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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required) for the fiscal year ended July 31,
1997
OR
/ / Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) for the transition period from
_____ to _____
Commission file number 34-11686
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2515864
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
65 Railroad Avenue, Ridgefield, New Jersey 07657
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 941-6550
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: N/A
The number of shares of common stock of the Registrant outstanding as of
November 13, 1997 was 8,319,833 of which 323,985 of such shares were held by
unaffiliated persons. The Company is not aware of the market value of the
unaffiliated shares.
DOCUMENTS INCORPORATED BY REFERENCE - None.
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PART I
Item 1. Business
Introduction
Plastic Specialties and Technologies, Inc. ("PST" or the "Company"), a
Delaware corporation, was formed in March 1984 by senior management to acquire
the assets of the plastic specialty sector of Dart & Kraft, Inc. ("Dart &
Kraft") in a leveraged buyout. PST was acquired by Ozite Corporation ("Ozite")
in 1990.
Ozite merged with PureTec Corporation ("PureTec"), formerly Pure Tech
International, Inc., at the close of business on July 31, 1995 (the "Merger").
As of July 31, 1997, PureTec, through its ownership of Ozite, owned
approximately 96% of the outstanding common stock of PST.
The Company discontinued the manufacturing of non-woven textile
products and sold the related assets of this segment effective January 31, 1996.
(See Note 15 to the Consolidated Financial Statements included in Item 8 to this
Form 10-K).
In September 1996, the Company acquired the recycling operations of
PureTec, comprised of certain fixed assets, raw materials inventory and certain
other assets for $4,400,000. The acquisition was accounted for at historical
cost in a manner similar to the pooling-of-interests method of accounting as it
was a transaction between entities under common control. As a result of the
acquisition, the recycling business constitutes approximately 7% of PST's
operations and product lines. (See Note 14 to the Consolidated Financial
Statements included in Item 8 to this Form 10-K).
As discussed in Note 16 to the Company's Financial Statements, on
November 11, 1997 PureTec entered into a Merger Agreement with Tekni-Plex, Inc.
("Tekni-Plex"). Subject to the approval of a majority of the shareholders at a
shareholders' meeting that PureTec will arrange, the Merger Agreement
contemplates Tekni-Plex (i) purchasing all of PureTec's outstanding Common Stock
for cash consideration of $3.50 per share, and (ii) assuming or refinancing all
of PureTec's debt. The Merger Agreement and the Acquisition have been
unanimously approved and recommended to PureTec shareholders for adoption by
PureTec's Board of Directors.
Description of Business
PST is a vertically integrated manufacturer of specialty plastic
products. Many of these products are leaders in their niche markets. PST is a
leading producer of garden hose, disposable medical tubing, and precision tubing
and gaskets. The Company also produces plastic materials that are used in
various specialized applications. For example, PST's Colorite Polymers group is
the worldwide leader in medical-grade vinyl compounds. The Company is also a
leader in plastic recycling, producing high-grade recycled polyethylene
terephthalate ("PET") for packaging and fiber applications.
The Company's operations consist of manufacturing categories, "Plastic
Products," with approximately 60% of total sales; and "Plastic Materials," with
approximately 40% of total sales. The Company's major product lines are listed
below, with the manufacturing division names in parentheses:
<TABLE>
<CAPTION>
Plastic Products Plastic Materials
---------------- -----------------
<S> <C>
Garden Hose (Colorite Plastics) Medical-grade Vinyl Compounds (Colorite Polymers)
Medical Tubing (Plastron) Vinyl Compounds (Cybertech Polymers)
Specialty Tubing & Gaskets (Action Technology; Recycled Plastics (Pure Tech Plastics)
American Gasket & Rubber)
</TABLE>
Each of these product lines has its own unique customer base,
competitive environment, cost and pricing
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structures, business cycles, and related business strategies, as described in
the following paragraphs.
Garden Hose
PST believes that its Colorite Plastics division is the leading
producer of garden hose in the United States, with more than 40% of the market.
There are two other principal competitors in the United States, and several
smaller companies having substantially smaller market shares. Founded in 1949 in
Garfield, New Jersey, Colorite Plastics now manufactures in six modern
facilities throughout the United States and Canada.
Garden hose products are sold primarily to home centers, hardware
cooperatives, food, automotive, drug and mass merchandising chains and catalog
companies throughout the United States and Canada. Approximately 88% of sales
are to Colorite Plastics' ten largest customers. The remaining sales are divided
among approximately 350 smaller customer accounts. Colorite Plastics' ten
largest customers include some of the fastest growing and most widely respected
retail chains in North America. Colorite Plastics' market strategy is to provide
a complete line of innovative, high-quality products along with superior
customer service. Innovations have included the patented Colorite(R) Evenflow(R)
design and the "drinking water safe" product lines.
Products are sold directly through Colorite Plastics' salespeople and
also through approximately 20 independent representatives. The division sells
both private label and brand-name products to the retail market. Advertising is
limited to trade journals and advertising allowances to retailers.
Colorite Plastics manufactures vinyl garden hose by the plastic
extrusion process. The primary raw materials are vinyl compounds and brass
couplings that are produced by the Company, and nylon reinforcement fiber that
is purchased from suppliers. The Colorite Plastics division typically sets
prices for its garden hose products in advance of each season and, to the extent
that raw material costs increase more than anticipated, the additional costs
cannot be passed on during that season.
The garden hose business is highly seasonal with approximately 75% of
sales occurring in the second half of the Company's fiscal year. As a result of
the need to build up inventories in anticipation of such second-half sales, the
Company's working capital requirements have historically peaked in the second
and third quarters of the Company's fiscal year. In addition, this seasonality
has a significant impact on the Company's net income from quarter to quarter.
Colorite Plastics historically operates the first two quarters of the fiscal
year at a loss.
In addition to its core garden hose business, Colorite Plastics has
launched new products, such as a new line of irrigation products for the
do-it-yourself markets. For example, in recent years the division has introduced
an irrigator "soaker hose," composed of 65% recycled rubber, and the
Auto-Moist(TM) line of drip irrigation and watering products. Colorite Plastics
also manufactures specialty hose products such as air hose. Colorite Plastics,
like other PST divisions, is also expanding to international markets. In 1996,
it began serving the Canadian market with a new facility in Mississauga,
Ontario.
Medical Tubing
The Company's Plastron division has been a leader in disposable medical
tubing for more than 40 years. Plastron's worldwide operation includes
strategically located plants in California, Georgia, and several production
lines at Action Technology Belgium that support sales to the medical industry.
These facilities include "clean room" extrusion operations. Plastron specializes
in high-quality, close tolerance tubing for various surgical procedures and
related medical applications. These applications include intravenous therapy,
hemodialysis therapy, cardio-vascular procedures such as coronary bypass
surgery, suction and aspiration products, and urinary drainage and catheter
products.
The Company believes that its Plastron division is a leading producer
of medical tubing, with approximately 25% of the worldwide, non-captive market.
There are four other principal competitors serving the medical tubing market.
Medical tubing is sold primarily to a small number of manufacturers of
medical devices. Approximately 50% of sales are to Plastron's five largest
customers. Products are sold directly through Plastron's salespeople.
Advertising
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is limited to trade journals and trade shows.
Plastron manufactures medical tubing by the plastic extrusion process.
The primary raw materials are proprietary vinyl compounds, which are produced by
Plastron and certain other plastic materials, which are purchased from a select
number of suppliers. Raw material price increases generally can be passed on to
customers after a delay of two or three months, although competitive pressures
sometimes prevent price increases.
Medical tubing is one of the Company's fastest growing product lines.
Continued growth is expected to come from general market expansion and expansion
in international markets, as well as the addition of new customers and new
products. New products include microbore tubing, silicone substitute
formulations, and trilayer tubing substitutes. For example, Plastron has
developed microbore tubing with extremely small internal diameters. This
microbore tubing can be used to regulate the delivery of critical intravenous
fluids without the need for more expensive drip control devices. Medical
professionals can precisely control the drug delivery speed simply by selecting
the proper diameter tube, thereby improving accuracy and reducing cost.
Specialty Tubing & Gaskets
PST's specialty tubing and gasket product line consists of (i) extruded
plastic tubing, sold primarily to manufacturers of aerosol valves, dispenser
pumps, and writing instruments; (ii) rubber and thermoplastic gaskets for the
aerosol and dispenser pump markets; and (iii) consumer products, chiefly
consisting of swimming pool and other corrugated hose. These products are
manufactured primarily by the Company's Action Technology ("Action") division,
which includes the American Gasket and Rubber Company ("AGR"), Plastron, and
Action - Europe.
Most of Action's products are manufactured by the plastic extrusion
process and are sold throughout the United States, Europe, and selected
worldwide markets. Action is the largest tubing extruder in North America.
Writing instrument products include pen barrels and ink tubing as well as ink
reservoirs for felt-tip pens. Action's sales to the dispenser industry are
comprised of dip tubes which transmit the contents of a dispenser can to the
nozzle, and plastic and rubber gaskets and seals used in the manufacture of
dispenser valves and pumps. These products are manufactured to very precise
tolerances, according to the specifications developed by Action and its
customers for specific applications. Other OEM (Original Equipment Manufacturer)
sales include corrugated hose to manufacturers of floor care products, and
various types of hoses and tubing for other industrial applications. Action also
manufactures consumer products which are primarily sold to retail merchandisers,
including swimming pool and spa hose.
Action's principal competitive pressure is the possibility of internal
production by its customers. The Company believes Action's products compete
successfully based on product quality, prompt delivery, technical service and
price. Action believes that its ability to produce high volumes of products to
exact specifications has been a key to its success in the marketplace and the
longevity of its customer relationships.
Each Action facility is strategically located to supply multi-national
customers on a timely basis. In the United States, Action maintains plants in
New Jersey and Illinois. AGR's facilities are in Illinois, and Action's Plastron
subsidiary operates in California and Georgia. Action's European plants, in
Belgium and Italy, serve the European, Asian, and African markets with products
similar to those manufactured in the United States.
Action's OEM sales are conducted by technically trained full-time
employees who coordinate marketing activities directly with the managers of each
plant. Action also uses independent representatives to sell its pool hose
products. In addition, Action manufactures and markets pool hose nationwide
under a joint agreement with Haviland Consumer Products. This agreement utilizes
the technology and marketing strengths of both companies in their effort to
build a leadership position in the market for pool hose.
The raw materials for all of Action's products (primarily polyethylene
and polypropylene) are purchased from a number of different suppliers. Some PVC
compounds are purchased by Action from other PST and PureTec divisions. The
Action division has generally been able to pass through increases in raw
material costs to its customers pursuant to multi-year contracts and other
agreements.
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Medical-grade Vinyl Compounds
The Company believes that its Colorite Polymers division is the world's
largest producer of high-quality vinyl compounds for use in the medical
industry. Medical-grade compounds are sold primarily under the "Unichem
Products" brand. These compounds are sold to leading manufacturers of medical
devices and equipment. They are also sold to producers of tubing and closures
for the food and beverage industry and used in a variety of food contact
applications.
The market for medical-grade vinyl compounds is highly specialized,
with two significant competitors. For more than 30 years, Colorite Polymers has
been supplying these specialized vinyl compounds for FDA-regulated applications.
The Company believes it competes effectively based on product quality and
performance and prompt delivery, and that price is a secondary consideration for
its customers. Colorite Polymers' chemists work closely with customers to
develop compounds that address their specific requirements. Through this custom
work, the Company has introduced a number of breakthroughs to the medical device
industry by developing formulations with unique physical characteristics. For
example, Colorite Polymers has recently developed a new family of flexible vinyl
compounds designed to replace silicone rubber in a variety of medical and
commercial applications.
Medical-grade compounds are produced in the Company's Ridgefield, New
Jersey; Sparks, Nevada; and Belfast, Northern Ireland facilities, which is in a
start-up phase. The Company sells these compounds in worldwide markets.
Approximately 25% of external sales are to Colorite Polymers' five largest
customers. Products are sold directly through the Company's salespeople.
Advertising is limited to trade journals and trade shows.
Colorite Polymers purchases raw materials for its compounding operation
(vinyl resins, plasticizers and stabilizers) from several sources. The Company
in the past has generally been able to pass on raw materials price increases for
Unichem Products on a relatively timely basis.
Vinyl Compounds
The Cybertech Polymers division produces a variety of specialized and
general purpose vinyl compounds. Approximately 70% of Cybertech Polymers'
outside sales are to manufacturers of wire and cable, with the remaining outside
sales going to the footwear, general purpose extrusion and molding markets.
Cybertech Polymers compounds are sold throughout the United States by an
internal sales force and eight independent representatives. Approximately 50% of
Cybertech Polymers' overall production is used internally by PST's Colorite
Plastics division in the manufacture of garden hose.
The markets for Cybertech Polymers vinyl compounds are highly
fragmented, and neither the Company nor any competitor has a controlling share.
The Company believes it competes effectively based on product quality,
performance and prompt delivery, and price.
Cybertech Polymers purchases raw materials from several sources and
also manufactures them internally. This division also recycles scrap vinyl.
Cybertech Polymers in the past generally has been able to pass on raw materials
price increases to customers on a relatively timely basis.
Recycled Plastics
PST believes that its Pure Tech Plastics division is the leading
supplier of high-quality recycled PET for reuse in bottle-grade and sheet
applications. The division has developed proprietary processes for cleaning,
sorting, and recycling post-consumer plastic bottles into clean PET flakes or
pellets. This technology has been optimized to produce extremely high quality
recycled PET, suitable for reuse in new bottles. The technology continues to be
refined by Company engineers, and has been licensed to other companies in a
number of countries, including Taiwan, South Korea, Canada, and Japan.
Raw materials used by the Pure Tech Plastics division consist mostly of
post-consumer soft drink bottles. This raw material is purchased from various
suppliers who obtain bottles in states with "deposit laws," or who conduct
curb-side pickup operations. Pure Tech Plastics competes with other recycling
facilities both to obtain materials for recycling and to sell recycled materials
to manufacturers. Competition for supplies of recyclable material is based upon
price and promptness of service in collecting or accepting material. Competition
for sales of recycled material is based on price
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and consistency of quality.
Prices for recycled PET have been volatile in recent years, causing
wide swings in the division's revenues and earnings. To reduce the impact of
this volatility, the Company has restructured its recycling operations and
linked supply contracts to the market price of recycled PET. This has resulted
in a more consistent spread between the cost of bottles and the price of
recycled PET, providing the Company with an opportunity to increase earnings by
reducing processing costs. This strategy is being followed with the planned
opening of a new state-of-the-art recycling facility in Huntington, West
Virginia in early 1998. The Huntington plant is expected to reduce processing
costs per pound.
Patents and Trademarks
The Company seeks to protect its proprietary know-how through the
application of patent and trademark laws. However, in the opinion of management,
none of its patents or trademarks is material to its operations.
Research and Development
The Company employs certain professionals who, along with other
responsibilities, are engaged in research relating to the development of new
products and to the improvement of existing products. The Company works closely
with certain clients to develop and improve certain products and product lines.
For the years ended July 31, 1997, 1996, and 1995, $635,000, $642,000 and
$877,000, respectively, were expended on research and development activities.
Employees
As of July 31, 1997, the Company employed approximately 1,750 full-time
employees, of which approximately 1,500 were employed in the United States and
the balance in Europe and Canada. Certain employees at facilities in Ridgefield
and Rockaway, New Jersey are represented by the International Brotherhood of
Teamsters, under contracts that expire August 1, 2000. These contracts were
successfully renegotiated in 1997. Certain employees in East Farmingdale, New
York are represented by the Waste Material Sorters, Trimmers & Handlers Union,
under a contract that expires on April 30, 1998. Approximately 43% of all
employees are members of unions including a majority of the European and
Canadian employees. The Company believes that employee relations at all of its
manufacturing facilities are good, and it has not experienced any work stoppage
since its formation.
Environmental Matters
As described in Item 3. Legal Proceedings, the Company is party to
environmental proceedings in the ordinary course of business, none of which
management believes are likely to have a material adverse effect on its
consolidated financial position or results of operations. Additionally, in
management's opinion none of these proceedings nor compliance with Federal,
state and local environmental laws and regulations are believed to require any
material estimated capital expenditures for environmental control facilities in
the foreseeable future.
Item 2. Properties
The Company believes that its facilities are suitable and have
sufficient productive capacity for its current and foreseeable operational and
administrative needs. Set forth below is a list and brief description of all of
the Company's offices and facilities, all of which are owned unless otherwise
indicated.
<TABLE>
<CAPTION>
Approximate
Location Function Square Feet
- -------- -------- -----------
<S> <C> <C>
Ridgefield, New Jersey (1) Corporate Headquarters 9,900
Tonawanda, New York (1) Manufactures brass couplings 31,000
Piscataway, New Jersey (3) Manufactures general purpose vinyl 150,000
compounds
Ridgefield, New Jersey Manufactures garden hose and 328,000
medical-grade vinyl compounds
</TABLE>
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<TABLE>
<S> <C> <C>
Ridgefield, New Jersey (3) Warehouse 70,000
Sparks, Nevada (3) Manufactures garden hose and 250,000
vinyl compounds
Waco, Texas Manufactures garden hose 104,600
McKenzie, Tennessee (2) Manufactures porous pipe 20,000
Mississauga, Ontario (4) Manufactures garden hose 150,000
City of Industry, Manufactures medical tubing 110,000
California (5) and other specialty tubing
Clinton, Illinois Manufactures dip tubes, 62,500
writing instrument products
and corrugated hose
Dalton, Georgia Manufactures medical tubing 40,000
and other specialty tubing
Erembodegem Manufactures medical tubing 88,200
(Aalst),Belgium and other specialty tubing
Milan (Gaggiano), Italy (6) Manufactures rubber compounds 15,000
Milan (Gaggiano), Italy Manufactures dispenser gaskets 25,800
and rubber injection-molded parts
Milan (Gaggiano), Italy (3) Manufactures specialty tubing
and related products 24,000
Rockaway, New Jersey Manufactures specialty tubing and
related products 98,600
Schiller Park, Illinois Manufactures rubber compounds 20,000
Schaumburg, Illinois (7) Manufactures dispenser gasket 58,000
Flint, Michigan (8) PET recycling plant (grinding only) 42,500
Howell, Michigan PET recycling plant (grinding only) 18,400
Livonia, Michigan (5) PET recycling plant 60,000
East Farmingdale, New York (1) PET recycling plant 49,000
Auburn, Maine (5) Plastics and aluminum baling operation 22,000
Lawrence Twp., New Jersey (10) PET recycling plant (inactive) 80,000
Belfast, Ireland (9) Manufactures medical compound 45,000
Huntington, West Virginia PET recycling plant Under construction
</TABLE>
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- ----------------------------
(Years relate to calendar years)
(1) Lease expires in 2001.
(2) Lease terms are on a month-to-month basis.
(3) Lease expires in 2002.
(4) Lease expires in 2005.
(5) Lease expires in 1999.
(6) Lease expires in 2000, with an option to renew for another six year
period.
(7) Lease expires in 2020.
(8) Lease expires in 1998.
(9) Lease expires February, 2017
(10) Lease expires June, 1998
- ----------------------------
Item 3. Legal Proceedings
The Company is party to certain litigation and environmental
proceedings in the ordinary course of business, none of which the Company
believes are likely to have a material adverse effect on its consolidated
financial position or results of operations. There can be no assurance as to the
ultimate outcome of these litigations or their possible impact on the Company.
On February 18, 1993, the Ware Chemical Co. ("Ware Chemical"), a former
PST subsidiary (now dormant) was served with a third party complaint in the
matter of United States v. Davis ("Davis"). In Davis, the United States has
alleged that certain private entities are liable, pursuant to the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA"), for cleanup
costs that have been incurred, and will be incurred in the future, with respect
to the remediation of the Davis Landfill site in Rhode Island. Ware Chemical was
owned by Dart Industries (now Kraft, Inc.) during the time in question (1975 -
1977), and Kraft has agreed to assume all responsibility.
In January 1993 and 1994, the Company's Belgian subsidiary received
income tax assessments aggregating approximately $1,979,000 (75,247,000 Belgian
Francs) for the disallowance of certain foreign tax credits and investment
losses claimed for the years ended July 31, 1990 and 1991. Additionally, in
January 1995, the subsidiary received an income tax assessment of approximately
$843,000 (32,083,000 Belgian Francs) for the year ended July 31, 1992. Although
the future outcome of these matters are uncertain, the Company believes that its
tax position was appropriate and that the assessments are without merit.
Therefore, the Company has appealed and has not paid or accrued for the
assessments. Based on the advice of legal counsel in Belgium, the Company
believes that the assessment appeals will be accepted by the tax authorities in
Belgium, although there can be no assurance whether or when such appeals will be
accepted.
In May 1992, PST and all of its directors (as of 1988), as well as K
and B Liquidating Corp. (a former subsidiary of PST which is being liquidated)
were named in two lawsuits filed in the Minnesota state courts. The plaintiffs
are Douglass Hutchinson (since deceased) and James Czaja, both of whom were
former employees of a former subsidiary of PST, Circuit Chemistry Manufacturing
Corp. ("Circuit Chemistry"). The suits alleged several causes of action, all of
which center upon a claim that PST and/or other defendants did not adequately
disclose sufficient information to the plaintiffs in connection with the
acquisition from the plaintiffs by PST of their 20% equity interest in Circuit
Chemistry, and the termination of their employment agreements. Subsequent to
July 31, 1997, the cases brought by Czaja and Hutchinson have been settled by
PST. Previously, management had expected these cases to be litigated, and
management had expected that PST would win these cases. During fiscal 1997, PST
filed for a summary judgement to dismiss all claims from Czaja and Hutchinson.
This summary judgement motion was denied by the court. In light of the growing
costs of litigation, and the remaining uncertainty of the outcome of a trial,
management elected to settle these cases. The impact of the settlement of these
cases is reflected in the Company's net loss from discontinued operations for
the year ended July 31, 1997, as PST had previously reported Circuit Chemistry
as a discontinued operation as of 1989. Total settlement payments to the
plaintiffs in connection with this settlement are $1,725,000 which are accrued
for at July 31, 1997.
In addition to the above, PST is also subject to certain obligations
pursuant to the New Jersey Environmental Cleanup Responsibility Act ("ECRA")
(which has been amended and renamed the "Industrial Site Recovery Act").
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Under ECRA, the "transferor" of an industrial establishment was required to
certify that no hazardous substances had been discharged or released at the
industrial establishment before a transfer could take place; otherwise, the
transferor is required to prepare a cleanup plan or enter into a consent
agreement with the NJDEPE to investigate and remediate releases of hazardous
substances pursuant to NJDEPE-approved procedures. Dart & Kraft assumed
responsibility for compliance with ECRA in connection with the 1984 sale of its
plastic sector to PST, and has completed all of its obligations, except for the
cleanup of Colorite's Ridgefield, New Jersey facility and possible clean up of
the Ware sites described above. Kraft has an approved cleanup plan for the
Colorite facility and final papers for a negative declaration clearing the site
from environmental liability have been received.
The Company's operations are subject to requirements imposed under
certain federal, state and local environmental and health and safety laws and
regulations, including the federal Clean Water Act, Clean Air Act, Resource
Conservation and Recovery Act ("RCRA"), CERCLA and OSHA and comparable state
laws, relating to waste water discharges, air emissions, solid waste management
and disposal practices, work place safety and real property use and ownership.
The Company believes that it is in substantial compliance with such laws and
regulations. No assurances can be given, however, that the Company will continue
to be able to secure, renew, and maintain compliance with the terms and
conditions of the required environmental permits and approvals, that other
environmental permits or approvals may not be required for the Company's
operations or that penalties will not be imposed by regulatory entities for any
failures to have secured all required environmental permits or approvals.
Further, there can be no assurances that more stringent statutory or regulatory
environmental or work place safety requirements will not be enacted or adopted
in the future which could have a material adverse effect on or materially
restrict the Company's operations or business.
In the current year, litigation relating to Ozite Manufacturing (which
was a subsidiary of PST) with MDC Wallcoverings and Ashley Alsip was settled.
(See Note 15 "Discontinued Operations").
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter ended July 31, 1997, there were no matters
submitted to a vote of security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Common Equity
As of July 31, 1997, approximately 96% of the common stock, par value
$.01 per share, of the Company was owned by PureTec Corporation, through its
ownership of Ozite. This ownership increased approximately 13% during 1997 as
the result of a private placement offer. There are no established public trading
markets for the common stock of the Company.
Dividend Restrictions
On November 8, 1993, PST issued $125,000,000 principal amount of
11-1/2% Senior Secured Notes due 2003 (the "Senior Secured Notes"). The terms of
the bond indenture governing the Senior Secured Notes limit the amount of
dividends that PST is permitted to pay up to the sum of 50% of the cumulative
consolidated net income since November 8, 1993, plus 100% of certain net
proceeds received by PST from the sale of capital stock, contributions to
capital and the aggregate net proceeds of any indebtedness converted into
capital stock. However, PST's ability to pay dividends is restricted by the
Restated Agreement with the CLC, described below. PST is, however, permitted
under the indenture to (i) declare and pay dividends of up to $6,000,000 on its
outstanding common stock from the proceeds received by it from the sale of the
Senior Secured Notes; (ii) distribute the $5,000,000 13-1/2% subordinated note
of Bagcraft Corporation of America ("Bagcraft") issued to PST and the 50,000
shares of 13-1/2% cumulative redeemable preferred stock of Bagcraft held of
record by PST (collectively, the "Bagcraft Investment"), or payments thereon or
proceeds therefrom, if any, received by PST, and (iii) distribute the 772,000
shares of Artra Group, Inc. ("Artra") which
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PST holds ("Artra Common Shares").
The Amended and Restated Senior Loan Agreement (the "Restated
Agreement") dated as of November 8, 1993 between PST and a Commercial Lending
Company ("CLC") further prohibits PST's payment of dividends or distribution in
respect of its common stock or its purchase or retirement of any shares of its
common stock except for (i) the distribution of the Bagcraft Investment, or
payments thereon or proceeds therefrom, if any, received by PST, (ii) the
payment of dividends of up to $6,000,000 from the proceeds received by PST from
the sale of the Senior Secured Notes, (iii) certain tax-sharing payments for
actual tax liabilities, and (iv) $300,000 per fiscal year to the extent required
to pay certain fees and expenses.
In connection with the Merger, on July 13, 1995 PST declared a dividend
of the 772,000 Artra Common Shares and 3,675 shares of BCA preferred stock to
all stockholders of record as of July 31, 1995. Based on this declaration,
638,444 shares of Artra common stock and 3,040.23 shares of BCA preferred stock
have been transferred to Ozite. The Company is in the process of transferring
133,556 shares of Artra common stock and 635.77 shares of BCA preferred stock to
minority stockholders that existed at the date of the declaration.
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Item 6. Selected Financial Data
(Dollars in thousands, except per share data)
The following table presents selected consolidated financial data of
the Company and its subsidiaries as of and for the years ended July 31, 1997,
1996, 1995, 1994 and 1993 and is derived from the Company's audited consolidated
financial statements. The Income Statement data for 1997 and 1996 has been
restated to include the recycling operations which was acquired in the current
year. Periods prior to 1996 have not been restated, as PST and the recycling
operations were not entities under common control during those periods. All
information contained herein should be read in conjunction with "Item 7.
Management's Discussion and Analysis of financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company included in
Item 8 to this Form 10-K.
