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As filed with the Securities and Exchange Commission on June 9, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SYNTHETIC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 2221 58-1049400
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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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)
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LEONARD CHILL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES 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: [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED (1) PER UNIT (2) OFFERING PRICE (2) REGISTRATION FEE
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Common Stock, par value $1.00 per share, of
Synthetic Industries, Inc. 5,781,250 $18.69 $108,051,563 $32,743
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(1) Represents all of the shares of Common Stock held by Synthetic Industries,
L.P. that may be distributed to its Partners pursuant to the Plan of
Withdrawal and Dissolution referred to in the Joint Proxy Statement and
Prospectus forming a part of this Registration Statement.
(2) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended,
based upon the average of the high and low prices of the Common Stock on
the Nasdaq National Market on June 3, 1997.
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 convert promptly some or all of your
Partnership interest into cash or to remain in the Partnership during a
dissolution period, after which you will be distributed shares of the Common
Stock of Synthetic underlying any Partnership interests 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:
o 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.
o 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. 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.
o 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
distributed to you and you will be free to hold them, or,
unless you are an affiliate of Synthetic, sell them through
your broker.
o Shares that are not withdrawn will remain in the Partnership
for 270 days after the sale or distribution of the withdrawn
shares, and then will be distributed to you in one or more
distributions over the following year. 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 recommends that Limited Partners vote their Units in
favor of the Plan for the following reasons:
o 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 approaches by electing
withdrawal for a portion of the shares underlying his
interest and receiving the remainder of his underlying shares
in the subsequent dissolution.
o For Limited Partners who want to liquidate their Units
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.
o The sale of Common Stock necessary to provide cash for Limited
Partners who elect withdrawal 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 those choosing to continue to hold their interest.
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o 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.
o There is no business purpose or benefit to investors holding
publicly traded shares of a single corporation in a
partnership. 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.
Patricof & Co., 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 only 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
withdrawn 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 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 ___________________ by 5:00 p.m. on _______________, 1997, as
instructed in the accompanying Proxy Statement and Prospectus.
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.
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SYNTHETIC INDUSTRIES, L.P.
309 LaFayette Road
Chickamauga, Georgia 30707
Telephone Number: (706) 375-3121
___________________________
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
______________________, 1997 By: ___________________________
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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 June 9, 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 a
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 ("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 or more 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 sale (the
"Underwritten Sale") of the Withdrawn Shares promptly 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 and the dates on which such distributions are made 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 270th day after
the completion of the Underwritten Sale or, if the Underwritten Sale does not
occur, the 270th 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 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."
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:
o 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.
o 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 DOES NOT OCCUR 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
(continued on next page)
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INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS SET FORTH ON PAGE __
UNDER THE CAPTION "RISK FACTORS."
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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.
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The date of this Joint Proxy Statement and Prospectus is _________, 1997
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REMAINING SHARES SUBSEQUENTLY DISTRIBUTED DURING THE
DISSOLUTION COULD BE ADVERSELY AFFECTED.
o ALL COSTS AND EXPENSES TO BE INCURRED BY THE PARTNERSHIP IN
CONNECTION WITH THE PLAN, ESTIMATED TO BE APPROXIMATELY $__,
WILL BE PAID BY THE PARTNERSHIP WHETHER OR NOT THE PLAN IS
APPROVED. AN ADDITIONAL $___ IS EXPECTED TO BE PAID BY THE
PARTNERSHIP ONLY IF 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.
SEE "SUMMARY--BACKGROUND AND PURPOSES OF 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.
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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
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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.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . 3
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
THE PLAN OF WITHDRAWAL AND DISSOLUTION . . . . . . . . . . . . . . . . . 18
PROXY AND WITHDRAWAL ELECTION PROCEDURES . . . . . . . . . . . . . . . . 26
THE PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
COMMON STOCK PRICE RANGE AND DIVIDENDS . . . . . . . . . . . . . . . . . 31
SELECTED CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . . . . . . 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . 34
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 62
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . 64
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . 65
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . 69
SUMMARY OF CERTAIN PROVISIONS OF THE PARTNERSHIP AGREEMENT . . . . . . . 71
SUMMARY COMPARISON OF RIGHTS OF UNITS AND COMMON STOCK . . . . . . . . . 74
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
</TABLE>
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SYNTHETIC INDUSTRIES, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . F-1
ANNEX A -- Form of Agreement and Plan of Withdrawal and Dissolution . . . A-1
ANNEX B -- Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . B-1
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<PAGE> 11
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, 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.
Synthetic Industries, L.P. (the "Partnership") is a Delaware limited
partnership formed in 1986 for the purpose of acquiring all of the capital
stock (the "Common Stock") of Synthetic Industries, Inc., a Delaware
corporation (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 currently owns 5,781,250 shares (the "Shares"),
or approximately 67%, of the issued and outstanding shares of Common Stock.
The sole general partner of the Partnership is SI Management L.P. (the
"General Partner"), which owns 1% of the total issued partner interest in the
Partnership. The remaining 99% partner interest is divided into 800 limited
partner interests ("Units"), which are held by approximately 1,850 limited
partners (the "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 of Withdrawal and Dissolution (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. If a Limited Partner elects to withdraw part or all of such
Limited Partner's interest from the Partnership (the "Withdrawal"), the Shares
underlying such interest will be distributed to such Limited Partner and must be
included in an underwritten offering (the "Underwritten Sale") that the Company
will attempt to consummate within 180 days after the approval of the Plan. If
the Underwritten Sale is consummated, such Shares will be promptly sold and the
Limited Partner will receive cash in exchange therefor. If the Underwritten
Sale is not consummated, such 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 a dissolution of the Partnership (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.
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<PAGE> 12
If the Plan is approved, each Limited Partner will be bound by that
approval even though the 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.
The Withdrawal Election
Pursuant to an Agreement and Plan of Withdrawal and Dissolution, dated
as of ______, 1997, between the Partnership and the Company (the "Agreement"),
if the Plan is approved and implemented, each Limited Partner may at any time
prior to the Special Meeting elect to withdraw from the Partnership (the
"Withdrawal Election") the shares of Common Stock underlying all or a
specified portion of the Units held by such Limited Partner (the "Withdrawn
Shares"). Limited Partners who make a Withdrawal Election (the "Withdrawal
Election Partners") must participate in the Underwritten Sale with respect to
all of their Withdrawn Shares and will receive cash for such Withdrawn Shares
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, however,
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 does not occur within such one hundred eighty (180) day
period, then the Withdrawn Shares will be distributed to the Withdrawal Election
Partners in accordance with the Units formerly held by such Withdrawal Election
Partners, less Shares retained by the Partnership to cover the costs of
preparing and consummating the Plan attributable to the Partnership. If the
Underwritten Sale is completed in part, any unsold Withdrawn Shares will be
distributed to the Withdrawal Election Partners 180 days after the completion of
the Underwritten Sale.
