k) "Designated Senior Indebtedness"
(l) "Guaranteed Debt"
(m) "Investment"
(n) "Net Cash Proceeds"
(o) "Pari Passu Indebtedness"
(p) "Permitted Indebtedness"
(q) "Permitted Investment"
(r) "Permitted Joint Venture"
(s) "Permitted Subsidiary Indebtedness"
(t) "Rating Decline"
(u) "Specified Pari Passu Indebtedness"
(v) "Specified Subordinated Indebtedness
(w) "Subordinated Indebtedness"
ARTICLE II
EFFECTIVENESS
SECTION 2.1 EFFECTIVE DATE.
(a) This First Supplemental Indenture shall be and become effective on
the Acceptance Date (as defined in the Offer to Purchase) pursuant to the terms
of the Purchase Offer and Consent Solicitation.
(b) Notwithstanding the terms of Section 2.1(a) hereof, this First
Supplemental Indenture shall cease to be effective in the event that the
Company does not pay for Securities accepted for purchase pursuant to the
Purchase Offer in the manner contemplated by the Purchase Offer.
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ARTICLE III
ENDORSEMENT AND CHANGE OF FORM OF SECURITIES
SECTION 3.1. LEGEND.
Any Securities authenticated and delivered after the close of business on
the date of this First Supplemental Indenture becomes effective in substitution
for Securities then outstanding and all Securities presented or delivered to
the Trustee on and after that date for such purpose shall (unless textually
revised as provided in Section 3.2 hereof) be stamped, imprinted or otherwise
legended by the Trustee, with a notation as follows:
Effective as of February 11. 1997, certain restrictive covenants of
the Company, certain Events of Default and certain remedies of Holders
have been eliminated or limited, as provided in the First Supplemental
Indenture, dated as of February 11, 1997. Reference is hereby made to said
First Supplemental Indenture, copies of which are on file with the
Trustee, for a description of the amendments made therein.
ARTICLE IV
AMENDMENTS
SECTION 4.1 AMENDMENT TO ARTICLE FIVE.
Section 501 of the Indenture, captioned "Events of Default." is hereby
amended to read in its entirety as follows:
SECTION 501 EVENTS OF DEFAULT.
"Event of Default." wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and
whether or not it shall be occasioned or prohibited by the provisions of
Article Thirteen or be voluntary or involuntary or be effected by the
operation of law or pursuant to any judgment, decree or order of any court
or any order, rule or regulation of any administration or governmental
body):
(a) default in the payment of any interest on any Security when it
becomes due and payable, and continuance of such default for a period of
30 days, whether or not such payment is prohibited by Article 13 of this
Indenture; or
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(b) default in the payment of the principal of (or premium, if any,
on) any Security at its Maturity, whether or not such payment is
prohibited by Article 13 of this Indenture; or
(c) the entry of a decree or order by a court having jurisdiction in
the premises (A) for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under the Federal
Bankruptcy Code or any other federal, state or foreign bankruptcy,
insolvency, reorganization or similar law or (B) adjudging the Company or
any Significant Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under the Federal Bankruptcy
Code or any other similar federal, state or foreign law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or any Significant Subsidiary or of any
substantial part of any of their properties, or ordering the winding up or
liquidation of any of their affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive
days; or
(d) the institution by the Company or any Significant Subsidiary of
a voluntary case or proceeding under the Federal Bankruptcy Code or any
other similar federal, state or foreign law or any other case or
proceedings to be adjudicated a bankrupt or insolvent, or the consent by
the Company or any Significant Subsidiary to the entry of a decree or
order for relief in respect of the Company or any Significant Subsidiary
in any involuntary case or proceeding under the Federal Bankruptcy Code or
any other similar federal, state or foreign law or to the institution of
bankruptcy or insolvency proceedings against the Company or any
Significant Subsidiary, or the filing by the Company or any Significant
Subsidiary of a petition or answer or consent seeking reorganization or
relief under the Federal Bankruptcy Code or any other similar federal,
state or foreign law, or the consent by it to the filing of any such
petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or other similar
official) of any of the Company or any Significant Subsidiary or of any
substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due or the taking of
corporate action by the Company or any Significant Subsidiary in
furtherance of any such action; or
(e) any holder of at least $5,000,000 in aggregate principal amount
of secured Senior Indebtedness of the Company or secured Indebtedness of
any Significant Subsidiary after a default under such secured Indebtedness
shall commence proceedings, or take any action (other than in respect of
pre-foreclosure remedies under such secured Indebtedness or any Lien in
respect thereof), which proceedings or action such holder shall be
entitled to commence pursuant to the terms of the agreement under which
such Indebtedness is outstanding, and which
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proceedings or other action shall have remained unstayed for 10
consecutive days, to retain in satisfaction of such secured Indebtedness
or to collect, seize, dispose of or apply in satisfaction of such secured
Indebtedness, assets of the Company or any Subsidiary having a Fair Market
Value in excess of $5,000,000, individually or in the aggregate.