<TABLE>
<CAPTION>
Year Ended July 31,
------------------------------------------------------------------
Income Statement Data (for the
fiscal year ended): 1997 1996 (6) 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales................................... $269,611 $286,220 $221,190 $190,524 $169,521
Income (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting change........................ 4,133 3,920 1,196 4,513 (6,950)
Discontinued operations, net of
income taxes(1).......................... (1,627) (2,126) (1,294) 92 (734)
Extraordinary item(2)....................... --- --- --- (4,275) ---
Cumulative effect of accounting
change(3)................................ --- --- --- 1,110 ---
---------- ---------- ---------- ---------- ----------
Net income(loss)............................ $ 2,506 $ 1,794 $ (98) $ 1,440 $ (7,684)
========== ========== ========== ========== ==========
Earnings per share data (4):
Income (loss) from continuing
operations............................... $ .50 $ .48 $ .14 $ .59 $ (1.00)
========== ========== ========== ========== ==========
Discontinued operations $ (.20) $ (.26) $ (.15) $ .01 $ (.11)
========== ========== ========== ========== ==========
Net income(loss)............................ $ .30 $ .22 $ (.01) $ .19 $ (1.11)
========== ========== ========== ========== ==========
Balance Sheet Data (as of end of
period):
Total assets................................ $218,545 $178,664 $182,292 $160,550 $141,531
Working capital............................. 31,613 35,327 26,567 26,981 8,326
Long-term debt (5).......................... 134,196 127,642 125,741 126,739 93,907
Cash dividends declared per
common share............................... $ --- $ --- $ --- $ 1.37 $ ---
</TABLE>
- ----------------------------
(1) The discontinued operations relate primarily to Ozite Manufacturing and
Circuit Chemistry (See Note 15 to the Consolidated Financial
Statements included in Item 8 to this Form 10-K).
(2) Extraordinary item, net of income taxes, represents a loss from the
early extinguishment of long-term debt.
(3) The cumulative effect of accounting change is a $1,110 gain on the
adoption of the Statement of Financial Accounting Standards No. 109
("SFAS No. 109") "Accounting for Income Taxes", which was adopted by
the Company effective August 1, 1993.
11
<PAGE>
(4) Income (loss) per common and common equivalent share is computed based
upon the weighted average number of common shares and common share
equivalents outstanding during the period. The calculation does not
give effect to the conversion of warrants to purchase common stock when
such securities have an antidilutive effect. All outstanding warrants
were converted into common stock or expired in the year ended July 31,
1994. The weighted average number of common shares and common
equivalent shares used in the calculation was 8,319,833 for the years
ended July 31, 1997, 1996 and 1995; 7,612,857 for the year ended July
31, 1994; and 6,918,784 for the year ended July 31, 1993.
(5) Excludes current maturities of long-term debt of $1,249, $1,360,
$1,271, $1,098, and $3,487 as of July 31, 1997, 1996, 1995, 1994, and
1993, respectively.
(6) Restated to reflect recycling operations
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in thousands, except per share data)
Results of Operations
The following table sets forth the percentages of net sales of the
Company represented by the components of income and expense for the fiscal years
ended July 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended July 31,
------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Net sales.............................................. 100% 100% 100%
Cost of goods sold..................................... (76.5) (77.8) (77.3)
Gross profit........................................... 23.5 22.2 22.7
Selling, general and administrative expenses........... (12.4) (11.5) (12.2)
Research and development............................... (0.2) (0.2) (0.4)
Write off of goodwill and obsolete facilities.......... -- -- --
Amortization of intangibles............................ (0.5) (0.5) (0.6)
----- ----- -----
Income from Operations................................. 10.4 10.0 9.5
Interest expense....................................... (6.4) (6.2) (7.7)
Debt issuance cost and discount amortization........... (0.4) (0.3) (0.3)
Foreign exchange gain.................................. 0.1 -- (0.1)
Other, net............................................. (0.2) (0.2) (0.1)
----- ----- -----
Income from continuing operations
before income taxes 3.5 3.3 1.3
Provision for income taxes............................. (2.0) (1.9) (0.8)
----- ----- -----
Income from continuing operations...................... 1.5 1.4 (0.5)
Discontinued operations................................ (0.6) (0.8) (0.5)
----- ----- -----
Net income............................................. 0.9% 0.6% (0.0)%
===== ===== ======
</TABLE>
Fiscal year ended July 31, 1997 vs. fiscal year ended July 31, 1996.
Net sales for the year ended July 31, 1997 ("fiscal 1997") were
$269,611, a decrease of $16,609 or 5.8% compared to the year ended July 31, 1996
("fiscal 1996"). Domestic plastic products sales decreased $3,269 or 2.1% from
$152,352 to $149,083 in 1997. This decrease represents volume shortfalls for
garden hose partially offset by increased volume of gaskets and medical and dip
tubing. Foreign plastic product's sales of $35,300 increased $1,142, or 3.3%.
This increase represents volume growth in both medical tubing and rubber and
plastic gaskets. Plastic materials had sales of $108,357, an increase of $6,670
or 6.6%. This increase represents volume growth in medical-grade compound, as
well as increased volume used internally by the plastic products segment.
Recycling sales were $18,665 which represents a decrease of $14,194 or 43%. This
decrease is a result of price decreases for recycled PET, which
12
<PAGE>
in recent years has been quite volatile.
Gross profit for fiscal 1997 was $63,268, a decrease of $400 (0.6%)
compared to $63,668 for fiscal 1996. Gross profit as a percentage of net sales
was 23.5% and 22.2% for 1997 and 1996, respectively. Domestic plastic products
has gross margins of $38,061 for fiscal 1997 a decrease of $846 or 2.2% compared
to 1996. This decrease is a result of volume shortfall for garden hose partially
offset by increased volume of gaskets and medical and dip tubing. Foreign
plastic products had gross margins of $11,501 an increase of $1,254 or 12.2%
compared to 1996. This is a result of increased volume and reduced operating
costs. Plastic materials has a gross margin of $12,210 which represents a
decrease of $431 or 3.4%. This decrease represents start-up costs associated
with Colorite Europe Limited, partially offset by volume growth in medical-grade
compounds. Recycling's gross margin of $1,528 represents a decrease of $206 or
12% compared to 1996. This is a direct result of price decreases for recycled
PET.
Selling, general and administrative expenses for fiscal 1997 were
$33,272, a $181 (3.5%) increase compared to fiscal 1996. As a percentage of net
sales, these expenses increased to 12.4% in fiscal 1997 from 11.5% in fiscal
1996. This increase is largely due to the start-up of Colorite Europe Limited in
Ireland and an increase in professional fees on a corporate basis which was
partially offset by reduced selling commissions for garden hose.
Operating income for fiscal 1997 and 1996 was $27,989 (10.4% of net
sales) and $28,524 (10.0% of net sales), respectively. Domestic plastic products
had operating income of $21,822 for fiscal 1997 which represents a $359 increase
or 1.7%. This increase is a result of increased volume of gaskets and medical
and dip tubing partially offset by reduced volume for garden hose. Foreign
plastic products had operating income of $8,276 for fiscal 1997 which is an
increase of $1,179 or 17% as compared to fiscal 1996. This increase is a result
of improved volume in both medical tubing and rubber and plastic gaskets.
Plastic material products had operating income of $4,350 for fiscal 1997, a
decrease of $1,806 or 29% compared to 1996. The decrease is a result of start-up
costs at Colorite Europe Limited partially offset by volume growth in
medical-grade compounds. Recycling's operating loss of $73 represents an
improvement of $805 from the fiscal 1996 loss of $878. This improvement is due
to the decrease in costs and the stability of PET prices during the second half
of fiscal 1997.
Interest expense for fiscal 1997 and 1996 was $17,152 and $17,739
respectively, which represents a $587 (3.3%) decrease. This decrease is a result
of more favorable borrowing rates obtained from the Company's primary lender.
The income tax provision for the year ended 1997 is comprised of a
$1,462 current federal tax provision, a $777 deferred federal tax provision, a
$2,975 foreign tax provision and a $150 current state tax provision. The income
tax provision for the year ended July 31, 1996 is comprised of a $2,933 deferred
federal tax provision, a $2,349 foreign tax provision and a $300 current state
tax provision. The income tax provision in fiscal 1996 differs from the income
tax provision calculated at the statutory rate primarily due to the difference
between the U.S. statutory rate and foreign income tax rates, amortization of
goodwill and losses not currently deductible.
The Company generated net income from continuing operations of $4,133
for fiscal 1997 compared to $3,920 in fiscal 1996. The decrease is primarily
attributed to lower net sales, resultant lower gross margins and higher selling,
general and administrative costs as a result of the start-up at Colorite Europe
Limited.
The Company sold its Ozite Manufacturing division (a subsidiary of PST)
in March of 1996. The Company recognized a loss on the sale of its Ozite
Manufacturing operations in fiscal 1997 and 1996. This loss amounted to $414 and
$1,479( net of a $258 and $762 tax benefit, respectively). The loss on disposal
in 1997 was due to settlement of litigation which were higher than originally
anticipated. Losses from these operations amounted to $647 in fiscal 1996 net of
an applicable income tax benefit of $332. In addition, in July 1997 the Company
settled a legal settlement in regard to Circuit Chemistry, a previously reported
discontinued operation. This settlement of $1,213 (net of a tax benefit of $775)
was included within discontinued operations for fiscal 1997.
Fiscal year ended July 31, 1996 vs. fiscal year ended July 31, 1995.
Net sales for the year ended July 31, 1996 ("fiscal 1996") were
$286,220 an increase of $65,030 or 29.4% compared to the year ended July 31,
1995 ("fiscal 1995").
13
<PAGE>
In the domestic plastic products segment, net sales for fiscal 1996
increased by $22,137 (17%) to $152,352 from $130,215 for fiscal 1995. The
majority of the increase was a result of increased sales volume in garden hose,
dip tubing and medical tubing, and certain price increases. Approximately 85% of
the increase in net sales for the domestic plastic product segment is
attributable to sales volume with the remainder due to price increases. The
domestic plastics segment accounted for 53% of the Company's gross sales for
fiscal 1996 compared to 52% for fiscal 1995.
In the European plastic products segment, net sales for fiscal 1996
increased by $2,163 (7%) to $34,158 from $31,995 for fiscal 1995. The increase
was the result of increased sales volume in gaskets and dip tubing and increased
sales volume in medical tubing and aggregate price increases of 2%. The effect
of currency fluctuations was negligible. The European plastic products segment
accounted for 12% of the Company's gross sales for fiscal 1996 compared to 13%
for fiscal 1995.
In the plastic materials segment, net sales for fiscal 1996 increased
by $13,022 (14%) to $101,687 from $88,665 for fiscal 1995. The majority of the
increase was a result of increased sales volume in PVC compound and certain
price increases. The increase in net external sales for the plastic material
segment is comprised of an increase in sales volume of approximately $5,000 and
price increases for the remainder. The plastic material segment accounted for
39% and 35% of the Company's gross sales for fiscal 1996 and 1995, respectively.
The plastic materials segment provides PVC compound to the domestic plastics
product segment. Transfers are made at raw material cost plus a value added
factor for labor and overhead. For fiscal year 1996, the plastic materials
segment transferred approximately $32,000. This was approximately 28% greater
than fiscal 1995 which was approximately $25,000. Recycling sales were $32,859
for 1996 which reflects the acquisition of the recycling operations in 1996 (See
Item 6).
Gross profit for fiscal 1996 was $63,668, an increase of $13,672 (27%)
compared to $49,996 for fiscal 1995. Gross profit as a percentage of net sales
decreased to 22.2% from 22.7% for the same periods. Timing differences in the
Company's ability to pass through higher raw material costs during fiscal 1995
positively affected gross profit in fiscal 1996 as raw material costs declined.
The Company's domestic operation were most positively affected by the raw
material price decreases in fiscal 1996.
Selling, general and administrative expenses for fiscal 1996 were
$33,091, a $6,418 (24.1%) increase compared to fiscal 1995. As a percentage of
net sales, these expenses remained constant at approximately 12% in fiscal 1996
and 1995. The increase in selling, general and administrative expenses was
primarily attributable to increased sales volume.
Operating income for fiscal 1996 and 1995 was $28,524 (10.0% of net
sales) and $21,082 (9.5% of net sales), respectively. This $7,442 (22%) increase
was primarily attributable to increased sales volume, lower raw material costs
and improved manufacturing efficiencies.
Operating income in the domestic plastic product segment increased
$6,417 (43%) for fiscal 1996 to $21,463 from $15,046 for fiscal 1995. Operating
income as a percentage of net sales within the domestic plastic product segment
increased to 14% for fiscal 1996 from 12% for fiscal 1995. The increase in
operating income was primarily attributable to increased sales volume, lower raw
material costs and improved manufacturing efficiencies.
Operating income in the European plastic product segment decreased
$1,276 (15%) for fiscal 1996 to $7,097 from $8,373 for fiscal 1995. The decrease
in operating income was primarily a result of decrease sales volume, and slight
increases in raw material costs, partially offset by an increase in prices.
Operating income in the domestic plastic material segment increased
$3,535 (135%) for fiscal 1996 to $6,156 from $2,621 for fiscal 1995. Operating
income as a percentage of net sales within the domestic plastic materials
segment increased to 6% for fiscal 1996 from 3% for fiscal 1995. The increase in
operating income was primarily attributable to increased sales volume and
increased manufacturing efficiencies partially offset by higher selling and
administration expenses. Recycling had an operating loss of $878 in fiscal 1996
reflecting the acquisition of the recycling operations in 1996 (See Item 6).
Interest expense for fiscal 1996 and 1995 was $17,739 and $17,033
respectively. This $706 (4.1%) increase was primarily attributable to increased
borrowing for European operations, partially offset by lower average short-term
borrowings.
14
<PAGE>
The income tax provision for the year ended July 31, 1996 is comprised
of a $2,933 deferred federal tax provision, a $2,349 foreign tax provision and a
$300 current state tax provision. For the year ended July 31, 1995 the tax
provision is comprised of a domestic federal and state benefit of $900 and a
foreign current and deferred tax provision of $2,707. The income tax provision
in fiscal 1996 differs from the income tax provision calculated at the statutory
rate due to the use of net operating loss carryforwards, the difference between
the U.S. statutory rate and foreign income tax rates, state income taxes,
amortization of goodwill and other non-deductible benefits. The income tax
provision in fiscal 1995 differs from the income tax provision calculated at the
statutory rate due to amortization of goodwill and other non-deductible benefits
and the difference between the U. S. statutory rate and foreign income tax
rates.
The Company generated net income from continuing operations of $3,920
for fiscal 1996 compared to $1,196 in fiscal 1995. The increase is primarily
attributed to increased sales volume.
The Company recognized a loss on the sale of its Ozite Manufacturing
operations in fiscal 1996. This loss amounted to $1,479 net of a $762 tax
benefit. Losses generated from these operations amounted to $647 and $1,294 in
fiscal 1996 and 1995, respectively, net of applicable income tax benefit of $332
and $440, respectively.
Liquidity and Capital Resources
General
The Company's primary capital requirements are for working capital
(principally inventory and accounts receivable) and to a lesser extent, capital
expenditures. The Company's sources of liquidity and capital resources
historically have been net cash provided by operating activities, funds
available from banks or other institutional lenders and public offerings of debt
securities. The Company believes that, based on current levels of operations and
anticipated growth, its cash flow from operations (together with other available
sources of liquidity, including borrowings under the Revolving Credit Facility)
will be adequate over the next several years to fund working capital
requirements, to permit anticipated capital expenditures, and to make required
payments of principal and interest on its debt.
The market for the Company's garden hose is seasonal, with sales
peaking in the spring and summer seasons. The Company started fiscal 1997 with
high levels of accounts receivable and inventory. With increased sales volume in
garden hose during the fourth quarter of fiscal year 1997 and the general growth
in the Company's other markets accounts receivable increased $7,093 from $42,291
at July 31, 1996 to $49,384 at July 31, 1997 and inventory increased also,
$14,856, from $32,992 at July 31, 1996 to $47,848 at July 31, 1997.
Cash and cash equivalents increased $362 for fiscal 1997, compared to a
$1,357 increase for fiscal 1996. The changes for these periods were attributable
to the factors discussed below.
For fiscal 1997, net cash used in operating activities was $9,090. The
Company funded its operating activities (including the buildup of inventory of
$15,609), disbursed $10,225 on capital expenditures and $4,400 for the plastic
recycling acquisition by borrowing $22,634 under its Revolving Credit Facility.
For fiscal 1996, net cash provided by operating activities was $18,311.
The Company used the $18,311 in cash generated from operating activities, along
with $1,337 in proceeds from the sale of equipment and $3,451 in proceeds from
new loans incurred by its foreign subsidiaries to (i) reduce its borrowing under
its Revolving Credit Facility by $12,356 (ii) reduce the aggregate foreign term
loan principal by $1,271 and (iii) incur $7,986 in capital expenditures.
Working capital was $31,613 as of July 31, 1997, a decrease of $3,714
as compared to $35,327 at July 31, 1996. This decrease was primarily the result
of a higher short term borrowings ($36,772 compared to $14,138) and other
current liabilities, offset by higher accounts receivable of $7,093 and higher
inventories ($47,848 as compared to $32,992).
Working capital was $35,327 as of July 31, 1996, an improvement of
$8,760 as compared to July 31, 1995. This increase was the result of higher
accounts receivable balance ($42,291 compared to $40,561), and lower outstanding
short term borrowings ($14,138 compared to $26,494), offset by lower inventory
balances ($32,992 compared to $41,026)
15
<PAGE>
Short-Term Borrowings
On December 30, 1992 PST, entered into a $50,000 Senior Loan Agreement
(the "Agreement") with a commercial lending company ("CLC"). Proceeds were used
to repay the borrowings outstanding under a prior loan and security agreement
with a bank. The Agreement contains covenants, the most restrictive of which are
maintenance of certain financial ratios, prohibition of the occurrence of
additional indebtedness, the payment of dividends, certain related party
transactions and limitations on capital expenditures. Borrowings under the
Agreement are secured by substantially all the domestic current assets of PST.
Additionally, the CLC has a security interest in PST's intangible assets, and
this security interest ranks pari passu with the security interest of the Senior
Secured Notes (see below) in PST's intangible assets. Revolving credit advances
under the Agreement are based on eligible receivables and inventory.
Effective January 31, 1997, PST amended this Agreement with the CLC
("Amended Agreement"), representing the fourth amendment to the Agreement. The
Amended Agreement provides, among other things, for revolving credit advances of
up to $50,000 through July 31, 2000 and letters of credit of up to $1,000. The
Amended Agreement provides for certain pricing performance adjustments based on
defined Performance Ratios. The Company will pay interest at a defined Index
Rate plus the Applicable Revolver Index Margin (ranging from 0.00% to 0.25%) or,
at the election of the Company, the LIBOR Rate plus the Applicable LIBOR Margin
(ranging from 2.50% to 3.00%). The Amended Agreement also provides that
outstanding revolving credit advances shall not exceed $20,000 for 30
consecutive days during the period from July 1 to September 30 for each year.
Furthermore, the Amended Agreement provides that domestic capital expenditures
are limited to $8,500, $9,000 and $9,500 in fiscal years ending 1997, 1998 and
1999 (and each fiscal year thereafter), respectively. The Company also has the
right to cancel the Agreement on 30 days' written notice and pay the CLC an
early termination fee of $175 if such cancellation occurs prior to January 31,
1998 and $100 if cancellation occurs on or after January 31, 1998 and prior to
September 30, 1998.
At July 31, 1997, the Company was not in compliance with certain of the
covenants of the Amended Agreement, including the requirement to reduce
borrowing to $20 million and the limitation on capital expenditures. The CLC has
provided a waiver of this non-compliance as of July 31, 1997. At July 31, 1997
and 1996, borrowings under the Amended Agreement with the CLC totaled $36,772
and $14,138, respectively. Amounts outstanding are classified as current
liabilities.
In addition, on January 31, 1997 the Company signed a Receivables
Agreement with the CLC that provides the Company with the ability to sell a 100%
ownership interest, without recourse, in certain Eligible Receivables generated
by PST. The aggregate invoice face amount of purchased receivables will not
exceed $12,000. The CLC's commitment to purchase said receivables from PST are
restricted to the period beginning each February 1 and ending on each May 31.
At July 31, 1997 and 1996, short-term borrowings include revolving
credit advances of $36,772 and $14,138, respectively, under the Amended
Agreement and $2,087 of factored receivables.
Debt Offering and Redemption
On November 8, 1993, PST issued $125,000 principal amount of 11-1/4%
Senior Secured Notes due in 2003. The Senior Secured Notes are senior secured
obligations of PST, ranking pari passu in right of payment with all existing and
future senior indebtedness of PST and senior to all subordinated indebtedness of
PST, if any. The Senior Secured Notes are secured by substantially all real
property, machinery, equipment, general intangibles and other intellectual
property now owned or hereafter acquired by PST and by a pledge of all
outstanding capital stock of Plastic Specialties and Technologies Investments,
Inc., a wholly-owned subsidiary of PST. The indenture for the Senior Secured
Notes contains covenants which restrict, among other matters, the ability of PST
and its subsidiaries to incur additional indebtedness, pay dividends (except as
defined in the indenture), redeem capital stock, prepay subordinated
indebtedness, create liens, dispose of certain assets, engage in sale and merger
transactions, make contributions, loans or advances and enter into transactions
with affiliates.
Concurrently with execution of the Merger Agreement, Tekni-Plex
purchased a Convertible Note issued by PureTec in the amount of $5 million. The
loan will assist PureTec and PST in meeting expected cash requirements in the
period prior to completion of the Merger. The Convertible Note bears interest at
13% and is convertible at any time following the 60th day after any termination
of the Agreement into a number of shares of PureTec Common Stock
16
<PAGE>
sufficient to retire the principal amount of the Note plus accrued interest or
in any event at a base conversion rate of one share of Common Stock per $2.72 of
obligations owed under the Note. PureTec is required to file a registration
statement with respect to the Common Stock issuable upon conversion promptly
following a termination of the Merger Agreement. The Convertible Note matures on
September 30, 1998. The Convertible Note is subject to prepayment by PureTec in
cash at any time, and contains covenants and events of default customary for a
debt instrument of this type.
Future Capital Expenditure and Commitments
The Company's businesses are relatively mature and as a result do not
require significant ongoing additions to plant and equipment, except for
expansion discussed below. The Company generally finances its ongoing capital
expenditure requirements from its cash flow provided from operations and
borrowings under its Revolving Credit Facility. Capital expenditures for fiscal
1997, 1996 and 1995 were $10,225, $7,986, and $7,251 respectively. In September
1996, the Company acquired certain assets of PureTec's recycling business for
$4,400.
Construction has been completed on a new plant in Northern Ireland for
the Company's Unichem division. For purposes of this new business venture, a new
subsidiary was formed, Colorite Europe Limited (a United Kingdom company). The
total capital costs for the Company in connection with this new Unichem plant
are approximately $6 million. The Company has received commitments for certain
grants, subsidies and other introducements from government authorities in
Northern Ireland. The Company has financed a large part of its capital costs of
this new plant by using cash reserves at Action Belgium N.V. and additional
borrowings from commercial banks. The plant is in the process of being qualified
by its vendors.
The Company is in the process of constructing a state-of-the-art
recycling facility in Huntington, West Virginia. The facility is expected to
open early in calendar 1998. The Company will invest approximately $8 million in
the facility, which will recycle PET containers, such as soft drink bottles and
food packaging. Management is still evaluating various financing alternatives
for this new facility.
In October 1997, the Company settled a lawsuit pertaining to Circuit
Chemistry, a discontinued operation. Total settlement payments were $1,725 and
have been paid out of the Company's working capital as of October 31, 1997.
Inflation
Generally, the Company's operations have benefited from relatively
stable or declining prices for raw materials. In fiscal 1997, the Company
benefited domestically from declining raw material costs. Foreign operations saw
raw material costs continued to rise until they stabilized during the second
quarter. Raw material costs have generally stabilized at this time. In the event
significant inflationary trends were to resume, management believes that the
Company will generally be able to offset the effects thereof through continuing
improvements in operating efficiencies and increasing prices, to the extent
permitted by competitive factors. However, there can be no assurance that all
such cost increases can be passed through to customers.
Subsequent Events
In October 1997, PST settled a lawsuit pertaining to Circuit Chemistry,
a discontinued operation (See Notes 15, 16 and 17(b) to the Consolidated
Financial Statements included in Item 8 to this Form 10-K).
On November 11, 1997, PureTec announced that ithad signed an Agreement
and Plan of Merger ("Agreement") with Tekni-Plex, Inc., (Tekni-Plex") a
privately -owned company, pursuant to which PureTec would, through a merger
("Merger") become a wholly-owned subsidiary of Tekni-Plex. The Agreement
provides that the owner of each share of common stock of PureTec would receive
$3.50 in cash for that share in the Merger. The Agreement and the Merger will be
submitted to the shareholders of PureTec for approval at PureTec's annual
shareholders' meeting expected to be held in January 1998. The Agreement and the
Merger have been unanimously approved, and recommended to PureTec shareholders
for adoption by PureTec's Board of Directors. Officers and directors of PureTec
17
<PAGE>
owning approximately 10% of the outstanding common stock of PureTec have agreed
to vote their shares in favor of the Merger.
The Agreement contains a number of conditions which must be satisfied
in order for the Merger to occur, including the successful completion of a
consent solicitation and tender offer for PST"s 11.25% Senior Secured Notes due
2003, the receipt of all necessary governmental and regulatory approvals, and
the absence of any changes occurring prior to the closing date which would have
a material adverse significance with respect to the value of PureTec and its
subsidiaries, taken as a whole.
The Agreement also requires that the outstanding minority common
shareholders' interest in PST be eliminated, either through purchase or a
short-form merger procedure under Delaware law, not later than immediately prior
to completion of the Merger, at a price of $7.00 per share of PST common stock.
The Merger is further subject to the receipt by Tekni-Plex of
sufficient financing to pay for PureTec shares, purchase the PST Notes tendered
in the tender offer, and fund all other cash requirements of the Merger.
Tekni-Plex has received commitments from Morgan Guaranty Trust Company of New
York to provide senior bank financing and subordinated bridge loans in an
aggregate amount which the parties believe will be sufficient to complete the
Merger, subject to a number of conditions.
The Agreement is terminable by Tekni-Plex , PureTec, or either of them
under certain circumstances. In the event the Agreement is terminated because
PureTec's Board of Directors withdraws or materially modifies its approval or
recommendation of the Merger or the Agreement or another person, entity or group
acquires beneficial ownership of 50% or more of the outstanding shares of
PureTec's Common Stock, the Company is obligated to pay a fee of $10 million to
Tekni-Plex and to reimburse Tekni-Plex for up to $5 million of its expenses in
connection with the Agreement and related transactions. PureTec expects the
Merger to be completed in February 1998, bur cannot assure that all of the
conditions to the Merger will be satisfied.
In connection with PureTec's acceptance of the Tekni-Plex Offer,
Tekni-Plex has also agreed to lend to PureTec Corporation $5,000, as discussed
above.
Item. 8 Financial Statements and Supplemental Data
Financial statements are included herein beginning with page F-1.
Supplementary data is not required to be presented.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
18
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Set forth below are the names, ages and positions of the current
directors and executive officers of PST.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Fred W. Broling 62 Chairman of the Board and Chief Operating Officer
David C. Katz 57 President and Director
Peter R. Harvey 62 Director
John J. Harvey 66 Director
Robert A. Calabrese 61 Director
Leo Gans 71 Vice President
Joseph T. Bruno 62 Vice President - Human Resources
Thomas V. Gilboy 43 Vice President and Treasurer
Paul Litwinczuk 44 Secretary
Gerard R. Giordano 47 Assistant Secretary and Vice President
Murray Fox 74 Vice President
</TABLE>
Mr. Broling has served as Chairman of the Board of PST since 1984.
Prior to such time, from 1981 to 1984, Mr. Broling served as the President of
the plastic specialty sector of Dart & Kraft.
Mr. Katz has served as President and Director of PST since August 1996.
Mr. Peter R. Harvey has served as Vice President of PST since 1987, a
Director of PST since June 1993. Mr. Harvey is the President, Chief Operating
Officer and a Director of Artra Group Incorporated ("Artra") (fashion jewelry,
flexible packaging and investments), since 1968; a Director of The Lori
Corporation (fashion jewelry and staffing business in telecommunications and
computers), since 1984. He has also served as Chief Executive Officer, from 1985
to 1993, President, from 1983 to 1985 and from 1988 to 1993, and chairman from
1895 to 1995 of SoftNet Systems, Inc. ("SoftNet").