In order 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 elect to participate in the
Underwritten Sale 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 upon the date on which the Plan is
approved. All Units included therein will be deemed to have been redeemed on
such date. The only obligation of the Partnership thereafter will be to
deliver the Withdrawn Shares on behalf of the Withdrawal Election Partners to
[_________], as the redemption agent (the "Redemption Agent"), which will be
appointed by the Withdrawal Election Partners in the Withdrawal Election
Agreement. The Redemption 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. If the Underwritten Sale has not been consummated within
one hundred eighty (180) days after the approval of the Plan, the Withdrawn
Shares will be distributed by the Redemption Agent 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.
The Underwritten Sale
Withdrawal Election Partners must include Withdrawn Shares in the
Underwritten Sale. The Company, pursuant to the Agreement, will file before the
date of the Special Meeting a Registration Statement with respect to the
Underwritten Sale which is proposed to be managed by [________________] (the
"Managing Underwriter"). Marketing of the Withdrawn Shares is expected to
commence promptly after approval of the Plan. The price at which the Withdrawn
Shares will be sold in the Underwritten Sale will be determined by a pricing
committee (the "Pricing Committee") in conjunction with the underwriters. The
Pricing Committee will consist of Leonard Chill, in his capacity as an officer
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 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 is reasonable, 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 net proceeds from the Underwritten Sale will be
distributed to the Withdrawal Election Partners by the Redemption Agent,
promptly after the completion of the
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<PAGE> 13
Underwritten Sale, after payment of certain expenses, including underwriting
discounts and commissions, in connection with the Underwritten Sale. If the
Pricing Committee or the Company determines not to proceed with the Underwritten
Sale or if the Underwritten Sale has not occurred before the expiration of 180
days after approval of the Plan, the Redemption Agent will distribute the
Withdrawn Shares to the Withdrawal Election Partners immediately thereafter.
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 an orderly dissolution of the Partnership (the
"Dissolution") by the distribution over time of all of the Partnership's Shares
remaining (the "Remaining Shares") after (i) the Withdrawal and (ii) the
satisfaction by the Partnership of all costs and expenses associated with the
Plan. If the Remaining Shares constitute less than 20% of the total then
issued and outstanding shares of Common Stock, the Dissolution will occur by a
one time distribution of the Remaining Shares on the 270th day after the
earlier of the completion of the Underwritten Sale or the distribution of the
Withdrawn Shares (the "First Distribution Date"). If the Remaining Shares
constitute 20% or more of the total then issued and outstanding shares of
Common Stock, the Dissolution will occur in three distributions, with 33 1/3%
of the Remaining Shares being distributed on the First Distribution Date, 33
1/3% of the Remaining Shares being distributed on the 180th day following the
First Distribution Date (the "Second Distribution Date") and the balance being
distributed on the 180th day following the Second Distribution Date. Under
certain conditions, the Company has the right under the Agreement to require
the General Partner to accelerate the Dissolution and distribute 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.
BACKGROUND AND PURPOSES OF THE PLAN
Background of the Plan and Consideration of Alternatives. From 1993
to early 1996, the General Partner explored 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 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
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<PAGE> 14
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:
o For Limited Partners who want to liquidate all or a specified
portion of their Units immediately, the Plan provides for an
orderly sales process that the General Partner believes will
optimize the price received for the Common Stock in the
Underwritten Offering.
o For Limited Partners who wish to retain the investment they
now hold in the Company through their ownership of Units, the
Plan upon the commencement of the Distribution will provide
them with increased liquidity for their investment and a
determinable market value therefor.
o For all Limited Partners, the Plan will eliminate the cost
and inefficiency of maintaining a partnership entity to hold
shares of a corporation and the simplification of tax
reporting.
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:
o For those Limited Partners who do not elect to participate in
the Underwritten Sale, the Distribution will begin no earlier
than the 270th day after the completion of the Underwritten
Sale or, if the Underwritten Sale does not occur, the 270th
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.
o 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.
o 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 does not occur and a significant number
of Withdrawn Shares are immediately 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 be adversely affected.
o All costs and expenses to be incurred by the Partnership in
connection with the Plan, estimated at approximately
$_________, will be paid by the Partnership whether or not the
Plan is consummated. An additional $__________ is expected to
be paid by the Partnership only if the Plan is consummated.
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<PAGE> 15
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 on or prior to the
Solicitation Expiration Date (as defined herein) 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 and the date hereof, Patricof & Co., 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. The full text
of the written opinion of Patricof & Co., which sets forth the assumptions
made, matters considered and limitations on the review undertaken, is attached
as Annex B 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 & Co. to the effect that the
implementation of the Plan is fair, from a procedural point of view, to the
Limited Partners, the General Partner 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:
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 total tax basis (as described below) of the Remaining
Shares distributed to any Limited Partner who does not make a Withdrawal
Election, will equal the total tax basis of such Limited Partner's Units as
determined immediately who makes a Withdrawal Election before the first
distribution trade pursuant to the Dissolution.
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<PAGE> 16
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 and will incur to implement the
Plan) by selling Shares or transferring Shares to the Company. 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. Only those Limited
Partners remaining in the Partnership at the time of the Partnership's
repayment of outstanding liabilities will recognize gain or loss resulting
from the use of Shares to repay liabilities. Each Limited Partner should
consult such Limited Partner's own tax advisor regarding the tax treatment of
such gain or loss and Plan costs allocated to such Limited Partner.
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
If the Plan is consummated, the expenses incurred by the Partnership
in connection therewith, estimated to be approximately $_____, will be borne by
the General Partner and all Limited Partners in accordance with their interests
in the Partnership. These expenses will be advanced by the Company and
satisfied either out of the proceeds from the sale of Shares by the Partnership
in the Underwritten Sale or by the delivery to the Company by the Partnership
of Shares valued at the public offering price in the Underwritten Sale.
Underwriting discounts and commissions in connection with the
Underwritten Sale will be allocated on a pro rata basis among the Withdrawal
Election Partners. All other costs of the Underwritten Sale, estimated to be
approximately $_________, will be borne by the Company. If the Plan is not
consummated, for any reason, the Partnership will pay all of such expenses.
The General Partner will not receive any compensation with respect to the Plan.
