UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRELIMINARY SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities
Exchange Act of 1934)
HART HOLDING COMPANY INCORPORATED
(Name of Issuer)
HART HOLDING COMPANY INCORPORATED
(Name of person filing Statement)
Common Stock, $.01 par value, of Hart
Holding Company Incorporated
(Title of Class of Securities)
416086106
(CUSIP Number of Class of Securities)
Louis J. Bevilacqua, Esq.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
(212) 504-6000
(Name, Address and Telephone Number of Person Authorized
to receive Notices and Communications on Behalf of
Person Filing Statement)
This statement is filed in connection with
(check the appropriate box):
a. [X] The filing of solicitation materials or an information
statement subject to Regulation 14A [17 CFR 240.14a-1 to
240.14b-1], Regulation 14C [17 CFR 240.14c-1 to 240.14c-
101] or Rule 13e-3(c) [Section 240.13e-(c)] under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the
Securities Act of 1933.
c. [X] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting material or information
statement referred to in checking box (a) are preliminary copies: [X]
CALCULATION OF FILING FEE
- -----------------------------------------------------------------
Amount of
Transaction valuation Filing Fee
$ 1,313,550.00*.....................................$ 0
- -----------------------------------------------------------------
* 583,800 shares of the Issuer's Common Stock, par value $.01
redeemed for cash consideration of $2.25 per share.
[X] Check box if any part of the fee is offset as provided by
Rule 0-11(a)(2) and identify the filing with which the
offsetting fee was previously paid. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
Amount previously paid: $ 262.71 Filing Party:
Hart Holding
Company Incorporated
Form of Registration: Preliminary Proxy Statement ($125.00)
Date Filed: December 15, 1992
Issuer Tender Offer
Statement ($137.71) April 22, 1994
<PAGE>
This Rule 13E-3 Transaction Statement is being filed by
Hart Holding Company Incorporated (the "Corporation") with
respect to its Common Stock, $.01 par value. The Board of
Directors has approved a resolution adopting an amendment to the
Corporation's Restated Certificate of Incorporation (the
"Amendment"). The principal stockholder of the Corporation, who
beneficially owns or controls approximately 95% of the issued and
outstanding shares which would be entitled to vote at a meeting
of stockholders if a meeting were held, has advised the
Corporation that he intends to execute a consent with respect to
his shares in favor of the Amendment. The Amendment provides for
a reduction in the number of authorized shares of the
Corporation's common stock from 40,000,000 shares of $.01 par
value ("Existing Shares") to 75,000 shares of $1.00 par value
("New Shares") and a six hundred to one reverse stock split (the
"Reverse Stock Split") of the Corporation's Existing Shares.
Upon the effectiveness of the Reverse Stock Split every 600
Existing Shares will automatically be converted into one New
Share. Upon completion of the Reverse Stock Split, holders of
less than 600 Existing Shares who do not elect or are unable to
purchase additional shares will cease to be stockholders of the
Corporation and the Corporation will acquire for cash all
resulting fractional New Shares at a price equal to $1,350 per
New Share (the "Cash Consideration") which is equivalent to $2.25
for each Existing Share repurchased. As a result of the Reverse
Stock Split, stockholders will receive one New Share for each 600
Existing Shares currently held. All Existing Shares not
converted into New Shares will be converted into the right to
receive the Cash Consideration. Stockholders that hold
fractional shares after the Reverse Stock Split may elect to
forego the Cash Consideration and round up their fractional
holdings to the next whole share (on a first-come, first-served
basis, subject to the availability of fractional shares) by
paying $2.25 for each 1/600 of a share needed to round up their
holdings to equal one New Share. Stockholders owning whole New
Shares as a result of the Reverse Stock Split will be given the
right to tender such whole New Shares for a period of 30 days
following the consummation of the Reverse Stock Split for a
purchase price of $1,350 per New Share (the "Purchase Offer").
The Purchase Offer is not conditional on any minimum number of
shares being tendered and will expire at 5:00 p.m. Eastern
Daylight Time, on ____________, 1994, unless extended. The terms
of the Reverse Stock Split and the offer to purchase any
resulting whole New Share are mandated by and subject to the
conditions set forth in the settlement of two class action
lawsuits entitled CLARE LOIS SPARK LOEB v. JAMES W. HART, ET AL.,
Del. Ch., C.A. 12830, [Allen, C.], and ROCHELLE BROOKS v. JAMES
W. HART, et al., Del. Ch., C.A. 12831 [Allen, C.] filed in the
Court of Chancery of the State of Delaware, challenging an
earlier proposed 300 to one reverse stock split of the
Corporation's common stock which was announced on December 18,
1992. The Court of Chancery entered an order approving the terms
of the settlement on April 15, 1994 (the "Settlement Approval
Date"). In order to be eligible to round up fractional New
Shares to the next whole New Share, a stockholder must be the
stockholder of record with respect to such shares on both the
Settlement Approval Date and the effective date of the Reverse
Stock Split.
Concurrently with the filing of this Statement, the
Corporation is filing an Issuer Tender Offer Statement, Schedule
13E-4 ("Schedule 13E-4"), with exhibits, with the Securities and
Exchange Commission. The cross-reference sheet below is being
supplied pursuant to General Instruction F to Schedule 13E-3 and
shows the location in the Schedule 13E-4 of the information
required to be included in response to the items in this
Statement.
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to General Instruction F to Schedule 13E-3)
LOCATION OF ITEM IN LOCATION OF ITEM IN
ITEM IN SCHEDULE 13E-3 SCHEDULE 13E-4 INFORMATION STATEMENT
Item 1 (a).................Item 1(a) Cover
(b).................Item 1(b) "MARKET AND DIVIDEND
INFORMATION"
(c).................Item 1(c) "MARKET AND DIVIDEND
INFORMATION"
(d).................Item 1(c) "MARKET AND DIVIDEND
INFORMATION"
(e)................. * *
(f)................. "SPECIAL FACTORS --
Background and Reasons
for the Reverse
Stock Split - Repurchase
of the Corporation's
Existing Shares"
"MARKET AND DIVIDEND
INFORMATION"
Item 2 (a)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
(b)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
(c)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
(d)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
(e)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
(f)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
(g)................. * "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS"
Item 3 (a)................. * *
(b)................. * "BACKGROUND OF REVERSE
STOCK SPLIT AND PURCHASE
OFFER"
"SPECIAL FACTORS --
Background and Reasons
for the Reverse
Stock Split
- Repurchase of the
Corporation's Existing
Shares"
Item 4 (a).................Item 1(b) "BACKGROUND OF
REVERSE STOCK SPLIT
AND PURCHASE OFFER"
"TERMS OF REVERSE
STOCK SPLIT AND PURCHASE
OFFER"
"EXCHANGE OF SHARES AND
PAYMENT IN LIEU OF
ISSUANCE OF FRACTIONAL
SHARES"
(b)................. * *
Item 5 (a).................Item 3(b) *
(b).................Item 3(c) *
(c).................Item 3(d) *
(d).................Item 3(e) *
(e).................Item 3(f) *
(f).................Item 3(i) "REVERSE STOCK SPLIT --
Termination of Exchange
Act Registration"
(g).................Item 3(j) "REVERSE STOCK
SPLIT -- Termination
of Exchange Act
Registration"
Item 6 (a).................Item 2(a) "SOURCE AND AMOUNT OF
FUNDS, EXPENSES"
(b)................. * "SOURCE AND AMOUNT OF
FUNDS, EXPENSES"
(c).................Item 2(b), (1)
and (2)
*
(d)................. * *
Item 7 (a).................Item 3 "SPECIAL
FACTORS -- Purposes of
the Reverse Stock Split"
(b)................. * "SPECIAL FACTORS --
Background and Reasons
for the Reverse
Stock Split"
"SPECIAL FACTORS --
Decision to Propose the
Reverse Stock Split"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
(c)................. * "BACKGROUND OF REVERSE
STOCK SPLIT
AND PURCHASE OFFER"
"SPECIAL FACTORS --
Background and Reasons
for the Reverse
Stock Split"
"SPECIAL FACTORS --
Decision to Propose the
Reverse Stock Split"
(d).................Item 3(j) "EFFECTS OF
THE REVERSE STOCK SPLIT
Item 8 (a)................. * "SPECIAL FACTORS --
Background and Reasons
for the Reverse
Stock Split"
"SPECIAL FACTORS --
Decision to Propose the
Reverse Stock Split"
"SPECIAL FACTORS --
Conflicts of Interest,
Lack of Opinions,
Appraisals and Reports"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
"RECOMMENDATION OF BOARD
OF DIRECTORS,
VOTE REQUIRED"
(b)................. * "SPECIAL FACTORS --
Background and Reasons
for the Reverse
Stock Split"
"SPECIAL FACTORS --
Decision to Propose the
Reverse Stock Split"
"SPECIAL FACTORS --
Conflicts of Interest,
Lack of Opinions,
Appraisals and Reports"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
"RECOMMENDATION OF BOARD
OF DIRECTORS,
VOTE REQUIRED"
(c)................. * "SPECIAL FACTORS --
Background and Reasons
for the
Reverse Stock Split"
"SPECIAL FACTORS --
Decision to Propose the
Reverse Stock Split"
"SPECIAL FACTORS --
Conflicts of Interest,
Lack of Opinions,
Appraisals and Reports"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
"RECOMMENDATION OF BOARD
OF DIRECTORS,
VOTE REQUIRED"
(d)................. * "SPECIAL FACTORS --
Background and Reasons
for the Reverse
Stock Split"
"SPECIAL FACTORS --
Decision to Propose the
Reverse Stock Split"
"SPECIAL FACTORS --
Conflicts of Interest,
Lack of Opinions,
Appraisals and Reports"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
"RECOMMENDATION OF BOARD
OF DIRECTORS,
VOTE REQUIRED"
(e)................. * "SPECIAL FACTORS --
Background and Reasons
for the Reverse
Stock Split"
"SPECIAL FACTORS --
Decision to Propose the
Reverse Stock Split"
"SPECIAL FACTORS --
Conflicts of Interest,
Lack of Opinions,
Appraisals and Reports"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
"RECOMMENDATION OF BOARD
OF DIRECTORS,
VOTE REQUIRED"
(f)................. * *
Item 9 (a)................. * "SPECIAL FACTORS --
Conflicts of Interest,
Lack of Opinions,
Appraisals and Reports"
"FAIRNESS OF THE REVERSE
STOCK SPLIT"
(b)................. * *
(c)................. * *
Item 10 (a)................. * "BOARD OF
DIRECTORS, EXECUTIVE
OFFICERS AND PRINCIPAL
STOCKHOLDERS"
(b).................Item 4 "SPECIAL FACTORS --
Background and Reasons
for the Reverse
Stock Split - Repurchase
of Corporation's
Existing Shares"
Item 11 ....................Item 5 *
Item 12 (a).................Item 1(b) "VOTE OF MAJORITY
STOCKHOLDER TO BE
DETERMINATIVE"
"RECOMMENDATION OF THE
BOARD OF DIRECTORS,
VOTE REQUIRED"
(b)................. * "RECOMMENDATION OF THE
BOARD OF DIRECTORS,
VOTE REQUIRED"
Item 13 (a)................. * "APPRAISAL RIGHTS"
(b)................. * *
(c)................. * *
Item 14 (a).................Item 7(a),(1)
.................... and (2) "FAIRNESS OF THE REVERSE
STOCK SPLIT"
"SELECTED CONSOLIDATED
FINANCIAL DATA"
"MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS"
"FINANCIAL
INFORMATION"
(b).....................Item 7(b)(1),
(2), and(3) *
Item 15 (a)................. * "SOURCE AND AMOUNT OF
FUNDS, EXPENSES"
(b).................Item 6 "SOURCE AND AMOUNT OF
FUNDS, EXPENSES"
Item 16 Item 8(e) Entire Information
Statement
Item 17 (a)................. * *
(b)................. * *
(c)................. * *
(d).................Item 9(a)(1) Entire
Information Statement
(e)................. * *
(f)................. * *
_______________________
* The Item is not required by Schedule 13E-4.