Mr. John J. Harvey has served as a Director of PST since June 1993.
Chairman of the Board and Chief Executive Officer of Artra since 1968; and
Chairman of the Board of The Lori Corporation, since 1985. Peter R. Harvey and
John J. Harvey are brothers.
Mr. Calabrese has served as a Director of PST since June 1995. Mr.
Calabrese has been the President of R.C. Industries Inc. and Chief Executive
Officer of its Aetna Division (metal finishing) since 1970.
Mr. Gans has served as Vice President of PST since 1984 and was a
director of PST from 1989 until June 1993. He also served as President of the
Action Division since 1983, and, prior thereto, he was President of such
division when it was part of Dart & Kraft.
Mr. Bruno has served as Vice President - Human Resources of PST since
1986. Prior thereto, from 1979 to 1985, he served as a Director and Vice
President of Personnel for Wilson Fiberfil International, a division of Dart &
Kraft.
Mr. Gilboy has served as Vice President and Treasurer of PST since May
1996. Previously (from 1991 to 1996) Mr. Gilboy had been Vice President and
Chief Financial Officer of Troy Corporation, a specialty chemical company.
Mr. Litwinczuk has served as Secretary of PST since April, 1996.
Mr. Giordano has served as Assistant Secretary and Vice President of
Corporate Finance of PST since February 1997 and Vice President of Colorite
since 1989. Previously (from 1983 - 1989) Mr. Giordano had been Vice President
of Finance and Administration for Ingredient Technology, a division of Crompton
& Knowles Corporation.
19
<PAGE>
Mr. Fox has been a Director of PTIP since September 1991 and of the
Company since July 26, 1995. Mr. Fox also served as Secretary/Treasurer of PTIP
from September 1991 until July 1995. Mr. Fox was also Secretary/Treasurer of
REI Distributors, Inc. from 1981 until July 1995 and was a co-founder of that
company. Mr. Fox is also President of Recycling Enterprises, Inc., a company
engaged in glass recycling and fabrication of reprocessing equipment.
Compensation Committee Interlocks and
Insider Participation; Additional Information
Compensation of executive officers is determined by a committee
comprised of directors of PST and PureTec. Messrs. Fred Broling, Peter R.
Harvey and Werner Hasse (who currently serves as a director of PureTec)
presently serve on the compensation committee. See "Item 13. Certain
Relationships and Related Transactions."
Messrs. Broling, Peter R. Harvey and Werner Hasse recommend to the
Board of Directors compensation payable to executive officers of the Company.
Mr. Broling's compensation is based on the actual performance of the Company
compared to the operating plan. The committee considers the performance of the
Company, among other factors, in determining the compensation of other executive
officers; however, neither they nor the Board of Directors have adopted
compensation policies applicable to such other executive officers.
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and All Other
Principal Fiscal Compensation (1)
Position Year Salary Bonus (2) (I) (ii)
-------- ---- ------ --------- --- ----
<S> <C> <C> <C> <C> <C>
Fred W. Broling, 1997 $250,000 $250,000 $ 3,200 $ 1,992
Chairman and Chief 1996 259,216 125,000 3,018 1,992
Executive Officer 1995 263,446 250,000 9,240 1,992
David C. Katz, 1997 165,000 165,000 3,200 1,162
President and Director 1996 91,154 75,000 3,000 1,162
1995 -- 150,000 -- --
Thomas V. Gilboy 1997 176,000 176,000 3,200 1,992
Vice President, Treasurer 1996 31,067 40,000 -- --
1995 -- -- -- --
Leo Gans 1997 186,000 249,240 3,200 1,992
Vice President 1996 187,042 166,500 3,140 1,992
President - Action 1995 186,582 236,000 7,995 1,992
Technologies Division
Robert E. Brookman, Ph.D. 1997 197,000 73,100 3,200 1,992
President - Colorite Polymers 1996 191,582 49,454 3,000 1,992
Division 1995 190,703 99,000 3,000 1,992
</TABLE>
(1) The amounts in this column represent (i) contributions made by the
Company to the Savings Plan for Employees of Plastic Specialties and
Technologies, Inc. and Affiliates and (ii) the amount of premiums paid
by the Company for life insurance policies for the benefit of the named
executive officers.
(2) Previously, bonus information was reported in the year paid. In the
current year, information has been changed to reflect amounts awarded
for the fiscal year.
20
<PAGE>
Director's Compensation
Robert Calabrese receives a fee of $10,000 for serving as a director.
All other directors of the Company receive no compensation for serving as
directors.
Compensation Pursuant to PST Pension Plan
Pensions for salaried personnel of PST are provided through the Plastic
Specialties and Technologies, Inc. And Affiliates Pension Plan, effective as of
May 10, 1984 and amended January 1, 1988 (the "PST Pension Plan"). The following
table illustrates the amount of the annual pension benefit payable under the PST
Pension Plan to a person in the specified average salary and year-of-service
classifications:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of service
-----------------------------------------------------------------------------
Remuneration 15 20 25 30 35
- ------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$100,000 $15,000 $20,000 $25,000 $30,000 $35,000
125,000 18,750 25,000 31,250 37,500 43,750
150,000 or more 22,500 30,000 37,500 45,000 52,500
</TABLE>
For purposes of the PST Pension Plan, compensation is defined as the
total wages, salaries, commissions, bonuses, overtime and special awards paid
during the year. All cash compensation reported in the Summary Compensation
Table under the columns "Salary" and "Bonus" is included in compensation under
the PST Pension Plan (subject to the dollar limitation shown in the Pension Plan
Table), for each officer listed.
The estimated number of credited years of service of each of the
executive officers listed in the Summary Compensation Table is as follows: Fred
W. Broling, 21 years; David C. Katz, 2 years; Leo Gans, 15 years; and Joseph T.
Bruno, 18 years.
The PST Pension Plan provides a monthly benefit payable for life,
beginning at age 65, equal to one-twelfth of one percent of the total
compensation received during the period the employee participated in the PST
Pension Plan. None of the PST pension benefits are subject to any deduction for
Social Security or other offset amounts.
Stock Options
The Company, as a subsidiary of PureTec, participates in the stock
option plan of Puretec. PureTec has adopted a stock option plan (the "1995
Plan") covering 5,000,000 shares of PureTec common stock, par value $.01,
pursuant to which officers, directors, employees and consultants are eligible to
receive options. The options issued under this plan may be ISOs or non-statutory
options. No options may be granted after December 31, 2002. Each option granted
under the 1995 Plan may be exercised for a period of not more than ten years
after the date of grant, or until the expiration of the plan, whichever occurs
first. The option price must not be less than fair market value for ISOs and 85%
of fair market value for non-statutory options.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of July 31, 1997, Ozite, a wholly-owned subsidiary of PureTec, owned
approximately 96% of the outstanding common stock of PST. The remaining 4% of
the outstanding common stock was owned by non-affiliates.
No other person or group is known to be the beneficial owner of more
than five percent of any class of the registrant's voting securities.
21
<PAGE>
Item 13. Certain Relationships and Related Transactions
Transaction with Related Companies
In September, 1996, the Company acquired the recycling operations of
PureTec, comprised of certain fixed assets, raw materials inventory and certain
other assets of PureTech Plastics, Inc. and subsidiaries ("PTP") for $4,400. The
acquisition was accounted for at historical cost in a manner similar to the
pooling-of-interests method of accounting as it is a transaction between
entities under common control. The $1,769 difference between PTP's carrying
value of such assets and the consideration paid was treated as a contribution of
capital to PST by PureTec. The consolidated statements of operations have been
restated to present the acquisition as if it had occurred at the beginning of
the earliest period presented. The 1996 balance sheet has not been restated as
the total assets of the recycling operations were only 3% of the total assets of
PST at the acquisition date.
PST held 772,000 shares of common stock of Artra (the "Artra Common
Shares"), which was accounted for on the equity method. Through the Company's
recording of its share of the net losses of Artra and other related items, the
carrying value of the investment in the Artra Common Shares had been reduced to
zero in the 1993 fiscal year.
Peter R. Harvey and John Harvey are the controlling stockholders of
Artra. In addition, Peter R. Harvey is a director and the President and Chief
Operating Officer of Artra, and John Harvey is a director and the Chairman of
the Board and Chief Executive Officer of Artra.
The Company acquired from Bagcraft a $5,000,000 subordinated note
bearing interest at a rate of 13-1/2% per annum and 50,000 shares of 13-1/2%
cumulative redeemable preferred stock with a liquidation preference of
$5,000,000 in Bagcraft for $10,000,000 in 1987. Bagcraft is a wholly-owned
subsidiary of BCA and BCA is wholly-owned subsidiary of Artra. In March 1993,
the Company received 675 shares of BCA Preferred Stock having a liquidation
preference equal to the amount of interest due for the period from December 1,
1991 to November 30, 1992 ($675 in the aggregate) in lieu of receipt of payment
of interest from Bagcraft for such period.
In connection with the Merger, on July 31, 1995, PST declared a
dividend of the 772,000 Artra Common Shares and 3,675 shares of BCA preferred
stock to all stockholders of record as of July 31, 1995. Based on this
declaration, 638,444 shares of Artra common stock and 3,039.23 shares of BCA
Class A preferred stock have been transferred to Ozite. The Company is in the
process of transferring 133,556 shares of Artra common stock and 635.77 shares
of BCA preferred stock to minority stockholders that existed at the date of the
declaration.
In December 1993, PST received from Bagcraft 3,000 shares of BCA
preferred stock as payment in full for unpaid interest due from Bagcraft.
Certain Other Indebtedness
PST is due $1,089,000 from Ozite relating to a tax sharing agreement.
The Company has fully reserved this receivable from Ozite due to Ozite's
inability to settle this obligation. See Note 5c to the Consolidated Financial
Statements included in Item 8 to this Form 10-K.
Indebtedness of Management to the Company
During fiscal 1997, Mr. Broling was indebted to the Company in an
amount of $252,000 consisting of principal and interest outstanding on a demand
note dated June 15, 1988, bearing interest at 75% of the prime rate, not to
exceed 10%. Such indebtedness was incurred by Mr. Broling to finance the
purchase of common and preferred stock of the predecessor of Ozite. At October
31, 1997, the outstanding indebtedness was $252,000.
During fiscal 1996, Mr. Brennan, the former Vice President, Chief
Financial Officer and a Director, was indebted to the Company in an amount of
$150,800 consisting of principal and interest outstanding on; (i) a demand note
dated June 15, 1988, bearing interest at 75% of the prime rate, not to exceed
10%; and (ii) a non-interest bearing demand note dated August 20, 1990. Such
indebtedness was incurred by Mr. Brennan to finance the purchase of common and
preferred stock of the predecessor of Ozite and to finance unreimbursed moving
expenses incurred moving to Illinois
22
<PAGE>
at the Company's request, respectively. As of October 31, 1997 such amounts were
outstanding.
During fiscal 1997, Mr. Peter R. Harvey was indebted to the Company in
an amount of $717,000 consisting of principal and interest outstanding on a
demand note dated May 20, 1988, bearing interest at the prime rate on the last
day of each fiscal year. Such indebtedness was a personal loan to Mr. Harvey.
As a potential offset to this indebtedness, Mr. Broling and Mr. Harvey
have notes payable to them by the Company in the amounts of $750,000 and
$1,039,687 respectively. These notes are a result of the 1995 merger of Pure
Tech International and Ozite, and were partial payment Ozite Preferred Stock.
The notes payable to Messrs. Broling and Harvey are non-interest bearing for the
first four years.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a)(1) Financial Statements - See Index to Financial Statements and Schedules on
page F-1.
(a)(2) Financial Statement Schedule - Schedule II - Valuation and Qualifying
Accounts
(a)(3) List of Exhibits
Index To Exhibits
Number Exhibit
2.1 Agreement and Plan of Merger dated as of November 11, 1997 among
PureTec Corporation, Plastic Specialties & Technologies, Inc.
Tekni-Plex, Inc. and P.T. Holding, Inc.
3.1 Restated Certificate of Incorporation of Plastic Specialties and
Technologies, Inc. ("PST") dated June 1, 1987, as amended;
incorporated by reference to Exhibit 3.1 to Amendment No. 1 to
Registration Statement on Form S-1 (No. 33-66338).
3.2 Certificate of Ownership and Merger of PST Holdings, Inc. into PST.
3.3 By-laws of PST; incorporated by reference to Exhibit 3.8 to
Registration Statement on Form S-1 (No. 33-11686).
4.1 Form of Specimen Senior Secured Note (including in page A-1 of
Exhibit 4.10 to Amendment No. 2 to Registration Statement on Form S-1
(No. 33-11686).
10.1 Lease, dated June 1989, between Richard C. Lauer and Roy I. Anderson,
as lessor, and PST, as lessee, re: 19555 East Arenth Avenue, City of
Industry, California, incorporated by reference to Exhibit 28.1 to
Form 10-Q of the Registrants for the fiscal quarter ended October
31, 1992.
10.2 Lease, dated September 23, 1991, between E.T. Hermann and Jane D.
Herman 1978 Living Trust, as lessor, and the Colorite Plastics
Division of PST, as lessee, re: 909 East Glendale Avenue, Sparks,
Nevada, incorporated by reference to Exhibit 28.1 to Form 10-Q of the
Registrants for the fiscal quarter ended October 31, 1997.
10.3 Lease, dated January 1, 1993, between OHR Realty Corporation, as
lessor, and PST, as lessee, re: Piscataway, New Jersey; incorporated
by reference to Exhibit 28.1 to Form 10-Q of the Registrants for the
fiscal quarter ended October, 1992.
10.5 Lease, dated April 24, 1972, between Pacific Western Warehouse, Inc.
and Dart Industries, Inc. (assigned by Dart Industries, Inc. To PST);
incorporated by reference to Exhibit 10.8 to the Registration
Statement on Form S-1 (No. 33-11686).
10.6 Lease, dated May 24, 1994 between LaSalle National Trust, N.A. as
Trustee under Trust Agreement dated May 16, 1994 and Known as Trust
Number 118722, as Lessor and American Gasket and Rubber Company (a
division of PST's Action Technology Subsidiary), as lessee, re:
Schaumburg, Illinois.
10.7 Plastic Specialties and Technologies, Inc. And Affiliates Pension
Plan, Amended and Restated Effective as of January 1, 1985;
incorporated by reference to Exhibit 10.18 to Registration Statement
on Form S-1 (No. 33-11686).
23
<PAGE>
10.8 Senior Loan Agreement dated as of December 30, 1992 between PST, as
borrower, General Electric Capital Corporation, as agent and lender,
and certain participating lenders (the "GECC Senior Loan Agreement");
incorporated by reference to Exhibit 10.24 to Annual Report on Form
10-K of the Registrants for the fiscal year ended July 31, 1992.
10.9 Amendment No. 2 dated July 7, 1993 to the GECC Senior Loan Agreement;
incorporated by reference to Exhibit 10.9 to Registration Statement
on Form S-1 (No. 33-66338).
10.10 Amendment No. 3 dated October 8, 1993 to the GECC Senior Loan
Agreement; incorporated by reference to Exhibit 10.10 to Amendment
No. 1 to Registration Statement on Form S-1 (No. 33-66338).
10.11 Amendment No. 4 dated January 31, 1997 to the GECC Senior Loan
Agreement; incorporated by reference to Exhibit 10.11 to Amendment
No. 1 to Registration Statement on Form S-1 (No. 33-66338).
21 List of subsidiaries of PST
27 Financial Data Schedule
(b) None
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC.
By: /s/ Thomas V. Gilbey
------------------------------------
Thomas V. Gilboy
Chief Financial Officer and Vice President
Dated: November 13, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
Registrant and in the capacities indicated.
<TABLE>
<S> <C> <C>
/s/ Fred W. Broling
- --------------------- Chairman of the Board and November 13, 1997
Fred W. Broling Chief Executive Officer
/s/ David C. Katz
- ------------------- Director, President and Chief November 13, 1997
David C. Katz Operating Officer
/s/ Robert A. Calabrese
- -----------------------
Robert A. Calabrese Director November 13, 1997
/s/ John J. Harvey
- --------------------
John J. Harvey Director November 13, 1997
/s/ Peter R. Harvey
- ----------------------
Peter R. Harvey Director November 13, 1997
</TABLE>
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of July 31, 1997 and 1996 F-3
Consolidated Statements of Operations
for the years ended July 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Deficit
for the years ended July 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows
for the years ended July 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7 - F-23
Schedule II - Valuation and qualifying accounts F-24
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Board of Directors and Stockholders of
Plastic Specialties and Technologies, Inc.
Ridgefield, New Jersey
We have audited the accompanying consolidated balance sheets of Plastic
Specialties and Technologies, Inc. (the "Company") as of July 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' deficit,
and cash flows for each of the three years in the period ended July 31, 1997.
Our audits also included the consolidated financial statement schedule listed in
the index to the consolidated financial statements. These financial statements
and the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of July 31, 1997 and
1996 and the results of its operations and its cash flows for each of the three
years in the period ended July 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
November 13, 1997
F-2
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
July 31, July 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $6,460 $6,098
Accounts receivable, less allowance of $1,454 and $1,280
as of July 31, 1997 and 1996, respectively........... 49,384 42,291
Inventories ............................................. 47,848 32,992
Prepaid expenses and other current assets ............... 3,653 2,591
Deferred income taxes.................................... 1,394 544
-------- --------
TOTAL CURRENT ASSETS ........................................ 108,739 84,516
PROPERTY, PLANT AND EQUIPMENT, net .......................... 57,820 45,608
GOODWILL, net ............................................... 40,558 41,921
DUE FROM PARENT, net ........................................ 4,581 --
OTHER ASSETS, net ........................................... 6,444 6,231
NOTES AND INTEREST RECEIVABLE FROM OFFICERS ................. 403 388
-------- --------
TOTAL ASSETS ................................................ $218,545 $178,664
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short term borrowings .................................. $36,772 $14,138
Accounts payable ........................................ 21,370 20,432
Accrued expenses ....................................... 14,946 10,697
Accrued interest ........................................ 2,789 2,562
Current portion of long-term debt ...................... 1,249 1,360
-------- --------
TOTAL CURRENT LIABILITIES .................................. 77,126 49,189
-------- --------
OTHER LONG-TERM LIABILITIES ................................ 4,175 2,862
PENSION LIABILITIES.......................................... 567 571
DEFERRED INCOME TAXES ...................................... 4,777 3,663
LONG-TERM DEBT ............................................. 134,196 127,642
-------- --------
TOTAL LIABILITIES .......................................... 220,841 183,927
COMMITMENTS AND CONTINGENCIES (See Notes 7, 9, 16 and 17)
STOCKHOLDERS' DEFICIT:
Common stock, par value $.01; 10,000,000 shares authorized;
8,319,833 shares issued and outstanding, at July 31,
1997, 1996 and 1995.................................. 83 83
Additional paid-in capital .............................. 16,438 13,812
Accumulated deficit ..................................... (12,748) (15,254)
Receivable from majority stockholder-Ozite Corporation ... (2,892) (3,853)
Receivable from officer, including accrued interest ...... (717) (717)
Cumulative foreign currency translation adjustment ....... (2,460) 666
-------- --------
NET STOCKHOLDERS' DEFICIT ................................ (2,296) (5,263)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT .................. $218,545 $178,664
======== ========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
July 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES 269,611 $ 286,220 $ 221,190
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of goods sold 206,343 222,552 171,194
Selling, general and administrative 33,272 33,091 26,673
Research and development 635 642 872
Amortization of intangible assets 1,372 1,411 1,369
----------- ----------- -----------
241,622 257,696 200,108
----------- ----------- -----------
INCOME FROM OPERATIONS 27,989 28,524 21,082
----------- ----------- -----------
OTHER EXPENSE (INCOME):
Interest expense 17,152 17,739 17,033
Debt issuance cost and discount amortization 988 783 785
Foreign exchange (gain) loss (189) 59 116
Other, net 541 441 145
----------- ----------- -----------
18,492 19,022 18,079
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 9,497 9,502 3,003
Provision for income taxes 5,364 5,582 1,807
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS 4,133 3,920 1,196
----------- ----------- -----------
DISCONTINUED OPERATIONS:
Loss from disposal of discontinued operations (net of
tax benefit of $1,033 and $762 in 1997 and 1996, respectively) (1,627) (1,479) --
Loss from discontinued operations (net of tax benefit
of $332 and $440 in 1996 and 1995, respectively) 0 (647) (1,294)
----------- ----------- -----------
(1,627) (2,126) (1,294)
----------- ----------- -----------
NET INCOME (LOSS) 2,506 $ 1,794 ($ 98)
=========== =========== ===========
INCOME (LOSS) PER COMMON SHARE:
Income from continuing operations $ 0.50 $ 0.48 $ 0.14
Loss from discontinued operations (0.20) (0.26) (0.15)
----------- ----------- -----------
Net income (loss) per common share $ 0.30 $ 0.22 ($ 0.01)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,319,833 8,319,833 8,319,833
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Dollars in thousands)
<TABLE>
<CAPTION>
Receivable
from Cumulative
Officer, Foreign
Additional Receivable Including Minimum Currency
Common Paid-In Accumulated from Majority Accrued Pension Translation
Stock Capital Deficit Stockholder Interest Liability Adjustment
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1994 $ 83 $ 12,107 $(16,950) $( 3,553) $( 717) $ -- $ 153
Net loss -- -- (98) -- -- -- --
Foreign currency translation
adjustment -- -- -- -- -- -- 781
Minimum pension liability -- -- -- -- -- (250) --
Increase in receivable from
majority stockholder -- -- -- (300) -- -- --
-------------------------------------------------------------------------------------
BALANCE, JULY 31, 1995 $ 83 $ 12,107 $(17,048) $( 3,853) $( 717) $( 250) $ 934
Loss from recycling operations -- 1,705 -- -- -- -- --
Net Income -- -- 1,794 -- -- -- --
Foreign currency translation
adjustment -- -- -- -- -- -- (268)
Minimum pension liability -- -- -- -- -- 250 --
-------------------------------------------------------------------------------------
BALANCE, JULY 31, 1996 $ 83 $ 13,812 $(15,254) $( 3,853) $( 717) $ -- $ 666
Loss from recycling operations -- 857 -- -- -- -- --
Net Income -- -- 2,506 -- -- -- --
Foreign currency translation
adjustment -- -- -- -- -- -- (3,126)
Current income tax payable -- -- -- 961 -- -- --
Contribution of capital to PST
by PureTec -- 1,769 -- -- -- -- --
-------------------------------------------------------------------------------------
BALANCE, JULY 31, 1997 $ 83 $ 16,438 $(12,748) $( 2,892) $( 717) $ -- $( 2,460)
======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to financial statements
F-5
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended
July 31,
----------------------------------
1997 1996 1995
-------- ---------- -----------
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations 4,133 $ 3,920 $ 1,196
Adjustment for Recycling acquisition 857 1,705 --
-------- -------- --------
Income net of acquisition adjustment 4,990 5,625 1,196
Adjustment to reconcile net income to net cash used in
operating activities from continuing operations:
Amortization 2,351 2,194 2,148
Depreciation 6,149 5,470 5,134
Deferred income taxes 558 1,919 455
(Gain) loss on the sale of fixed assets (17) 605 --
Provision for losses on accounts receivable
and other reserves 182 833 1,081
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (10,773) (2,783) (2,535)
Accounts receivable factored 2,087 -- --
Inventories (15,500) 7,860 (15,411)
Prepaid expenses and other current assets (1,082) (458) (801)
Other assets (6,051) (1,090) (25)
Notes and interest receivable from officers (15) (14) (15)
Increase (decrease) in liabilities:
Accounts payable, other current liabilities,
accrued interest, current deferred taxes and
current portion of long-term debt 7,163 (806) (37)
Other long-term liabilities 2,495 1,082 166
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
-------- -------- --------
FROM CONTINUING OPERATIONS (7,463) 20,437 (8,644)
-------- -------- --------
Loss from discontinued operations (1,627) (2,126) (1,294)
NET CASH USED IN OPERATING ACTIVITIES
-------- -------- --------
FROM DISCONTINUED OPERATIONS (1,627) (2,126) (1,294)
-------- -------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (9,090) 18,311 (9,938)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,225) (7,986) (7,251)
Acquisition of Recycling operations (4,400) -- --
Proceeds from sale of property and equipment 27 1,337 --
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (14,598) (6,649) (7,251)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing (repayments) under revolving credit
facility and short-term borrowing, net 22,634 (12,356) 19,478
Proceeds from long-term debt 4,141 -- --
Repayments from long-term debt (1,360) -- --
(Repayment of) borrowings of term loans -- 3,451 --
Proceeds of term loans -- (1,271) (1,185)
Advances to majority stockholders- Ozite Corporation -- -- (300)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 25,415 (10,176) 17,993
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,365) (129) (360)
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 362 1,357 444
CASH AND CASH EQUIVALENTS, beginning of the period 6,098 4,741 4,297
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $ 6,460 $ 6,098 $ 4,741
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 16,925 $ 17,369 $ 17,068
======== ======== ========
Income taxes $ 4,543 $ 3,108 $ 1,442
======== ======== ========
Non-cash financing transaction:
Changes in minimum pension liability $ -- $ 250 $( 250)
Capital contributed by PureTec related to recycling acquisition 1,769 -- --
Capitalized lease Colorite Europe Limited premises 3,784 -- --
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. ORGANIZATION
Plastic Specialties and Technologies Inc.'s ("PST" or the "Company")
principal businesses are the manufacturing of garden hose, specialty plastic
compounds and fabricated precision plastic components for niche consumer and
industrial markets, and the recycling of plastics. PST services its markets
through its network of 20 manufacturing facilities, located in key points
throughout the United States, with three locations in Europe and one in Canada.
The Company was formed in 1984 by its senior management to acquire the
plastic specialty sector of Dart & Kraft through a leveraged buy out. PST
Holdings, Inc. ("Holdings") was incorporated in March 1987 as a wholly-owned
subsidiary of Sage Group, Inc. ("Sage") for the purpose of acquiring PST. On
August 24, 1990, Sage was merged with and into Ozite Corporation ("Ozite") with
Ozite being the surviving corporation. On October 29, 1993, Holdings was merged
with and into PST with PST surviving the merger (the "PST Merger"). Ozite merged
with PureTec Corporation ("PureTec"), formerly known as Pure Tech International,
Inc., at the close of business on July 31, 1995 (the "Merger").
In September 1996, the Company acquired the recycling operations of
PureTec, comprised of certain fixed assets, raw materials inventory and certain
other assets of PureTech Plastics, Inc. and subsidiaries ("PTP") for $4,400. The
acquisition was accounted for at historical cost in a manner similar to the
pooling-of-interests method of accounting as it is a transaction between
entities under common control. The $1,769 difference between PTP's carrying
value of such assets and the consideration paid was treated as a contribution of
capital to PST by PureTec. The consolidated statements of operations have been
restated to present the acquisition as if it had occurred at the beginning of
fiscal 1996, which is the first year PST and PTP were entities under common
control. The 1996 balance sheet has not been restated as the total assets of the
recycling operations were only 3% of the total assets of PST at the acquisition
date. Therefore, the net effect of this treatment is reflected as an adjustment
to additional paid-in capital.
As of July 31, 1997, PureTec, through its ownership of Ozite, owned
approximately 96% of the outstanding common stock of PST. This ownership
increased approximately 13% during 1997 as the result of a private placement
offer. The Company's corporate officers are also officers of Ozite, PureTec and
Pure Tech Plastics. The expenses incurred at the general corporate office which
are not directly attributable to one entity are allocated to the Company and
other affiliates. Approximately $5,687 was allocated to PST for fiscal 1997.