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<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 ENDED
SEPTEMBER 30, MARCH 31, MARCH 31,
---------------------------------- -------------------- ------------------
1994 1995(1) 1996 1996 1997 1996 1997
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
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:
Net 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
EBITDA (3) . . . . . . . . . . . . 52,421 42,887 54,074 16,774 25,366 9,584 13,715
EBITDA as a percentage of net
sales . . . . . . . . . . . . . 22.3% 15.8% 18.1% 13.0% 17.3% 14.8% 18.2%
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 September 31, As of March 31,
1996 1997
------------------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
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) Represents income before interest, taxes, depreciation, and amortization.
EBITDA is presented because it is generally accepted as providing useful
information regarding a company's ability to service and/or incur debt.
EBITDA should not be considered in isolation from or as a substitute for
net income, cash flows from operating activities and other consolidated
income or cash flow statement data prepared in accordance with generally
accepted accounting principles or as a measure of profitability or
liquidity.
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<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 distributed 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 270th day after the consummation of the Underwritten Sale or,
if the Underwritten Sale does not occur, the 270th day following the
distribution of the Withdrawn Shares from the Redemption 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.
NO ASSURANCE 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.
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<PAGE> 19
Risk of Failure to Approve the Plan
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."
TAX RISKS
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 (the "Code"), except that each 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."
NO INDEPENDENT REPRESENTATION OF LIMITED PARTNERS
The Limited Partners have not been represented by separate counsel,
accountants, financial advisors or other professionals 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 & Co. 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.
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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 March 31, 1997, the Company had
outstanding consolidated long-term debt (including current maturities) of
approximately $213 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 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 long- time 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".
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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 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 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.
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<PAGE> 22
THE PLAN OF WITHDRAWAL AND DISSOLUTION
Under the Plan of Withdrawal and Dissolution (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. If a Limited Partner elects to withdraw part or all of such
Limited Partner's interest from the Partnership (the "Withdrawal"), the Shares
underlying such interest will be distributed to such Limited Partner and must be
included in an underwritten offering (the "Underwritten Sale") that the Company
will attempt to consummate within 180 days after the approval of the Plan. If
the Underwritten Sale is consummated, such Shares will be promptly sold and the
Limited Partner will receive cash in exchange therefor. If the Underwritten Sale
is not consummated, such 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 a dissolution of the Partnership (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:
o 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;
o as a Prospectus in connection with the distribution of the
Withdrawn Shares to Limited Partners in connection with the
Withdrawal; and
o 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 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. Between 1993 and early 1996 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. It was determined during these discussions 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 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
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<PAGE> 23
pressure that would result from a large number of Limited Partners attempting
to sell an investment that had been illiquid for so many years.
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 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. 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
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. The public
offering for 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.
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 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 and discuss with Bear Stearns
its various components.
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 because, among other
things, it would afford them a choice between receiving cash for their
investment based upon a value determined by the public markets in an orderly
underwritten public offering or continuing to hold their investment in the
Company's business by means of freely tradeable shares of Common Stock. 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 & Co. 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.
FAIRNESS OPINION
On _______________, 1997 and the date hereof, Patricof & Co.
("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.
The full text of the written opinion of Patricof, which sets forth the
assumptions made, matters
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<PAGE> 24
considered and limitations on the review undertaken, is attached as Annex B to
this Proxy Statement/Prospectus and is incorporated herein by reference.
Limited Partners are urged to read this opinion carefully in its entirety.
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; and (v) rendering an opinion as to whether the
implementation of the Plan is fair, from a procedural point of view, to the
Limited Partners. The Partnership has paid Patricof a fee of $87,500, plus
expenses, and will pay an additional fee of $62,500 upon the consummation of
the Underwritten Sale. The Company has also agreed to indemnify Particof
against certain liabilities incurred in connection with rendering its services.
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.
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.
Generally, the first option will allow Limited Partners to liquidate their
investment immediately. 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.
The General Partner believes that the Plan is fair and reasonable to, and
in the best interests of, the Limited Partners for the following reasons:
o The Plan offers desirable investment options for all Limited
Partners.
o For Limited Partners who want to liquidate their Units
immediately, the Plan offers cash that is based on a current
market value for the Common Stock underlying those Units.
o The sale 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.
o For Limited Partners who wish to retain the investment they now
hold in the Company through their ownership of Units, the Plan,
upon the commencement of the Distribution, will provide them with
increased liquidity for their investment and a determinable public
market value therefor.
o There is no business purpose or benefit to investors holding
publicly traded shares of a single corporation in a partnership.
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 reaching its conclusion that the Plan is fair and reasonable to, and
in the best interests of the Limited Partners, the General Partner weighed
against the benefits set forth above certain risks and costs to Limited
Partners associated with the Plan. The risks include 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,
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<PAGE> 25
and 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 General Partner has made numerous assumptions
regarding the continued strength of the economy and the stock markets generally
as well as the future business prospects of the Company. There can be no
assurance that these assumptions will prove to be accurate.
THE WITHDRAWAL ELECTION
Pursuant to an Agreement and Plan of Withdrawal and Dissolution, dated as
of ______, 1997, between the Partnership and the Company (as it may be amended,
modified or supplemented from time to time, the "Agreement"), if the Plan is
approved and implemented, each Limited Partner may at any time prior to the
Special Meeting elect to participate in the redemption of all or a specified
portion of the Units held by such Limited Partner (the "Withdrawal Election").
Limited Partners who make a Withdrawal Election (the "Withdrawal Election
Partners") must participate in the Underwritten Sale with respect to all Common
Stock distributed to them and will be paid in cash promptly after the completion
of the Underwritten Sale, provided that the Underwritten Sale of the Common
Stock underlying the Units designated by the Withdrawal Election Partners (the
"Withdrawn Shares") is consummated. 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. If the Underwritten Sale does not occur within such
one hundred eighty (180) day period, then the Withdrawn Shares will be
distributed to the Withdrawal Election Partners in accordance with the Units
formerly held by such Withdrawal Election Partners, less Shares retained by the
Partnership to cover the costs of preparing and consummating the Plan
attributable to the Partnership. See "Expenses of the Plan." If the
Underwritten Sale is completed in part, any unsold Withdrawn Shares will be
distributed to the Withdrawal Election Partners 180 days after completion of the
Underwritten Sale.
In order 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 elect to participate in the
Underwritten Sale 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 upon the date on which the Plan is
approved. All Units included therein will be deemed to have been redeemed on
such date. The only obligation of the Partnership thereafter will be to
deliver the Withdrawn Shares on behalf of the Withdrawal Election Partners to
[_________], as the redemption agent (the "Redemption Agent"), which will
be appointed by the Withdrawal Election Partners in the Withdrawal Election
Agreement. The Redemption 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. If the Underwritten Sale has not been consummated within
one hundred eighty (180) days after the approval of the Plan, the Withdrawn
Shares will be distributed by the Redemption Agent to the Withdrawal Election
Partners as soon as possible thereafter. 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.