<PAGE>
Item 1. Issuer and Class of Security Subject to the Transaction.
(a) The name of the issuer is Hart Holding Company
Incorporated, a Delaware corporation, and the address of its
principal executive office is 1120 Boston Post Road, Darien,
Connecticut 06820.
(b) The exact title of the class of equity securities
to which this statement relates is Common Stock, par value $.01
per share. The information set forth under the caption "MARKET
AND DIVIDEND INFORMATION" of the Information Statement is
incorporated herein by reference.
(c) The information set forth under the caption
"MARKET AND DIVIDEND INFORMATION" of the Information Statement is
incorporated herein by reference.
(d) The information set forth under the caption
"MARKET AND DIVIDEND INFORMATION" of the Information Statement is
incorporated herein by reference.
(e) Not applicable.
(f) The information set forth under the captions
"SPECIAL FACTORS -- Background and Reasons for the Reverse Stock
Split - Repurchase of the Corporation's Existing Shares" and
"MARKET AND DIVIDEND INFORMATION" of the Information Statement is
incorporated herein by reference.
Item 2. Identity and Background.
(a)-(d), (g) This Statement is filed by Hart Holding
Company Incorporated, a Delaware corporation and a diversified
industrial company, with principal executive offices at 1120
Boston Post Road, Darien, Connecticut 06820. The information
set forth under the caption "BOARD OF DIRECTORS, EXECUTIVE
OFFICERS AND PRINCIPAL STOCKHOLDERS" of the Information Statement
is incorporated herein by reference.
(e)-(f) To the best of the Corporation's knowledge,
each person described under the caption "BOARD OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS" of the Information
Statement is a citizen of the United States and during the last 5
years no such person has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) and no
such person was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of
which he was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject
to, federal or state securities laws or finding any violation of
such laws.
Item 3. Past Contracts, Transactions or Negotiations.
(a) Not applicable.
(b) The information set forth under the captions
"BACKGROUND OF REVERSE STOCK SPLIT AND PURCHASE OFFER" and
"SPECIAL FACTORS -- Background and Reasons for the Reverse Stock
Split - Repurchase of the Corporation's Existing Shares" of the
Information Statement is incorporated herein by reference.
Item 4. Terms of the Transaction.
(a) The information set forth under the captions
"BACKGROUND OF REVERSE STOCK SPLIT AND PURCHASE OFFER", "TERMS OF
REVERSE STOCK SPLIT AND PURCHASE OFFER" and "EXCHANGE OF SHARES
AND PAYMENT IN LIEU OF ISSUANCE OF FRACTIONAL SHARES" of the
Information Statement is incorporated herein by reference.
(b) Not applicable.
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a)-(e) Not applicable.
(f)-(g) The information set forth under the caption
"REVERSE STOCK SPLIT -- Termination of Exchange Act Registration"
of the Information Statement is incorporated herein by reference.
Item 6. Source and Amount of Funds or Other Consideration.
(a)-(b) The information set forth under the caption
"SOURCE AND AMOUNT OF FUNDS, EXPENSES" of the Information
Statement is incorporated herein by reference.
(c)-(d) Not applicable.
Item 7. Purpose(s), Alternatives, Reasons and Effects.
(a) The information set forth under the caption
"SPECIAL FACTORS -- Purposes of the Reverse Stock Split" of the
Information Statement is incorporated herein by reference.
(b) The information set forth under the captions
"SPECIAL FACTORS -- Background and Reasons for the Reverse Stock
Split - Repurchase of the Corporation's Existing Shares",
"SPECIAL FACTORS -- Decision to Propose the Reverse Stock Split"
and "FAIRNESS OF THE REVERSE STOCK SPLIT" of the Information
Statement is incorporated herein by reference.
(c) The information set forth under the captions
"BACKGROUND OF REVERSE STOCK SPLIT AND PURCHASE OFFER", "SPECIAL
FACTORS -- Background and Reasons for the Reverse Stock Split"
and "SPECIAL FACTORS -- Decision to Propose the Reverse Stock
Split" of the Information Statement is incorporated herein by
reference.
(d) The information set forth under the caption
"EFFECTS OF THE REVERSE STOCK SPLIT" of the Information Statement
is incorporated herein by reference.
Item 8. Fairness of the Transaction.
(a)-(e) The information set forth under the captions
"SPECIAL FACTORS -- Background and Reasons for the Reverse Stock
Split", "SPECIAL FACTORS -- Decision to Propose the Reverse Stock
Split", "SPECIAL FACTORS -- Conflicts of Interest, Lack of
Opinions, Appraisals and Reports", "FAIRNESS OF THE REVERSE STOCK
SPLIT" and "RECOMMENDATION OF BOARD OF DIRECTORS, VOTE REQUIRED"
of the Information Statement is incorporated herein by reference.
(f) Not applicable.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a) The information set forth under the captions
"SPECIAL FACTORS -- Conflicts of Interest, Lack of Opinions,
Appraisals and Reports" and "FAIRNESS OF THE REVERSE STOCK SPLIT"
of the Information Statement is incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
Item 10. Interest in Securities of the Issuer.
(a) The information concerning the ownership of and
transactions in Common Stock set forth under the caption "BOARD
OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS" of
the Information Statement is incorporated herein by reference.
(b) The information set forth under the caption
"SPECIAL FACTORS -- Background and Reasons for the Reverse Stock
Split - Repurchase of the Corporation's Existing Shares" of the
Information Statement is incorporated herein by reference.
Item 11. Contracts, Arrangements or Understandings
with Respect to the Issuer's Securities.
Not applicable.
Item 12. Present Intention and Recommendation of
Certain Persons with Regard to the Transaction.
(a) The information set forth under the captions "VOTE
OF MAJORITY STOCKHOLDER TO BE DETERMINATIVE" and "RECOMMENDATION
OF THE BOARD OF DIRECTORS, VOTE REQUIRED" of the Information
Statement is incorporated herein by reference.
(b) The information set forth under the caption
"RECOMMENDATION OF THE BOARD OF DIRECTORS, VOTE REQUIRED" of the
Information Statement is incorporated herein by reference.
Item 13. Other Provisions of the Transaction.
(a) The information set forth under the caption
"APPRAISAL RIGHTS" of the Information Statement is incorporated
herein by reference.
(b) Not applicable.
(c) Not applicable.
Item 14. Financial Information.
(a) The information set forth under the captions
"FAIRNESS OF THE REVERSE STOCK SPLIT", "SELECTED CONSOLIDATED
FINANCIAL DATA", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS", and "FINANCIAL
INFORMATION" of the Information Statement is incorporated herein
by reference. Audited financial statements of the Corporation
for the fiscal years ended December 31, 1992 and 1993 are set
forth in the Financial Statements and notes thereto contained on
pages 17 through 38 of the portions of the Corporation's 1992
Annual Report on Form 10-K which are an exhibit (the "1992 Form
10-K Report") and on pages 23 through 43 of the Corporation's
1993 Annual Report on Form 10-K (the "1993 Form 10-K Report").
The report of independent accountants thereon is set forth on
page 18 of the 1992 Form 10-K Report and page 22 of the 1993 Form
10-K Report. The above noted sections of the 1992 Form 10-K
Report and the 1993 Form 10-K Report, which are attached to the
Information Statement, are hereby incorporated herein by
reference.