As discussed in Note 16 to the Company's Financial Statements, on
November 11, 1997 PureTec entered into a Merger Agreement with Tekni-Plex, Inc.
("Tekni-Plex"). Subject to the approval of a majority of the shareholders at a
shareholders' meeting that PureTec will arrange, the Merger Agreement
contemplates Tekni-Plex (i) purchasing all of PureTec's outstanding Common Stock
for cash consideration of $3.50 per share, and (ii) assuming or refinancing all
of PureTec's debt. The Merger Agreement and the Acquisition have been
unanimously approved and recommended to PureTec shareholders for adoption by
PureTec's Board of Directors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
b. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of demand deposits, commercial paper,
time deposits, and cash on hand. For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid debt instruments purchased
with original maturities of three months or less to be cash equivalents.
F-7
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
c. Inventories
-----------
Inventories are valued at the lower of cost (determined by the first-in,
first-out method) or market.
d. Goodwill
--------
Goodwill is being amortized on a straight-line basis over the periods
expected to be benefited, which is estimated to be 40 years. Goodwill resulted
from acquisitions which occurred prior to 1990.
The Company continually assesses the recoverability of its intangible
assets by determining whether the amortization of the goodwill over its
remaining useful life can be recovered through projected undiscounted future
cash flows. The amount of goodwill impairment, if any, is measured based on
projected undiscounted future cash flows in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Based on the
Company's projected results of operations over the remaining useful life,
management believes that there has not been an impairment in the value of the
goodwill.
e. Property, Plant and Equipment
-----------------------------
Property, plant and equipment is stated at cost and depreciated by the
straight-line method over the estimated useful lives of the related assets.
Repairs and maintenance are charged to expense as incurred. Depreciation is
computed on the straight-line method over the following estimated useful lives:
buildings and improvements, 20 years; furniture and fixtures, 10 years;
machinery and equipment, 10 years; and leasehold improvements, the lesser of the
term of the lease, including renewal options, or the useful life of the asset
(See Note 4). Costs of the construction of certain long-term assets include
capitalized interest which is amortized over the estimated useful life of the
related asset. The Company capitalized interest costs of $290 and $220 during
the years ended July 31, 1997 and 1996, respectively.
In the event that facts and circumstances indicate that the cost of
assets may be impaired, an evaluation of recoverability would be performed. If
an evaluation is required, the estimated fair value associated with the asset
would be compared to the asset's carrying amount to determine if a write-down to
fair value is required.
f. Deferred Financing Costs
------------------------
The financing costs incurred in securing debt have been deferred and are
being amortized over the life of the related debt.
g. Income Taxes
------------
For fiscal year 1995 and prior, PST and Ozite were parties to a tax
sharing agreement and filed a consolidated federal income tax return. Beginning
with fiscal year 1996, the operations of PST were included in the PureTec
consolidated federal income tax return. The Company's foreign subsidiaries file
separate foreign income tax returns.
The Company files a consolidated federal tax return including all of its
qualifying domestic subsidiaries. Deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
h. Revenue Recognition
-------------------
The Company recognizes revenue when goods are shipped to customers. The
Company provides for returned goods and volume rebates on an estimated basis.
F-8
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
i. Income (Loss) Per Common Share
------------------------------
Income (loss) per common and common equivalent share is computed based
upon the weighted-average number of shares outstanding during the period. Net
loss per common share is based upon the weighted-average number of shares
outstanding, as there are no common share equivalents outstanding. Primary
earnings per share and fully diluted earnings per share are the same for all
periods presented.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings Per Share". This new standard, which supersedes
APB Opinion No. 15, requires dual presentation of basic and diluted earnings per
share ("EPS") on the face of the income statement and a reconciliation of the
income available to common stockholders and weighted-average shares of the basic
EPS computation to the income available to common stockholders and weighted
average shares plus dilutive potential common shares of the diluted EPS
computation. The objective of the statement is to make the computation more
comparable with international accounting standards. SFAS 128 is effective for
periods ending after December 15, 1997 (the Company's 1998 fiscal year). SFAS
No. 128 will require the Company to restate amounts previously reported as EPS
to comply with the new pronouncement. Had SFAS No. 128 been in effect for the
years ended July 31, 1997, 1996 and 1995, reported EPS would not have been
different from that reported under APB Opinion No. 15.
j . Other Recent Accounting Pronouncements
--------------------------------------
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure" ("SFAS
129"). SFAS 129 requires companies to disclose descriptive information about
securities and information about the liquidation preferences of preferred stock
and redeemable stock. SFAS 129 is effective for financial statements for periods
ending after December 15, 1997 (the Company's fiscal 1998 year).
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
requires companies to display, with the same prominence as other financial
statements, the components of other comprehensive income. SFAS 130 requires that
an enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of the balance sheet. SFAS 130 is effective for fiscal years
beginning after December 15, 1997 (the Company's 1999 fiscal year).
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 requires that an enterprise disclose certain
information about operating segments. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997 (the Company's 1999
fiscal year).
The Company has not determined the impact, if any, on the financial
statements of adopting these pronouncements.
k. Receivable from Majority Stockholder - Ozite Corporation
--------------------------------------------------------
Due from majority stockholder is comprised of $3,253 of expenditures
paid by the Company on behalf of a predecessor of Ozite in connection with the
acquisition of PST in fiscal 1987 and $300 of cash advances in both fiscal 1995
and 1994. The outstanding balance is due on demand and is non-interest bearing.
F-9
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
l. Foreign Subsidiaries
--------------------
The Company translates financial statements denominated in foreign
currency by translating balance sheet accounts at the end of the period exchange
rate and statement of operations accounts at the average exchange rate for the
period. Translation gains and losses are recorded in stockholders' equity, and
transaction gains and losses are reflected in income.
m. Foreign Exchange Contracts
--------------------------
During fiscal 1997, the Company's Belgian subsidiary entered into
forward foreign exchange contracts to hedge intercompany payables and non
Belgian Franc accounts receivables and payables. Market value gains and losses
on such contracts are currently recognized, and the resulting credit or debit
offsets foreign exchange gains or losses on the related balance sheet accounts.
No significant forward foreign exchange contracts were outstanding at July 31,
1997 and July 31, 1996.
n. Environmental Costs
-------------------
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to existing
conditions caused by past operations and that do not contribute to current or
future revenue generation are expensed. No costs relating to existing conditions
caused by past operations were incurred by the Company during the periods ended
July 31, 1997, 1996, or 1995.
Reserves for estimated costs are recorded when environmental remedial
efforts are probable and the costs can be reasonably estimated. In determining
the reserves, the Company uses the most current information available, including
similar past experiences, available technology, regulations in effect, the
timing of remediation and cost sharing arrangements. No environmental reserves
are required at July 31, 1997 and 1996.
o. 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 at the
date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
p. Reclassifications
-----------------
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.
3. INVENTORIES
July 31,
-----------------------
1997 1996
------- -------
Raw materials $ 20,498 $ 14,552
Work-in-process 1,288 1,549
Recycled material 771 --
Finished goods 25,291 16,891
------- -------
$ 47,848 $ 32,992
======== ========
F-10
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
4. PROPERTY, PLANT AND EQUIPMENT
July 31,
-----------------------
1997 1996
------- -------
Land and land improvements $ 10,217 $ 10,096
Buildings and leasehold improvements 22,289 17,198
Furniture and fixtures 3,534 3,117
Machinery and equipment 64,005 51,334
Construction in progress 3,441 3,890
------- -------
103,486 85,635
Accumulated depreciation (45,666) (40,027)
------- -------
$ 57,820 $ 45,608
======== =======
5. INVESTMENTS IN AFFILIATES AND CERTAIN RELATED PARTY TRANSACTIONS
The Company acquired from Bagcraft Corporation of America ("Bagcraft")
a $5,000 subordinated note bearing interest at a rate of 13-1/2% per annum and
50,000 shares of 13-1/2% cumulative redeemable preferred stock with a
liquidation preference of $5,000 in Bagcraft for $10,000 in 1987. Bagcraft is a
wholly-owned subsidiary of BCA Holdings, Inc. ("BCA") and BCA is wholly-owned
subsidiary of Artra Group, Inc. ("Artra") an affiliated company. In March 1993,
the Company received 675 shares of BCA Preferred Stock having a liquidation
preference equal to the amount of interest due for the period from December 1,
1991 to November 30, 1992 ($675 in the aggregate) in lieu of receipt of payment
of interest from Bagcraft for such period.
In July 1993, the Company recorded an impairment of its investment in
Bagcraft by establishing a valuation reserve to write-off the $10,000 carrying
value of such investment as the Company was unable to determine, with reasonable
certainty, whether or when it would realize its investment in Bagcraft. On
December 28, 1993, PST received from Bagcraft $5,000 in cash and 3,000 shares of
BCA preferred stock as payment in full for the $5,000 subordinated note and
unpaid interest due from Bagcraft totaling $3,094, respectively. In 1994, the
Company recorded a $5,000 gain for the recovery of its investment in the
Bagcraft subordinated note. The interest due from Bagcraft had been fully
reserved and interest income was not recorded for the receipt of the BCA
preferred stock as such stock is not freely transferable. The cash received was
used to pay a portion of the PST dividend declared.
PST held 772,000 Artra Common Shares, which were accounted for on the
equity method (see 5a. above). Through the Company's recording of its share of
the net losses of Artra and other related items, the carrying value of the
investment in the Artra Common Shares had been reduced to zero.
In connection with the Merger (see Note 1), on July 13, 1995, PST
declared a dividend of the 772,000 Artra Common Shares and 3,675 shares of BCA
preferred stock to all stockholders of record as of July 31, 1995. Based on this
declaration, 638,444 shares of Artra common stock and 3,039.23 shares of BCA
preferred stock have been transferred to Ozite. The Company is in the process of
transferring 133,556 shares of Artra common stock and 635.77 shares of BCA
preferred stock to the minority stockholders that existed at the date of
declaration.
PST is due $1,089 from Ozite relating to a tax sharing agreement. The
Company has fully reserved for this receivable from Ozite due to Ozite's current
inability to settle this obligation.
The notes and interest receivable from officers are due on demand and
bear interest at rates generally ranging from 75% of the prime rate to the prime
rate of interest. The notes receivable relate primarily to the purchase of
common and preferred stock of the predecessor of Ozite by several officers,
unreimbursed moving expenses and a personal loan.
F-11
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
6. OTHER ASSETS
Other assets consist primarily of deferred financing costs of
approximately $3,378 and $4,025, net of accumulated amortization of $3,590 and
$2,602 at July 31, 1997 and 1996, respectively.
7. SHORT-TERM BORROWINGS
Revolving Credit Advances:
-------------------------
On December 30, 1992, PST entered into a $50,000 Senior Loan Agreement
(the "Agreement") with a commercial lending company ("CLC"). The Agreement
contains covenants, the most restrictive of which are maintenance of certain
financial ratios, prohibition of the occurrence of additional indebtedness, the
payment of dividends, certain related party transactions and limitations on
capital expenditures. Borrowings under the Agreement are secured by
substantially all the domestic current assets of PST. Additionally, the CLC has
a security interest in PST's intangible assets, and this security interest ranks
pari passu with the security interest of the Senior Secured Notes (see Note 9)
in PST's intangible assets. Revolving credit advances under the Agreement are
based on eligible receivables and inventory.
Effective January 31, 1997, PST amended this Agreement with the CLC
("Amended Agreement"), representing the fourth amendment to the Agreement. The
Amended Agreement provides, among other things, for revolving credit advances of
up to $50,000 through July 31, 2000 and letters of credit of up to $1,000. The
Amended Agreement provides for certain pricing performance adjustments based on
defined Performance Ratios. The Company will pay interest at a defined Index
Rate plus the Applicable Revolver Index Margin (ranging from 0.00% to 0.25%) or,
at the election of PST, the LIBOR Rate plus the Applicable LIBOR Margin (ranging
from 2.50% to 3.00%). The Amended Agreement also provides that outstanding
revolving credit advances shall not exceed $20,000 for 30 consecutive days
during the period from July 1 to September 30 for each year. Furthermore, the
Amended Agreement provides that domestic capital expenditures are limited to
$8,500, $9,000 and $9,500 in fiscal years ending 1997, 1998 and 1999 (and each
fiscal year thereafter), respectively. The Company also has the right to cancel
the Agreement on 30 days written notice and pay the CLC an early termination fee
of $175 if such cancellation occurs prior to January 31, 1998, and $100 if
cancellation occurs on or after January 31, 1998 and prior to September 30,
1998.
At July 31, 1997, the Company was not in compliance with certain of the
covenants of the Amended Agreement, including the requirement to reduce
borrowing to $20 million and the limitation on capital expenditures. The CLC has
provided a waiver of this non-compliance as of July 31, 1997. At July 31, 1997
and 1996, borrowings under the Amended Agreement with the CLC totaled $36,772
and $14,138, respectively. Amounts outstanding are classified as current
liabilities.
In addition, on January 31, 1997, PST signed a Receivables Agreement
with the CLC that provides PST with the ability to sell a 100% ownership
interest, without recourse, in certain Eligible Receivables generated by PST.
The maximum invoice face amount of purchased receivables will not exceed
$12,000. The CLC's commitment to purchase said receivables from PST are
restricted to the period beginning each February 1 and ending on each May 31.
PST is obligated to service the Eligible Receivables that it sells to the CLC.
At July 31, 1997, PST is obligated to collect and remit $2,087 to the CLC for
Eligible Receivables sold without recourse. The CLC owes PST $422 related to
such receivables.
F-12
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
8. ACCRUED EXPENSES
July 31,
-----------------------
1997 1996
------- -------
Payroll and compensation .......... $ 4,602 $ 4,024
Income taxes....................... 61 465
Other.............................. 10,283 6,208
------- -------
$14,946 $10,697
======= =======
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
July 31,
-----------------------
1997 1996
------- -------
<S> <C> <C>
11-1/4% Senior Secured Notes due
December 1, 2003 (a) $ 125,000 $ 125,000
7.10% Foreign Term Loan payable in Belgian
Francs, with quarterly interest payments,
eight semi-annual principal payments
of approximately $550 which commenced
January 31, 1993 and a balloon payment of $693
due on January 31, 1997. The loan was secured by
a pledge of working capital and a lien on certain
fixed assets of the Company's foreign operations --- 693
6.10 % Foreign Term Loan payable in Belgian
Francs, with quarterly interest payments, and twenty
semi-annual installments which commenced June 1996 822 1,263
3.75 % Foreign Term Loan payable in Belgian
Francs, with five equal yearly installments with
first payment commencing December 1997 791 ---
9.93% Foreign Term Loan payable in Italian Lira --- 956
9.78% Foreign Term Loan payable in Italian Lira --- 1,090
8.40% Foreign Term Loan Payable in Italian Lira
repayable semi-annually including principal and interest
through 2001 1,295 ---
5.30% Foreign Term Loan Payable in Italian Lira
with five equal yearly installments with first payment
commencing May 1998. Interest is payable quarterly 1,065 ---
Mortgage payable, bearing interest at prime plus 1 1/2%
payable in monthly installments of $4, plus interest 329 ---
Foreign Term Loan Payable in British Pounds,
payable in 13 equal semi-annual installments of $151
commencing June 1998 with a final payment of $158
</TABLE>
F-13
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
<TABLE>
<S> <C> <C>
December, 2004 at interest rate of 1.75% plus LIBOR 2,302 ---
Capitalized Lease Obligation, 20 years commencing
February 1997 3,841 ---
------- --------
135,445 129,002
Current Portion 1,249 1,360
--------- ----------
$ 134,196 $ 127,642
========= ==========
</TABLE>
a. The Senior Secured Notes, which require semi-annual interest
payments on June 1 and October 1, are senior secured obligations of PST, ranking
pari passu in right of payment with all existing and future senior indebtedness
of PST and senior to all subordinated indebtedness of PST, if any. The Senior
Secured Notes are secured by substantially all real property, machinery,
equipment, general intangibles and other intellectual property now owned or
hereafter acquired by PST and by a pledge of all outstanding capital stock of
Plastic Specialties and Technologies Investments, Inc., a wholly-owned
subsidiary of PST. The indenture for the Senior Secured Notes contains covenants
which restrict, among other matters, the ability of PST and its subsidiaries to
incur additional indebtedness, pay dividends (except as described in the
indenture), redeem capital stock, prepay subordinated indebtedness, create
liens, dispose of certain assets, engage in sale and merger transactions, make
contributions, loans or advances and enter into transactions with affiliates. At
July 31, 1997, under the covenant terms contained in the Agreement with the CLC
(See Note 7), the company is unable to pay dividends.
The aggregate amount of maturities of long-term debt as of July 31,
1997 is as follows:
Fiscal Year:
1998 $ 1,249
1999 1,426
2000 1,446
2001 1,308
2002 646
Thereafter 129,370
--------
$ 135,445
=========
10. STOCK BASED COMPENSATION
Certain of the Company's employees participate in the PureTec
Corporation Employee stock option plan. Generally, options outstanding under
PureTec's stock option plans: (i) are granted at prices equal to the fair market
value of the stock on the date of the grant, (ii) vest within a three year
period, and (iii) expire ten years subsequent to the award.
The Company uses the intrinsic value method to measure compensation
expense associated with grants of stock options to employees and shares of stock
purchased under the employee stock purchase plan. Had compensation cost been
determined based upon fair value at the grant date for awards under these plans,
reported compensation expense would have been higher and the corresponding net
income would have been lower by approximately $216 and $134 for the years ended
July 31, 1997 and 1996, respectively. Proforma earnings per share for the years
ended July 31, 1997 and 1996 would have been $0.28 and $0.20, respectively.
Management believes that the assumptions used and the model applied to
value the awards yields a reasonable estimate of the fair value of the grants
made under the circumstances. The effects of applying SFAS 123 in this pro forma
disclosure are not indicative of future amounts. SFAS 123 does not apply to
awards prior to 1996, and additional awards in future years are anticipated.
F-14
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
11. INCOME TAXES
The provision for income taxes from continuing operations consists of
the following:
<TABLE>
Year Ended July 31,
----------------------------------------
1997 1996 1995
-------- -------- -----
<S> <C> <C> <C>
Current Tax Provision (Benefit)
Federal $1,462 $ --- $ (900)
Foreign 2,798 2,269 2,252
State 150 300 ---
-------- -------- ---------
4,410 2,569 1,352
------- -------- ---------
Deferred Provision
Federal 777 2,933 ---
Foreign 177 80 455
-------- --------- --------
Total $5,364 $ 5,582 $1,807
======= ========= ========
</TABLE>
The Company's tax provision has been determined as if it were filing on
a separate return basis. Any currently payable amounts due or benefits from
losses to the extent recoverable from prior earnings are included as due to or
from parent or used to offset previous amounts due from parent. The Company is
included in the consolidated returns of its parent (Ozite through 1995 and
PureTec commencing in 1996). The reported results, as if filing on a separate
return basis, may be affected for tax purposes by the operating results or the
use of operating loss carryforwards of other members of the consolidated group.
Such effects are reflected in the accounts of the Company's parent.
The following reconciles the provision for income taxes at the U.S.
statutory rate to the provision for income taxes from continuing operations:
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------------
1997 1996 1995
-------- -------- -----
<S> <C> <C> <C>
Computed tax provision at statutory
rate $ 3,229 $ 3,810 $ 581
State taxes, net of federal tax benefit 272 198 ---
Difference in foreign income tax rates 625 416 397
Amortization of goodwill 464 464 464
Losses not currently deductible, foreign-1997,
domestic - 1995 486 --- 1,119
Other 271 678 ---
Reduction of previously provided taxes --- --- (900)
Other nondeductible expenses 16 16 146
------- --------- -------
$ 5,364 $ 5,582 $ 1,807
======= ========= =======
</TABLE>
The Company has accounted for the acquisition of the recycling division
in a manner similar to a pooling of interests and has restated the 1996 income
statement to reflect the operations of the combined entity. The Company has not
restated the 1996 tax provision as the tax attributes of the recycling
operations remain with its parent, PureTec Corporation.
F-15
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Income (loss) from continuing operations before income taxes and
extraordinary items relating to foreign and domestic operations are as follows:
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------------
1997 1996 1995
-------- -------- -----
<S> <C> <C> <C>
United States - prior to recycling restatement $4,015 $ 5,522 $ (3,791)
Europe 5,482 5,685 6,794
------- ------- -------
As reported 9,497 11,207 3,003
Recycling operations --- (1,705) ---
--------- ------- -------
Restated $9,497 $9,502 $3,003
======== ======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, net of
operating loss and income tax credit carryforwards. The income tax effects of
significant items comprising the Company's net deferred tax liability as of July
31, 1997 and 1996 are as follows:
<TABLE>
July 31, 1997 July 31, 1996
------------- -------------
Current Non - current Current Non-current
-------- ------------- ------- -----------
<S> <C> <C> <C> <C>
Assets
- ------
Net operating loss carry forward $ -- $ 572 $ -- $ 1,175
Expenses currently not deductible -
discontinued operations 690 -- -- --
Allowance for doubtful accounts 227 -- 200 --
Capitalization of inventory costs 477 -- 344 --
Liabilities
- -----------
Difference between book and tax
basis of property and equipment -- (4,777) -- (4,838)
---------- ------ --------- -------
Net deferred tax asset (liability) $ 1,394 $ (4,205) $ 544 $ (3,663)
Less: valuation allowance -- (572) -- --
---------- ----- -------- ------
Net deferred income taxes $ 1,394 $ (4,777) $ 544 $ (3,663)
======= ========= ======= =========
</TABLE>
The Company has not recorded a valuation allowance on the net domestic
deferred tax assets as management believes that the benefits will be realized.
The Company has recorded a valuation allowance on the net operating loss carry
forward for 1997, as these current year losses relate to CEL, a company taxable
in Northern Ireland. The Company believes that it's more likely than not that
the deferred tax asset will not be realized. At July 31, 1997, the Company has
net operating loss carryforwards related to the operation in Ireland of $1,430
which have no expiration date.
The Company has not provided deferred income taxes on undistributed
foreign earnings of $25,833 as it has the ability and intent to permanently
reinvest such earnings.
In January 1993 and 1994, the Company's Belgian subsidiary received
income tax assessments aggregating approximately $1,979 (75,247,000 Belgian
Francs) for the disallowance of certain foreign tax credits and investment
losses claimed for the years ended July 31, 1990 and 1991. Additionally, in
January 1995, the subsidiary received an income tax assessment of approximately
$843 (32,083,000 Belgian Francs) for the year ended July 31, 1992. Although the
future outcome of these matters are uncertain, PST believes that its tax
position was appropriate and that the assessments are without merit. Therefore,
PST has appealed and has not paid or accrued for the assessments. Based on the
advice of legal counsel in Belgium, PST believes that the assessment appeals
will be accepted by the tax authorities in Belgium, although there can be no
assurance whether or when such appeals will be accepted.
F-16
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
12. EMPLOYEE BENEFIT PLANS
The Company maintains a noncontributory defined benefit pension plan
which covers substantially all employees of PST not covered by a collective
bargaining agreement, who have completed one year of service and are not
participants in any other pension plan. The plan is also available to affiliates
of PST who bear their respective costs for their covered employees.
The funding policy of the Company is to make contributions to the plan
based on actuarial computations of the minimum required contribution for the
plan year. The plans' assets are invested primarily in the Master Trust Fund of
PST in accordance with the investment agreements of the plan.
Net pension costs consists of the following:
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------------
1997 1996 1995
-------- -------- -----
<S> <C> <C> <C>
Service cost $ 576 $ 561 $486
Interest cost on projected benefit obligation 583 542 360
Actual return on plan assets (1,830) (557) (259)
Net amortization and deferrals 1,270 183 (131)
------- ------- ------
$ 599 $ 729 $456
======= ====== =====
</TABLE>
The funded status of the plan and the amount recognized in the
accompanying consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
July 31,
-----------------------
1997 1996
------- -------
<S> <C> <C>
Vested benefit obligation $ (6,548) $ (5,831)
========== ========
Accumulated benefit obligation $ (6,843) $ (6,089)
========== ========
Projected benefit obligation $ (8,540) $ (7,807)
Plan assets at fair value 8,339 6,029
---------- --------
Projected benefit obligation in excess
of plan assets (201) (1,778)
Prior service cost not yet recognized
in net periodic pension cost 31 35
Unrecognized net (gain) loss (417) 1,150
Unrecognized net transition obligation 20 22
--------- --------
Accrued pension costs $ (567) $ ( 571)
=========== ========
</TABLE>
The expected long-term rate of return on plan assets of the plan was 9%
for all periods presented and the discount rate was 8% for the years ended July
31, 1997, 1996 and 1995. In 1996, the projected unit credit method was adopted
to reflect the final pay terms of the plan, which caused the increase in the
projected benefit obligation.
Additionally, PST has a savings plan for all non-collective bargaining
employees whereby PST will match each employee's contribution up to 2% of the
employee's earnings. The plan is also made available to PST affiliates who bear
their respective costs. Such contribution amounted to approximately $492, $457
and $504 for the years ended July 31, 1997, 1996 and 1995, respectively.
The Company has made contributions to multi-employer pension plans in
the amount of approximately $41 and $62 for the years ended July 31, 1996, and
1995, respectively.
F-17
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The estimated fair value of cash and cash equivalents, account
receivable, notes and interest receivable from officers, short-term borrowings,
accounts payable and long-term debt, excluding the Senior Secured Notes
discussed below, approximate those amounts reflected in the balance sheet based
on pertinent information available to management. Management estimates the fair
value of the Senior Secured Notes approximates $135,000 as these notes were
trading at a price of approximately 108 at July 31, 1997.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Although credit
risk related to the Company's trade receivables is limited due to the credit
standing of its largest customers and the diversity of the remaining customers,
sales to one major nationwide retailer accounted for approximately 14.8%, 22.3%
and 22.1 % of the Company's net sales for the years ended July 31, 1997, 1996
and 1995, respectively.
14. SEGMENT INFORMATION
The Company operates in three industry segments: plastic products,
plastic materials and recycling. The plastic products segment principally
produces lawn and garden hose, medical tubing and specialty tubing and gaskets.
The plastics materials segment principally produces recycled and general purpose
plastics and medical grade vinyl compounds. The recycling segment consists of
the operating of material recovery facilities and the recycling of plastics and
some aluminum. The plastic products segment has operations in the United States,
Europe and Canada (Canadian operations commencing in 1996, which are included in
the domestic amounts below). The plastic materials and recycling segments
operate principally in the United States..
<TABLE>
Year Ended July 31,
----------------------------------------
1997 1996 1995
-------- -------- -----
<S> <C> <C> <C>
Net Sales:
Plastic Products:
Domestic $149,083 $152,352 $130,215
Europe 35,300 34,158 31,995
Plastic Materials 108,357 101,687 88,665
Recycling 18,665 32,859 --
Corporate & Eliminations (41,794) (34,836) (29,685)
-------- -------- --------
Total Net Sales $269,611 $286,220 $221,190
======== ======== ========
Operating Income:
Plastic Products:
Domestic $21,822 $ 21,463 $ 15,046
Europe 8,276 7,097 8,373
Plastic Materials 4,350 6,156 2,621
Recycling (73) (878) --
Corporate & Eliminations (6,386) (5,314) (4,958)
-------- -------- --------
Total Operating Income $27,989 $ 28,524 $ 21,082
======== ======== ========
</TABLE>
F-18
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
<TABLE>
<S> <C> <C> <C>
Depreciation & Amortization:
Plastic Products:
Domestic $ 4,013 $ 3,563 $ 3,534
Europe 1,301 1,131 875
Plastic Materials 1,454 1,825 1,676
Recycling 499 -- --
Corporate & Eliminations 1,233 1,145 1,197
------- --------- ---------
Total Depreciation & Amortization $ 8,500 $ 7,664 $ 7,282
======= ========= =========
Capital Expenditures:
Plastic Products:
Domestic $2.553 $ 2,440 $ 3,778
Europe 1,852 3,804 1,098
Plastic Materials 8,850 1,331 1,778
Recycling 301 -- --
Corporate & Eliminations 453 411 597
------- --------- --------
Total Capital Expenditures $14,009 $ 7,986 $ 7,251
======= ========= ========
Identifiable Assets:
Plastic Products:
Domestic $111,369 $ 102,076 $102,871
Europe 25,131 26,539 24,621
Plastic Materials 57,442 39,717 40,027
Recycling 8,029 -- --
Corporate & Eliminations 16,574 10,332 14,773
-------- --------- ---------
Total Identifiable Assets $218,545 $ 178,664 $ 182,292
======== ========= =========
</TABLE>
Operating income represents net sales less cost of goods sold and
selling, general and administrative expenses of each segment before deductions
for general corporate expenses not directly related to an individual segment and
the elimination of intercompany profits principally due to Plastic Material
sales to Plastic Products. In continuing operating income, none of the following
items have been added or deducted: interest expense, income taxes, and loss from
discontinued operations. Identifiable assets are those used in the operations of
each segment, including an allocation of goodwill. Corporate identifiable assets
consist primarily of cash, prepaid expenses, fixed assets and deferred debt
costs offset by the elimination of intersegment profit in ending inventories.