SECTION 4.2 AMENDMENT TO ARTICLE EIGHT.
Section 801 of the Indenture, captioned "Company May Consolidate, Etc.
Only on Certain Terms," is hereby deleted in its entirety.
SECTION 4.3 AMENDMENTS TO ARTICLE TEN.
Article Ten of the Indenture is hereby amended as follows:
(a) Section 1004 of the Indenture, captioned "Corporate Existence,"
is hereby deleted in its entirety.
(b) Section 1005 of the Indenture, captioned "Payment of Taxes and
Other Claims," is hereby deleted in its entirety.
(c) Section 1006 of the Indenture, captioned "Maintenance of
Properties," is hereby deleted in its entirety.
(d) Section 1007 of the Indenture, captioned "Limitation on
Indebtedness," is hereby deleted in its entirety.
(e) Section 1008 of the Indenture, captioned "Limitation on
Restricted Payments," is hereby deleted in its entirety.
(f) Section 1009 of the Indenture, captioned "Limitation on
Transactions with Affiliates," is hereby deleted in its entirety.
(g) Section 1010 of the Indenture, captioned "Limitation on Liens
Securing Indebtedness," is hereby deleted in its entirety.
(h) Section 1011 of the Indenture, captioned "Limitation on Other
Senior Subordinated Indebtedness," is hereby deleted in its entirety.
(i) Section 1013 of the Indenture, captioned "Restrictions on
Preferred Stock of Subsidiaries," is hereby deleted in its entirety.
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(j) Section 1014 of the Indenture, captioned "Limitation on
Dividends and Other Payment Restrictions Affecting Subsidiaries," is hereby
deleted in its entirety.
(k) Section 1016 of the Indenture, captioned "Limitations on
Issuances of Guarantees of Pari Passu Indebtedness or Subordinated
Indebtedness," is hereby deleted in its entirety.
(l) Section 1017 of the Indenture, captioned "Statement as to
Compliance: Notice of Default; Provision of Financial Statements," is hereby
amended to read in its entirety as follows:
SECTION 1017 NOTICE OF DEFAULT.
(a) If a Default has occurred and is continuing, or if the Trustee,
any Holder or the trustee for or the holder of any other evidence of
Indebtedness of the Company (other than Indebtedness in the aggregate
principal amount of less than $5,000,000) gives any notice or takes any
other action with respect to a claimed default, the Company shall deliver
to the Trustee an Officers' Certificate specifying such Default, notice or
other action and the effort to remedy same, within 5 Business Days after
its occurrence.
(m) Section 1012 of the Indenture, captioned "Purchase of Securities
Upon a Change in Control Triggering Event" is hereby deleted in its entirety
for each holder of Debentures, and all successors in interest to such holder,
that consented to the deletion of such Section in connection with the Purchase
Offer, but remains as written in full force and effect for any holder that did
not so consent.
(n) Section 1015 of the Indenture, captioned "Disposition of
Proceeds of Asset Sales" is hereby deleted in its entirety for each holder of
Debentures, and all successors in interest to such holder, that consented to
the deletion of such Section in connection with the Purchase Offer, but remains
as written in full force and effect for any holder that did not so consent.
(o) Section 1018 of the Indenture, captioned "Waiver of Certain
Covenants" is hereby deleted in its entirety for each holder of Debentures, and
all successors in interest to such holder, that consented to the deletion of
such Section in connection with the Purchase Offer, but remains as written in
full force and effect for any holder that did not so consent.
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ARTICLE V
MISCELLANEOUS
SECTION 5.1 BINDING AGREEMENT; FIRST SUPPLEMENTAL INDENTURE CONTROLS.