THE UNDERWRITTEN SALE
Withdrawal Election Partners must include Withdrawn Shares in the
Underwritten Sale. The Company, pursuant to the Agreement, will file before the
date of the Special Meeting a Registration Statement with respect to the
Underwritten Sale which is proposed to be managed by [________________] (the
"Managing Underwriter"). Marketing of the Withdrawn Shares is expected to
commence promptly after approval of the Plan. The price at which the Withdrawn
Shares will be sold in the Underwritten Sale will be determined by a pricing
committee (the "Pricing Committee") in conjunction with the underwriters. The
Pricing Committee will consist of Leonard Chill, in his capacity as an officer
of the General Partner, and William J. Shortt and Robert L. Voigt, both of whom
are outside directors of the Company. The Pricing Committee
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<PAGE> 26
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 is reasonable. In
evaluating whether the price and other terms presented by the underwriters are
reasonable, and determining whether to sell the Shares, the Pricing Committee
will consider several factors, including, 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. See "Risk Factors - No Assurance 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:
[GRAPH]
The net proceeds from the Underwritten Sale will be distributed to the
Withdrawal Election Partners by the Redemption Agent, promptly after the
completion of the Underwritten Sale, after payment of certain expenses,
including underwriting discounts and commissions, in connection with the
Underwritten Sale. If the Pricing Committee or the Company determines not to
proceed with the Underwritten Sale or if the Underwritten Sale has not occurred
before the expiration of 180 days after approval of the Plan, the Redemption
Agent will distribute the Withdrawn Shares to the Withdrawal Election Partners
immediately thereafter. 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 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 distributed to the Withdrawal Election Partners 180
days after the closing 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 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 distributed
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
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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 an orderly dissolution of the Partnership (the
"Dissolution") by the distribution over time of all of the Partnership's Shares
remaining (the "Remaining Shares") after (i) the Withdrawal and (ii) the
satisfaction by the Partnership of all of its costs and expenses associated with
the Plan. See "-- Expenses of the Plan" below. If the Remaining Shares
constitute less than 20% of the total then issued and outstanding shares of
Common Stock, the Dissolution will occur by a one time distribution of the
Remaining Shares on the 270th day after the earlier of the completion of the
Underwritten Sale or the distribution of the Withdrawn Shares by the Redemption
Agent to the Withdrawal Election Partners (the "First Distribution Date"). If
the Remaining Shares constitute 20% or more of the total then issued and
outstanding shares of Common Stock, the Dissolution will occur in three
distributions, with 33 1/3% of the Remaining Shares being distributed on the
First Distribution Date, 33 1/3% of the Remaining Shares being distributed on
the 180th day following the First Distribution Date (the "Second Distribution
Date") and the balance being distributed on the 180th day following the Second
Distribution Date. Under certain conditions, the Company has the right under the
Agreement to require the General Partner to accelerate the Dissolution and
distribute 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.
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:
o Limited Partners holding a majority in interest of the outstanding
Units shall have approved the Plan at the Special Meeting;
o All requisite third party consents and approvals to the Plan,
including any necessary regulatory approvals, shall have been
obtained;
o No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the
Plan; and
o 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 been obtained.
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 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.
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 if (a) there shall be any
law or regulation that makes consummation of the Plan illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining the
Partnership, the General Partner or the Company from consummating the Plan is
entered and such judgment, injunction, order or decree shall become final and
non-appealable, (b) the Plan shall not have been consummated on or before
_____________, 1997, (c) in the event of adverse legislative developments or
(d) in the
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event the General Partner determines that consummation of the Plan otherwise is
no longer in the best interests of the Partners.
The General Partner reserves the right, in its sole discretion, to defer
consummation of the Plan until a date no later than _____________, 1997.
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 Expenses . . . . . . . . . . . . . . . . . . . . .
Transfer Agent Fee . . . . . . . . . . . . . . . . . . . . . .
Accounting Fees and Expenses . . . . . . . . . . . . . . . . .
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . .
Redemption Agent Fees and Expenses . . . . . . . . . . . . . .
Blue Sky Qualification Fees and Expenses . . . . . . . . . . .
Printing and Engraving . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . .
---------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $
===============
</TABLE>
If the Plan is consummated, the expenses incurred by the Partnership in
connection therewith, estimated to be approximately $__________, will be borne
by the General Partner and all Limited Partners in accordance with their
interests in the Partnership. These expenses include approximately $650,000
relating to the development of earlier restructuring proposals that were not
carried through. These expenses will be advanced by the Company and satisfied
either by the sale of Shares by the Partnership in the Underwritten Sale or by
the delivery to the Company by the Partnership of Shares valued at the public
offering price in the Underwritten Sale or, if the Underwritten Sale is not
consummated, the market value of such Shares on such date.
Underwriting discounts and commissions in connection with the
Underwritten Sale will be allocated on a pro rata basis among the Withdrawal
Election Partners. All other costs of the Underwritten Sale, estimated to be
approximately $___________, will be borne by the Company. If the Plan is not
consummated, for any reason, the Partnership will pay all of such expenses.
The General Partner will not receive any compensation with respect to the Plan.
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."
-24-
<PAGE> 29
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 BECAUSE IT BELIEVES THAT THE PLAN IS IN THE BEST INTERESTS OF THE
PARTNERS. THE PRINCIPAL REASONS FOR THIS RECOMMENDATION ARE DESCRIBED UNDER
"BACKGROUND OF 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.
-25-
<PAGE> 30
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 (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 General Partner, Attention: Secretary,
SI Management L.P., 309 LaFayette Road, Chickamauga, Georgia 30707, 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:
[INSERT ADDRESS INFORMATION]
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
-26-
<PAGE> 31
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 General Partner
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 General
Partner 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 General Partner 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 General Partner prior to the Election Deadline.
The Withdrawal Election will be irrevocable after the date the Plan is
approved. The Redemption 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
Redemption 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."
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.
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.
-27-
<PAGE> 32
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]
-28-
<PAGE> 33
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.
-29-
<PAGE> 34
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.
-30-
<PAGE> 35
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) . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . .
Third Quarter (through June __, 1997) . . . . . . . .
</TABLE>
At March 31, 1997, there were approximately ______ holders of record of
Common Stock. On May __, 1997, the reported last sale price of the Common
Stock on the NNM was $___ 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.