15. DISCONTINUED OPERATIONS
On December 21, 1995, PST entered into an Asset Purchase Agreement (the
"Agreement") with Foss Manufacturing Company, Inc. ("Foss") for the sale of
certain assets of PST's Ozite Manufacturing Division ("Ozite Mfg.") in
Libertyville, Illinois to Foss as of January 31, 1996. The Company had been
exploring a relocation alternative until this unsolicited offer was accepted.
Under the terms of the Agreement, Foss purchased Ozite Mfg.'s accounts
receivable and inventory, net of reserves, as well as certain prepaid expenses,
trade names, trademarks, and patents for approximately $3,025, which was
the Company to receive a minimum of $450 for all of its machinery and equipment
at the facility. During the fourth quarter of fiscal 1996, adjustments were made
to increase by $570 the estimated loss on disposal recorded in the second
quarter due to the final shut down of these facilities.
Accordingly, the Ozite Mfg. operations have been reflected as
discontinued operations in the statement of operations for all periods
presented. Net sales generated from these operations amounted to $4,882 and
$11,714 for the
F-19
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
years ended July 31, 1996 and 1995.
During 1997, Ozite Mfg. settled certain litigation for $414 (net of tax
benefit of $258) in the aggregate. The settlement has been recorded in net loss
from discontinued operations for the year ended July 31, 1997.
During July 1997, the Company settled a lawsuit with regard to Circuit
Chemistry (a former subsidiary of the Company). This settlement and related
expenses of $1,213 (net of tax benefit of $775) was included within discontinued
operations for fiscal 1997.
16. SUBSEQUENT EVENT
In October 1997, PST settled a lawsuit pertaining to Circuit Chemistry.
The impact of this settlement was accounted for in discontinued operations (see
Notes 15 and 17(b)).
On November 11, 1997, PureTec announced that it had signed an Agreement
and Plan of Merger ("Agreement") with Tekni-Plex, Inc., ("Tekni-Plex") a
privately -owned company, pursuant to which PureTec would, through a merger
("Merger") become a wholly-owned subsidiary of Tekni-Plex. The Agreement
provides that the owner of each share of common stock of PureTec would receive
$3.50 in cash for that share in the Merger. The Agreement and the Merger will be
submitted to the shareholders of PureTec for approval at PureTec's annual
shareholders' meeting expected to be held in January 1998. The Agreement and the
Merger have been unanimously approved, and recommended to PureTec shareholders
for adoption by PureTec's Board of Directors. Officers and directors of PureTec
owning approximately 10% of the outstanding common stock of PureTec have agreed
to vote their shares in favor of the Merger.
The Agreement contains a number of conditions which must be satisfied
in order for the Merger to occur, including the successful completion of a
consent solicitation and tender offer for PST"s 11.25% Senior Secured Notes due
2003, the receipt of all necessary governmental and regulatory approvals, and
the absence of any changes occurring prior to the closing date which would have
a material adverse significance with respect to the value of PureTec and its
subsidiaries, taken as a whole.
The Agreement also requires that the outstanding minority common
shareholders' interest in PST be eliminated, either through purchase or a
short-form merger procedure under Delaware law, not later than immediately prior
to completion of the Merger, at a price of $7.00 per share of PST common stock.
The Merger is further subject to the receipt by Tekni-Plex of
sufficient financing to pay for PureTec shares, purchase the PST Notes tendered
in the tender offer, and fund all other cash requirements of the Merger.
Tekni-Plex has received commitments from Morgan Guaranty Trust Company of New
York to provide senior bank financing and subordinated bridge loans in an
aggregate amount which the parties believe will be sufficient to complete the
Merger, subject to a number of conditions.
The Agreement is terminable by Tekni-Plex, PureTec, or either of them
under certain circumstances. In the event the Agreement is terminated because
PureTec's Board of Directors withdraws or materially modifies its approval or
recommendation of the Merger or the Agreement or another person, entity or group
acquires beneficial ownership of 50% or more of the outstanding shares of
PureTec's Common Stock, the Company is obligated to pay a fee of $10 million to
Tekni-Plex and to reimburse Tekni-Plex for up to $5 million of its expenses in
connection with the Agreement and related transactions. PureTec expects the
Merger to be completed in February 1998, but cannot assure that all of the
conditions to the Merger will be satisfied.
Concurrently with execution of the Merger Agreement, Tekni-Plex
purchased a Convertible Note issued by PureTec in the amount of $5 million. The
loan will assist PureTec and PST in meeting expected cash requirements in the
period prior to completion of the Merger. The Convertible Note bears interest at
13% and is convertible at any time
F-20
<PAGE>
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, except per share amounts)
following the 60th day after any termination of the Agreement into a number of
shares of PureTec Common Stock sufficient to retire the principal amount of the
Note plus accrued interest or in any event at a base conversion rate of one
share of Common Stock per $2.72 of obligations owed under the Note. PureTec is
required to file a registration statement with respect to the Common Stock
issuable upon conversion promptly following a termination of the Merger
Agreement. The Convertible Note matures on September 30, 1998. The Convertible
Note is subject to prepayment by PureTec in cash at any time, and contains
covenants and events of default customary for a debt instrument of this type.
17. COMMITMENTS AND CONTINGENCIES
a. Leases
The Company rents various warehouse, office and manufacturing
facilities and certain equipment under lease agreement classified as operating
leases. Rent expense was approximately $4,256, $3,724, and $2,563 for the years
ended July 31, 1997, 1996 and 1995, respectively.
Future minimum rental payments under noncancelable operating leases as
of July 31, 1997 are as follows:
Year Ending
July 31,
-----------
1998 $ 4,550
1999 4,268
2000 4,086
2001 3,907
2002 3,300
Thereafter 3,735
--------
$ 23,846
========
As of July 31, 1997, the Company had available letters of credit of up
to $1,000 from the CLC (See Note 7), of which $353 was outstanding.
b. Litigation
On February 18, 1993, the Ware Chemical Co. ("Ware Chemical"), a former
PST subsidiary (now dormant) was served with a third party complaint in the
matter of United States v. Davis ("Davis"). In Davis, the United States has
alleged that certain private entities are liable, pursuant to the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA"), for cleanup
costs that have been incurred, and will be incurred in the future, with respect
to the remediation of the Davis Landfill site in Rhode Island. Ware Chemical was
owned by Dart Industries (now Kraft, Inc.) during the time in question (1975 -
1977), and Kraft has agreed to assume all responsibility.
In January 1993 and 1994, the Company's Belgian subsidiary received
income tax assessments aggregating approximately $1,979 (75,247,000 Belgian
Francs) for the disallowance of certain foreign tax credits and investment
losses claimed for the years ended July 31, 1990 and 1991. Additionally, in
January 1995, the subsidiary received an income tax assessment of approximately
$843 (32,083,000 Belgian Francs) for the year ended July 31, 1992. Although the
future outcome of these matters are uncertain, the Company believes that its tax
position was appropriate and that the assessments are without merit. Therefore,
the Company has appealed and has not paid or accrued for the assessments. Based
on the advice of legal counsel in Belgium, the Company believes that the
assessment appeals will be accepted by the tax authorities in Belgium, although
there can be no assurance whether or when such appeals will be accepted.
In May 1992, PST and all of its directors (as of 1988), as well as K&B
Liquidating Corp. (a former subsidiary of PST which is being liquidated) were
named in two lawsuits filed in the Minnesota state courts. The plaintiffs are
Douglass Hutchinson (since deceased) and James Czaja, both of whom were former
employees of a
F-22
<PAGE>
former subsidiary of PST, Circuit Chemistry Manufacturing Corp. ("Circuit
Chemistry"). The suits alleged several causes of action, all of which center
upon a claim that PST and/or other defendants did not adequately disclose
sufficient information to the plaintiffs in connection with the acquisition from
the plaintiffs by PST of their 20% equity interest in Circuit Chemistry, and the
termination of their employment agreements. Subsequent to July 31, 1997, the
cases brought by Czaja and Hutchinson have been settled by PST. Previously,
management had expected these cases to be litigated, and management had expected
that PST would win these cases. During fiscal 1997, PST filed for a summary
judgement to dismiss all claims from Czaja and Hutchinson. This summary
judgement motion was denied by the court. In light of the growing costs of
litigation, and the remaining uncertainty of the outcome of a trial, management
elected to settle these cases. The impact of the settlement of these cases is
reflected in the Company's net loss from discontinued operations for the year
ended July 31, 1997, as PST had previously reported Circuit Chemistry as a
discontinued operation as of 1989. Total settlement payments to the plaintiffs
in connection with this settlement are $1,725, which are accrued for at July 31,
1997.
In the current year, litigation relating to Ozite Mfg. with MDC
Wallcoverings and Ashley Alsip was settled for $660 in the aggregate. The
settlement of these cases is reflected in the Company's net loss from
discontinued operations for the year ended July 31, 1997.
Additionally, the Company is party to certain other litigations and
environmental proceedings in the ordinary course of business, none of which it
believes are likely to have a material adverse effect on its financial position
or results of operations.
18. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of fiscal 1997, the Company recorded
certain adjustments aggregating $500. The Company recorded additional inventory
of approximately $1,100 based on the results of a book to physical
reconciliation. Additionally, the Company recorded a charge of approximately
$600 as a result of reconciling intercompany accounts. It cannot be specifically
determined to which quarters in the year these amounts relate.
Additionally, in the fourth quarter of 1997, the Company recorded the
Circuit Chemistry settlement in the amount of $1,213 (net of tax benefit of
$775), including legal fees.
During the fourth quarter of fiscal 1996, the Company recorded certain
adjustments aggregating approximately $570 in relation to the final exit of the
Ozite Manufacturing location.
* * * * * * * * * * * *
F-23
<PAGE>
SCHEDULE II
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Additions/
(Reductions)
Balance at Charged to Accounts Balance at
Beginning Costs and Charged End of
of Period Expenses Off Period
----------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Classification
- --------------
Year Ended July 31, 1995
Allowance for doubtful
receivables $ 2,880 $ (119) (211) $ 2,550
======= =========== =========== =======
Year Ended July 31, 1996
Allowance for doubtful
receivables $ 2,550 $ 832 $ (2,102) $ 1,280
======= =========== =========== =======
Year Ended July 31, 1997
Allowance for doubtful
receivables $ 1,280 $ 274 $ (100) $ 1,454
======= =========== =========== =======
</TABLE>
F-24
<PAGE>
AGREEMENT AND PLAN OF MERGER
dated as of
November 11, 1997
among
PURETEC CORPORATION,
PLASTIC SPECIALTIES & TECHNOLOGIES, INC.,
TEKNI-PLEX, INC.
and
P. T. HOLDING, INC.
<PAGE>
TABLE OF CONTENTS1
----------------------
PAGE
----
ARTICLE (1)
THE MERGER
SECTION 1.01. The Merger .................................................. 1
SECTION 1.02. Conversion of Shares.......................................... 2
SECTION 1.03. Surrender and Payment......................................... 3
SECTION 1.04. Dissenting Shares............................................. 4
SECTION 1.05. Stock Options................................................. 4
SECTION 1.06. Company Debt.................................................. 5
SECTION 1.07. PS&T Minority Interest........................................ 6
SECTION 1.08. Intercompany Loans............................................ 6
SECTION 1.09. Upstream Guarantees........................................... 6
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.01. Certificate of Incorporation.................................. 6
SECTION 2.02. Bylaws .................................................. 6
SECTION 2.03. Directors and Officers........................................ 7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Corporate Existence and Power................................. 7
SECTION 3.02. Corporate Authorization....................................... 7
SECTION 3.03. Governmental Authorization.................................... 7
SECTION 3.04. Non-contravention............................................. 8
SECTION 3.05. Capitalization................................................ 8
SECTION 3.06. Subsidiaries and Investees.................................... 9
SECTION 3.07. SEC Filings ..................................................10
SECTION 3.08. Financial Statements..........................................11
SECTION 3.09. Disclosure Documents..........................................11
SECTION 3.10. Absence of Certain Changes....................................12
SECTION 3.11. No Undisclosed Material Liabilities...........................13
SECTION 3.12. Litigation ..................................................14
SECTION 3.13. Taxes ..................................................14
- --------
(1) The Table of Contents is not a part of this Agreement.
<PAGE>
PAGE
----
SECTION 3.14. Employee Benefits.............................................15
SECTION 3.15. Labor Matters.................................................18
SECTION 3.16. Compliance with Laws..........................................19
SECTION 3.17. Finders' Fees.................................................20
SECTION 3.18. Other Information.............................................20
SECTION 3.19. Environmental Matters.........................................20
SECTION 3.20. Material Contracts............................................23
SECTION 3.21. Properties ..................................................24
SECTION 3.22. Intellectual Property.........................................26
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUBSIDIARY
SECTION 4.01. Corporate Existence and Power.................................27
SECTION 4.02. Corporate Authorization.......................................27
SECTION 4.03. Governmental Authorization....................................27
SECTION 4.04. Non-contravention.............................................28
SECTION 4.05. Disclosure Documents..........................................28
SECTION 4.06. Finders' Fees.................................................28
SECTION 4.07. Financing ..................................................29
SECTION 4.08. Absence of Certain Changes....................................29
SECTION 4.09. Buyer Financial Statements....................................29
ARTICLE 5
COVENANTS OF THE COMPANY
SECTION 5.01. Conduct of the Company........................................30
SECTION 5.02. Stockholder Meeting; Proxy Material...........................31
SECTION 5.03. Access to Information.........................................32
SECTION 5.04. Other Offers..................................................32
SECTION 5.05. Notices of Certain Events.....................................33
SECTION 5.06. Cooperative Efforts...........................................33
SECTION 5.07. Loans to Affiliated Persons...................................34
SECTION 5.08. Severance Package.............................................34
SECTION 5.09. Proceeds of Convertible Note..................................34
ARTICLE 6
COVENANTS OF BUYER AND MERGER SUBSIDIARY
SECTION 6.01. Obligations of Merger Subsidiary..............................35
SECTION 6.02. Voting of Shares..............................................35
ii
<PAGE>
PAGE
----
SECTION 6.03. Director and Officer Liability................................35
SECTION 6.04. Commitment Letters and Financing Agreements...................35
SECTION 6.05. Repurchase of Bonds...........................................36
ARTICLE 7
COVENANTS OF BUYER AND THE COMPANY
SECTION 7.01. Best Efforts..................................................36
SECTION 7.02. Certain Filings...............................................36
SECTION 7.03. Public Announcements..........................................37
SECTION 7.04. Further Assurances............................................37
ARTICLE 8
CONDITIONS TO THE MERGER
SECTION 8.01. Conditions to the Obligations of Each Party...................37
SECTION 8.02. Conditions to the Obligations of Buyer and
Merger Subsidiary.................................38
SECTION 8.03. Conditions to the Obligations of the Company..................40
ARTICLE 9
TERMINATION
SECTION 9.01. Termination ..................................................41
SECTION 9.02. Effect of Termination.........................................42
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. Notices ..................................................43
SECTION 10.02. Survival of Representations and Warranties...................44
SECTION 10.03. Amendments; No Waivers.......................................44
SECTION 10.04. Expenses ..................................................44
SECTION 10.05. Successors and Assigns.......................................45
SECTION 10.06. Governing Law................................................45
SECTION 10.07. Counterparts; Effectiveness..................................45
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of November 11, 1997 among
PureTec Corporation, a Delaware corporation (the "Company"), Plastic Specialties
& Technologies, Inc., a Delaware corporation ("PS&T"), Tekni-Plex, Inc., a
Delaware corporation ("Buyer"), and P.T. Holding, Inc., a Delaware corporation
and a wholly-owned subsidiary of Buyer ("Merger Subsidiary").
WHEREAS, as a condition to Buyer's and Merger Subsidiary's willingness
to enter into this Agreement, simultaneously with the execution of this
Agreement Buyer is entering into a Stockholder Voting and Option Agreement (the
"Voting Agreement") with certain stockholders of the Company;
WHEREAS, simultaneously with the execution of this Agreement, Buyer, at
the request of the Company and PS&T, is lending the Company $5,000,000 in
exchange for a Convertible Note (the "Convertible Note") in order to bridge
finance certain working capital needs of the Company and PS&T during the term of
this Agreement;
In consideration for the various agreements contained herein, in the
Voting Agreement and in the Convertible Note, the parties hereto agree as
follows:
ARTICLE 1
THE MERGER
SECTION 1.01. The Merger. (a) At the Effective Time, Merger Subsidiary
shall be merged (the "Merger") with and into the Company in accordance with the
General Corporation Law of the State of Delaware (the "Delaware Law"), whereupon
the separate existence of Merger Subsidiary shall cease, and the Company shall
be the surviving corporation (the "Surviving Corporation"). At the election of
Buyer, the Merger may be structured so that the Company shall be merged with and
into Merger Subsidiary with the result that Merger Subsidiary shall be the
Surviving Corporation.
(b) At the earliest time following satisfaction or, to the extent
permitted hereunder, waiver of all conditions to the Merger, the Company and
Merger Subsidiary will file a certificate of merger with the Secretary of State
of the State of Delaware and make all other filings or recordings required by
Delaware Law in connection with the Merger. The Merger shall become effective at
such time as
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the certificate of merger is duly filed with the Secretary of State of the State
of Delaware or at such later time as is specified in the certificate of merger
(the "Effective Time").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of the Company and Merger
Subsidiary, all as provided under Delaware Law.
(d) The Company hereby represents that its Board of Directors, at a
meeting duly called and held, has (i) unanimously determined that this Agreement
and the transactions contemplated hereby, including the Merger, are fair to and
in the best interest of the Company's stockholders, (ii) unanimously approved
this Agreement and the transactions contemplated hereby, including the Merger,
which approval satisfies in full the requirements of Delaware Law, and (iii)
unanimously resolved to recommend approval and adoption of this Agreement and
the Merger by its stockholders; provided, that such recommendation may be
withdrawn, modified or amended to the extent the Board of Directors of the
Company deems it necessary to do so in the exercise of its fiduciary obligations
to the Company's stockholders after being so advised by outside counsel. The
Company further represents that Schroder & Co. Inc. ("Schroders") has delivered
to the Company's Board of Directors its written opinion that the Merger
Consideration is fair to the holders of Shares from a financial point of view.
The Company has been advised that all of its directors and executive officers
currently intend to vote their Shares in favor of the approval and adoption of
this Agreement and the Merger.
SECTION 1.02. Conversion of Shares. At the Effective Time:
(a) each outstanding share (each a "Share") of common stock,
$0.01 par value (the "Common Stock") of the Company held by the
Company as treasury stock or owned by Buyer or any subsidiary of
Buyer immediately prior to the Effective Time shall be canceled, and
no payment shall be made with respect thereto;
(b) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and
become one share of common stock of the Surviving Corporation with the
same rights, powers and privileges as the shares so converted and shall
constitute the only outstanding shares of capital stock of the
Surviving Corporation; and
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(c) each Share outstanding immediately prior to the Effective
Time shall, except as otherwise provided in Section 1.02(a) or as
provided in Section 1.04 with respect to Shares as to which appraisal
rights have been exercised, be converted into the right to receive
$3.50 in cash, without interest (the "Merger Consideration").
SECTION 1.03. Surrender and Payment. (a) Prior to the Effective Time,
Buyer shall appoint an agent (the "Exchange Agent") for the purpose of
exchanging certificates representing Shares for the Merger Consideration. Buyer
will make available to the Exchange Agent, as needed, the Merger Consideration
to be paid in respect of the Shares. For purposes of determining the Merger
Consideration to be made available, Buyer shall assume that no holder of Shares
will perfect his right to appraisal of his Shares. As soon as practicable after
the Effective Time, Buyer will send, or will cause the Exchange Agent to send,
to each holder of Shares at the Effective Time a letter of transmittal for use
in such exchange (which shall specify that the delivery shall be effected, and
risk of loss and title shall pass, only upon proper delivery of the certificates
representing Shares to the Exchange Agent).
(b) Each holder of Shares that have been converted into a right to
receive the Merger Consideration, upon surrender to the Exchange Agent of a
certificate or certificates representing such Shares, together with a properly
completed letter of transmittal covering such Shares, will be entitled to
receive the Merger Consideration payable in respect of such Shares. Until so
surrendered, each such certificate shall, after the Effective Time, represent
for all purposes, only the right to receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a
Person other than the registered holder of the Shares represented by the
certificate or certificates surrendered in exchange therefor, it shall be a
condition to such payment that the certificate or certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such payment shall pay to the Exchange Agent any transfer
or other taxes required as a result of such payment to a Person other than the
registered holder of such Shares or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable. For purposes of
this Agreement, "Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
(d) After the Effective Time, there shall be no further registration
of transfers of Shares. If, after the Effective Time, certificates representing
Shares are presented to the Surviving Corporation, they shall be canceled and
exchanged
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for the Merger Consideration provided for, and in accordance with the procedures
set forth, in this Article 1.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 1.03(a) that remains unclaimed by the holders
of Shares six months after the Effective Time shall be returned to Buyer, upon
demand, and any such holder who has not exchanged his Shares for the Merger
Consideration in accordance with this Section prior to that time shall
thereafter look only to Buyer for payment of the Merger Consideration in respect
of his Shares. Notwithstanding the foregoing, Buyer shall not be liable to any
holder of Shares for any amount paid to a public official pursuant to applicable
abandoned property laws. Any amounts remaining unclaimed by holders of Shares
two years after the Effective Time (or such earlier date immediately prior to
such time as such amounts would otherwise escheat to or become property of any
governmental entity) shall, to the extent permitted by applicable law, become
the property of Buyer free and clear of any claims or interest of any Person
previously entitled thereto.
(f) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 1.03(a) to pay for Shares for which appraisal
rights have been perfected shall be returned to Buyer, upon demand.
SECTION 1.04. Dissenting Shares. Notwithstanding Section 1.02, Shares
outstanding immediately prior to the Effective Time and held by a holder who has
not voted in favor of the Merger or consented thereto in writing and who has
demanded appraisal for such Shares in accordance with Delaware Law shall not be
converted into a right to receive the Merger Consideration, unless such holder
fails to perfect or withdraws or otherwise loses his right to appraisal. If
after the Effective Time such holder fails to perfect or withdraws or loses his
right to appraisal, such Shares shall be treated as if they had been converted
as of the Effective Time into a right to receive the Merger Consideration. The
Company shall give Buyer prompt notice of any demands received by the Company
for appraisal of Shares, and Buyer shall have the right to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Buyer, make any payment with
respect to, or settle or offer to settle, any such demands.
SECTION 1.05. Stock Options. (a) At the Effective Time, each holder of
an outstanding stock option to purchase Shares, whether or not then vested or
exercisable, granted under any employee or director stock option or compensation
plan or arrangement of the Company shall be paid by the Company promptly upon
surrender of such stock option an amount determined by multiplying (i) the
excess, if any, of $3.50 per Share over the applicable exercise price per share
of
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such option by (ii) the number of Shares such holder could have purchased
(assuming full vesting of all options) had such holder exercised such option in
full immediately prior to the Effective Time.
(b) Promptly following the Effective Time, the Company shall notify
all holders of outstanding options or warrants to purchase Shares other than
those referred to in subsection (a) above that such holders are entitled to
receive the Merger Consideration upon surrender of such options or warrants and
payment to the Company by the holder thereof of the applicable exercise price
(and in the case of options referred to in Section 1.05(a), of such right to
receive the payment described in Section 1.05(a) in lieu of exercising such
option).
SECTION 1.06. Company Debt. (a) PS&T Senior Notes. The Company shall
cause PS&T to promptly commence a combined consent solicitation and offer to
purchase (the "Debt Offer"), in accordance with applicable law and pursuant to
documentation reasonably satisfactory to Buyer, any and all of PS&T's
outstanding 11.25% Senior Secured Notes due 2003 (the "PS&T Notes") at a cash
price to be specified by Buyer or at such other price as Buyer may specify from
time to time thereafter. The Company shall cause PS&T to purchase the PS&T Notes
tendered pursuant to the Debt Offer at the Effective Time. The Debt Offer shall
be subject to the conditions that (i) there shall be validly tendered and not
withdrawn in accordance with the terms of the Debt Offer prior to the expiration
date of the Debt Offer, PS&T Notes in an aggregate principal amount representing
at least a majority in principal amount of the PS&T Notes, (ii) the holders of
at least a majority in principal amount of the PS&T Notes shall have consented
prior to the Effective Time to amend the indenture dated as of October 29, 1993
between PS&T and First Fidelity Bank, N.A. Pennsylvania, as Trustee (the "PS&T
Indenture") to delete such covenants, events of default and other provisions of
the PS&T Indenture as Buyer shall specify and to make such other amendments to
the PS&T Indenture as Buyer may require, and (iii) Buyer shall have consummated
or, simultaneously with the consummation of the Debt Offer, shall consummate the
Merger.
(b) Other Subsidiary Debt. Prior to or simultaneously with the
consummation of the Merger, the Company shall cause each of its Subsidiaries (as
defined in Section 3.06) to repay and retire such of its outstanding debt (other
than any PS&T Notes not tendered in the Debt Offer) as Buyer may require (it
being understood that Buyer may require the Company and its Subsidiaries to
retire any or all such debt).
SECTION 1.07. PS&T Minority Interest. The Company shall eliminate the
minority shareholders' interest in PS&T, either pursuant to an offer to purchase
such minority shares or pursuant to section 253 of the Delaware Law, at a price
of $7.00
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per share of common stock of PS&T, at any time prior to but no later than
immediately prior to the consummation of the Merger.
SECTION 1.08. Intercompany Loans. Simultaneously with the consummation
of the Merger, Buyer shall loan to each of the Company and its Subsidiaries,
amounts sufficient to enable each of the Company and its Subsidiaries to comply
with its obligations under Sections 1.05, 1.06, and 1.07. The loans referred to
in this Section 1.08 are hereinafter referred to as the "Intercompany Loans".
The obligations of the Company and its Subsidiaries under Sections 1.05, 1.06,
and 1.07 are contingent upon receipt of Intercompany Loans in amounts sufficient
to discharge such obligations.
SECTION 1.09. Upstream Guarantees. Effective as of the Effective Time,
the Company shall and shall cause each of its domestic Subsidiaries to guarantee
(i) Buyer's 11 1/4% Senior Subordinated Notes due 2007, to the extent required
by the indenture dated as of April 1, 1997 among Buyer, Dolco Packaging Corp.
and Marine Midland Bank, as Trustee (the "Tekni-Plex Indenture"), and (ii) any
indebtedness of Buyer issued to finance the transactions contemplated hereby.
The guarantees to be issued pursuant to this Section 1.09 are hereinafter
referred to as the "Upstream Guarantees".
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.01. Certificate of Incorporation. The certificate of
incorporation of Merger Subsidiary in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law, except that the name of the Surviving
Corporation shall be changed to "PureTec Corporation".