(b) Not applicable.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a)-(b) The information set forth in the cover page
of the Information Statement, and under the caption "SOURCE AND
AMOUNT OF FUNDS, EXPENSES", of the Information Statement are
incorporated herein by reference. The time and efforts of
certain officers and other employees of the Corporation have been
utilized in connection with the preparation of the Schedule 13E-
3, the Information Statement and related materials to be sent to
stockholders and have been and will be utilized in connection
with overseeing this transaction. The Corporation may utilize
its employees to solicit tenders of shares from stockholders.
Except as otherwise disclosed in this Item 15, no person has been
or will be retained, employed or compensated to make
solicitations or recommendations in connection with the Rule 13E-
3 transaction.
Item 16. Additional Information.
All of the information set forth in the Information
Statement is incorporated herein by reference.
Item 17. Material to be Filed as Exhibits.
(a)-(c), (e)-(f) - Not applicable.
(d)- Information Statement of Hart Holding Company Incorporated.
EXHIBIT INDEX
MATERIAL TO BE PAGE
FILED AS EXHIBITS NO.
(d) Information Statement
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
Statement is true, complete and correct.
HART HOLDING COMPANY INCORPORATED
By: /s/ James W. Hart
Name: James W. Hart
Title:Chairman of the Board
Dated: April 22, 1994
HART HOLDING COMPANY INCORPORATED
1120 Boston Post Road
Darien, Connecticut 06820
Telephone: (203) 655-6855
-----------------------------------
PRELIMINARY INFORMATION STATEMENT
-----------------------------------
This Information Statement is furnished in connection
with the consent of the Majority Stockholder (as hereinafter
defined) of Hart Holding Company Incorporated, a Delaware
corporation (the "Corporation"), with principal offices at 1120
Boston Post Road, Darien, Connecticut 06820 in connection with
(i) the settlement of two class action lawsuits entitled CLARE
LOIS SPARK LOEB v. JAMES W. HART, et al., CA 12830, and ROCHELLE
BROOKS v. JAMES W. HART, et al., CA 12831 (together, the "Class
Action Lawsuits") filed in the Court of Chancery of the State of
Delaware (the "Court of Chancery"), challenging the proposed 300
to one reverse stock split of the Corporation's common stock
which was announced on December 18, 1992 and (ii) the filing of
an amendment to the Corporation's Restated Certificate of
Incorporation in order to effect the terms of the settlement of
the Class Action Lawsuits (the "Settlement") and the terms of the
reverse stock split, as revised by the Settlement. The terms of
the Settlement include, among other things, an increase in the
cash consideration to be paid for fractional shares to $2.25 per
share ("Cash Consideration") and an adjustment to the ratio of
the reverse stock split to 600 to one.
The parties to the Class Action Lawsuit entered into a
Stipulation and Agreement of Compromise and Settlement dated
January 28, 1994. Copies of a notice summarizing the terms of
the Stipulation and Agreement of Compromise and Settlement have
been sent to each stockholder of the Corporation and a hearing as
to the fairness of the Settlement, including the terms of the
Reverse Stock Split (as hereinafter defined), was held on April
15, 1994. On April 15, 1994, the Court of Chancery approved the
terms of the Settlement as fair to the unaffiliated stockholders
(the "Settlement Approval Date").
Following approval of the Settlement by the Court of
Chancery, the Board of Directors (the "Board of Directors" or the
"Board") approved an amendment to the Corporation's Restated
Certificate of Incorporation (the "Amendment") providing for a
reduction in the number of authorized shares of common stock from
40,000,000 shares of $.01 par value (the "Common Stock") to
75,000 shares of $1.00 par value (the "New Common Stock") and a
600 to one reverse stock split (the "Reverse Stock Split") of the
Corporation's Common Stock. As a result of the Reverse Stock
Split, stockholders will receive one share of New Common Stock
for each 600 shares of Common Stock currently held. All shares
not converted into New Common Stock will be converted into the
right to receive the Cash Consideration. Stockholders that hold
fractional shares after the Reverse Stock Split may elect to
forego the Cash Consideration and round up their fractional
holdings to the next whole share (on a first-come, first-served
basis, subject to the availability of fractional shares) by
paying $2.25 for each 1/600 of a share needed to round up their
holdings to equal one share of New Common Stock. Stockholders
with fractional holdings who do not elect or are unable to
purchase additional shares will cease to be stockholders of the
Corporation and the Corporation will acquire for cash their
fractional holdings for the Cash Consideration. Stockholders
owning whole shares of New Common Stock as a result of the
Reverse Stock Split will be given the right to tender such whole
shares for a period of 30 days following the consummation of the
Reverse Stock Split for a purchase price of $1,350 per share of
New Common Stock (the "Purchase Offer"). The Purchase Offer will
expire at 5:00 p.m., Eastern Daylight Time, on June __, 1994,
unless extended, and is not conditioned on any minimum number of
shares being tendered. In order to be eligible to round up
fractional shares of New Common Stock to the next whole share of
New Common Stock, a stockholder must be the stockholder of record
with respect to such shares on both the Settlement Approval Date
and effective date of the Reverse Stock Split. The Reverse Stock
Split will result in the Corporation's becoming a private company
which will no longer file periodic reports with the Securities
and Exchange Commission (the "Commission").
The record date for the vote on the Amendment is April
15, 1994. Mr. James W. Hart, Chairman of the Board and President
of the Corporation (the "Majority Stockholder"), has advised the
Corporation that he intends to execute a consent with respect to
his shares, representing approximately 95% of the outstanding
Common Stock, in favor of the Reverse Stock Split and the
Settlement and approving and adopting the Amendment.
Consequently, no additional vote of unaffiliated stockholders
will be required for approval of the Reverse Stock Split and the
Corporation does not intend to solicit additional votes or
consents.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY. STOCKHOLDERS SHOULD NOT SEND ANY
CERTIFICATES REPRESENTING SHARES OF COMMON STOCK AT THIS TIME.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON
THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE APPROXIMATE DAY OF MAILING OF THIS
INFORMATION STATEMENT IS APRIL ___, 1994.
<PAGE>
SUMMARY
The following is a summary of certain information
contained elsewhere in this Information Statement. This summary
does not purport to be complete and is qualified in its entirety
by reference to the more detailed information contained elsewhere
herein.
BACKGROUND, CLASS ACTION LAWSUITS AND SETTLEMENT.
On December 14, 1992, the Board of Directors approved
an amendment to the Corporation's Restated Certificate of
Incorporation to effect a 300 to 1 reverse stock split whereby
each resulting fractional share would be redeemed by the
Corporation for $.50 per pre-split share (the "Initial
Proposal"). Shortly thereafter the Class Action Lawsuits were
filed in the Court of Chancery alleging that the Initial Proposal
was unfair to the unaffiliated stockholders of the Corporation.
After extensive negotiations with representatives of the
plaintiffs in the Class Action Lawsuits (the "Plaintiff's
Representatives"), the Corporation agreed to revise the Initial
Proposal. The revisions to the Initial Proposal which were
incorporated into the Settlement include (i) increasing the
consideration to be paid for fractional shares of New Common
Stock to $2.25 per pre-split share and (ii) effecting the reverse
stock split whereby stockholders will receive one share of New
Common Stock for each 600 shares of Common Stock which they
presently own.
Holders of shares of Common Stock not converted into
whole shares of New Common Stock (each a "Fractional
Stockholder", collectively "Fractional Stockholders") who do not
elect or who are unable to purchase additional shares would be
redeemed at a purchase price of $2.25 for each pre-split share.
In addition, stockholders who wish to continue as stockholders of
the Corporation will be given the opportunity (on a first-come,
first-served basis, subject to the availability of fractional
shares) to round up their fractional holdings to the next whole
share by paying $2.25 for each 1/600 of a share of New Common
Stock needed to round up their holdings to equal one share of New
Common Stock. Stockholders with whole shares of New Common Stock
who do not wish to continue as stockholders of the Corporation
can elect to tender their shares to the Corporation for a cash
purchase price of $1,350 per share of New Common Stock, which
consideration is equivalent to $2.25 for each pre-split share.
Each stockholder whose share holdings exceed 600 pre-split
shares, but are not evenly divisible by 600, will be treated as a
Fractional Stockholder with respect to the fractional portion of
such stockholder's post-split shares.
The Plaintiff's Representatives retained Arthur S.
Ainsberg with the firm of Richard A. Eisner & Company, C.P.A.s
(the "Plaintiff's Financial Advisor") to advise them, from a
financial point of view, as to the fairness of the Cash
Consideration. A hearing was held on April 15, 1994, at which
evidence of the fairness of the Settlement was presented to the
Court of Chancery and the stockholders of the Corporation were
provided the opportunity to object to the Settlement. The Court
of Chancery approved the terms of the Settlement.
CONSENT OF MAJORITY STOCKHOLDER.
Pursuant to the Settlement of the Class Action
Lawsuits, the Board of Directors on April ___, 1994 approved the
Amendment to reduce the number of authorized shares of Common
Stock from 40,000,000 shares of $.01 par value to 75,000 shares
of $1.00 par value, in order to effectuate a 600 for one Reverse
Stock Split of the Corporation's outstanding shares of Common
Stock. Under the Corporation's Restated Certificate of
Incorporation and the Delaware General Corporation Law, the
affirmative vote or consent of the holders of greater than 50% of
all outstanding shares of Common Stock will be required to
approve and adopt the Amendment. The Majority Stockholder
beneficially owns approximately 95% of the outstanding shares of
Common Stock. The Majority Stockholder has indicated that he
intends to execute a written consent in favor of the Amendment
and Settlement; consequently no additional shares need to be
voted in favor of the Amendment in order for the Amendment to be
adopted.
THE AMENDMENT; REVERSE STOCK SPLIT TRANSACTION; PURCHASE OFFER.