This First Supplemental Indenture is a supplemental indenture pursuant to
Section 902 of the Indenture. Upon execution and delivery of this First
Supplemental Indenture, the terms and conditions of this First Supplemental
Indenture shall be part of the terms and conditions of the Indenture for all
and any purposes, shall bind all non-consenting Holders to the extent permitted
by Section 902 of the Indenture and all the terms and conditions of both shall
be read together as though they constitute one instrument, except that in case
of conflict the provisions of this First Supplemental Indenture will control.
SECTION 5.2 TERMS AND PROVISIONS IN FULL FORCE AND EFFECT.
Except as they may have been amended and supplemented by this First
Supplemental Indenture, each and every term and provision of the Indenture
remains in full force and effect.
SECTION 5.3 COUNTERPARTS.
This First Supplemental Indenture may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute one and the same instrument.
SECTION 5.4 TRUSTEE ACCEPTS THE TRUSTS.
The Trustee accepts the trusts created by the Indenture, as supplemented by
this First Supplemental Indenture, and agrees to perform the same upon the
terms and conditions in the Indenture, as supplemented by this First
Supplemental Indenture.
SECTION 5.5 GOVERNING LAW.
This First Supplemental Indenture and the Securities shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to the conflicts of law principles thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, all as of the date and year first
above written.
SYNTHETIC INDUSTRIES, INC.
By:
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Name: Leonard Chill
Title: President and Chief Executive
Officer
UNITED STATES TRUST COMPANY
OF NEW YORK
By:
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Name: Patricia Stermer
Title: Assistant Vice President
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-28817 of Synthetic Industries, Inc. on Form S-4 of our report dated
November 12, 1996, appearing in the Joint Proxy Statement and Prospectus, which
is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Consolidated Financial Information" and "Experts" in such Joint Proxy Statement
and Prospectus.
DELOITTE & TOUCHE LLP
New York, New York
August , 1997
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EXHIBIT 99.3
Draft 8/1/97
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Names(s) of Registered Holder of Units
(Limited Partner(s)):
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Number (or Fraction) of Units Held:
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Account Number:
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PROXY
RELATING TO
THE PLAN OF WITHDRAWAL AND DISSOLUTION
OF
SYNTHETIC INDUSTRIES, L.P.
TO BE VOTED AT A SPECIAL MEETING OF
THE LIMITED PARTNERS
ON _____________, 1997
A DULY EXECUTED AND PROPERLY COMPLETED COPY OF THIS PROXY MUST BE
RECEIVED ON OR BEFORE 5:00 P.M., NEW YORK CITY TIME, ON __________ ___, 1997
(THE "INITIAL SOLICITATION EXPIRATION DATE"), UNLESS EXTENDED BY THE GENERAL
PARTNER (AS DEFINED BELOW) IN ITS SOLE DISCRETION TO NOT LATER THAN 5:00 P.M.,
NEW YORK CITY TIME, ON ___________ ___, 1997 (AS EXTENDED, THE "SOLICITATION
EXPIRATION DATE"), AT THE FOLLOWING ADDRESS:
D.F. KING & CO., INC.
77 WATER STREET
20TH FLOOR
NEW YORK, NEW YORK 10005
(800) 488-8095 (TOLL FREE)
Delivery of this Proxy (the "Proxy") to an address other than as set
forth above will not constitute a valid delivery. Telephonic inquiries
concerning this Proxy and the applicable procedures may be addressed to D.F.
King & Co., Inc. (the "Solicitation Agent") at the above telephone number.
The undersigned acknowledges receipt of the Joint Proxy Statement and
Prospectus, dated ________ ___, 1997 (the "Proxy Statement/Prospectus"), of
Synthetic Industries, L.P., a Delaware limited partnership (the "Partnership")
and Synthetic Industries, Inc., a Delaware corporation (the "Company"), and
this Proxy, which together constitute the solicitation (the "Solicitation") by
SI Management L.P., the general partner of the Partnership (the "General
Partner"), of the consent of the holders ("Holders" or the "Limited Partners")
of the limited partner units (the "Units") of
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the Partnership to the Plan of Withdrawal and Dissolution (the "Plan") of the
Partnership, and the written request of the Limited Partners to amend the
Partnership Agreement as provided in the Plan, each as more fully described in
the Proxy Statement/Prospectus. Each Limited Partner is requested to carefully
read this Proxy. The Solicitation will expire on the Solicitation Expiration
Date, unless extended by the General Partner in its sole discretion to a later
date, but will expire in any case at 5:00 p.m. New York City time, on
__________, 1997, in which case such later date shall be the Solicitation
Expiration Date. All capitalized terms used but not defined herein shall have
the meanings given such terms in the Proxy Statement/Prospectus.