SECTION 2.02. Bylaws. The bylaws of Merger Subsidiary in effect at
the Effective Time shall be the bylaws of the Surviving Corporation until
amended in accordance with applicable law.
SECTION 2.03. Directors and Officers. From and after the Effective
Time, until successors are duly elected or appointed and qualified in accordance
with applicable law, (a) the directors of Merger Subsidiary at the Effective
Time shall be the directors of the Surviving Corporation, and (b) the officers
of the Company at the Effective Time shall be the officers of the Surviving
Corporation, except for
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the Chief Executive Officer, who from and after the Effective Time shall be the
Chief Executive Officer of the Merger Subsidiary
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that:
SECTION 3.01. Corporate Existence and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
material adverse effect on the condition (financial or otherwise), business,
assets, results of operations or prospects of the Company and the Subsidiaries
taken as a whole (a "Material Adverse Effect"). The Company has heretofore
delivered to Buyer true and complete copies of the Company's certificate of
incorporation and bylaws as currently in effect.
SECTION 3.02. Corporate Authorization. The execution, delivery and
performance by the Company of each of this Agreement and the Convertible Note
and the consummation by the Company of the transactions contemplated hereby and
thereby are within the Company's corporate powers and, except for any required
approval by the Company's stockholders in connection with the consummation of
the Merger, have been duly authorized by all necessary corporate action. Each of
this Agreement and the Convertible Note constitutes a valid and binding
agreement of the Company.
SECTION 3.03. Governmental Authorization. The execution, delivery and
performance by the Company of each of this Agreement and the Convertible Note
and the consummation of the Merger by the Company require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority, domestic or foreign, other than (a) the filing of a certificate of
merger in accordance with Delaware Law; (b) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"); (c) compliance with any applicable requirements of the Securities
Exchange Act
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of 1934 and the rules and regulations promulgated thereunder (the "Exchange
Act"); and (d) compliance with any applicable requirements of the New Jersey
Industrial Site Recovery Act, as amended, and any rules or regulations
promulgated thereunder ("ISRA").
SECTION 3.04. Non-contravention. Except as disclosed in Schedule 3.04,
the execution, delivery and performance by the Company of each of this Agreement
and the Convertible Note and the consummation by the Company of the transactions
contemplated hereby and thereby do not and will not (a) contravene or conflict
with the certificate of incorporation or bylaws of the Company, (b) assuming
compliance with the matters referred to in Section 3.03, contravene or conflict
with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to the Company
or any Subsidiary, (c) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of the
Company or any Subsidiary or to a loss of any benefit to which the Company or
any Subsidiary is entitled under any provision of any agreement, contract or
other instrument binding upon the Company or any Subsidiary or any license,
franchise, permit or other similar authorization held by the Company or any
Subsidiary, or (d) result in the creation or imposition of any Lien on any asset
of the Company or any Subsidiary. For purposes of this Agreement, "Lien" means,
with respect to any asset, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset.
SECTION 3.05. Capitalization. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock and 1,000,000 shares of
preferred stock, $0.01 par value (the "Preferred Stock"). As of October 31,
1997, there were outstanding 31,240,866 shares of Common Stock, and no shares of
Preferred Stock. As of October 31, 1997, there were outstanding stock options
(including employee stock options) and warrants to purchase shares of Common
Stock as set forth in Schedule 3.05. The Board of Directors of the Company, as
the applicable committee responsible for the 1995 Disinterested Directors Stock
Option Plan and the 1995 Stock Option Plan (the "Company Option Plans"), has
passed resolutions relating to the terms of the Company Option Plans clarifying,
pursuant to the terms thereof, that following the Effective Time, each holder of
an outstanding stock option to purchase Shares granted under either Company
Option Plan shall thereafter have the right to receive Merger Consideration upon
payment to the Company by such holder of the applicable exercise price therefor.
All outstanding shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. Except as set forth in
this Section and except for changes after October 31, 1997 resulting from the
exercise of employee stock options outstanding on such date and except for the
Convertible Note, there are outstanding (a) no shares of capital stock or other
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voting securities of the Company, (b) no securities of the Company convertible
into or exchangeable for shares of capital stock or voting securities of the
Company, and (c) no options or other rights to acquire from the Company, and no
obligation of the Company to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Company (the items in clauses 3.05(a), 3.05(b) and 3.05(c)
being referred to collectively as the "Company Securities"). There are no
outstanding obligations of the Company or any Subsidiary to repurchase, redeem
or otherwise acquire any Company Securities.
SECTION 3.06. Subsidiaries and Investees. (a) Except as disclosed in
Schedule 3.06(a), each Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where failure to be so qualified would
not, individually or in the aggregate, have a Material Adverse Effect. For
purposes of this Agreement, "Subsidiary" means any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are directly or indirectly owned by the Company. All Subsidiaries and
their respective jurisdictions of incorporation are identified in the Company's
annual report on Form 10-K for the fiscal year ended July 31, 1997 (the "Company
10-K").
(b) Except as disclosed in Schedule 3.06(b), all of the outstanding
capital stock of, or other ownership interests in, each Subsidiary, is owned by
the Company, directly or indirectly, free and clear of any Lien and free of any
other limitation or restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or other ownership interests).
There are no outstanding (i) securities of the Company or any Subsidiary
convertible into or exchangeable for shares of capital stock or other voting
securities or ownership interests in any Subsidiary, and (ii) options or other
rights to acquire from the Company or any Subsidiary, and no other obligation of
the Company or any Subsidiary to issue, any capital stock, voting securities or
other ownership interests in, or any securities convertible into or exchangeable
for any capital stock, voting securities or ownership interests in, any
Subsidiary (the items in clauses 3.06(b)(i) and 3.06(b)(ii) being referred to
collectively as the "Subsidiary Securities"). There are no outstanding
obligations of the Company or any Subsidiary to repurchase, redeem or otherwise
acquire any outstanding Subsidiary Securities.
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(c) Schedule 3.06(c) sets forth (i) the name of each corporation,
partnership, limited liability company or other entity (other than the
Subsidiaries) in which the Company or any Subsidiary holds an equity interest
(each an "Investee"), (ii) a description of such interests and the Investee and
(iii) each agreement (including any agreements with other investors in such
Investee) relating to the investment in such Investee.
(d) Except as disclosed in Schedule 3.06(c), the interest of the
Company or any Subsidiary in each Investee is owned by the Company, directly or
indirectly, free and clear of any Liens and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such interest). Except as set forth in Schedule 3.06(c), there are no
outstanding obligations of the Company or the Subsidiaries to invest in,
contribute to or purchase any securities of or otherwise become obligated to
invest in or contribute to or purchase any securities of any Investee.
SECTION 3.07. SEC Filings. (a) Each of the Company and PS&T has
delivered to Buyer (i) the annual reports on Form 10-K for its fiscal years
ended July 31, 1995, 1996 and 1997, (ii) its quarterly reports on Form 10-Q for
its fiscal quarters ended October 31, 1996, January 31, 1997 and April 30, 1997
and any quarterly reports on Form 10-Q filed subsequent thereto, (iii) its proxy
or information statements relating to meetings of, or actions taken without a
meeting by, the stockholders of the Company held since February 1, 1996, and
(iv) all of its other reports, statements, schedules and registration statements
filed with the Securities and Exchange Commission (the "SEC") since February 1,
1996.
(b) As of its filing date, each such report or statement filed
pursuant to the Exchange Act did not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(c) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the Securities Act of 1933 as of the date such
statement or amendment became effective did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
SECTION 3.08. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in its annual reports on Form 10-K and the quarterly reports on
Form 10-Q referred to in Section 3.07 fairly present, in conformity with
generally accepted accounting principles applied on a consistent basis (except
as may be
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indicated in the notes thereto), the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and changes in financial position for the
periods then ended (subject to normal year-end adjustments in the case of any
unaudited interim financial statements). For purposes of this Agreement,
"Balance Sheet" means the consolidated balance sheet of the Company as of July
31, 1997 and the footnotes thereto set forth in the Company 10-K and "Balance
Sheet Date" means July 31, 1997.
SECTION 3.09. Disclosure Documents. (a) Each document required to be
filed by the Company with the SEC or required to be distributed to the
securityholders of the Company or its Subsidiaries in connection with the
transactions contemplated by this Agreement (the "Company Disclosure
Documents"), including, without limitation, the proxy statement of the Company
(the "Company Proxy Statement") to be filed with the SEC in connection with the
Merger, and the offer to purchase the PS&T Notes pursuant to the Debt Offer and
any related documents (the "Debt Offer Documents") and any amendments or
supplements thereto, when filed and /or mailed, as applicable, will comply as to
form in all material respects with the applicable requirements of the Exchange
Act.
(b) At the time the Company Proxy Statement or any amendment or
supplement thereto is first mailed to stockholders of the Company, at the time
such stockholders vote on adoption of this Agreement and at the Effective Time,
the Company Proxy Statement, as supplemented or amended, if applicable, will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. At the time of the
filing of any Company Disclosure Document other than the Company Proxy Statement
and at the time of any distribution thereof, such Company Disclosure Document
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. The
representations and warranties contained in this Section 3.09(b) will not apply
to statements or omissions included in the Company Disclosure Documents based
upon information furnished to the Company in writing by Buyer specifically for
use therein.
(c) The information with respect to the Company or any Subsidiary that
the Company furnishes to Buyer in writing specifically for use in connection
with the proposed offering of bonds of Buyer described in the Commitment Letters
(the "New Bond Offering") will not, at the time of the filing, if any, thereof,
at the time of any distribution thereof and at the time of the consummation of
the
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Debt Offer, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
SECTION 3.10. Absence of Certain Changes. Except for the transactions
contemplated hereby, since the Balance Sheet Date, the Company and its
Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been:
(a) any event, occurrence or development of a state of
circumstances or facts which has had or reasonably could be expected
to have a Material Adverse Effect;
(b) except as disclosed in Schedule 3.10(b), any declaration,
setting aside or payment of any dividend or other distribution with
respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any
Subsidiary of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any
Subsidiary;
(c) any amendment of any material term of any outstanding
security of the Company or any Subsidiary;
(d) except for the Convertible Note or as disclosed in Schedule
3.10(d), any incurrence, assumption or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money;
(e) except as disclosed in Schedule 3.10(e), any creation or
assumption by the Company or any Subsidiary of any Lien on any material
asset other than in the ordinary course of business consistent with
past practices;
(f) except as disclosed in Schedule 3.10(f), any making of any
loan, advance or capital contributions to or investment in any Person
other than loans, advances or capital contributions to or investments
in wholly-owned Subsidiaries made in the ordinary course of business
consistent with past practices;
(g) any damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business or assets of the
Company or any Subsidiary which, individually or in the aggregate,
has had or would reasonably be expected to have a Material Adverse
Effect;
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(h) except as disclosed in Schedule 3.10(h), any transaction or
commitment made, or any contract or agreement entered into, by the
Company or any Subsidiary relating to its assets or business (including
the acquisition or disposition of any assets) or any relinquishment by
the Company or any Subsidiary of any contract or other right, in either
case, material to the Company and the Subsidiaries taken as a whole,
other than transactions and commitments in the ordinary course of
business consistent with past practice and those contemplated by this
Agreement and except for the sale of Styrex Industries, Inc.;
(i) any change in any method of accounting or accounting
practice by the Company or any Subsidiary, except for any such change
required by reason of a concurrent change in generally accepted
accounting principles;
(j) except as contemplated by Section 5.08 or as disclosed in
Schedule 3.10(j), any (i) grant of any severance or termination pay to
any director, officer or employee of the Company or any Subsidiary,
(ii) entering into of any employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement)
with any director, officer or employee of the Company or any
Subsidiary, (iii) increase in benefits payable under any existing
severance or termination pay policies or employment agreements or (iv)
increase in compensation, bonus or other benefits payable to
directors, officers or employees of the Company or any Subsidiary,
other than in the ordinary course of business consistent with past
practice; or
(k) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of the Company or any
Subsidiary, which employees were not subject to a collective
bargaining agreement at the Balance Sheet Date, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with
respect to such employees.
SECTION 3.11. No Undisclosed Material Liabilities. Except as disclosed
in Schedule 3.11, there are no liabilities of the Company or any Subsidiary of
any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition, situation or set
of circumstances which could reasonably be expected to result in such a
liability, other than:
(a) liabilities disclosed and provided for in the Balance Sheet;
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(b) liabilities fully and specifically identified as such in the
Company 10-K;
(c) the Convertible Note;
(d) liabilities incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date, which
(except for customary purchase orders) in the aggregate are not
material to the Company and the Subsidiaries, taken as a whole; and
(e) liabilities under this Agreement.
SECTION 3.12. Litigation. Except as disclosed in Schedule 3.12, there
is no action, suit, investigation or proceeding pending against, or to the
knowledge of the Company threatened against or affecting, the Company or any
Subsidiary (or any present or former officers, directors or employees of the
Company or any Subsidiary for which the Company or any Subsidiary may be liable)
or any of their respective properties before any court or arbitrator or any
governmental body, agency or official which, if determined or resolved adversely
to the Company or any Subsidiary in accordance with the plaintiff's demands,
would reasonably be expected to have a Material Adverse Effect or which in any
manner challenges or seeks to prevent, enjoin, alter or materially delay the
Merger or any of the other transactions contemplated hereby.
SECTION 3.13. Taxes. (a) For purposes of this Agreement, the following
terms shall have the following meanings: "Tax" means any U.S. federal, state or
local or foreign net or gross income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, franchise, profits, withholding on
amounts paid to or by the Company, social security (or similar), unemployment,
disability, ad valorem, sales, use, transfer, recording, documentary,
conveyancing, gains, registration, value added, alternative, or add-on minimum,
estimated or other tax, governmental fee or other like assessment or charge of
any kind whatsoever, however denominated, including any interest, penalty, or
addition thereto, whether disputed or not, and "Tax Return" means any return,
declaration, report, claim for refund or information return or statement
relating to any Tax, including any schedule or attachment thereto, and including
any amendment thereof.
(b) Except as disclosed in Schedule 3.13(b), each of the Company and
its Subsidiaries has filed all material Tax Returns required to be filed by it
for Tax years ended prior to the date of this Agreement or requests for
extensions have been timely filed and any such request shall have been granted
and not expired and all such Tax Returns are true, correct and complete in all
material respects,
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paid or accrued all material Taxes shown to be due and payable on such Tax
Returns and properly accrued in all material respects all such Taxes for such
periods subsequent to the periods covered by such Tax Returns.
(c) Except as disclosed in Schedule 3.13(c), no deficiency for any
Taxes has been proposed, asserted or assessed against the Company or any
Subsidiary which has not been resolved and paid in full.
(d) There are no outstanding requests, agreements, consents or waivers
to extend the statutory period of limitations applicable to the assessment of
any Taxes or deficiencies against the Company or any Subsidiary, and no power of
attorney granted by either the Company or any Subsidiary with respect to any
Taxes is currently in force.
(e) Except as disclosed in Schedule 3.13(e), neither the Company nor
any Subsidiary has been a member of any group of entities (other than a group of
which the Company is the common parent) filing an affiliated, combined,
consolidated, unitary or similar Tax Return or is a party to any agreement
providing for the allocation or sharing of Taxes.
(f) Schedule 3.13(f) contains a complete and accurate list, as of July
31, 1996, of all of the accrued and unexpired net operating loss carryforward
amounts of the Company and its Subsidiaries and their corresponding annual
limitations under Section 382 of the Internal Revenue Code of 1986, as amended
(the "Code").
SECTION 3.14. Employee Benefits. (a) Schedule 3.14(a) sets forth a list
of each "employee benefit plan", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974 ("ERISA"), which (i) is subject to any
provision of ERISA and (ii) is maintained, administered or contributed to by the
Company or any Subsidiary and covers any employee or former employee of the
Company or any Subsidiary or under which the Company or any Subsidiary has any
liability. Copies of such plans (and, if applicable, related trust agreements)
and all amendments thereto and written interpretations thereof have been
furnished to Buyer together with (A) the three most recent annual reports (Form
5500 including, if applicable, Schedule B thereto) prepared in connection with
any such plan and (B) the most recent actuarial valuation report prepared in
connection with any such plan. Such plans are referred to collectively herein as
the "Employee Plans". The only Employee Plans which individually or collectively
would constitute an "employee pension benefit plan" as defined in Section 3(2)
of ERISA (the "Pension Plans") are identified as such in the list referred to
above. The Company has provided Buyer with complete age, salary, service and
related data as of July 31, 1997 for employees and former employees
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of the Company and any Subsidiary covered under the Pension Plans. As of the
Effective Time, no Employee Plan will provide for and the Company will not be
obligated to provide equity-based compensation or benefits.
(b) Except as otherwise identified in the list referred to in Section
3.14(a), no Employee Plan constitutes a "multiemployer plan", as defined in
Section 3(37) of ERISA (a "Multiemployer Plan"), and no Employee Plan is
maintained in connection with any trust described in Section 501(c)(9) of the
Code. The only Employee Plans that are subject to Title IV of ERISA (the
"Retirement Plans") are identified in the list of such Plans heretofore provided
to Buyer by the Company. Except as otherwise disclosed fully and specifically in
the Company 10-K in accordance with Statement of Financial Accounting Standards
("SFAS") No. 87, as of the Balance Sheet Date, the fair market value of the
assets of each Retirement Plan (excluding for these purposes any accrued but
unpaid contributions) exceeded the projected benefit obligation for such plan
determined in accordance with SFAS No. 87. No "accumulated funding deficiency",
as defined in Section 412 of the Code, has been incurred with respect to any
Pension Plan, whether or not waived. The Company knows of no "reportable event",
within the meaning of Section 4043 of ERISA, and no event described in Section
4041, 4042, 4062 or 4063 of ERISA has occurred in connection with any Employee
Plan, other than a "reportable event" that will not have a Material Adverse
Effect. The assets of the Company and all of its Subsidiaries are not now, nor
will they after the passage of time be, subject to any lien imposed under Code
Section 412(n) by reason of a failure of any of the Company or any Subsidiary to
make timely installments or other payments required under Code Section 412. No
condition exists and no event has occurred that could constitute grounds for
termination of any Retirement Plan or, with respect to any Employee Plan which
is a Multiemployer Plan, presents a material risk of a complete or partial
withdrawal under Title IV of ERISA and neither the Company nor any of its
affiliates has incurred any material liability under Title IV of ERISA arising
in connection with the termination of, or complete or partial withdrawal from,
any plan covered or previously covered by Title IV of ERISA, which liability has
not been paid in full. If a "complete withdrawal" by the Company and all of its
affiliates were to occur as of the Effective Time with respect to all Employee
Plans which are Multiemployer Plans, neither the Company nor any affiliate would
incur any withdrawal liability under Title IV of ERISA that would have or
reasonably be expected to have a Material Adverse Effect. Nothing done or
omitted to be done and no transaction or holding of any asset under or in
connection with any Employee Plan has or will make the Company or any
Subsidiary, any officer or director of the Company or any Subsidiary subject to
any liability under Title I of ERISA or liable for any tax pursuant to Section
4975 of the Code that could have a Material Adverse Effect.
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(c) To the Company's knowledge, each Employee Plan which is intended
to be qualified under Section 401(a) of the Code is so qualified and has been so
qualified during the period from its adoption to date, and each trust forming a
part thereof is exempt from tax pursuant to Section 501(a) of the Code. The
Company has furnished to the Buyer copies of the most recent Internal Revenue
Service determination letters with respect to each such Plan. Each Employee Plan
has been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to such
Plan.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company or any Subsidiary that, individually
or collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code.
(e) Schedule 3.14(e) sets forth each written and material unwritten
employment, severance or similar contract or arrangement or any written or any
material unwritten plan, policy, fund, program or contract or arrangement of the
Company and its Subsidiaries providing for compensation, bonus, profit-sharing,
stock option, or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including any
self-insured arrangements), health or medical benefits, disability benefits,
workers' compensation, supplemental unemployment benefits, severance benefits
and post-employment or retirement benefits (including compensation, pension,
health, medical or life insurance or other benefits) which (i) is not an
Employee Plan, (ii) is entered into, maintained or contributed to, as the case
may be, by the Company or any of its Subsidiaries and (iii) covers any employee
or former employee of the Company or any of its Subsidiaries. Such contracts,
plans and arrangements as are described above, copies or descriptions of all of
which have been furnished previously to Buyer are referred to collectively
herein as the "Benefit Arrangements". Each Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations that are
applicable to such Benefit Arrangement.
(f) The excess of the present value of the projected liability in
respect of post-retirement health and medical benefits for retired employees of
the Company and its affiliates, determined using assumptions that are reasonable
in the aggregate, over the fair market value of any fund, reserve or other
assets segregated for the purpose of satisfying such liability (including for
such purposes any fund established pursuant to Section 401(h) of the Code) has
been disclosed fully and specifically in the Company 10-K and in accordance with
SFAS No.
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106. To the Company's knowledge, no condition exists that would prevent the
Company or any Subsidiary from amending or terminating any Employee Plan or
Benefit Arrangement providing health or medical benefits other than limitations
imposed under the terms of a collective bargaining agreement.
(g) Except as disclosed on Schedule 3.14(g), there has been no
amendment to, written interpretation or announcement (whether or not written) by
the Company or any of its Subsidiaries relating to, or change in employee
participation or coverage under, any Employee Plan or Benefit Arrangement which
would increase materially the expense of maintaining such Employee Plan or
Benefit Arrangement above the level of the expense incurred in respect thereof
for the fiscal year ended on the Balance Sheet Date.
(h) Except as disclosed in Schedule 3.14(e), 3.14(h), and Schedule
3.15, neither the Company nor any Subsidiary is a party to any employment
contract or arrangement providing for future compensation with any officer,
consultant, director or employee.
(i) Schedule 3.14(i) sets forth a true and complete list of (a) the
names, titles, annual salaries and other compensation of all officers of the
Company and its Subsidiaries and all other employees of the Company and its
Subsidiaries whose annual base salary exceeds $50,000 and (b) the wage rates for
non-salaried employees of the Company and its Subsidiaries (by classification).
None of such employees and no other key employee of the Company and its
Subsidiaries has indicated to the Company and its Subsidiaries that he intends
to resign or retire as a result of the transactions contemplated by this
Agreement or otherwise within one year after the Closing Date.
SECTION 3.15. Labor Matters. The Company and the Subsidiaries are in
compliance with all currently applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and are not engaged in any unfair labor practice, failure to comply with which
or engagement in which, as the case may be, would reasonably be expected to have
a Material Adverse Effect. Except as disclosed in Schedule 3.15, (i) neither the
Company nor any Subsidiary is a party, or is otherwise subject, to any
collective bargaining agreement or other labor union contract applicable to its
employees, (ii) there are no activities or proceedings by a labor union or
representative thereof to organize any employees of the Company or any
Subsidiary or to challenge the representative status of any union that currently
represents such employees, (iii) there are no pending negotiations between the
Company or any Subsidiary and any labor union or representative thereof, (iv)
there are no pending, and the Company and the Subsidiaries have not experienced
since January 1, 1995, any labor disputes, lockouts, strikes, slowdowns, work
stoppages, or threats thereof,
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(v) the Company and the Subsidiaries, and to the knowledge of the Company and
the Subsidiaries, their employees, are not in default and have not breached in
any material respect the terms of any applicable collective bargaining or other
labor union contract, and there are no material grievances outstanding against
the Company, any Subsidiary or, to the knowledge of the Company and the
Subsidiaries, their employees under any such agreement or contract, (vi) there
is no unfair labor practice complaint pending, or to the knowledge of the
Company and the Subsidiaries threatened, against the Company or any Subsidiary
before the National Labor Relations Board or any other investigation, charge,
prosecution, suite or other proceeding before any court or arbitrator or any
governmental body, agency or official relating to the employees of the Company
or the Subsidiaries or the representation thereof, (vii) there are no claims or
actions pending, or to the knowledge of the Company and the Subsidiaries,
threatened, between the Company and the Subsidiaries and any of their employees
or labor organizations representing or seeking to represent such employees,
(viii) the Company and the Subsidiaries have complied with the Worker Adjustment
and Retraining Notification Act of 1988 and any similar state or local laws
regulating layoffs or employment terminations and (ix) to the knowledge of the
Company and the Subsidiaries, there are no facts or circumstances involving any
employee that would form the basis of, or give rise to, any cause of action,
including, without limitation, unlawful termination based on discrimination of
any kind.
SECTION 3.16. Compliance with Laws. (a) Neither the Company nor any
Subsidiary is in violation of, or has violated in the past five years, any
applicable provisions of any laws, statutes, ordinances or regulations, except
where such violations individually or in the aggregate do not have or reasonably
would not be expected to have a Material Adverse Effect.
(b) Each of the products produced or sold by the Company or any
Subsidiary is, and at all times up to and including the sale thereof has been,
(i) in compliance in all material respects with all applicable federal, state,
local and foreign laws and regulations and (ii) fit for the ordinary purposes
for which it is intended to be used and conforms in all material respects to any
promises or affirmations of fact made on the container or label for such product
or in connection with its sale, except where such noncompliance or failure to be
fit individually or in the aggregate do not have and would not reasonably be
expected to have a Material Adverse Effect. There is no design defect with
respect to any of such products and each of such products contains adequate
warnings, presented in a reasonably prominent manner, in accordance with
applicable laws, rules and regulations and current industry practice with
respect to its contents and use, except where such defects or failure to provide
adequate warnings do not have and would not reasonably be expected to have a
Material Adverse Effect.
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(c) Schedule 3.16 correctly describes each license, franchise, permit,
certificate, approval or other similar authorization affecting, or relating in
any way to, the assets or business of the Company and its Subsidiaries, the
absence of which would prevent the Company or any Subsidiary from operating in
the ordinary course of business (the "Permits"). The Permits are valid and in
full force and effect. Neither the Company nor any Subsidiary is in default
under, and no condition exists that with notice or lapse of time or both would
constitute a default under, the Permits. None of the Permits will be terminated
or impaired or become terminable, in whole or in part, as a result of the
transactions contemplated hereby.
SECTION 3.17. Finders' Fees. Except for Schroders, a copy of whose
engagement agreement has been provided to Buyer, there is no investment banker,
broker, finder or other intermediary which has been retained by or is authorized
to act on behalf, of the Company or any Subsidiary who might be entitled to any
fee or commission from Buyer or any of its affiliates upon consummation of the
transactions contemplated by this Agreement.
SECTION 3.18. Other Information. The Confidential Information
Memorandum dated July 1997, previously delivered to Buyer, except for the
projections contained therein, did not, as of its date, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not misleading. The financial
projections relating to the Company and the Subsidiaries delivered to Buyer were
based upon reasonable assumptions as of the date of such projections. Except for
the requirement that the Company comply with Section 5.01(d), the Company is not
currently aware of any fact or information that would lead it to believe that
such projections are incorrect or misleading in any material respect.