Pursuant to the Amendment, the Corporation's Common
Stock is to undergo a 600 for one Reverse Stock Split in which
every 600 shares of the Corporation's Common Stock (each, an
"Existing Share"), issued on the effective date of the Reverse
Stock Split will be automatically converted into one share of the
Corporation's New Common Stock. All Existing Shares not
converted into whole shares of New Common Stock will be redeemed
at a price equal to $2.25 per Existing Share. For a period of 30
days following the Effective Date (as defined below),
stockholders whose holdings are not evenly divisible by 600 may
elect to forego the Cash Consideration and round up the
fractional portion of their holdings to the next whole share by
paying $2.25 for each 1/600 of a share of New Common Stock needed
to round up their holdings to equal one share of New Common
Stock. This will allow those stockholders who wish to remain
stockholders of the Corporation and maintain an equity interest
in the Corporation to do so, to the extent fractional shares of
New Common Stock are available. In order to be eligible to round
up fractional shares of New Common Stock to the next whole share
of New Common Stock, a Fractional Stockholder must be the
stockholder of record with respect to such shares on both the
Settlement Approval Date and the Effective Date. After the
expiration of such 30-day period, certificates representing
fractional shares of New Common Stock which have not been
surrendered (the "Outstanding Fractional Shares") shall only
evidence the right to receive the Cash Consideration.
Fractional shares of New Common Stock (i) will be
available to stockholders desiring to round up their holdings on
a first-come, first-served basis, (ii) will be provided only from
fractional shares which have been surrendered or Outstanding
Fractional Shares and (iii) may be of limited availability. See
"TERMS OF REVERSE STOCK SPLIT AND PURCHASE OFFER".
In addition, stockholders who continue to hold whole
shares of New Common Stock after the Reverse Stock Split is
effected may tender such shares to the Corporation for a period
of 30 days (unless extended) following the Effective Date, for a
purchase price of $1,350 for each share of New Common Stock,
which is equivalent to $2.25 for each pre-split share repurchased
(the "Purchase Offer"). The Purchase Offer is being made
pursuant to the terms of the Settlement and is not conditioned
upon any minimum number of shares of New Common Stock being
tendered.
CERTAIN EFFECTS OF THE REVERSE STOCK SPLIT AND THE PURCHASE OFFER.
Upon the effectiveness of the Reverse Stock Split,
stockholders of the Corporation who hold, as of the Effective
Date, less than 600 Existing Shares and who do not elect to
"round up" their holdings, will have their Existing Shares
automatically converted into the right to receive the Cash
Consideration and will no longer have any continuing interest as
stockholders in the Corporation. Holders of 600 Existing Shares
or more, as of the Effective Date, can elect to (i) retain or
tender their whole shares of New Common Stock pursuant to the
Purchase Offer and (ii) to the extent such stockholders have
fractional shares of New Common Stock, round up or receive the
Cash Consideration with respect to their fractional shares.
After the Reverse Stock Split, price quotes will no longer be
available through the National Association of Securities Dealers'
OTC Bulletin Board (the "NASDAQ OTC Bulletin Board"). The
registration of the shares under the Securities Exchange Act of
1934 (the "Exchange Act") will also be terminated, thus relieving
the Corporation of the periodic reporting requirements to which
the Corporation is presently subject.
EFFECTIVE DATE.
The Amendment will be effective as of the date and time
that the Amendment is filed with the Secretary of State of the
State of Delaware in accordance with the Delaware General
Corporation Law (the "Effective Date"). The Reverse Stock Split
will be effective simultaneously with the Amendment becoming
effective. The Purchase Offer will commence on the Effective
Date. The Corporation's Board of Directors reserves the right to
halt and terminate the Reverse Stock Split at any time prior to
the filing of the Amendment with the Secretary of State of the
State of Delaware, if it determines that termination is in the
best interest of the Corporation. In the event the Reverse Stock
Split is terminated, the Corporation will not commence the
Purchase Offer.
REASONS FOR THE REVERSE STOCK SPLIT AND THE PURCHASE OFFER.
The Corporation's Board of Directors believes that its
stockholders derive little benefit from the Corporation's status
as a publicly-held corporation. Approximately 950 stockholders
(just under one-half of the Corporation's record holders) do not
receive corporate communications, including proxy materials, due
to changed mailing addresses and lack of forwarding information.
Market transactions in the Common Stock occur infrequently.
Except for periodic purchases by the Corporation, over the last
several years the Corporation estimates that third party
purchases or sales transactions have been insignificant.
Therefore, it is believed that the benefit of the public market
for Common Stock is limited. Moreover, the Corporation must
incur significant general and administrative costs related to its
status as a public reporting corporation under the federal
securities laws. The Board of Directors also believes planning
and other management decisions would be simplified by the
deregistration of the Common Stock under the Exchange Act because
such decisions could be made solely on the basis of the
Corporation's long-range business interests without the necessary
consideration of the short-term interest of its public
stockholders. The Purchase Offer, mandated by the terms of the
Settlement, provides stockholders who would otherwise continue to
have an equity interest in the Corporation following the Reverse
Stock Split with the option to sell their shares to the
Corporation at a price equivalent to that received by Fractional
Stockholders.
CONFLICTS OF INTEREST.
The Board of Directors which approved and adopted the
Initial Proposal, the Settlement and the Amendment consists of
Messrs. James W. Hart and Richard A. Vollmer. Mr. Vollmer does
not own any shares of outstanding Common Stock. Mr. Vollmer had
been an officer and from time to time a consultant to the
Corporation prior to 1992. Mr. Hart beneficially owns
approximately 95% of the outstanding Common Stock, and will
continue to be a stockholder of the Corporation following the
Reverse Stock Split. To the extent that Mr. Hart receives
fractional shares of New Common Stock, it is his intention to
elect to round up any such fractional holdings to the next whole
share of New Common Stock. No independent committee of the Board
of Directors reviewed the fairness of the Reverse Stock Split.
See "SPECIAL FACTORS -- Conflicts of Interest; Lack of Opinions,
Appraisals and Reports".
POSITION OF THE BOARD OF DIRECTORS.
At a special meeting held on April ___, 1994, the
Corporation's Board of Directors unanimously approved and adopted
the Amendment. Accordingly, the Corporation's Board of Directors
has concluded that the proposed Amendment, Reverse Stock Split
and Purchase Offer are fair to, and in the best interest of, all
stockholders of the Corporation. However, neither the
Corporation nor its Board of Directors makes any recommendation
to any stockholder as to whether to (i) round up fractional
holdings to one whole share of New Common Stock or (ii) tender
shares of New Common Stock. The Board of Directors has been
advised that none of the directors and executive officers of the
Corporation who will own whole shares of New Common Stock
following the Reverse Stock Split expect to tender their shares
pursuant to the Purchase Offer.
SOURCE OF FUNDS.
The funds required to redeem the fractional shares
created by the Reverse Stock Split and purchase whole shares
pursuant to the Purchase Offer (estimated to be approximately
$1,300,000 if no stockholders elect to round up fractional
holdings and all unaffiliated stockholders tender whole shares of
New Common Stock) are available from the current cash reserves of
the Corporation. The Corporation will not be required to borrow
funds to effect the Reverse Stock Split or the Purchase Offer.
APPRAISAL RIGHTS.
No appraisal rights are provided to dissenting
stockholders under the laws of the State of Delaware, nor are
such rights provided under the Corporation's Restated Certificate
of Incorporation in connection with the Reverse Stock Split or
the Purchase Offer.
NO FINANCIAL ADVISOR RETAINED BY THE CORPORATION.
The Corporation did not retain the services of a
financial advisor with respect to the Reverse Stock Split or the
Purchase Offer and the Corporation's Board of Directors did not
receive a fairness opinion from a financial advisor in reaching
its decision to make the Initial Proposal. However, the
Plaintiffs' Representatives did retain the Plaintiffs' Financial
Advisor to assist them in determining the fairness of the
financial terms of the Settlement, including the terms of the
Reverse Stock Split and the Purchase Offer. An affidavit of
Plaintiffs' Financial Advisor was filed with the Court of
Chancery in connection with the fairness hearing held on April
15, 1994. The Plaintiffs' Financial Advisor has determined that
$2.25 per Existing Share is within the range of fair value, from
a financial point of view.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
Stockholders who receive cash either (i) upon
redemption of their fractional shares of New Common Stock as a
result of the Reverse Stock Split or (ii) upon tender of their
shares of New Common Stock pursuant to the Purchase Offer will
recognize gain or loss based on their adjusted basis in the
fractional shares redeemed or the shares of New Common Stock
repurchased. A stockholder who rounds up his holdings to a whole
share of New Common Stock will not recognize any gain or loss and
the adjusted basis of such stockholder in such shares of New
Common Stock will be the same as the stockholder's adjusted tax
basis in his exchanged shares of Common Stock plus $2.25 per
1/600 share of New Common Stock so rounded up. See "EFFECTS OF
THE REVERSE STOCK SPLIT -- Federal Income Tax Consequences".
<PAGE>
BACKGROUND OF REVERSE STOCK
SPLIT AND PURCHASE OFFER
On December 14, 1992, the Board of Directors of the
Corporation approved a transaction whereby the Corporation's
Restated Certificate of Incorporation would be amended so as to
effectuate a reverse stock split of the Corporation's Common
Stock and directed that the amendment effectuating such
transaction be placed on the agenda for the consideration of
stockholders at the special meeting to be held on January 12,
1993. Pursuant to the terms of the amendment, the Common Stock
would undergo a 300 for one reverse stock split (the "Initial
Proposal"). Pursuant to the Initial Proposal, fractional shares
would have been automatically converted into the right to receive
from the Corporation cash in the amount of $.50 for each such
Existing Share. For a period of thirty (30) days following the
reverse stock split, stockholders with fractional shares could
have elected to round up their fractional holdings by paying $.50
for each 1/300 of a share needed to round up their holdings to
equal a whole share on a first-come, first-served basis, from
fractional shares surrendered by other stockholders.