-31-
<PAGE> 36
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>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
1992 1993 1994 1995(1) 1996
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales . . . . . . . . . . . . . $ 195,739 $ 210,516 $ 234,977 $ 271,427 $ 299,532
Cost of sales . . . . . . . . . . . 133,690 142,181 152,305 194,706 208,321
---------- --------- --------- --------- ---------
Gross profit . . . . . . . . . . . . 62,049 68,335 82,672 76,721 91,211
Selling, general and administrative
expenses . . . . . . . . . . . . 31,795 35,799 39,403 45,468 50,145
Amortization of intangibles . . . . 2,598 2,615 2,499 2,566 2,592
---------- ---------- ---------- ----------- -----------
Operating income . . . . . . . . . . . 27,656 29,921 40,770 28,687 38,474
Interest expense . . . . . . . . . . . 17,865 20,854 20,011 22,514 22,773
Amortization of deferred financing
costs . . . . . . . . . . . . . . 1,636 933 739 737 699
---------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations before provision
(benefit) for income taxes and
extraordinary item . . . . . . . . 8,155 8,134 20,020 5,436 15,002
Provision (benefit) for income
taxes . . . . . . . . . . . . . . 4,560 4,472 8,600 3,500 6,900
----- ----- ----- ----- -----
Income (loss) from continuing
operations before
extraordinary item . . . . . . . . 3,595 3,662 11,420 1,936 8,102
Net income (loss) (2) . . . . . . . $ (3,972) $ (12,310) $ 11,420 $ 1,936 $ 8,102
========== ========= ========= ========= =========
OTHER FINANCIAL DATA:
Net income (loss) per share from
continuing operations before
extraordinary item . . . . . . . . 0.62 0.63 1.93 0.33 1.37
Weighted average shares
outstanding . . . . . . . . . . . 5,781,250 5,781,250 5,930,502 5,930,502 5,930,502
EBITDA (3) . . . . . . . . . . . . . 36,937 41,061 52,421 42,887 54,074
EBIDTA as a percentage of
net sales . . . . . . . . . . . . 18.9% 19.5% 22.3% 15.8% 18.1%
<CAPTION>
SIX MONTHS ENDED THREE MONTHS
MARCH 31, ENDED MARCH 31,
--------------------- --------------------
1996 1997 1996 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales . . . . . . . . . . . . . $129,217 $146,215 $64,609 $75,358
Cost of sales . . . . . . . . . . . 96,087 101,166 46,170 51,123
-------- -------- ------- -------
Gross profit . . . . . . . . . . . . 33,130 45,049 18,439 24,235
Selling, general and administrative
expenses . . . . . . . . . . . . 22,743 27,075 12,056 14,256
Amortization of intangibles . . . . 1,296 1,296 648 648
--------- -------- --------- --------
Operating income . . . . . . . . . . . 9,091 16,678 5,735 9,331
Interest expense . . . . . . . . . . . 11,390 10,775 5,710 5,365
Amortization of deferred financing
costs . . . . . . . . . . . . . . 348 339 175 163
--------- ------- ------- -------
Income (loss) from continuing
operations before provision
(benefit) for income taxes and
extraordinary item . . . . . . . . (2,647) 5,564 (150) 3,803
Provision (benefit) for income
taxes . . . . . . . . . . . . . . (340) 2,500 260 1,643
--------- -------- ------ -----
Income (loss) from continuing
operations before
extraordinary item . . . . . . . . (2,307) 3,064 (410) 2,160
Net income (loss) (2) . . . . . . . $ (2,307) $ (8,886) $ (410) $(9,790)
======== ======== ======= =======
OTHER FINANCIAL DATA:
Net income per share from
continuing operations before
extraordinary item . . . . . . . . (0.39) 0.36 (0.07) 0.24
Weighted average shares
outstanding . . . . . . . . . . . 5,930,502 8,413,922 5,930,502 8,957,155
EBITDA (3) . . . . . . . . . . . . . 16,774 25,366 9,584 13,715
EBIDTA as a percentage of
net sales . . . . . . . . . . . . 13.0% 17.3% 14.8% 18.2%
</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:
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>
-32-
<PAGE> 37
FOOTNOTES TO SELECTED CONSOLIDATED FINANCIAL INFORMATION
(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) Represents income before interest, taxes, depreciation, and amortization.
EBITDA is presented because it is generally accepted as providing useful
information regarding a company's ability to service and/or incur debt.
EBITDA should not be considered in isolation from or as a substitute for
net income, cash flows from operating activities and other consolidated
income or cash flow statement data prepared in accordance with generally
accepted accounting principles or as a measure of profitability or
liquidity.
-33-
<PAGE> 38
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%.
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<PAGE> 39
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 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
ENDED THREE MONTHS 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
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<PAGE> 40
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 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
__________________________________
(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> 41
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 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%.
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<PAGE> 42
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 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".
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<PAGE> 43
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.
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.
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<PAGE> 44
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 $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.
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<PAGE> 45
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 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.
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<PAGE> 46
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
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.
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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.
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
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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 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
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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 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%.
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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 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
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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 product line has two
distinct segments: 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 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.
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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, 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).
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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 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
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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.
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.
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<PAGE> 55
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 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.
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<PAGE> 56
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
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.
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<PAGE> 57
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 FOOTAGE OF OWNED 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 185,000 Leased
124 Keene Street warehouse
Dalton, Georgia Geosynthetic products and fiber 168,000 Leased
120 Keene Street warehouse
Chickamauga, Georgia Manufacturing of carpet backing, 143,736 Leased
geotextiles and fibers
Dalton, Georgia Specialty yarn warehouse 104,827 Leased
Cleveland Highway
Cornelia, Georgia Assembly of certain fabrics 76,000 Leased
Westside, Georgia Carpet backing warehouse 86,440 Leased
Dalton, Georgia Carpet backing warehouse 85,000 Leased
North Dug Gap
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>
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<PAGE> 58
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.