SECTION 3.19. Environmental Matters. (a) Except as disclosed on
Schedule 3.19(a):
(i) no written notice, notification, demand, request for
information, citation, summons, complaint or order has been received
by, or, to the knowledge of the Company or any Subsidiary, is pending
or threatened by any Person against, the Company or any Subsidiary nor
has any material penalty been assessed against the Company or any
Subsidiary with respect to any (A) alleged violation of any
Environmental Law or liability thereunder, (B) alleged failure to have
any permit, certificate, license, approval, registration or
authorization required under any Environmental Law, (C) generation,
treatment, storage, recycling, transportation or disposal of any
Hazardous Substance or (D) discharge, emission or release of any
Hazardous Substance;
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(ii) no polychlorinated biphenyls, radioactive material, lead,
asbestos-containing material, incinerator, sump, surface impoundment,
lagoon, landfill, septic, wastewater treatment or other disposal system
or underground storage tank (active or inactive) is or has been present
at, on or under any property now or previously owned, leased or
operated by the Company or any Subsidiary, except where the presence of
such items individually or in the aggregate would not reasonably be
expected to have a Material Adverse Effect;
(iii) the Company and its Subsidiaries are and have been in
material compliance with all Environmental Laws (including without
limitation ISRA and its predecessors and the new system performance
standards and upgrading requirements for underground storage tanks
contained in Subtitle I of the Resource Conservation and Recovery Act,
42 U.S.C. section 6991, et seq., as amended, and any rules or
regulations promulgated thereunder, including 40 C.F.R. section
280.20, et seq.) and have obtained and are and have been in material
compliance with all Environmental Permits; and such Environmental
Permits are valid and in full force and effect and will not be
terminated or impaired or become terminable, in whole or in part, as
a result of the transactions contemplated hereby;
(iv) no property now or previously owned, leased or operated by
the Company or any Subsidiary nor any property to which the Company
or any Subsidiary has, directly or indirectly, transported or arranged
for the transportation of any Hazardous Substances is listed or, to the
Company's knowledge, proposed for listing, on the National Priorities
List promulgated pursuant to CERCLA, on CERCLIS (as defined in CERCLA)
or on any similar federal, state or foreign list of sites requiring
investigation or clean-up;
(v) neither the Company nor any Subsidiary owns, leases or
operates or has owned, leased or operated any property or has
conducted any operations in New Jersey or Connecticut;
(vi) except as in compliance with applicable Environmental Laws
and in a manner which is not reasonably likely to effect adversely the
Company or any of its Subsidiaries or any of their currently or
previously owned, leased or operated properties, no Hazardous
Substance has been discharged, disposed of, dumped, injected, pumped,
deposited, spilled, leaked, emitted, released or is present at any
property now or previously owned, leased or operated by the Company or
any Subsidiary, and
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(vii) there are no liabilities of or relating to the Company
and any Subsidiary, whether contingent or fixed, actual or potential,
known or unknown, which (A) arise under or relate to matters covered by
Environmental Laws and (B) relate to actions occurring or conditions
existing on or prior to the Effective Time, except for such liabilities
which individually or in the aggregate would not reasonably be expected
to have a Material Adverse Effect.
(b) Except as set forth in Schedule 3.19(b), there has been no
environmental investigation, study, audit, test, review or other analysis
conducted of which the Company has knowledge in relation to the current or prior
business of the Company or any property or facility now or previously owned or
leased by the Company or any Subsidiary.
(c) For purposes of this Section, the following terms shall have the
meanings set forth below:
(i) "CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and any rules or
regulations promulgated thereunder;
(ii) "Company" and "Subsidiary" shall include any entity which
is, in whole or in part, a predecessor of the Company or any
Subsidiary;
(iii) "Environmental Laws" means any and all federal, state,
local and foreign statutes, laws, judicial decisions, regulations,
ordinances, rules, judgments, orders, decrees, codes, plans,
injunctions, permits, concessions, grants, franchises, licenses,
agreements and governmental restrictions, relating to human health,
the environment or to emissions, discharges or releases of pollutants,
contaminants or other hazardous substances or wastes into the
environment, including without limitation ambient air, surface water,
ground water or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or other hazardous
substances or wastes or the clean-up or other remediation thereof; and
(iv) "Hazardous Substances" means any toxic, radioactive,
corrosive or otherwise hazardous substance, including petroleum, its
derivatives, by-products and other hydrocarbons, or any substance
having any constituent elements displaying any of the foregoing
characteristics, which in any event is regulated under Environmental
Laws.
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SECTION 3.20. Material Contracts. (a) Except as filed as an exhibit
to the Company 10-K or as disclosed in Schedule 3.20(a), neither the Company
nor any Subsidiary is a party to or bound by:
(i) any (A) lease of real property or (B) any lease of personal
property providing for annual rentals of $50,000 or more;
(ii) any agreement greater than three months in term for the
purchase of materials, supplies, goods, services, equipment or other
assets providing for annual payments by the Company and its
Subsidiaries of $500,000 or more;
(iii) any sales, distribution or other similar agreement
greater than three months in term providing for the sale by the
Company or any Subsidiary of materials, supplies, goods, services,
equipment or other assets that provides for annual payments to the
Company and the Subsidiaries of $1,000,000 or more;
(iv) any partnership, joint venture or other similar agreement
or arrangement;
(v) any agreement relating to the acquisition or disposition of
any business (whether by merger, sale of stock, sale of assets or
otherwise);
(vi) any agreement relating to indebtedness for borrowed money
or the deferred purchase price of property (in either case, whether
incurred, assumed, guaranteed or secured by any asset) other than the
Convertible Note and (as of the Effective Time of the Merger) the
Upstream Guarantees;
(vii) any option, license, franchise or similar agreement;
(viii) any agency, dealer, sales representative, marketing or
other similar agreement (A) providing for annual sales of $250,000 or
more, (B) under which the Company expects to provide for annual sales
of $250,000 or more or (C) with any party with whom the Company made
$250,000 or more of sales during the fiscal year ended July 31, 1997;
(ix) any agreement that limits the freedom of the Company or any
Subsidiary to compete in any line of business or with any Person or in
any area or which would so limit the freedom of the Company or any
Subsidiary after the Closing Date;
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(x) any agreement with (A) any Person directly or indirectly
owning, controlling or holding with power to vote, 5% or more of the
outstanding voting securities of the Company or any of its Affiliates,
or (B) any director or officer of the Company or any Subsidiary or any
"associates" or members of the "immediate family" (as such terms are
respectively defined in Rule 12b-2 and Rule 16a-1 of the Exchange Act)
of any such director or officer; or
(xi) any other agreement, commitment, arrangement or plan not
made in the ordinary course of business that is material to the
Company and the Subsidiaries, taken as a whole.
(b) Each agreement, contract, plan, lease, arrangement or commitment
disclosed in any Schedule to this Agreement or required to be disclosed pursuant
to this Section is a valid and binding agreement of the Company or a Subsidiary,
as the case may be, and is in full force and effect, and, except as disclosed in
Schedule 3.20(b) none of the Company, any Subsidiary or, to the knowledge of the
Company and its Subsidiaries, any other party thereto is in default or breach in
any material respect under the terms of any such agreement, contract, plan,
lease, arrangement or commitment, and, to the knowledge of the Company and its
Subsidiaries, no event or circumstance has occurred that, with notice or lapse
of time or both, would constitute such an event of default thereunder. True and
complete copies of each such agreement, contract, plan, lease, arrangement or
commitment have been delivered to Buyer, unless the failure to deliver such
agreement, contract, plan, lease, arrangement or commitment is indicated next to
such item in Schedule 3.20(a).
(c) All of the Company's and its Subsidiaries' indebtedness for
borrowed money may be prepaid at any time without penalty, except as set forth
in Schedule 3.20(c).
SECTION 3.21. Properties. (a) Except as set forth in Schedule 3.21, the
Company and the Subsidiaries have good and marketable, indefeasible, fee simple
title to, or in the case of leased property and assets have valid leasehold
interests in, all property and assets (whether real, personal, tangible or
intangible) reflected on the Balance Sheet or acquired after the Balance Sheet
Date, except for properties and assets sold since the Balance Sheet Date in the
ordinary course of business consistent with past practices. None of such
property or assets is subject to any Lien, except:
(i) Liens disclosed on the Balance Sheet;
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(ii) Liens fully and specifically identified as such in the
Company 10-K;
(iii) Liens for taxes not yet due or being contested in good
faith (and for which adequate accruals or reserves have been
established on the Balance Sheet); or
(iv) Liens which do not materially detract from the value or
materially interfere with any present or intended use of such property
or assets (clauses (i)-(iii) of this Section 3.21(a) are,
collectively, the "Permitted Liens").
(b) There are no developments affecting any such property or assets
pending or, to the knowledge of the Company or any Subsidiary threatened, which
might materially detract from the value, materially interfere with any present
or intended use or materially adversely affect the marketability of any such
property or assets.
(c) All leases of such real property and personal property are in good
standing and are valid, binding and enforceable in accordance with their
respective terms and there does not exist under any such lease any default or
any event which with notice or lapse of time or both would constitute a default.
(d) The plants, buildings, structures and equipment owned by the
Company or any Subsidiary have no material defects, are in good operating
condition and repair and have been reasonably maintained consistent with
standards generally followed in the industry (giving due account to the age and
length of use of same, ordinary wear and tear excepted), are adequate and
suitable for their present uses and, in the case of plants, buildings and other
structures (including, without limitation, the roofs thereof), are structurally
sound.
(e) The plants, buildings and structures owned by the Company or any
Subsidiary currently have access to (i) public roads or valid easements over
private streets or private property for such ingress to and egress from all such
plants, buildings and structures and (ii) water supply, storm and sanitary sewer
facilities, telephone, gas and electrical connections, fire protection, drainage
and other public utilities, in each case as is necessary for the conduct of the
businesses of the Company or any Subsidiary as heretofore conducted. None of the
structures on any such owned or leased real property encroaches upon real
property of another Person, and no structure of any other Person substantially
encroaches upon any of such owned or leased real property.
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(f) Such real property, and its continued use, occupancy and operation
as currently used, occupied and operated, does not constitute a nonconforming
use under all applicable building, zoning, subdivision and other land use and
similar laws, regulations and ordinances, the presence of which would reasonably
be expected to have a Material Adverse Effect.
SECTION 3.22. Intellectual Property. (a) Schedule 3.22(a) contains a
list of all Intellectual Property Rights owned or licensed and used or held for
use by the Company or any Subsidiary ("Company Intellectual Property Rights"),
specifying as to each, as applicable: the nature of such Intellectual Property
Right, the owner of such Intellectual Property Right, the jurisdictions by or in
which such Intellectual Property Right is recognized (without regard to
registration) or has been issued or registered or in which an application for
such issuance or registration has been filed, the registration or application
numbers and the termination or expiration dates. "Intellectual Property Right"
means any trademark, service mark, trade name, mask work, invention, patent,
trade secret, copyright, know-how (including any registrations or applications
for registration of any of the foregoing) or any other similar type of
proprietary intellectual property right.
(b) Schedule 3.22(b) sets forth a list of all licenses, sublicenses and
other agreements as to which the Company or any Subsidiary is a party and
pursuant to which any Person is authorized to use any Company Intellectual
Property Right, including (i) the identity of all parties thereto, (ii) a
description of the nature and subject matter thereof, (iii) the applicable
royalty and (iv) the term thereof.
(c) (i) Since January 1, 1993, neither the Company nor any Subsidiary
has been a defendant in any action, suit, investigation or proceeding relating
to, or otherwise has been notified of, any alleged claim of infringement of any
Intellectual Property Right, and the Company nor any Subsidiary has any
knowledge of any other such infringement by the Company or any Subsidiary and
(ii) the Company nor any Subsidiary has no outstanding claim or suit for, and
has no knowledge of, any continuing infringement by any other Person of any
Company Intellectual Property Rights. No Company Intellectual Property Right is
subject to any outstanding judgment, injunction, order, decree or agreement
restricting the use thereof by the Company or any Subsidiary or restricting the
licensing thereof by the Company or any Subsidiary to any Person. Neither the
Company nor any Subsidiary has entered into any agreement to indemnify any other
Person against any charge of infringement of any Intellectual Property Right.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUBSIDIARY
Each of Buyer and Merger Subsidiary, jointly and severally, represents
and warrants to the Company that:
SECTION 4.01. Corporate Existence and Power. Each of Buyer and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted. Since
the date of its incorporation, Merger Subsidiary has not engaged in any
activities other than in connection with or as contemplated by this Agreement or
in connection with arranging any financing required to consummate the
transactions contemplated hereby.
SECTION 4.02. Corporate Authorization. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and the
consummation by Buyer and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Buyer and Merger Subsidiary and have
been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and binding agreement of each of Buyer and Merger
Subsidiary. The Commitment Letters (as defined in Section 4.07) have been duly
authorized by all necessary corporate action of Buyer and constitute valid and
binding agreements of Buyer.
SECTION 4.03. Governmental Authorization. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and the
consummation by Buyer and Merger Subsidiary of the transactions contemplated by
this Agreement and the Commitment Letters require no action by or in respect of,
or filing with, any governmental body, agency, official or authority, domestic
or foreign, other than (a) the filing of a certificate of merger in accordance
with Delaware Law, (b) compliance with any applicable requirements of the HSR
Act; (c) compliance with any applicable requirements of the Securities Act of
1933, the Exchange Act and state securities and "blue sky" laws, (d) compliance
with any applicable requirements of ISRA and (e) filings and recordings of
financing statements, mortgages and other instruments in connection with the
perfection of liens contemplated by the Commitment Letters.
SECTION 4.04. Non-contravention. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and the
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consummation by Buyer and Merger Subsidiary of the transactions contemplated
hereby do not and will not, subject to the consummation of the transactions
contemplated by Section 6.05, if necessary, (a) contravene or conflict with the
certificate of incorporation or bylaws of Buyer or Merger Subsidiary, (b)
assuming compliance with the matters referred to in Section 4.03, contravene or
conflict with any provision of law, regulation, judgment, order or decree
binding upon Buyer or Merger Subsidiary, or (c) constitute a default under or
give rise to any right of termination, cancellation or acceleration of any right
or obligation of Buyer or Merger Subsidiary or to a loss of any benefit to which
Buyer or Merger Subsidiary is entitled under any agreement, contract or other
instrument binding upon Buyer or Merger Subsidiary, including without
limitation, the Tekni-Plex Indenture, other than under Buyer's $75 million
revolving credit facility with Morgan Guaranty Trust Company of New York, the
commitments under which are expected to be terminated and all amounts owed
thereunder to be repaid pursuant to the terms of the Financing (as defined in
Section 4.07). Buyer is not in default or in breach in any material respect
under the Tekni-Plex Indenture, and to the knowledge of Buyer, no event or
circumstance has occurred that, with notice or lapse of time or both, would
constitute an event of default thereunder.
SECTION 4.05. Disclosure Documents. The information with respect to
Buyer and its subsidiaries that Buyer furnishes to the Company in writing
specifically for use in any Company Disclosure Document will not contain, any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading (i) in the case of the Company Proxy
Statement at the time the Company Proxy Statement or any amendment or supplement
thereto is first mailed to stockholders of the Company, at the time the
stockholders vote on adoption of this Agreement and at the Effective Time, and
(ii) in the case of any Company Disclosure Document other than the Company Proxy
Statement, at the time of the filing thereof and at the time of any distribution
thereof.
SECTION 4.06. Finders' Fees. Except for J.P. Morgan & Co. Incorporated,
whose fees will be paid by Buyer, there is no investment banker, broker, finder
or other intermediary who might be entitled to any fee or commission from the
Company or any of its affiliates upon consummation of the transactions
contemplated by this Agreement.
SECTION 4.07. Financing. Buyer has received and furnished copies to the
Company of (i) a commitment letter from Morgan Guaranty Trust Company of New
York (the "Lender") dated as of November 11, 1997 pursuant to which the Lender
has committed, subject to the terms and conditions thereof, to provide up to
$255 million of senior secured financing (the "Senior Secured Commitment
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Letter") and (ii) a commitment letter from the Lender dated as of November 11,
1997, pursuant to which the Lender has committed, subject to the terms and
conditions thereof, to enter into a bridge loan agreement with Buyer to provide
$225 million of senior subordinated bridge financing (the "Bridge Commitment
Letter", together with the Senior Secured Commitment Letter, the "Commitment
Letters"). The credit agreement and the bridge loan agreement referred to in the
Commitment Letters are referred to herein as the "Financing Agreements", and the
financing to be provided thereunder or under any alternative arrangements made
by Buyer is referred to herein as the "Financing". As of the date hereof, Buyer
knows of no facts or circumstances that are reasonably likely to result in any
of the conditions set forth in the Commitment Letters not being satisfied. As of
the date hereof, Buyer knows of no facts or circumstances that would permit the
Lender to terminate either of the Commitment Letters pursuant to the terms
thereof.
SECTION 4.08. Absence of Certain Changes. Since June 27, 1997, there
has not been any event, occurrence or development of a state of circumstances or
fact which has had or reasonably could be expected to have a material adverse
effect on the business, condition (financial or other), results of operations or
prospects of the Company and Buyer, taken as whole.
SECTION 4.09. Buyer Financial Statements. The audited consolidated
financial statements of Buyer contained in the Buyer's Registration Statement on
Form S-4, as amended (File No. 333-28157) fairly present, in conformity with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated in the notes thereto), the consolidated financial position
of Buyer and its consolidated subsidiaries as of the date thereof and their
consolidated results of operations and changes in financial position for the
periods then ended.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 5.01. Conduct of the Company. From the date hereof until the
Effective Time, the Company and the Subsidiaries shall conduct their business
in the ordinary course consistent with past practice and shall use their best
efforts to preserve intact their business organizations and relationships with
third parties and to keep available the services of their present officers and
employees. Without
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limiting the generality of the foregoing, except as disclosed in Schedule 5.01,
from the date hereof until the Effective Time:
(a) the Company will not adopt or propose any change in its
certificate of incorporation or bylaws;
(b) the Company will not, and will not permit any Subsidiary
to, merge or consolidate with any other Person or acquire a material
amount of assets of any other Person;
(c) the Company will not, and will not permit any Subsidiary
to, sell, lease, license or otherwise dispose of any material assets
or property except (i) pursuant to existing contracts or commitments
and (ii) inventory in the ordinary course consistent with past
practice;
(d) the Company will not, and will not permit any Subsidiary to,
commit to make or make any capital expenditures without the prior
written consent of Buyer, other than (x) in respect of commitments
existing on the date hereof as disclosed on Schedule 5.01(d) or (y)
maintenance capital expenditures in the ordinary course of business and
in an aggregate amount for clauses (x) and (y) on a combined basis not
to exceed $100,000 per calendar month during the period beginning on
November 1, 1997 and ending on March 31, 1998; and the Company will not
and will not permit any Subsidiary to, commit to make any capital
expenditure without the prior written consent of Buyer to the extent
that any such capital expenditures are payable after March 31, 1998;
(e) the Company shall cause the aggregate dollar value
(determined in accordance with generally accepted accounting
principles applied on a consistent basis) of inventories comprising
the asset base for the PS&T Credit Agreement (as defined in Section
5.09) and owned by PS&T or its Subsidiaries to remain at or below (i)
$59 million during the month of November 1997, (ii) $60.4 million
during the month of December 1997, (iii) $57 million during the month
of January 1998, (iv) $55.5 million during the month of February 1998
and (v) $51.8 million during the month of March 1998;
(f) the Company shall cause the aggregate accounts payable
(determined in accordance with generally accepted accounting
principles applied on a consistent basis but excluding fees and
expenses arising out of the transactions contemplated by this
Agreement) of the Company and its Subsidiaries on a consolidated basis
(exclusive of accounts payable by Burlington Resins, Inc. and accounts
payable by any European
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Subsidiaries) to remain at or to exceed (i) $17.5 million during the
month of November 1997, (ii) $17.0 million during the month of December
1997, (iii) $21.5 million during the month of January 1998, (iv) $23.6
million during the month of February 1998 and (v) $24.1 million during
the month of March 1998;
(g) the Company will not, and will not permit any Subsidiary
to, incur any additional indebtedness for borrowed money except for
borrowings in the ordinary course of business by certain Subsidiaries
under existing working capital facilities disclosed in Schedule
3.10(d), as in effect on the date hereof, and, in the case of PS&T, in
accordance with Section 5.09;
(h) the Company will not, and will not permit any Subsidiary to,
agree or commit to do any of the foregoing; or
(i) the Company will not, and will not permit any Subsidiary to
(i) take or agree or commit to take any action that would make (x) any
representation and warranty of the Company hereunder that is qualified
as to materiality inaccurate in any respect or (y) any representation
and warranty of the Company hereunder that is not qualified as to
materially inaccurate in any material respect, in each case at, or as
of any time prior to, the Effective Time or (ii) omit or agree or
commit to omit to take any action necessary to prevent any such
representation or warranty from being inaccurate in any respect (or,
with respect to representations and warranties described in clause (y),
in any material respect) at any such time.
SECTION 5.02. Stockholder Meeting; Proxy Material. The Company shall
cause a meeting of its stockholders (the "Company Stockholder Meeting") to be
duly called and held as soon as reasonably practicable for the purpose of voting
on the approval and adoption of this Agreement and the Merger unless a vote of
stockholders of the Company is not required by Delaware Law. The Directors of
the Company shall, subject to their fiduciary duties as advised by counsel,
recommend approval and adoption of this Agreement and the Merger by the
Company's stockholders. In connection with such meeting, the Company (a) will
promptly prepare and file with the SEC, will use its best efforts to have
cleared by the SEC and will thereafter mail to its stockholders as promptly as
practicable the Company Proxy Statement and all other related materials for such
meeting, (b) will use its best efforts to obtain the necessary approvals by its
stockholders of this Agreement and the transactions contemplated hereby and (c)
will otherwise comply with all legal requirements applicable to such meeting.
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SECTION 5.03. Access to Information. From the date hereof until the
Effective Time, the Company will give Buyer, its counsel, financial advisors,
auditors and other authorized representatives full access to the offices,
properties, books and records of the Company and the Subsidiaries (including
access to perform physical examinations and to take samples of the soil,
groundwater, air, products or other areas as desired by Buyer in its sole
discretion), will furnish to Buyer, its counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and other
information as such Persons may reasonably request and will instruct the
Company's employees, counsel and financial advisors to cooperate with Buyer in
its investigation of the business of the Company and the Subsidiaries.
SECTION 5.04. Other Offers. From the date hereof until the termination
hereof, the Company and the Subsidiaries and the officers, directors, employees
or other agents of the Company and the Subsidiaries will not, directly or
indirectly, (i) take any action to solicit, initiate or take any action
knowingly to facilitate the submission of any Acquisition Proposal or (ii)
subject to the fiduciary duties of the Board of Directors under applicable law
as advised by Winthrop, Stimson, Putnam & Roberts, counsel to the Company,
engage in negotiations with, or disclose any nonpublic information relating to
the Company or any Subsidiary or afford access to the properties, books or
records of the Company or any Subsidiary to, any Person, except to customers and
suppliers of the Company and its Subsidiaries in the ordinary course of
business. The Company will promptly notify Buyer after receipt of any
Acquisition Proposal or any indication that any Person is considering making an
Acquisition Proposal or any request for nonpublic information relating to the
Company or any Subsidiary or for access to the properties, books or records of
the Company or any Subsidiary by any Person that may be considering making, or
has made, an Acquisition Proposal and will keep Buyer fully informed of the
status and, subject to the fiduciary duties of the Board of Directors of the
Company under Delaware Law, details of any such Acquisition Proposal, indication
or request. For purposes of this Agreement, "Acquisition Proposal" means any
offer or proposal for, or any indication of interest in, a merger or other
business combination involving the Company or any Subsidiary or the acquisition
of any equity interest in, or a substantial portion of the assets of, the
Company or any Subsidiary, other than the transactions contemplated by this
Agreement. Notwithstanding the foregoing, if the Board of Directors of the
Company receives an Acquisition Proposal which it determines in good faith will
provide greater value to the Company and its stockholders than the transactions
contemplated hereby (a "Superior Proposal"), the Board of Directors of the
Company may, prior to the receipt of approval of the Merger from the
stockholders of the Company, withdraw or modify its approval or recommendation
of the Merger and this Agreement, approve or recommend a Superior Proposal or
terminate this Agreement in accordance with Section 9.01(i)
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but in each case, only at a time that is at least five business days after
Buyer's receipt of written notice advising Buyer that the Board of Directors of
the Company has received a Superior Proposal, specifying the material terms and
conditions of such Superior Proposal and the names of the person or persons
making such Superior Proposal. Within the five-business-day period referred to
herein, Buyer may propose an improved transaction to the Board of Directors of
the Company.
SECTION 5.05. Notices of Certain Events. The Company shall promptly
notify Buyer of:
(a) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating
to or involving or otherwise affecting the Company or any Subsidiary
which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.12 or which
relate to the consummation of the transactions contemplated by this
Agreement.
SECTION 5.06. Cooperative Efforts. (a) The Company agrees, and agrees
to cause each of its Subsidiaries, to cooperate with and use its best efforts to
assist Buyer in connection with the New Bond Offering, including but not limited
to, participating in marketing efforts, participating in the preparation of
disclosure relating to the Company and the Subsidiaries to be included in any
related offering documents, and participating in the preparation of pro forma
financial information relating to the Buyer and the Company on a combined basis.
(b) The Company shall, and shall cause PS&T to, use its best efforts
to consummate the Debt Offer on a timely basis. The Company shall keep Buyer
apprised on a regular and timely basis of all significant developments relating
to the Debt Offer and shall consult with Buyer prior to taking any significant
actions or making any significant decisions in connection therewith.
SECTION 5.07. Loans to Affiliated Persons. The Company shall cause
all loans extended by the Company or any of the Subsidiaries to the officers and
directors of the Company and the Subsidiaries on the date hereof to be repaid in
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full, whether or not then due, prior to or concurrently with the consummation of
the Merger and shall use its best efforts to cause all loans extended by the
Company or any of the Subsidiaries to former officers and directors, current
employees (except for loans to facilitate relocations of current employees as
set forth on Schedule 3.20(a)) and former employees and associates of the
Company to be repaid in full, whether or not then due, prior to or concurrently
with the consummation of the Merger. Buyer consents to the discharge of such
loans dollar for dollar through the surrender and cancellation without payment
of the same principal amount of 7% Subordinated Notes of the Company referred to
in Schedule 3.20(a).
SECTION 5.08. Severance Package. Prior to the Effective Time, the
Company shall adopt a severance payment plan having the terms set forth in
Schedule 5.08 pursuant to documentation satisfactory to each of Buyer and the
Company. Such severance plan shall be adopted in lieu of and shall replace any
existing severance payment plan covering any current or future employees of the
Company and its Subsidiaries.
SECTION 5.09. Proceeds of Convertible Note. The Company shall make
$4,600,000 of the proceeds of the Convertible Note available to PS&T immediately
upon receipt of such proceeds. PS&T shall apply the $4,600,000 received from the
Company in accordance herewith to pay down its debt under the revolving credit
facility described in the Amended and Restated Senior Loan Agreement dated as of
November 8, 1993, as amended, among PS&T, the lenders listed therein and General
Electric Capital Corporation, as Agent (the "PS&T Credit Agreement"). PS&T
further agrees to borrow under the PS&T Credit Agreement only after reasonable
consultation with Buyer in the event that immediately following such borrowing,
less than $4,600,000 of undrawn capacity for borrowing would remain available to
PS&T.
ARTICLE 6
COVENANTS OF BUYER AND MERGER SUBSIDIARY
Each of Buyer and Merger Subsidiary, jointly and severally, agrees
that:
SECTION 6.01. Obligations of Merger Subsidiary. Buyer will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
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SECTION 6.02. Voting of Shares. Buyer agrees to vote all Shares
beneficially owned by it in favor of adoption of this Agreement at the Company
Stockholder Meeting.
SECTION 6.03. Director and Officer Liability. Each of the Surviving
Corporation and PS&T will, pursuant to provisions in their respective
certificates of incorporation and by-laws, indemnify and hold harmless the
present and former officers and directors of the Company and PS&T, respectively,
in respect of acts or omissions occurring while such persons are officers and
directors to the same extent as is provided under each of the Company's and
PS&T's, respectively, certificate of incorporation and bylaws in effect on the
date hereof, and Buyer will not amend, repeal or modify such provisions in any
manner that would adversely affect the rights thereunder of such persons;
provided that such indemnification shall be subject to any limitation imposed
from time to time under applicable law. For four years after the Effective Time,
Buyer will cause each of the Surviving Corporation and PS&T, respectively, to
use its best efforts to provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Effective Time covering each
such Person currently covered by the Company's and PS&T's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable in the aggregate than those of the applicable policy in
effect on the date hereof, provided that in satisfying its obligation under this
Section, Buyer shall not be obligated to cause the Surviving Corporation or PS&T
to purchase an amount of such insurance in excess of the amount that can be
purchased for premiums of 120% of the amount per annum the Company or PS&T paid
in its last full fiscal year, which amount has been disclosed to Buyer.