The Corporation announced the terms of the Initial Proposal
on December 18, 1992, and shortly thereafter two class action
lawsuits entitled CLARE LOIS SPARK LOEB v. JAMES W. HART, ET AL.,
CA 12830, and ROCHELLE BROOKS v. JAMES W. HART, et al., CA 12831
(the "Class Action Lawsuits") challenging the Initial Proposal
were filed in the Court of Chancery against the Corporation and
its directors. The Class Action Lawsuits alleged that the
Initial Proposal was unfair to stockholders other than the
directors and their affiliates because (i) the price proposed to
be paid for fractional shares was too low, (ii) the transaction
was not subject to "arms length" negotiation or approval by
independent directors or stockholders and (iii) no opinion had
been obtained from a financial advisor as to the fairness of the
price proposed to be paid for fractional shares. The Class
Action Lawsuits sought to enjoin the Corporation from proceeding
with the Initial Proposal, to award the class action plaintiffs
compensatory and/or recissory damages and to assess costs and
disbursements (including reasonable attorneys' and experts' fees)
against the defendants. The Corporation agreed to delay the
pending special meeting in order to provide Plaintiffs'
Representatives with the opportunity to review the financial
condition of the Corporation and other matters relevant to the
fairness of the Initial Proposal.
Over the next 5 months the Corporation provided the
Plaintiffs' Representatives with substantial business and
financial information concerning the present condition and
prospects of the Corporation. The Plaintiffs' Representatives
and the representatives of the Corporation and the defendants
participated in a number of conferences and meetings in an
attempt to familiarize the Plaintiffs' Representatives with the
business and prospects of the Corporation. Although having
initially proposed a substantially higher price for fractional
shares, the Plaintiffs' Representatives, after extensive
negotiations, concluded that the Settlement, including the terms
of the Reverse Stock Split, the Cash Consideration and the
Purchase Offer, was the best proposal obtainable and that it is
fair to the unaffiliated stockholders of the Corporation. The
transactions contemplated by the Settlement provide the
unaffiliated stockholders of the Corporation with an opportunity
to realize an immediate cash value for their surrendered shares
or, if a stockholder so chooses, an opportunity to round up to
the next whole share of New Common Stock and remain as a
stockholder of the Corporation. In addition, an important
element of the transaction proposed in the Settlement is the
option provided to all unaffiliated stockholders who will hold
whole shares of New Common Stock following the Reverse Stock
Split to tender such shares to the Corporation and receive cash.
The Cash Consideration for Existing Shares has been increased
from $.50, in the Initial Proposal, to $2.25, an increase of 350%.
<PAGE>
TERMS OF REVERSE STOCK SPLIT
AND PURCHASE OFFER
REVERSE STOCK SPLIT
The Stipulation and Agreement of Compromise and Settlement
evidencing the Settlement was approved by the Court of Chancery
on April 15, 1994. Pursuant to the resolutions of the Board of
Directors and subject to the execution of the consent by the
Majority Stockholder, the Corporation intends to execute the
Amendment to effect the Reverse Stock Split of the Corporation's
Common Stock and cause the Amendment to be filed. Upon the
filing of the Amendment, the Common Stock would automatically
undergo a 600 for one Reverse Stock Split, the number of
authorized shares would be reduced to 75,000 and the par value of
the Existing Shares would be increased from $.01 to $1.00 per
share. As of the Effective Date, (i) each 600 Existing Shares
held by a stockholder will be automatically converted into one
whole share of the Corporation's New Common Stock, and (ii) each
Existing Share held by a Fractional Stockholder will, unless such
Fractional Stockholder elects to round up to the next whole share
of New Common Stock, be automatically converted into the right to
receive the Cash Consideration. The Existing Shares owned by
such Fractional Stockholder will be automatically cancelled.
Thereupon, such Fractional Stockholder will cease to be a
stockholder in the Corporation or to have any interest in the
equity or future prospects of the Corporation with respect to
such fractional shares. Each Stockholder whose share holdings
exceed 600 Existing Shares, but are not evenly divisible by 600,
will be treated as a Fractional Stockholder with respect to such
stockholder's fractional shares of New Common Stock.
For a period of 30 days following the Effective Date,
Fractional Stockholders may elect to forego the Cash
Consideration and round up their fractional holding by paying
$2.25 for each 1/600 of a share of New Common Stock needed to
round up their holdings to equal a whole share of New Common
Stock. After the expiration of such 30-day period, the holder of
a fractional share of New Common Stock shall only be entitled to
receive the Cash Consideration. Fractional shares of New Common
Stock (i) will be available to Fractional Stockholders desiring
to round up their holdings on a first-come, first-served basis,
(ii) will be provided only from fractional shares which have been
surrendered or Outstanding Fractional Shares and (iii) based on
the foregoing, may be of limited availability. The Corporation
has appointed American Stock Transfer & Trust Company as exchange
agent (the "Exchange Agent") to (i) receive shares, (ii) match up
fractional shares for rounding up purposes and (iii) disburse
funds to stockholders pursuant to the Reverse Stock Split and the
Purchase Offer, as applicable. Stockholders should not send
share certificates or completed letters of transmittal to the
Corporation. As the Corporation's Exchange Agent receives
elections from stockholders desiring to round up their holdings,
it will "match up" those requests with other stockholders'
fractional shares needed to provide rounding up stockholders with
a whole share of New Common Stock. To the extent that fractional
shares surrendered by stockholders during such 30-day period are
not sufficient to cover the number of fractional shares needed to
provide all stockholders desiring to round up to whole shares of
New Common Stock, those stockholders who are not "matched up"
with surrendered fractional shares will be "matched-up with
Outstanding Fractional Shares. In the event Outstanding
Fractional Shares are not available for "matching up" purposes,
those stockholders who are not "matched up" with fractional
shares will receive Cash Consideration in exchange for their
fractional shares. In order to be eligible to "round-up"
fractional shares, a stockholder must be the stockholder of
record with respect to such fractional shares of New Common Stock
on both the Settlement Approval Date and the Effective Date.
PURCHASE OFFER
Pursuant to the Stipulation and Agreement of Compromise and
Settlement, stockholders who will continue to hold whole shares
of New Common Stock after the Reverse Stock Split will have the
right, commencing on the Effective Date, to tender such whole
shares to the Corporation and receive in consideration therefor
$1,350 per share of New Common Stock, which is equivalent to
$2.25 for each pre-split share. The Corporation will accept for
payment and purchase all shares of New Common Stock which are
validly tendered prior to the Expiration Date (as defined below)
and not properly withdrawn as set forth below. In order to be
eligible to tender shares of New Common Stock pursuant to the
Purchase Offer, a stockholder must be the stockholder of record
with respect to such shares of New Common Stock on both the
Settlement Approval Date and the date certificates evidencing
such shares are transmitted to the Corporation pursuant to the
terms of the letter of transmittal. The Purchase Offer is not
conditioned on any minimum number of shares being tendered. The
Purchase Offer will not commence if the Board determines, in its
sole discretion, not to file the Amendment and effect the Reverse
Stock Split.
The term "Expiration Date" shall mean 5:00 p.m., Eastern
Daylight Time, on June ___, 1994, unless and until the
Corporation elects, in its sole discretion, to extend the period
of time for which the Purchase Offer is open, in which event the
term "Expiration Date" shall mean the latest time and date at
which the Purchase Offer, as so extended, will expire.
The Corporation reserves the right, in its sole discretion,
at any time and from time to time, to extend the period of time
during which the Purchase Offer is open by giving oral or written
notice to the Exchange Agent of such extension as promptly as
practicable. There can be no assurance that the Corporation will
exercise its right to extend the Purchase Offer. The Corporation
will promptly pay the Cash Consideration for shares of New Common
Stock deposited by or on behalf of stockholders. The Stipulation
and Agreement of Compromise and Settlement prohibits the
Corporation from (i) decreasing the number of shares of New
Common Stock being sought, (ii) increasing or decreasing the
consideration offered to the holders of shares of New Common
Stock, (iii) terminating the Purchase Offer after the filing of
the Amendment or (iv) making any material change to the terms of
the Purchase Offer.
After the Effective Date, no transfers of record of
fractional shares of New Common Stock will be permitted.
The Corporation reserves the absolute right to (i) reject
any and all tenders of New Common Stock if they are not in proper
form or (ii) reject the acceptance of or payment for shares of
New Common Stock tendered which would, in the opinion of the
Corporation or its counsel, be unlawful. The Corporation also
reserves the absolute right to waive any defect or irregularity
in the tender of any shares of New Common Stock. The
Corporation's interpretation of the terms and conditions of the
Purchase Offer (including the letter of transmittal and the
instructions) shall be final and binding on all parties. Neither
the Corporation nor any other person is or will be under any duty
to give notification of any defects or irregularities of any kind
or for failure to give any such notification. Tenders will not
be deemed to have been made until any such irregularities have
been cured or waived.
WITHDRAWAL RIGHTS
Tenders of shares of New Common Stock made pursuant to the
Purchase Offer may be withdrawn at any time prior to the
Expiration Date unless previously accepted and paid for.
Thereafter, such tenders are irrevocable, except that they may be
withdrawn any time after forty business days from the
commencement of the Purchase Offer, unless theretofore accepted
for payment as provided in the Purchase Offer.
For a withdrawal to be effective, a written, telegraphic, or
facsimile transmission of a notice of withdrawal must be timely
received by the Exchange Agent. Any such notice of withdrawal
must specify the name of the person who tendered the shares, the
name of the registered holder(s) if different from the name of
the person who tendered the shares, the number of shares of New
Common Stock tendered, and the number of shares to be withdrawn.
If certificates representing shares to be withdrawn have been
delivered or otherwise identified to the Corporation, the serial
numbers shown on the particular certificates evidencing the
shares to be withdrawn and a signed written notice of withdrawal
(with the signature guaranteed if the signature was required to
be guaranteed when the shares of New Common Stock were tendered
or if the person making withdrawal is not the person who tendered
the shares of New Common Stock) must be submitted prior to the
physical release of the certificates for the shares of New Common
Stock to be withdrawn. Released certificates will be returned to
the registered holder of such shares of New Common Stock or as
otherwise directed by the letter of transmittal.