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, 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 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 April 11, 1997, defendants filed a motion to dismiss the 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 is currently being
briefed. 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> 59
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
W. Wayne Freed . . . . . . . . . . 61 Vice President -- Market Development
Ralph Kenner . . . . . . . . . . . 52 Vice President -- Manufacturing
William Gardner Wright, Jr. . . . . 68 Vice President -- General Manager Carpet Backing Division
Robert J. Breyley . . . . . . . . . 67 Vice President -- Fibermesh(R) Division
W.O. Falkenberry . . . . . . . . . 54 Vice President -- Human Resources
C. Ted Koerner . . . . . . . . . . 47 Vice President -- General Manager Construction/Civil
Engineering Products Group
John Michael Long . . . . . . . . . 53 Vice President -- General Manager Technical Textiles Group
Joseph Sinicropi . . . . . . . . . 43 Chief Financial Officer and Secretary
Bobby Callahan . . . . . . . . . . 54 Controller
Joseph F. Dana (1)(2) . . . . . . . 49 Director
Lee J. Seidler (1) . . . . . . . . 61 Director
William J. Shortt (1) . . . . . . . 71 Director
Robert L. Voigt (1) . . . . . . . . 78 Director
</TABLE>
____________________
(1) Member of Compensation Committee and Audit Committee.
(2) Effective July 1, 1997, Mr. Dana will become the Chief Operating Officer
and General Counsel of the Company. On ______________, 1997, Mr. Dana
executed an employment agreement [with substantially the same terms as
those described under " -- Employment Agreements" below].
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
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<PAGE> 60
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".
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.
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.
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.
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.
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.
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.
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.
Joseph F. Dana has been engaged in the private practice of law for over
twenty years and has been a member of the law firm Watson & Dana, LaFayette,
Georgia, since its formation in 1978. Mr. Dana has served as general counsel
to the Company since 1987 and has been a Director since 1993.
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.
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<PAGE> 61
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.
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.
Dana, 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. Dana, 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.
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<PAGE> 62
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 -- 1995 145,973 41,926 2,344 -- 4,482(2)
Manufacturing 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 1995 235,664 70,238 304 -- 4,005(2)
Manager -- Carpet Backing 1994 235,664 99,384 339 -- 4,497(2)
Division
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 --Market 1995 142,000 28,267 1,808 -- 4,090(2)
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 $4,497 contributed by the Company under its 401(k)
plan in 1996, 1995 and 1994, respectively.
(2) These amounts represent the annual contribution made by the Company under
its 401(k) Plan in the respective year.
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<PAGE> 63
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table sets forth options granted to the Named Executive
Officers during fiscal 1996:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
-------------------------------------------------- -----------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% 10%
---- ----------- ------------ ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Leonard Chill . . . . . . . . 34,875 17.8% $10.72 12/09/05 $235,058 $595,665
Ralph Kenner . . . . . . . . 20,458 10.4 10.72 12/09/05 137,887 349,423
William Gardner Wright, Jr. . 20,458 10.4 10.72 12/09/05 137,887 349,423
Robert J. Breyley . . . . . . -- -- -- -- -- --
W. Wayne Freed . . . . . . . 20,458 10.4 10.72 12/09/05 137,887 349,423
</TABLE>
- --------------------
(1) These gains are based on arbitrary compounded rates of growth of stock
prices mandated by the Securities and Exchange Commission of 5% and 10%
per year from the date the option was granted over the full option term.
These rates do not represent the Company's estimate or projection of
future prices of the Common Stock. There is no assurance that the values
that may be realized by any Named Executive Officer upon exercise of his
options will be at or near the value estimated in the foregoing table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth option exercises by and the value of the
in-the-money unexercised options held at September 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FY-END (1) AT FY-END (2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) 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.
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<PAGE> 64
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 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,
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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 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. Mr.
Dana, a director of the Company and a member of the Compensation Committee, is
a member of Watson & Dana.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of March 31, 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) 67.53%
The Crabbe Huson Group, Inc.(2) . . . . . . . 738,000(2) 8.62%
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) . . . . . . . . 322,834 3.77%
</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, 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.
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(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
280,875 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.
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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-________), 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 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
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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
The following is a general discussion of the anticipated material federal
income tax consequences of the implementation of the Plan. This summary is
based on laws, regulations, rulings and decisions now in effect, all of which
are subject to change by legislative, administrative or judicial action. The
discussion below does not purport to address federal income tax consequences
applicable to particular categories or 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. The Limited
Partners should consult their own tax advisors in determining the 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. King & Spalding, counsel to the Partnership,
("Counsel") is of the opinion that, based upon currently applicable law, the
following discussion properly describes in general the principal federal income
tax consequences of the implementation of the Plan.
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 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
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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
summary of "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 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 adjusted partnership's adjusted basis in the property immediately before
the distribution but, in no event, shall exceed the distributee partner's 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
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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 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 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 of such
Limited Partner's Units as determined immediately before the Withdrawal. Each
Withdrawal Election Partner who does not withdraw entirely from the Partnership
pursuant to the Withdrawal will have a total tax basis 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 all 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 Redemption 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
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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 Redemption 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 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 neither the Partnership nor any Partner
will recognize gain or loss with 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 and will incur to implement the
Plan) by selling or transferring Shares. 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. Only those Limited Partners remaining in the
Partnership at the time of the Partnership's repayment of its outstanding
liabilities will recognize taxable gain or loss resulting from the use of Shares
to repay the liabilities. Each Limited Partner should consult such Limited
Partner's own tax advisor regarding the tax treatment of such gain or loss and
Plan costs allocated to such Limited Partner.
OTHER MATTERS
Neither the General Partner, the Partnership nor Counsel can guarantee
that any federal income tax consequences described in this Summary will be
available. 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 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 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.
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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 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
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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-______), 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.
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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.
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 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;
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(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.
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. 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
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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 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
In addition to amendments adopted by a majority in interest of the
Limited Partners, the Partnership Agreement may 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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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."
<TABLE>
<CAPTION>
UNITS COMMON STOCK
----- ------------
<S> <C>
TRANSFERABILITY
Subject to certain limited exceptions, Units may The Common Stock is freely transferable and is
not be transferred without the written consent of quoted on the Nasdaq National Market.
the General Partner. There is no established
public trading market for the Units.
PERMITTED ACTIVITIES
The Partnership Agreement provides that the The Company's Restated Certificate of
Partnership may engage in the ownership and Incorporation and Bylaws contain no restrictions
operation of the Company and such other ancillary on the activities in which the Company may engage.
and related businesses as the General Partner
shall deem desirable.
FINANCIAL REPORTING
The Partnership is subject to the reporting The Company is subject to the reporting
requirements of the Exchange Act. The Partnership requirements of the Exchange Act, and its
must also prepare and provide to its Partners Shareholders receive reports prepared in
statutorily required tax information. accordance with the rules and regulations of the
Commission.