The undersigned has completed, executed and delivered this Proxy to
indicate the action the undersigned desires to take with respect to the
proposed Plan.
PLEASE READ THIS ENTIRE PROXY CAREFULLY
BEFORE CHECKING ANY BOX BELOW
It is a condition to a valid consent to the proposed Plan by a Holder
of Units (or a fraction thereof) that prior to the Solicitation Expiration Date
such Holder completes and delivers this Proxy to the Solicitation Agent.
HOLDERS WHO ABSTAIN OR VOTE AGAINST THE PLAN MAY NOT MAKE THE
WITHDRAWAL ELECTION TO PARTICIPATE IN THE UNDERWRITTEN SALE. IF THE PROPOSED
PLAN IS APPROVED, SUCH APPROVAL WILL BIND ALL HOLDERS, AND ANY HOLDER WHO DOES
NOT VOTE FOR THE PLAN WILL BE ISSUED COMMON STOCK IN THE DISSOLUTION AS
DESCRIBED IN THE PROXY STATEMENT/PROSPECTUS.
In order to make a valid Withdrawal Election to participate in the
Underwritten Sale pursuant to the Plan, you must vote all of your Units (or
fraction thereof) in favor of the Plan and properly complete and sign the
enclosed Withdrawal Election Agreement indicating the specified percentage,
25%, 50%, 75% or 100%, of your Units (or fraction thereof) of which the Shares
underlying such Units (or fraction thereof) you desire have included in the
Underwritten Sale. No Withdrawal Election shall have been validly made unless
the Solicitation Agent shall have received this Proxy and a properly completed
and executed Withdrawal Election Agreement by 5:00 p.m., New York City time, on
the Solicitation Expiration Date (the "Election Deadline"). If, as of the
Election Deadline, the Solicitation Agent has not received this Proxy and a
Withdrawal Election Agreement from you, you shall be deemed not to have made a
Withdrawal Election with respect to your Units. If you make a Withdrawal
Election by submitting this Proxy and a Withdrawal Election Agreement to the
Solicitation Agent, you may at any time prior to the Election Deadline change
or revoke your Withdrawal Election by submitting a revised Withdrawal Election
Agreement, properly completed and signed, that is received by the Solicitation
Agent prior to the Election Deadline, or by voting in person at the Special
Meeting. The Withdrawal Election will be irrevocable upon the time of the
adoption of the Plan at the Special Meeting.
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PROXY
Upon the terms and subject to the conditions of this Solicitation,
the undersigned hereby votes on the proposed Plan with respect to all of the
undersigned's Units (or all of the undersigned's fractional interests in
Units) as follows:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL CONSTITUTE A VOTE IN THE
MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL CONSTITUTE A
VOTE "FOR" THE PLAN.
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WITHDRAWAL ELECTION
The undersigned has elected to make a Withdrawal Election to
participate in the Underwritten Sale and has enclosed a signed Withdrawal
Election Agreement:
[ ] YES [ ] NO
A WITHDRAWAL ELECTION WILL NOT BE EFFECTIVE WITH RESPECT TO ANY
HOLDER WHO VOTES "AGAINST" THE PLAN OR WHO ABSTAINS. YOU MUST VOTE "FOR" THE
PLAN IN ORDER TO MAKE A WITHDRAWAL ELECTION.
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A Holder who wishes to consent to the proposed Plan should, prior to
the Solicitation Expiration Date, complete, sign, date and mail or otherwise
deliver this Proxy to the Solicitation Agent at the address set forth on the
cover page hereof.
A Holder from whom the Solicitation Agent has not received a Proxy or
who abstains shall be deemed a vote "AGAINST" the Plan. A Holder whose Proxy
does not otherwise indicate a choice in the space provided above, but is signed
and dated, shall be deemed a vote "FOR" the Plan.
The undersigned hereby represents and warrants that he, she or it has
full power and authority to give the Proxy contained herein. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
General Partner or the Solicitation Agent to be necessary or desirable to
perfect the undersigned's consent (if any).
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All authority conferred or agreed to be conferred by this Proxy shall
be deemed to be coupled with an interest and survive the death or incapacity of
the undersigned and every obligation of the undersigned under this Proxy shall
be binding upon the undersigned's heirs, personal representatives, executors,
administrators, guardians, successors and assigns.