All questions as to the form and validity (including time of
receipt) of notices of withdrawal will be determined in the sole
discretion of the Corporation, which determination shall be final
and binding. Neither the Corporation nor any other person will
be under any duty to give notification of any defects or
irregularities in any notice of withdrawal nor will any of them
incur any liability of any kind for failure to give any such
notification.
Any shares of New Common Stock withdrawn will be deemed not
validly tendered for purposes of the Purchase Offer. However,
withdrawn shares of New Common Stock may be retendered at any
subsequent time prior to the Expiration Date. See "TERMS OF
REVERSE STOCK SPLIT AND PURCHASE OFFER -- Procedures for
Tendering Fractional Shares and Whole Shares".
PROCEDURES FOR TENDERING FRACTIONAL SHARES AND WHOLE SHARES
On or as soon as practicable after the Effective Date, the
Corporation will send letters of transmittal to stockholders for
use in transmitting their stock certificates representing shares
of Common Stock to the Exchange Agent in exchange for new
certificates representing shares of New Common Stock, cash, or
some combination thereof, as appropriate in accordance with the
terms hereof. Stockholders should not send in any certificates
representing shares of Common Stock at this time. No Cash
Consideration or delivery of a new certificate will be made to a
stockholder until such stockholder's outstanding certificates
together with the properly completed and duly executed letter of
transmittal are delivered to the Exchange Agent.
Stockholders having fractional shares of New Common Stock
will be requested to instruct the Exchange Agent within thirty 30
days following the Effective Date if they elect to round up such
fractional shares for whole shares of New Common Stock and to
enclose the appropriate payment therefor with their letters of
transmittal. Stockholders seeking to have their fractional
holdings rounded up will, after the end of the 30-day period, be
promptly notified by the Exchange Agent as to the amount of their
resulting share ownership of New Common Stock and will receive a
refund of any amount paid by them to the Exchange Agent for
additional fractional shares if fractional shares were not
available for rounding up.
In order for stockholders to tender shares pursuant to the
Purchase Offer, certificates for each share of New Common Stock,
together with a properly completed and duly executed letter of
transmittal, and any other required documents, must be
transmitted to and received by the Exchange Agent at its address
set forth in the letter of transmittal, before 5:00 p.m., Eastern
Daylight Time, on June ___, 1994, or, if the Purchase Offer is
extended, by the time and date specified in such extension.
The Cash Consideration will be paid after the Effective Date
in cash, net to the stockholder and without interest, with
respect to all fractional shares of New Common Stock which are
not rounded up into a whole share of New Common Stock and to all
stockholders who tender their whole shares of New Common Stock.
Stockholders delivering any whole or fractional shares of New
Common Stock will not be obligated to pay brokerage fees or
commissions with respect to sales of any such fractional or whole
shares of New Common Stock pursuant to the Reverse Stock Split or
the Purchase Offer, as applicable. The Corporation will pay all
charges and expenses of the Exchange Agent incurred in connection
with the Reverse Stock Split and the Purchase Offer.
If certificates for Existing Shares have been lost or
destroyed, the Corporation may, in its sole discretion, accept at
the time of redemption or tender a duly executed affidavit and
indemnity agreement of such loss or destruction, in form
satisfactory to the Corporation, in lieu of such lost or
destroyed certificate. However, no such shares will be purchased
by the Corporation unless and until the Corporation receives a
replacement certificate duly issued by the Corporation, which may
require posting of a bond. Stockholders whose certificates have
been lost or destroyed and who wish to tender should contact the
Exchange Agent as soon as possible after the Effective Date.
In all cases, payment for fractional shares purchased
pursuant to the Reverse Stock Split or tendered shares purchased
pursuant to the Purchase Offer will be made only after the timely
receipt by the Exchange Agent of certificates representing such
shares, a properly completed and duly executed letter of
transmittal, any required signature guarantees, any other
required documents, and only after all conditions of the Purchase
Offer are satisfied or have been waived by the Corporation.
All questions about the validity, form, eligibility
(including time of receipt), or acceptance for payment of
fractional shares or whole shares of New Common Stock, will be
determined in the sole discretion of the Corporation. That
determination shall be final and binding on all parties.
It is a violation of Section 10(b) of the Exchange Act and
Rule 10b-4 promulgated thereunder for a person to tender shares
of New Common Stock for his own account unless the person so
tendering (i) owns such shares, or (ii) owns other securities
convertible into or exchangeable for such shares or owns an
option, warrant, or right to purchase such shares and intends to
acquire such shares for tender by conversion, exchange, or
exercise of such option, warrant, or right. Section 10(b) of the
Exchange Act and Rule 10b-4 thereunder provide a similar
restriction applicable to the tender or guarantee of a tender on
behalf of another person. The tender of shares of New Common
Stock pursuant to any of the procedures described above will
constitute a binding agreement between the tendering holder of
the shares of New Common Stock and the Corporation upon the terms
and subject to the conditions of the Purchase Offer, including
the tendering stockholder's representation that (i) such holder
owns the shares being tendered within the meaning of Rule 10b-4
under the Exchange Act and (ii) the tender of such shares
complies with Rule 10b-4.
INVESTMENT CONSIDERATIONS
Each stockholder should carefully review the following
considerations in deciding whether to round up fractional shares
of New Common Stock or tender whole shares of New Common Stock.
Holding Company Structure
The Corporation is a holding company which currently derives
all of its operating income from its subsidiaries. The
Corporation owns all of the issued capital stock of Reeves
Industries, Inc. ("Reeves Industries") (90% on a fully diluted
basis), which in turn owns 100% of the issued stock of Reeves
Brothers, Inc. ("Reeves"). The Corporation must ultimately rely
upon distributions from Reeves Industries or other investments to
generate the funds necessary to meet its obligations. The Reeves
Industries bank loan agreement and indentures contain
restrictions that could prevent the payment of dividends or other
distributions to the Corporation. In addition, the ability of
Reeves Industries to make such payments will be subject to, among
other things, applicable state laws. Reeves Industries cannot
currently make any dividend or distributions to the Corporation.
LEVERAGE
In June 1992, Reeves Industries completed a public offering
of $122,500,000 aggregate principal amount of 11% Senior Notes
due 2002 (the "11% Senior Notes"), the proceeds of which were
used to retire outstanding public indebtedness and repay and
terminate outstanding revolving loans. In August 1992, Reeves
Industries and Reeves entered into a new revolving loan agreement
with a group of banks which provides Reeves Industries and Reeves
with an aggregate $35,000,000 revolving line of credit. In
November 1992, Reeves Industries redeemed $5,000,000 principal
amount of the outstanding $16,000,000 aggregate principal amount
of its 13 3/4% Subordinated Debentures due 2001. In March 1994,
Reeves Holdings, Inc. ("Reeves Holdings"), a wholly-owned
subsidiary of the Corporation which will become the parent
corporation of Reeves Industries, filed a Registration Statement
with the Commission under the Securities Act of 1933, as amended,
in connection with a public offering of approximately
$170,000,000 face amount of senior discount debentures, intended
to provide proceeds of approximately $100,000,000. After giving
effect to such offering, if consummated, and the application of
the proceeds therefrom, the Corporation's total consolidated
indebtedness on December 31, 1993, would have been approximately
$221.8 million, its stockholder's equity would have been
approximately $20.0 million and its cash and cash equivalents
would have been approximately $97.4 million. Completion of the
senior discount debenture offering is subject to market
conditions and a number of factors outside the control of the
Corporation. No assurances can be given as to whether the
offering will be completed or what interest rate the debentures
will bear if the offering is completed.
The degree to which the Corporation is leveraged could have
important consequences to the holders of the shares of New Common
Stock. Such consequences include the following, any of which
could affect the ability of the Corporation's subsidiaries to
make distributions to the Corporation and the Corporation's
ability to make payments with respect to its outstanding
indebtedness: (1) the Corporation's ability to obtain additional
financing in the future for working capital, capital
expenditures, acquisitions or general corporate purposes may be
impaired; (2) a substantial portion of the Corporation's
consolidated cash flow from operations must be dedicated to the
payment of interest on indebtedness; and (3) the Corporation's
leverage may make it more vulnerable to economic downturns and
may limit its ability to withstand competitive pressures. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Liquidity and Capital Resources".
Given the highly leveraged financial position of the
Corporation, Reeves Holdings, Reeves Industries and Reeves, the
Board of Directors believes that an investment in the Corporation
is inappropriate for those investors with little economic
interest in the Corporation. The Corporation has not paid a
dividend on its Common Stock since 1958. Stockholders with
limited economic interest are subject to the risks associated
with an investment in a highly-leveraged company without the
benefit of a liquid market in which to dispose of their shares.
CONTROLLING STOCKHOLDER
The Majority Stockholder beneficially owns approximately 95%
of the Corporation's issued and outstanding Common Stock.
Therefore, the Majority Stockholder controls all actions
requiring stockholder approval, including the election of
directors, ensuring his ability to control the future direction
and management of the Corporation.
LACK OF PUBLIC INFORMATION; ILLIQUID PUBLIC MARKET.
Upon completion of the Reverse Stock Split, the Corporation
anticipates having less than 100 stockholders of record and that
it will not be required to file public information with the
Commission thereafter. Although the Corporation does not believe
the public market for its Common Stock is very liquid currently,
it anticipates there will be little or no market for shares of
its New Common Stock. Thereafter, stockholders that may need to
subsequently realize on their investment in the Corporation
should consider the fact that a public market may not exist for
shares of the Corporation's New Common Stock after the completion
of the Reverse Stock Split.