SECTION 6.04. Commitment Letters and Financing Agreements. Buyer (i)
will not amend or otherwise modify the Commitment Letters in any material
respect adverse to Buyer or the Company, or grant any waivers with respect
thereto, without the prior consent of the Company, (ii) will provide the Company
with drafts of the Financing Agreements as soon as they are provided by Lender
or its counsel, (iii) will use its best efforts to obtain the Financing and (iv)
will inform the Company in writing within five business days of its becoming
aware of any facts or circumstances that might reasonably be expected to result
in (x) the Commitment Letters being terminated or any of the conditions therein
not being satisfied, or (y) the amount of the Financing to be provided pursuant
to the Commitment Letters or the Financing Agreements not being sufficient to
complete all of the transactions contemplated hereby.
SECTION 6.05. Repurchase of Bonds. In the event that the consummation
of the Merger or the drawing of funds under the Financing Agreements would be
reasonably likely to violate or cause an event of default under the Tekni-Plex
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Indenture, Buyer shall, at the earliest practicable time following Buyer's
obtaining knowledge thereof, notify the Company of such fact and commence a
combined consent solicitation and offer to purchase any and all of the 11 1/4%
Senior Subordinated Notes due 2007 issued thereunder. The documentation for such
offer and consent solicitation, including without limitation the conditions
thereto, shall be reasonably satisfactory to the Company, and Buyer shall take
all actions reasonably necessary in connection therewith to obtain the consent
of holders of the principal amount of notes which would be sufficient to amend
or eliminate those provisions of the Tekni-Plex Indenture which would be
contravened by the consummation of the Merger.
ARTICLE 7
COVENANTS OF BUYER AND THE COMPANY
The parties hereto agree that:
SECTION 7.01. Best Efforts. Subject to the terms and conditions of this
Agreement, each party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement.
SECTION 7.02. Certain Filings. The Company and Buyer shall cooperate
with one another (a) in connection with the preparation of the Company
Disclosure Documents and (b) in determining whether any action by or in respect
of, or filing with, any governmental body, agency or official, or authority is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by this Agreement and (c) in
seeking any such actions, consents, approvals or waivers or making any such
filings, furnishing information required in connection therewith or with the
Company Disclosure Documents and seeking timely to obtain any such actions,
consents, approvals or waivers.
SECTION 7.03. Public Announcements. Buyer and the Company will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby and,
except as may be required by applicable law, any policy or regulation of the
Nasdaq Stock Market or the fiduciary duties of the Company's Board of
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Directors under Delaware Law, will not issue any such press release or make any
such public statement prior to such consultation.
SECTION 7.04. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
ARTICLE 8
CONDITIONS TO THE MERGER
SECTION 8.01. Conditions to the Obligations of Each Party. The
obligations of the Company, Buyer and Merger Subsidiary to consummate the Merger
are subject to the satisfaction of the following conditions:
(a) this Agreement shall have been adopted by the stockholders
of the Company in accordance with Delaware Law;
(b) any applicable waiting period under the HSR Act relating to
the Merger shall have expired;
(c) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation
of the Merger;
(d) all actions by or in respect of or filings with any
governmental body, agency, official, or authority domestic or foreign,
required to permit the consummation of the Merger including without
limitation, filing a certificate of merger pursuant to Delaware Law,
and any filings required pursuant to ISRA, the substance of all of
which is reasonably satisfactory to the Company and the Buyer, shall
have been taken, made or obtained.
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SECTION 8.02. Conditions to the Obligations of Buyer and Merger
Subsidiary. The obligations of Buyer and Merger Subsidiary to consummate the
Merger are subject to the satisfaction of the following further conditions:
(a) (i) the Company shall have performed in all material
respects all of its obligations hereunder required to be performed by
it at or prior to the Effective Time, the representations and
warranties of the Company contained in this Agreement and in any
certificate or other writing delivered by the Company pursuant hereto
shall be true when made and (x) in respect of those representations
and warranties that are qualified as to materiality, shall be true at
and as of the Effective Time as if made at and as of such time, any
(y) in respect of those representations and warranties that are not so
qualified, shall be true in all material respects at and as of the
Effective Time as if made at and as of such time (in each case except
to the extent that such representations and warranties speak as of an
earlier date); provided that the accuracy of such representations and
warranties at and as of the Effective Time shall be determined without
reference to any actions, claims or proceedings brought against the
Company or any Subsidiary arising out of or as a result of the actions
taken or proposed to be taken by the Company and its Subsidiaries
pursuant to Section 1.07 hereof ("Section 1.07 Claims") and (ii) Buyer
shall have received a certificate signed by each of the Chief
Executive Officer, the President and the Chief Financial Officer of
the Company to the foregoing effect;
(b) no court, arbitrator or governmental body, agency or
official shall have issued any order, and there shall not be any
statute, rule or regulation, restraining or prohibiting the
consummation of the Merger or any of the transactions contemplated
hereby or the effective operation of the business of the Company and
the Subsidiaries after the Effective Time, and no proceeding which is
likely to (i) prohibit, alter, prevent or materially delay the Merger,
or (ii) except for any Section 1.07 Claims, prohibit, alter, prevent
or materially delay the other transactions contemplated hereby shall
have been instituted by any Person before any court, arbitrator or
governmental body, agency or official and be pending;
(c) Buyer shall have received a certificate signed by each of
the President and the Chief Executive Officer of the Company to the
effect that neither the Company nor any of its Subsidiaries has been a
United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified
in Section 897(c)(A)(ii) of the Code;
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(d) Buyer has obtained sufficient financing on terms
satisfactory to it to (i) provide the Intercompany Loans, (ii) pay the
Merger Consideration and consummate the Merger, (iii) retire, if
necessary, the currently outstanding 11 1/4% Senior Subordinated Notes
due 2007 issued under the Tekni-Plex Indenture, (iv) pay related fees
and expenses not to exceed $8 million in the aggregate, and (v) provide
undrawn revolving lines of Credit as contemplated by the Commitment
Letters; provided that (x) Buyer shall not be obligated to draw down
the bridge loan contemplated in the Bridge Loan Commitment Letter prior
to the later of January 31, 1998 or 15 business days after the
stockholders of the Company shall have voted to approve the Merger; and
(y) Buyer acknowledges that the terms of the Financing described in the
Commitment Letters are reasonable and satisfactory to Buyer;
(e) the transactions described in Sections 1.06 and 1.07 shall
have been, or concurrently will be, consummated;
(f) the Company shall have obtained the consents listed on
Schedule 3.04 (except with respect to any debt of any Subsidiary that
Buyer elects not to repay as permitted by Section 1.06(b));
(g) Buyer shall have received, in respect of any operations
conducted in, and in respect of each facility or real property owned,
leased or operated by the Company or any Subsidiary which is located
in, the State of New Jersey, evidence of full compliance by the
Company with the requirements of ISRA. Such evidence shall be in a
form satisfactory to Buyer in its sole discretion and shall not
impose upon Buyer, the Company or any Subsidiary any obligations or
liabilities to which Buyer shall not have consented in writing prior
to the Closing.
(h) no change shall have occurred in the business, assets,
liabilities, financial condition, capitalization, operations, results
of operations or prospects of the Company or any Subsidiary and Buyer
shall not have become aware of any facts not previously known by Buyer
as of the date hereof that in either case, in the reasonable judgment
of Buyer, have or are likely to have a material adverse significance
with respect to the value of the Company and its Subsidiaries, taken as
a whole, excluding (i) the transactions contemplated by the Merger
Agreement, or (ii) any Section 1.07 Claims; and
(i) Buyer shall have received all documents it may reasonably
request relating to the existence of the Company and the Subsidiaries
and
39
<PAGE>
the authority of the Company for this Agreement, all in form and
substance satisfactory to Buyer.
SECTION 8.03. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) (i) Each of Buyer and Merger Subsidiary shall have
performed in all material respects all of its obligations hereunder
required to be performed by it at or prior to the Effective Time, the
representations and warranties of Buyer and Merger Subsidiary
contained in this Agreement and in any certificate or other writing
delivered by Buyer or Merger Subsidiary pursuant hereto shall be true
when made and (x) in respect of those representations and warranties
that are qualified as to materiality, shall be true at and as to the
Effective Time as if made at and as of such time, and (y) in respect
of those representations and warranties that are not so qualified,
shall be true in all material respects at and as of the Effective Time
as if made at and as of such time (in each case except to the extent
that such representations and warranties speak as of an earlier date)
and (ii) the Company shall have received a certificate signed by the
Chief Executive Officer of Buyer to the foregoing effect;
(b) no court, arbitrator or governmental body, agency or
official shall have issued any order, and there shall not be any
statute, rule or regulation, restraining or prohibiting the
consummation of the Merger and no proceeding which is likely to (i)
prohibit, alter, prevent or materially delay the Merger, or (ii)
except for any Section 1.07 Claims, prohibit, alter, prevent or
materially delay the transactions contemplated hereby shall have been
instituted by any Person before any court, arbitrator or governmental
body, agency or official and be pending; and
(c) the Company shall have received all documents that the
Company shall have reasonably requested relating to the existence of
Buyer and Merger Subsidiary and the authority of the Buyer and Merger
Subsidiary to enter into this Agreement, the Commitment Letters and
the Financing Agreements, all in form and substance satisfactory to
the Company.
40
<PAGE>
ARTICLE 9
TERMINATION
SECTION 9.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the stockholders of the
Company):
(a) by mutual written consent of the Company and Buyer;
(b) by either the Company or Buyer, if the Merger has not been
consummated by March 31, 1998;
(c) by either the Company or Buyer, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining
Buyer or the Company from consummating the Merger is entered and such
judgment, injunction, order or decree shall become final and
nonappealable; or
(d) by Buyer, if any Person, entity or "group" (as defined in
Section 13(d)(3) of the Exchange Act) other than Buyer or Merger
Subsidiary acquires beneficial ownership of 50% or more of the
outstanding Shares;
(e) by Buyer, if prior to the Effective Time, the Board of
Directors of the Company shall have withdrawn or materially modified
its approval or recommendation of the Merger or this Agreement,
recommended another Acquisition Proposal or entered into a definitive
agreement or agreement in principle with respect to another
Acquisition Proposal, or resolved to do any of the foregoing;
(f) by Buyer, if prior to the consummation of the Merger, a
tender or exchange offer for some or all of the Shares shall have been
publicly proposed to be made or shall have been made by another
person, or it shall have been publicly disclosed or Buyer shall have
otherwise learned that any person, entity or "group" (as defined in
Section 13(d)(3) of the Exchange Act) other than Buyer or Merger
Subsidiary shall have acquired or proposed to acquire beneficial
ownership of more than 20% of any class or series of capital stock of
the Company (including the Shares), through the acquisition of stock,
the formation of a group or otherwise, or shall have been granted any
option, right or warrant, conditional or
41
<PAGE>
otherwise, to acquire beneficial ownership of more than 20% of any
class or series of capital stock of the Company (including the Shares);
(g) by either Buyer or the Company, if the Company Stockholder
Meeting shall have been held and the stockholders of the Company shall
have failed to approve and adopt this Agreement and the Merger at such
meeting;
(h) by either Buyer or the Company, if Buyer shall have
received any communication from the Department of Justice or Federal
Trade Commission (each an "HSR Authority") (which communication shall
be confirmed to the other parties by the HSR Authority) that causes
such party to reasonably believe that any HSR Authority has authorized
the institution of litigation challenging the transactions
contemplated by this Agreement under the U.S. antitrust laws, which
litigation will include a motion seeking an order or injunction
prohibiting the consummation of any of the transactions contemplated
by this Agreement; and
(i) by the Company, if (x) the Board of Directors of the Company
concludes in good faith, based on written advice from outside counsel,
that, in order to prevent the Board of Directors of the Company from
breaching its fiduciary duties to the stockholders of the Company, it
must withdraw or materially modify its approval or recommendation of
the Merger or this Agreement, and it withdraws or materially modifies
such approval or recommendation, (y) the Company complies with its
obligations under Section 5.04, and (z) the Company pays all amounts
due to Buyer pursuant to Section 10.04(a) in advance of such
termination. At least two business days prior to terminating pursuant
to this Section 9.01(i), the Company shall notify Buyer of its
intention to terminate pursuant to this Section 9.01(i) and shall
request that Buyer submit the amount of its costs and expenses payable
under section 10.04(a).
The party desiring to terminate this Agreement pursuant to clauses 9.01(b),
9.01(c), 9.01(d), 9.01(e), 9.01(f), 9.01(g), 9.01(h) or 9.01(i) shall give
written notice of such termination to the other party in accordance with Section
10.01.
SECTION 9.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 9.01, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except that the agreements
contained in Section 10.04 shall survive the termination hereof.
42
<PAGE>
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including telecopy
or similar writing) and shall be given,
if to Buyer or Merger Subsidiary, to:
Dr. F. Patrick Smith
Chairman and Chief Executive Officer
Tekni-Plex, Inc.
201 Industrial Parkway
Somerville, New Jersey 08876
Telecopy: (908) 722-4967
with a copy to:
Phillip R. Mills
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
if to the Company or PS&T, to:
Fred W. Broling
Chairman of the Board and Chief Executive Officer
PureTec Corporation
65 Railroad Avenue
Ridgefield, New Jersey 07657
Telecopy: (201) 941-0602
with a copy to:
David P. Falck
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Telecopy: (212) 858-1500
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
43
<PAGE>
other communication shall be effective (a) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and the
appropriate telecopy confirmation is received or (b) if given by any other
means, when delivered at the address specified in this Section.
SECTION 10.02. Survival of Representations and Warranties. The
representations and warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time or the termination of this Agreement except for the agreements
set forth in Section 10.04.
SECTION 10.03. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived prior to the Effective Time if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by the Company, Buyer and Merger Subsidiary or in the case of a waiver, by the
party against whom the waiver is to be effective; provided that after the
adoption of this Agreement by the stockholders of the Company, there shall be
made no amendment or waiver that by law requires further approval by such
stockholders without the further approval of such stockholders.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 10.04. Expenses. (a) The Company and PS&T jointly and severally
agree to pay Buyer, in immediately available funds, promptly, but in no event
later than two business days, after (or, in the case of termination under
Section 9.01(i), prior to) the termination of this Agreement pursuant to clauses
(d), (e) or (i) of Section 9.01, (x) a fee of $10,000,000 and (y) reasonable and
documented costs and expenses, not to exceed $5,000,000 in the aggregate,
incurred by Buyer and its subsidiaries and their representatives in connection
with the transactions contemplated by this Agreement, which costs and expenses
shall include, without limitation, fees and expenses payable by the Company to
the Lender pursuant to the Commitment Letters, the costs and expenses in
connection with the New Bond Offering, and fees and expenses of counsel and
costs and expenses of the due diligence investigations of the Company and its
Subsidiaries; provided, that payment of any amounts by the Company or PS&T
pursuant to this Section 10.04(a) shall constitute a complete accord and
satisfaction of all claims pursuant to this Agreement that either Buyer or
Merger Subsidiary may have against the Company or PS&T and all claims that the
Company or PS&T may have against Buyer or Merger Subsidiary, arising out of such
termination and
44
<PAGE>
relating to this Agreement (it being understood that the foregoing shall not
affect in any respect the Company's obligations under the Convertible Note or
the Voting Agreement).
(b) Subject to Section 10.04(a) and Section 10.04(c), all costs and
expenses incurred in connection with this Agreement shall be paid by the party
incurring such cost or expense.
(c) In the event this Agreement is terminated as a result of Buyer
having breached its obligations hereunder or as a result of Buyer's failure to
obtain the Financing for any reason, in whole or in part, not related to the
Company's or the Subsidiaries' actions and, in either case, all of the other
conditions set forth in Sections 8.01 and 8.02 shall have been satisfied, Buyer
shall pay the out-of-pocket costs and expenses incurred by the Company and its
Subsidiaries solely in connection with the New Bond Offering.
SECTION 10.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto.
SECTION 10.06. Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware.
SECTION 10.07. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof and of the Convertible Note signed by all of
the other parties hereto and thereto.
45
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
PURETEC CORPORATION
By: ______________________________
Name:
Title:
PLASTIC SPECIALTIES &
TECHNOLOGIES, INC.
By: ______________________________
Name:
Title:
TEKNI-PLEX, INC.
By: ______________________________
Name:
Title:
P.T. HOLDING, INC.
By: ______________________________
Name:
Title:
46
<PAGE>
Schedule 3.05 Options and Warrants
<TABLE>
<CAPTION>
# Options/Warrants # Options/Warrants Range of # Options/Warrants Expiring in:
In the Money Out of the Money Exercise
Type of Security $0-$3.49 $3.50 and above Price 1997 1998 1999 2005
<S> <C> <C> <C> <C> <C> <C> <C>
1995 INCENTIVE
PLAN OPTIONS 795,000 $2.00 - $3.00 795,000
1,888,700 $3.00 - $4.00 37,000 1,851,700
216,666 $4.00 - $5.00 216,666
56,000 $5.00 - $6.00 56,000
92,000 $6.00 - $7.00 92,000
TOTAL: 3,048,366 2,683,700 364,666 37,000 3,011,366
=============================================================================== ========================== ========================
1995 DIRECTOR $2.25
PLAN OPTIONS 120,000 120,000
TOTAL: 120,000 120,000 120,000
=============================================================================== ========================== ========================
NON-PLAN
OPTIONS 491,000 $4.00 - $5.00 435,000 56,000
50,000 $5.00 - $6.00 50,000
25,000 $22.00 25,000
TOTAL: 510,000 566,000 566,000
=============================================================================== ========================== ========================
SETTLEMENT
WARRANTS 449,878 $4.61 449,878
TOTAL: 449,878 449,878 449,878
=============================================================================== ========================== ========================
"APR" WARRANTS
116,444 $20 - $22 116,444
TOTAL: 116,444 116,444 116,444
=============================================================================== ========================== ========================
COAST RECYCLING
WARRANTS
36,000 $22.00 36,000
TOTAL: 36,000 36,000 36,000
=============================================================================== ========================== ========================
SPP WARRANTS
100,000 10.50-12.00 100,000
TOTAL: 100,000 100,000 100,000
=============================================================================== ========================== ========================
TOTAL: 4,436,688 2,803,700 1,632,988 37,000 626,444 585,878 3,131,366
========= ========= ========= ====== ======= ======= =========
47
<PAGE>
CROSS-REFERENCE TARGET LIST
NOTE: Due to the number of targets some target names may not appear in the
target pull-down list. (This list is for the use of the wordprocessor only, is
not a part of this document and may be discarded.)
ARTICLE/SECTION TARGET NAME
?.............................................co.oblig.appoint
?.................................................buy.desig.no
?..................................................comp.action
?....................................................file.14d9
?................................................co.board.unan
?........................................................offer
?..............................................file.sec.tender
?...............................................offer.commence
?..............................................majority.of.bod
?..................................................co.no.nj.ct
?............................................severance.package
?.............................................buy.offer.comply
?..........................................real.prop.trans.tax
?..................................................amend.terms
?....................................................offer.art
?................................................no.union.cont
?................................................conv.debt.sec
1...................................................merger.art
1.01....................................................merger
1.01(a)..............................................surv.corp
1.01(b).......................................file.cert.merger
1.01(c), 1.01(d)...............................possess.all.rts
1.02...............................................conv.shares
1.02(a)........................................co.share.cancel
1.02(b).........................................sub.share.conv
1.02(c).........................................out.share.conv
1.03..................................................surr.pay
?....................................................directors
1.03(a)..............................................exc.agent
1.03(b).........................................jt.venture.aff
1.03(b)........................................holder.entitled
1.03(c)..........................................cert.endorsed
1.03(d).......................................no.furth.reg.shr
1.03(e)..........................................unclaimed.ret
1.03(f).........................................shares.ret.buy
1.04.........................................dissenting.shares
1.05.............................................stock.options
1.05(a)............................................emp.stk.can
1.06..............................................company.debt
1.06(a)...........................................senior.notes
1.06(b)..................................other.subsidiary.debt
1.07..........................................pst.min.interest
1.07..........................................pst.min.interest
1.08...............................................inter.loans
1.09.......................................upstream.guarantees
2................................................surv.corp.art
2.01..................................................cert.inc
2.02....................................................bylaws
2.03...................................................dir.off
3...................................................rep.war.co
3.01..................................................co.exist
3.02..................................................co.autho
3.03..............................................co.gov.autho
3.04................................................co.non.con
3.05....................................................co.cap
3.05(a).........................................no.out.shr.cap
3.05(b)........................................no.sec.conv.shr
3.05(c).............................................no.options
3.06....................................................co.sub
3.06(a)...............................................sub.corp
3.06(b).........................................co.own.sub.stk
3.06(b)(i)........................................nno.vtng.sec
3.06(b)(ii)..........................................no.rights
3.06(c).....................................corp.part.lim.liab
3.07............................................co.sec.filings
3.07(a).........................................co.del.buy.sec
3.07(b)............................................report.true
3.07(c)..........................................co.not.untrue
3.08...............................................co.fin.stmt
3.09..............................................co.disc.docs
3.09(a).........................................co.docs.comply
3.09(b)..........................................co.proxy.true
3.09(c).......................................co.sub.info.true
3.10...........................................co.abs.cert.chg
3.10(a)..........................................co.no.mat.adv
3.10(b)..........................................co.no.div.cap
3.10(c)........................................co.no.amend.sec
3.10(d)...........................................co.no.indebt
3.10(e).............................................co.no.lien
3.10(f).............................................co.no.loan
3.10(g)...........................................co.no.damage
3.10(h)............................................co.no.trans
3.10(i).........................................co.no.chg.acct
3.10(j)............................................co.no.sever
3.10(k).......................................co.no.labor.disp
3.11..........................................co.no.undis.liab
3.11(a)................................................co.liab
3.11(c), 3.11(d)...................................co.ord.liab
3.11(e)............................................co.liab.agt
3.12...................................................co.liti
3.13..................................................co.taxes
3.13(a)...............................................tax.defs
3.13(b)..............................co.has.filed.and.paid.tax
3.13(c)...............................no.tax.deficiency.unpaid
3.13(d)............................no.extention.or.pwr.of.atty
3.13(e)..............................co.not.member.tax.sharing
3.13(f).....................................tax.comp.accrue.ex
3.14..................................................co.erisa
3.14(a)..........................................emp.bene.plan
3.14(b).......................................no.multiemp.plan
3.14(c)..........................................emp.plan.qual
3.14(d).........................................no.con.cov.emp
3.14(e).........................................list.emp.sever
3.14(f)........................................excess.post.ret
3.14(g)........................................co.no.amend.emp
3.14(h)........................................emp.ben.dis.con
3.14(i).....................................true.complete.list
3.15.............................................labor.matters
3.15(a)(i)....................................neither.comp.sub
3.16...............................................co.comp.law
3.17.............................................co.finder.fee
3.18.............................................co.other.info
3.19................................................co.env.mat
3.19(a)..........................................co.except.10k
3.19(b).......................................co.no.env.invest
3.19(c).............................................co.env.def
3.20........................................material.contracts
3.20(a)...................................mat.contracts.except
3.20(a)(i)...........................................any.lease
3.20(a)(ii)......................................any.agreement
3.20(a)(iii).........................................any.sales
3.20(a)(iv)...................................any.partnerships
3.20(a)(ix)............................................any.agt
3.20(a)(v)........................................any.relating
3.20(a)(vi)...................................any.indebtedness
3.20(a)(vii)........................................any.option
3.20(a)(viii).......................................any.agency
3.20(a)(x)..........................................any.person
3.20(a)(xi)..........................................any.other
3.20(b)................................each.agreement.contract
3.20(c).................................except.ps&t.notes.comp
3.21................................................properties
3.21(a)...........................................company.prop
3.21(a)(i).....................................liens.disclosed
3.21(a)(iii)...................................liens.for.taxes
3.21(a)(iv)......................................liens.detract
3.21(b)........................................no.developments
3.21(c).............................................all.leases
3.21(d).............................................the.plants
3.21(e)..............................................buildings
3.21(f).........................................such.real.prop
3.22.............................................intellec.prop
3.22(a)....................................intellec.prop.sched
3.22(b)..........................................schedule.sets
3.22(c).............................................since.date
4..................................................rep.war.buy
4.01.................................................buy.exist
4.02.................................................buy.autho
4.03.............................................buy.gov.autho
4.04...............................................buy.non.con
4.05.........................................buy.sub.info.true
4.05.............................................buy.disc.docs
4.06............................................buy.finder.fee
4.07.............................................buy.financing
5.......................................................cov.co
5.01................................................co.conduct
5.01(a)........................................co.not.chg.cert
5.01(b)...........................................co.not.merge
5.01(c)............................................co.not.sell
5.01(d).....................................comp.sub.com.expen
5.01(h)...........................................co.not.agree
5.01(i).............................................co.not.lie
5.02..........................................co.stk.mtg.proxy
5.03............................................co.access.info
5.04...........................................co.other.offers
5.05..........................................co.notice.events
5.05(a)........................................co.consent.pers
5.05(b).....................................not.gov.reg.agency
5.05(c)...........................................note.actions
5.07...................................loan.affiliated.persons
5.09.................................proceeds.convertible.note
6......................................................cov.buy
6.01..........................................oblig.merger.sub
6.02.............................................voting.shares
6.04...................................commit.ltrs.finan.agree
6.05..........................................repurch.of.bonds
7...................................................cov.buy.co
7.01..............................................best.efforts
7.02...........................................certain.filings
7.03...........................................public.announce
7.04.............................................further.assur
8..............................................cond.merger.art
8.01...........................................cond.oblig.each
8.01(a)..........................................adopt.del.law
8.01(b)...........................................hsr.wait.exp
8.01(c)........................................no.law.prohibit
8.01(d).......................................actions.obtained
8.02...........................................cond.obl.buy.sub
8.02(a).......................................co.perf.all.oblig
8.02(b)........................................no.court.iss.ord
8.02(c).....................................co.not.897(c)(2).co
8.02(i)........................................buy.rec.all.docs
9......................................................term.art
9.01.......................................................term
9.01(a)..........................................mutual.consent
9.01(b)........................................offer.not.consum
9.01(c)..........................................merger.illegal
9.01(d)............................................acq.bene.own
9.01(e)............................................bod.approval
9.01(g)............................................meeting.held
9.01(h).....................................buyer.received.comm
9.01(i).......................................prev.breach.fiduc
9.02................................................effect.term
10......................................................misc.art
10.01....................................................notices
10.02...............................................surv.rep.war
10.03..............................................amend.waivers
10.03(a)..................................................signed
10.03(b).........................................delay.not.waive
10.04...................................................expenses
10.04(a)..............................................expenses.a
10.04(b)..............................................expenses.b
10.04(c)........................................agree.terminated
10.05...............................................succ.assigns
10.06..............................................governing.law
10.07.............................................counter.effect
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 6,460
<SECURITIES> 0
<RECEIVABLES> 50,838
<ALLOWANCES> 1,454
<INVENTORY> 47,848
<CURRENT-ASSETS> 5,047
<PP&E> 103,486
<DEPRECIATION> 45,666
<TOTAL-ASSETS> 218,545
<CURRENT-LIABILITIES> 77,126
<BONDS> 134,196
0
0
<COMMON> 83
<OTHER-SE> (2,379)
<TOTAL-LIABILITY-AND-EQUITY> 218,545
<SALES> 269,611
<TOTAL-REVENUES> 0
<CGS> 206,343
<TOTAL-COSTS> 241,622
<OTHER-EXPENSES> 352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,140
<INCOME-PRETAX> 9,497
<INCOME-TAX> 5,364
<INCOME-CONTINUING> 4,133
<DISCONTINUED> (1,627)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,506
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