The undesigned understands that Proxies delivered pursuant to any one
of the procedures described under the caption "Proxy and Withdrawal Election
Procedures" in the Proxy Statement/Prospectus and in the instructions hereto
will constitute a binding agreement between the undersigned and the
Partnership upon the terms and subject to the conditions set forth in the Proxy
Statement/Prospectus and in this Proxy.
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WITNESS the due execution of the foregoing Proxy as of the date written below.
* , 1997
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* , 1997
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Signature(s) of Holders(s) Date
or Authorized Signatory
Print Name and Address of Holder(s) and
Name and Title of Person signing as Agent or
Fiduciary:
Name(s):
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(Please Print)
Capacity:
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Address:
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(Include Zip Code)
Area Code and Telephone Number: ( )
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- ----------------------------
* To be signed in exactly the same manner as the Units are registered. If
signature is by a trustee, executor, administrator, guardian, attorney-in-fact,
officer or other person acting in a fiduciary or representative capacity, such
person must set forth his or her full title above. See Instruction 4 below.
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INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE PROXY
1. DELIVERY OF THIS PROXY. A completed and duly executed copy of
this Proxy and any other documents required by this Proxy must be received by
the Solicitation Agent at its address set forth on the cover page hereof prior
to the Solicitation Expiration Date if the Holder desires to consent to the
Plan. The method of delivery of this Proxy and all other required documents
to the Solicitation Agent is at the election and risk of the Holder, but,
except as otherwise provided below, the delivery will be deemed made only when
actually received by the Solicitation Agent. If such delivery is by mail, it
is recommended that the Holder use certified mail with return receipt
requested. In all cases, sufficient time should be allowed to ensure timely
delivery.
2. QUESTIONS REGARDING VALIDITY, FORM, ELIGIBILITY, ETC. All
questions as to the validity, form, eligibility (including time or receipt) and
acceptance of Proxies will be determined by the General Partner in its sole
discretion, which determination will be final and binding. The General Partner
reserves the right to reject any and all Proxies not validly given or any
Proxies the General Partner's acceptance of which would, in the opinion of the
General Partner or its counsel, be unlawful. The General Partner also reserves
the right to waive any defects or irregularities or conditions of the
Solicitation and Plan. The interpretation of the terms and conditions of the
Solicitation and Plan (including this Proxy and the instructions hereto) by the
General Partner shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with deliveries of Proxies must be
cured within such time as the General Partner may determine. Neither the
General Partner nor any other person shall be under any duty to give
notification of defects or irregularities with respect to deliveries of
Proxies, nor shall any of them incur any liability for failure to give such
notification.
3. PROXY TO PROPOSED PLAN. Only a registered Holder of the Units
(or a fraction thereof) or his legal representative or attorney-in-fact may
deliver a Proxy.
4. SIGNATURES ON THIS PROXY. If this Proxy is signed by the
registered Holder(s) of the Units with respect to which this Proxy is given,
the signature must correspond with the names as contained on the books of the
Partnership without alteration, enlargement or any change whatsoever.
If any of the Units with respect to which the Proxy is given hereby
are owned of record by two or more joint owners, all such owners must sign this
Proxy.
If this Proxy is signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons
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should so indicate when signing and submit evidence satisfactory to the General
Partner of their authority so to act with this Proxy.
5. REVOCATION OF PROXY. Any Holder who has consented to the
proposed Plan may revoke such Proxy by delivering written notice of such
revocation to the Solicitation Agent at any time prior to the Solicitation
Expiration Date. Thereafter, Proxies will no longer be revocable unless the
Plan is not consummated, in which event all Proxies will be revoked
automatically. Any such notice of revocation, to be effective, must indicate
the Units (or fraction thereof) to which it relates to be signed by the Holder
in the same manner as the original Proxy. Holders may also revoke their Proxies
by attending the Special Meeting and voting in person.
6. WAIVER OF CONDITIONS. Subject to applicable law, the General
Partner reserves the absolute right to amend, waive or modify specified
conditions of the Solicitation and the Plan.
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
relating to the Solicitation and the Plan or the procedure for consenting as
well as requests for assistance or for additional copies of the Proxy
Statement/Prospectus and this Proxy may be directed to the Solicitation Agent
at the address and telephone number indicated on the cover of this Proxy.