SPECIAL FACTORS
PURPOSES OF THE REVERSE STOCK SPLIT
As a result of historical changes in the Corporation's
business and the composition of stock ownership, the Corporation
believes that the risks and expenses of continuing as a publicly-
held company far outweigh the benefits to current stockholders.
Accordingly, the Board of Directors proposed the Initial Proposal
to achieve the following purposes:
(i) to reduce the number of stockholders of record of
the Corporation to less than 300 in order to
terminate the registration of the Corporation's
Common Stock under the Exchange Act;
(ii) to relieve the Corporation of the burden and costs
associated with the regulatory and reporting
requirements of the Exchange Act and the rules and
regulations of the Commission issued thereunder;
(iii) to facilitate management's long-term business plan
of emphasizing product development and
improvement, cost efficiencies, productivity,
technological innovation, facility upgrading and
superior service and making strategic acquisitions
and divestitures without consideration of short-
term profits;
(iv) to enable management to pursue the Corporation's
long-term business plan without consideration of
its effect on unaffiliated public stockholders and
the risks of liability resulting from its status
as a public company;
(v) to make, by paying cash in lieu of the issuance of
fractional shares to Fractional Stockholders and
to holders of whole shares of New Common Stock
that tender such shares, what the Corporation
believes is an investment that will benefit the
Corporation and its remaining stockholders in the
long term at a time when the Corporation has
adequate cash to effectuate the Reverse Stock
Split; and
(vi) to reduce the cost of servicing stockholder
accounts while at the same time affording such
stockholders an opportunity to receive a fair
price for their Existing Shares in an otherwise
illiquid market without incurring the attendant
costs of a sale.
Although the specific terms of the Initial Proposal have been
revised by the Settlement and Reverse Stock Split, the foregoing
purposes will be achieved by the Reverse Stock Split.
BACKGROUND AND REASONS FOR THE REVERSE STOCK SPLIT
CURRENT OPERATIONS OF THE CORPORATION
The Corporation, through its subsidiary Reeves Industries,
is a diversified industrial company with operations in two
principal business segments, industrial coated fabrics, conducted
through its Industrial Coated Fabrics Group ("ICF"), and apparel
textiles, conducted through its Apparel Textile Group ("ATG"). In
1993, ICF contributed approximately 49.6% of the Corporation's
net sales and approximately 71.7% of its operating income and ATG
contributed approximately 50.4% of the Corporation's net sales
and approximately 28.3% of its operating income (in each case,
excluding corporate expenses, goodwill amortization and facility
restructuring charges). Throughout its businesses, the
Corporation emphasizes specialty products, product quality,
technological innovation and rapid responses to the changing
needs of its customers.
ICF specializes in the coating of various substrate fabrics
with a variety of products, such as synthetic rubber, vinyl,
neoprene, urethane and other elastomers, to produce a diverse
line of products for industrial applications. ICF's principal
products include: (1) a complete line of printing blankets used
in offset lithography, (2) coated automotive airbag materials,
(3) specialty coated fabrics, including fluid control diaphragm
materials, tank seals, ducting materials and coated fabric
materials used for military and commercial life rafts and vests,
aircraft escape slides, flexible fuel tanks and general aviation
products, and (4) coated fabrics used in industrial coverings,
including fabrics coated with rubber and vinyl which are used to
make tarpaulins, loading dock shelters and other industrial
products.
The Corporation believes that ICF is one of the world's
leading producers of offset printing blankets and that ICF has
the leading share of the domestic market for coated automotive
airbag materials. The Corporation also believes that ICF is a
leading domestic producer of specialty coated fabrics used for a
broad range of industrial applications. ICF's products generally
involve significant amounts of technological expertise and
precise production tolerances. The Corporation believes that
ICF's product development, formulation and production methods are
among the most sophisticated in the coated fabrics industry.
ATG manufactures, processes and sells specialty textile
fabrics to apparel and other manufacturers. Through its Greige
Goods Division, ATG processes raw materials into greige goods
(i.e., undyed woven fabrics). Through its Finished Goods
Division, ATG functions as a converter and commission finisher,
purchasing greige goods from the Greige Goods Division and others
and contracting to have the goods dyed and finished for use in
various end-products or dyeing and finishing the goods itself.
The Corporation believes that ATG has developed strong
positions in niche markets in the apparel textile industry by
offering unique custom-designed fabrics to leading apparel and
specialty garment manufacturers. ATG emphasizes "short-run"
product orders and targets market segments in which its
manufacturing flexibility, rapid response time, superior service
and quality and ability to supply exclusive blends are key
competitive factors.
The Corporation's business strategy has focused on the sale
of higher-margin niche products and the establishment of leading
positions in its principal markets. The Corporation believes that
this strategy, combined with its diverse product and customer
base, the development of new products and substantial capital
investment, has helped the Corporation increase its sales and
profitability in spite of adverse economic conditions in its U.S.
and European markets during 1990-1993.
Since 1991, the Corporation has significantly increased its
level of capital investment in its businesses to modernize and
expand capacity, reduce its overall cost structure, increase
productivity and enhance its competitive position. The
Corporation intends to substantially increase its capital
investment in its businesses to approximately $140 million during
the 1994-1997 period. In addition, as opportunities arise, the
Corporation may seek to augment its growth through strategic
acquisitions, joint ventures and investments in other industrial
companies where the Corporation believes that it can apply its
professional management techniques to enhance a company's
operating performance.
REPURCHASE OF THE CORPORATION'S EXISTING SHARES
Over the past several years, in an attempt to provide
liquidity for stockholders desiring to sell their shares, the
Corporation has engaged in a program of open market and privately
negotiated purchases of its Common Stock. During 1992, the
Corporation acquired 81,062 Existing Shares at prices
approximating $3.00 per share. The average quarterly purchase
price paid during each of the first through fourth quarters of
1992 was $3.00. The foregoing purchases were made by the
Corporation directly from individual stockholders. The
Corporation did not acquire any Existing Shares during 1993 or to
date in 1994. For information regarding over-the-counter high
and low bid prices of Existing Shares, see "MARKET AND DIVIDEND
INFORMATION".
In 1990, the Board considered, but determined not to pursue,
a reverse stock split pursuant to which the consideration for
fractional shares was set at $2.125 per share of Common Stock.
If the 1990 reverse stock split had been completed, the
Corporation would have remained a public company.
These repurchases of Existing Shares have reduced the amount
of Common Stock outstanding to an aggregate of 12,895,100 shares
as of the Record Date, of which 584,993 shares are held by
stockholders other than officers and directors of the
Corporation.
In addition, the capital structure of the Corporation's
wholly-owned subsidiary, Reeves Industries, has undergone a
number of changes resulting in the retirement of shares and
consolidation of the ownership of Reeves Industries common stock.
Effective on December 31, 1991, the 1,000 shares of Reeves
Industries Series I Preferred Stock, valued in the aggregate at
$9,410,000, were exchanged for 18,820,000 shares of Reeves
Industries common stock, valued at $.50 per share. After giving
effect to the exchange, the Corporation's equity interest in
Reeves Industries increased to 93.5%.
In April 1990, the Corporation and Reeves Industries filed a
lawsuit against the holders of certain previously issued warrants
seeking the return of 1,918,132 shares of Reeves Industries
common stock issued in connection with the exercise of such
warrants. The aggregate exercise price of the warrants was
$1,158,000. In November 1992, the lawsuit was settled and,
pursuant to a court order, 1,918,132 issued shares of Reeves
Industries common stock held by Drexel Burnham Lambert
Incorporated ("Drexel") and partnerships affiliated with Drexel
or certain employees of Drexel were transferred to Reeves
Industries for $1,075,000 (approximately $.56 per share). After
giving effect to the foregoing transactions, the Corporation
owned approximately 98.7% of the 36,886,105 shares of Reeves
Industries common stock outstanding on November 6, 1992.
On October 25, 1993, HHCI, Inc., a wholly-owned subsidiary
of the Corporation, merged with and into Reeves Industries. As a
result of this merger, Reeves Industries became a 100% owned
subsidiary of the Corporation and the stockholders of Reeves
Industries received $.56 in cash for each share held by such
stockholder.
CONCENTRATION OF STOCKHOLDINGS
Although originally traded on the New York Stock Exchange
and held by a diverse group of individuals and institutional
investors, including various creditors, over time the ownership
of Common Stock has come to be concentrated in a handful of
stockholders. Of the 2,005 stockholders of record, a total of
256 (approximately 13% of the Corporation's unaffiliated
stockholders) hold only one Existing Share each, 735
(approximately 37% of the Corporation's unaffiliated
stockholders) hold 10 or fewer Existing Shares and 1,674
(approximately 84% of the Corporation's unaffiliated
stockholders) hold 100 or fewer Existing Shares. All of such
stockholders would become Fractional Stockholders upon the
effectiveness of the Reverse Stock Split. There are
approximately 950 record holders (approximately 48% of
unaffiliated stockholders) for which the Corporation does not
have a current mailing or forwarding address. Of such lost
stockholders, approximately 87% hold 100 or fewer Existing Shares
and approximately 44% hold 10 or fewer Existing Shares.
Consequently, a substantial number of the Corporation's
stockholders have little economic interest in the Corporation.
Approximately 96% of the outstanding Existing Shares are
beneficially owned by executive officers and directors of the
Corporation. See "BOARD OF DIRECTORS, EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS".
REDUCTION OF REPORTING COSTS
The Board of Directors also considered that the Corporation
incurs general and administrative costs related to its status as
a public reporting company under the federal securities laws.