TAXATION, DISTRIBUTIONS AND DIVIDENDS
The Partnership is not a taxable entity under the The Company is subject to federal and state income
Internal Revenue Code. Accordingly, Partners taxes on corporate income. Shareholders will have
report and pay federal income taxes on the basis taxable income from the Company's operations to
of their distributive share of partnership income, the extent that taxable dividends are declared and
gains, losses, credits and deductions, if any, paid on the Common Stock. The Bylaws of the
whether or not any cash distributions are actually Company provide that the Board of Directors has
made. The Partnership Agreement provides that, the authority to declare dividends as and when
other than in connection with a sale of all or they deem it to be expedient to the extent
substantially all of the assets of, or the permitted by law. To date, the Company has not
liquidation of, the Partnership, the General declared or paid any cash or other dividends on
Partner has the authority to determine the amount the Common Stock and intends for the foreseeable
available for distribution to the Partners. future to retain its earnings to finance the
Distributions, if any, generally are made 1% to development of its business and for repayment of
the General Partner and 99% to Limited Partners debt.
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 distributions in the past.
</TABLE>
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<PAGE> 79
<TABLE>
<CAPTION>
UNITS COMMON STOCK
----- ------------
<S> <C>
VOTING RIGHTS
The General Partner controls the business of the Each share of Common Stock entitles its holder to
Partnership. Limited Partners may not participate cast one vote on matters as to which voting is
in the management of the Partnership without permitted or required by the Delaware General
jeopardizing their limited liability. Limited Corporation Law, including the election of
partners have, however, certain enumerated rights, directors, amendments to the Company's Restated
such as the removal and replacement of the General Certificate of Incorporation and mergers and other
Partner. Amendments to the Partnership Agreement extraordinary transactions. Generally, matters
and removal of the General Partner require the requiring the vote of the Common Stock are
affirmative vote of Limited Partners holding a approved by the affirmative vote of the holder of
majority of outstanding Units. The approval of a majority of the shares of Common Stock at a
two-thirds of the outstanding Units is required meeting of stockholders at which a quorum is
for the sale or other disposition of all or present.
substantially all of the assets of the
Partnership.
LIMITED LIABILITY
Limited Partners' liability with respect to the Shares of Common Stock are fully paid and
activities of the Partnership is generally limited nonassessable. Stockholders do not have personal
to their original capital contributions. In liability for the obligations of the Company.
certain circumstances, they may be liable for
amounts distributed or returned to them.
CHANGE OF CONTROL
There is no provision in the Delaware Revised The Company, as a Delaware corporation, is subject
Uniform Limited Partnership Act comparable to the to Section 203 of the Delaware General Corporation
provisions contained in Section 203 of the Law, which prohibits business combinations with
Delaware General Corporation Law, or in the interested stockholders for a period of three
Partnership Agreement that restricts change of years following the date such stockholder became
control transactions with Partners. Changes in an owner of 15% or more of the outstanding voting
management can be effected only by removal of the stock of the Company. The Company's Restated
General Partner. 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.
INDEMNIFICATION
The Delaware Revised Uniform Limited Partnership The Delaware General Corporation Law, Section 145,
Act, Section 17-108, states that a limited permits a corporation to indemnify any person who
partnership has the power to indemnify any partner is or is threatened to be made a party to any suit
or person unless restricted by its partnership due to the fact that such person is a director,
agreement. officer, employee or agent acting on behalf of
such corporation, subject to a determination by
The Partnership Agreement generally provides for the Board of Directors that such person has met
the indemnification of the General Partner and its certain standards of conduct.
affiliates, provided such person's actions were
determined in good faith to be in the best The Company's Restated Certificate of
interest of the Partnership and did not involve Incorporation and Bylaws provide for the
negligence or misconduct. indemnification of any director, officer, employee
or agent of the Company to the fullest extent
permitted by applicable law.
</TABLE>
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<TABLE>
<CAPTION>
UNITS COMMON STOCK
----- ------------
<S> <C>
FIDUCIARY DUTIES
Under Delaware law, and subject to the terms of Under the Delaware General Corporation Law, a
the 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
Partnership affairs. in a like position would use under similar
circumstances.
REMOVAL OF THE GENERAL PARTNER OF THE PARTNERSHIP
AND DIRECTORS OF THE COMPANY
The General Partner may be removed by an Delaware General Corporation Law provides that any
affirmative vote of Limited Partners holding a director or the entire Board of Director may be
majority of Units. In such event, Limited removed, with or without course, by the holders of
Partners holding all of the outstanding Units may a majority of the shares then entitled to vote at
designate a successor general partner or the an election of directors.
Partnership will be dissolved.
RIGHT TO CALL MEETINGS AND SUBMIT PROPOSALS
The Partnership Agreement provides that meetings The Company's charter documents, as permitted by
of the Partners may be called by Limited Partners the Delaware General Corporation Law, do not
holding more than 10% of the outstanding Units for authorize stockholders to request a meeting of the
any matter on which the Partners may vote provided Company. Stockholders may submit proposals for
that the Partnership receives certain opinions of consideration only at annual meetings and, in
counsel regarding the legality of the action, and addition to complying with federal securities laws
that the action would not affect either the and other laws, must deliver notice to the
Limited Partners' limited liability or the Secretary of the Company, or such notice must be
Partnership's tax status. Limited Partners mailed and received at the principal executive
holding a majority of the outstanding Units may offices of the Company, within 10 days following
propose, subject to certain limitations, the day on which notice of the date of the annual
amendments to the Partnership Agreement. 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.
LIQUIDATION RIGHTS
Upon liquidation of the Partnership, Limited In the event of a liquidation of the Company, the
Partners share in any assets available for holders of Common Stock are entitled to share
distribution in accordance with the applicable ratably in any assets of the Company remaining
provisions of the Partnership Agreement. The after creditors have been paid or provided for.
liquidation provisions generally provide that the The dissolution of the Company may be proposed
assets of the Partnership remaining after payment only by the Board of Directors of the Company by
of or providing for its debts and liabilities will adopting a resolution approving a proposal to
be distributed to the General Partner dissolve the Company and
</TABLE>
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<TABLE>
UNITS COMMON STOCK
----- ------------
<S> <C>
and the Limited Partners in accordance with their proposing such dissolution to the stockholders at
respective capital account balances. Limited a meeting of stockholders. The Company will be
Partners holding a majority of the outstanding dissolved if a majority of the outstanding shares
Units may, by written consent, determine to of Common Stock are voted for such proposal.
dissolve the Partnership.
LIMITS ON MANAGEMENT'S LIABILITY
The General Partner is generally liable to third The Company's Restated Certificate of
parties for all debts and obligations of the Incorporation, as permitted by the Delaware
Partnership. The Partnership Agreement provides General Corporate Law, eliminates the monetary
that the General Partner or its affiliates will liability of the Company's directors for a breach
not have any liability to the Partnership or the of their fiduciary duty as directors, except for
Limited Partners for any losses or liabilities, liability (i) for any breach of the director's
provided such person's actions are determined in duty of loyalty to the Company or its
good faith to be in the best interest of the stockholders, (ii) for acts or omissions not in
Partnership and do not involve negligence or good faith or that involve intentional misconduct
misconduct. or a 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.
APPRAISAL RIGHTS
Neither the Partnership Agreement nor the Delaware Under the Delaware General Corporation Law, a
Revised Uniform Limited Partnership Act provides holder of Common Stock who does not vote in favor
for rights similar to the appraisal rights of the of a merger or consolidation of the Company may,
Common stock under the Delaware General upon compliance with certain procedures, be
Corporation Law. entitled to 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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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> 84
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> 85
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
ASSETS 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> 86
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> 87
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE
ADDITIONAL PAID- TRANSLATION
COMMON STOCK IN 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> 88
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> 89
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.
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> 90
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> 91
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.
Most of the Company's carpet backing sales are with customers located
in Georgia. Net sales to one customer represented 18% of consolidated net
sales for all three fiscal years presented.
F-9
<PAGE> 92
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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>
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>
F-10
<PAGE> 93
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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 (9.0% and
9.25% at September 30, 1996) 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 (8.0938% at September 30, 1996).
F-11
<PAGE> 94
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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.
F-12
<PAGE> 95
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
11. INCOME TAXES
The provision (benefit) for income taxes is as follows:
<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>
F-13
<PAGE> 96
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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>
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 . . . . . . . . . . . . . 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.
F-14
<PAGE> 97
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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.
14. SUBSEQUENT EVENTS
On February 11, 1997, the Company issued $170,000 in aggregate
principal amount of 9 1/4% Senior Subordinated Notes due 2007 (the "Notes").
Most of the net proceeds from the Notes were utilized to repurchase
approximately $132,600 principal amount of the Company's 12 3/4% Senior
Subordinated Debentures due December 1, 2002 (the "Debentures") which were
tendered in accordance with a tender offer therefor that was commenced by the
Company on January 8, 1997. The Company will incur an extraordinary loss of
$11,590 or $1.47 per share upon such redemption.
F-15
<PAGE> 98
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
ASSETS 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> 99
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> 100
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> 101
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> 102
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>
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
F-20
<PAGE> 103
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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> 104
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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
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)
II-1
<PAGE> 105
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). (To be filed by amendment.)
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. (To be filed by amendment.)
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. (To be filed by amendment.)
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.)
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)
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)
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<PAGE> 106
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. Koevner 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)
10.31 Amendment No. 5 to the Fourth Amended and Restated Revolving Credit
and Security Agreement dated as of October 28, 1996.(14)
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<PAGE> 107
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.)
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 (included on signature page of this Registration
Statement).
99.1 Press release, dated June 9, 1997, with respect to the filing of
this Registration Statement.
- -------------------
(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.
II-4
<PAGE> 108
(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.
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.
II-5
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Chickamauga, State of Georgia, on the 9th day of June, 1997.
SYNTHETIC INDUSTRIES, INC.
By:/s/ LEONARD CHILL
-------------------------------------
Leonard Chill
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Leonard Chill and Joseph Sinicropi, and
each of them, as such person's true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission and any
other regulatory authority, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or either
of them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ LEONARD CHILL President, Chief Executive Officer and June 9, 1997
- -------------------------------------- Director (Principal Executive Officer)
Leonard Chill
/s/ JOSEPH SINICROPI Chief Financial Officer and Secretary June 9, 1997
- -------------------------------------- (Principal Financial Officer and
Joseph Sinicropi Principal Accounting Officer)
/s/ JOSEPH F. DANA Director June 9, 1997
- --------------------------------------
Joseph F. Dana
/s/ LEE J. SEIDLER Director June 9, 1997
- --------------------------------------
Lee J. Seidler
/s/ WILLIAM J. SHORTT Director June 9, 1997
- --------------------------------------
William J. Shortt
/s/ ROBERT L. VOIGHT Director June 9, 1997
- --------------------------------------
Robert L. Voigt
</TABLE>
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<PAGE> 110
EXHIBIT INDEX
23.2 Consent of Deloitte & Touche LLP.
99.1 Press release, dated June 9, 1997, with respect to the filing of
this Registration Statement.
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement 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
June 9, 1997
<PAGE> 1
EXHIBIT 99.1
CONTACT: Joseph Sinicropi
Chief Financial Officer
Synthetic Industries, Inc.
(706) 375-3121, Ext. 1400
June Filingeri, John Blackwell
Press Contact: Stan Froelich
Morgen-Walke Associates
(212) 850-5600
SYNTHETIC INDUSTRIES, INC. FILES REGISTRATION STATEMENT
FOR DISTRIBUTION OF SHARES OR CASH TO LIMITED PARTNERS OF
SYNTHETIC INDUSTRIES, L.P.
CHICKAMAUGA, GA, June 9, 1997 -- Synthetic Industries, Inc. (Nasdaq:SIND),
today announced that it has filed a registration statement with the Securities
and Exchange Commission relating to a distribution of shares of its existing
common stock held by Synthetic Industries, L.P., its majority shareholder. The
filing was made pursuant to a proposed plan of Synthetic Industries, L.P. to
provide liquidity for holders of its limited partnership units by offering
limited partners the opportunity to receive over time the shares of Synthetic
Industries, Inc. common stock that underlie their partnership units.
The preliminary plan filed with the SEC is subject to change and must
be approved by the limited partners. The plan would entitle limited partners
to receive some or all of the 5,781,250 existing shares of Synthetic
Industries, Inc. common stock currently held by the partnership. For those
limited partners who elect to receive cash in lieu of stock, their underlying
shares are planned to be sold in an underwritten secondary offering, which is
contemplated to occur prior to January 1998. For those who elect to receive
stock, unrestricted shares will be distributed in one or more distributions
commencing 270 days following the secondary offering.
<PAGE> 2
2
Leonard Chill, President and Chief Executive Officer of Synthetic
Industries, Inc., commented, "With this plan, we are delivering on our promise
to enhance liquidity for limited partners in our majority shareholder, while
increasing the public float for common shareholders in a non-dilutive manner."
Synthetic Industries, Inc. is the second largest manufacturer of
polypropylene fabrics and fibers in the world. The Company's diverse mix of
products are sold world-wide for such end uses as carpet backing, geotextiles,
erosion control, concrete reinforcement and furniture construction fabrics.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission but has not yet become effective.
These securities may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. This press release 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 any such state.
# # #