Although Reeves Industries' loan documents also require
compilation of information comparable to that contained in
reports on Forms 10-K and 10-Q, the costs of preparing additional
reports, such as Forms 8-K and disclosure required pursuant to
Section 16 of the Exchange Act, as well as the expenses of
preparing, printing and mailing proxy solicitation materials and
formal annual reports for distribution to stockholders prior to
each annual meeting, are a consequence of the Corporation's
registration pursuant to the Exchange Act. In addition to the
commitment of time and energy on the part of management,
additional costs incurred by the Corporation include legal,
accounting and printing fees. On an annual basis, the costs of
being a publicly-held company total approximately $85,000. This
amount does not include the expense of officer and director
liability insurance, for which the Corporation is currently
paying an annual premium of $220,000. If the Corporation were
not a publicly-held company, these costs could be reduced or
eliminated. The Corporation also incurs substantial indirect
costs as a result of, among other things, the executive time
expended to prepare and review various filings, furnish
information to stockholders and attend to other stockholder
matters.
Although there are some stockholder benefits to retaining
public reporting status, the Board believes that the expenses of
remaining a public corporation are not justified by these
benefits, particularly in light of the lack of any meaningful
market activity in the Existing Shares and the unaffiliated
stockholders' limited economic interest in the Corporation. Nor
does the Board believe that the additional protections afforded
by the securities laws to stockholders of a public company
justify the expense of the Corporation remaining a public
corporation.
FURTHERANCE OF BUSINESS PLAN
The Board of Directors believes that its decision to effect
the Reverse Stock Split is in furtherance of its long-range
business plan to have the Corporation focus on maintaining its
competitive position through strategic acquisitions and
divestitures. As a non-public company, the Corporation would
have greater flexibility in negotiating the acquisition or
disposition of business entities or unprofitable operations. To
the extent that the Corporation will not have to comply with
Commission regulations requiring the issuance of press releases
and periodic reports, the Corporation may realize strategic
benefits in structuring and financing proposed transactions. The
Corporation's over-all expenses would be reduced to the extent
that it will no longer incur the costs of complying with such
regulations. Furthermore, the expense of proxy solicitation of
stockholder approval for certain actions of the Corporation could
be avoided. Consequently, the Corporation would be better
positioned to quickly identify, arrange necessary financing, and
conclude potential acquisitions and divestitures. Moreover, the
Board does not presently anticipate that the Corporation would
take advantage of its status as a public company to raise capital
or effect acquisitions through the issuance of common stock in
the foreseeable future.
ENHANCED OPERATING FLEXIBILITY
In addition to the time and expense required to ensure
compliance with applicable Federal and state securities laws, the
operation of a public reporting company can limit the operating
flexibility of corporate management.
The Board of Directors believes that administrative control
of the Corporation would be simplified by the deregistration of
the Common Stock under the Exchange Act. Planning and other
management decisions then could be made solely on the basis of
the Corporation's long-range business interests without the
necessary consideration of possible adverse short-term effects
upon the interests of its public stockholders.
Currently, the Corporation's status as a public company
means that management's decisions must be responsive to both the
Corporation's long-range business plans and the interests of its
public stockholders. The Corporation's operations have evolved
to a point where these interests are too disparate. Certain
officers and directors beneficially own approximately 96% of the
Existing Shares and are required to base their management
decisions, in part, on the interest of unaffiliated stockholders
who own less than 4% of the Existing Shares.
In addition, the Board anticipates that as a result of its
capital expenditure requirements or in the event the Corporation
makes a future acquisition, additional leverage will be required
to effect such a transaction. The Board of Directors believes
that the Corporation's current leverage position is such that an
investment in the Corporation is inappropriate for stockholders
with a de minimis investment in the Corporation. The Board of
Directors believes that in light of the overwhelming
concentration of Existing Shares in the hands of the Majority
Stockholder, the Corporation's long-term business plans would be
facilitated if the Corporation were not a public company.
LITTLE BENEFIT TO STOCKHOLDERS IN AN ILLIQUID MARKET
Finally, the Board of Directors believes that there is a
very limited market for the Common Stock and that its
stockholders derive little benefit from the Corporation's status
as a publicly-held corporation. The Existing Shares are traded
in the over-the-counter market. The range of high and low bid
prices of the Common Stock for each quarterly period during the
last two fiscal years as supplied by the National Quotation
Bureau, Inc. is set forth under the caption "MARKET AND DIVIDEND
INFORMATION". The Corporation believes that transactions in the
Existing Shares occur quite infrequently. The Corporation itself
has been the primary buyer of its Existing Shares. The limited
supply of shares traded in the public market and the predominant
ownership by management results in a market that management
believes is inefficient and, as a consequence, provides little
opportunity for a stockholder to realize the value of his
investment in the Corporation after payment of commissions and
other market transaction costs. The Reverse Stock Split and the
Purchase Offer provide an opportunity to Fractional Stockholders
to exchange their Existing Shares at fair value.
DECISION TO PROPOSE THE REVERSE STOCK SPLIT
In an effort to address the escalating costs and operating
constraints resulting from the evolution of the Corporation's
business as well as the increasingly illiquid market for its
shares, the Corporation has considered a number of alternatives.
One such alternative, the share repurchase program, discussed
above, had proved time-consuming and cumbersome. Considering the
profile of the Corporation's stockholder list, including the
approximately 950 of 2,005 record holders (approximately 48% of
unaffiliated stockholders) for which the Corporation lacks
current addresses, the program was not intended to, and did not
result in, an appreciable reduction in the number of
stockholders. Such missing stockholders own of record a total of
approximately 90,000 Existing Shares, and approximately 0.70% of
the outstanding Existing Shares. The Corporation has not made
such repurchases of Existing Shares since November 16, 1992. The
current bid price for Existing Shares is $1.00.
Commencing in the late fall of 1992, the Corporation gave
preliminary consideration as to how it might accomplish the goal
of deregistering the Common Stock under the Exchange Act,
including the possibility of a reverse stock split. A number of
alternatives were considered, but because of its anticipated
effectiveness, the Initial Proposal was considered to be the most
appropriate transaction.
On November 23, 1992 and December 14, 1992, the Board of
Directors met to consider the appropriateness and desirability of
the Initial Proposal to establish a fair price for the fractional
shares redeemed as a result of the transaction. Following
consideration of a number of factors, the Board unanimously
approved the Initial Proposal and decided that consideration of
$.50 per Existing Share (the "Initial Proposal Cash
Consideration") would be paid to fractional stockholders in lieu
of issuing fractional shares of new common stock to such
fractional stockholders. The Board directed that the Initial
Proposal be placed on the agenda for the consideration of
stockholders at a special meeting. On December 18, 1992, the
Corporation announced the terms of the Initial Proposal. Shortly
thereafter, the Class Action Lawsuits were filed in the Court of
Chancery alleging that the Initial Proposal was unfair to the
unaffiliated stockholders of the Corporation because (i) the
price proposed to be paid for fractional shares was too low, (ii)
the transaction was not subject to "arms length" negotiation or
approval by independent directors or stockholders and (iii) no
opinion had been obtained from a financial adviser as to the
fairness of the price proposed to be paid for fractional shares.
After extensive negotiations with Plaintiffs' Represent-
atives, the parties to the Class Action Lawsuits entered
into a Stipulation and Agreement of Compromise and Settlement.
The Court of Chancery held a hearing on April 15, 1994 regarding
the fairness of the Settlement and unaffiliated stockholders were
given an opportunity to object to the Settlement. On April 15,
1994 the Court of Chancery entered an order approving the terms
of the Settlement.
CONFLICTS OF INTEREST; LACK OF OPINIONS, APPRAISALS AND REPORTS
The Corporation's Board of Directors consists of two
directors, one of whom is the Majority Stockholder and as a
result is an interested party to the Reverse Stock Split. The
other director, Mr. Vollmer, was an officer and from time to time
a consultant to the Corporation prior to 1992. Mr. James W.
Hart, Chairman of the Board and President of the Corporation,
beneficially owns approximately 95% of the Corporation's
outstanding Common Stock and will continue to be a stockholder of
the Corporation upon the completion of the Reverse Stock Split.
See "BOARD OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL
STOCKHOLDERS". The Board of Directors did not retain an
unaffiliated representative acting solely on behalf of
stockholders for the purposes of negotiating the terms of the
Initial Proposal or the Reverse Stock Split, or preparing a
report covering the fairness of the Initial Proposal or the
Reverse Stock Split. Nor did an independent committee of the
Board of Directors review the fairness of the Initial Proposal or
the Reverse Stock Split.
Neither the Corporation nor the Board of Directors nor any
committee of the Board has solicited or obtained any appraisal,
report or opinion by any outside party regarding the Initial
Proposal or the Reverse Stock Split. The Board chose not to
retain the services of an independent advisor because it believes
the cost of such services would be excessive relative to the size
and cost of the Initial Proposal or the Reverse Stock Split.
In connection with the negotiation of the Settlement, the
Corporation provided the Plaintiffs' Representatives with
substantial business and financial information concerning the
present condition and the prospects of the Corporation.
Plaintiffs' Representatives and representatives of the
Corporation and the defendants participated in numerous
conferences and meetings regarding the business and prospects of
the Corporation from January 1993 through May 6, 1993 when a
Memorandum of Understanding was entered into outlining the
principal terms of the Settlement. Subsequently further
extensive confirmatory analysis was done by the Plaintiffs'
Representatives to confirm the merits of the proposed Settlement
for all the unaffiliated stockholders. On January 28, 1994, the
Corporation and the defendants executed the Stipulation and
Agreement of Compromise and Settlement and filed the same with
the Court of Chancery. In addition, the Plaintiffs'
Representatives retained Arthur S. Ainsberg with the firm of
Richard A. Eisner & Company, C.P.A.s, to advise them, from a
financial point of view, as to the fairness of the Settlement.
Although having initially proposed a substantially higher price
for fractional shares, the Plaintiffs' Representatives concluded
that the Settlement, including the terms of the Reverse Stock
Split, the Cash Consideration, and the Purchase Offer, was the
best offer obtainable from the Corporation and defendants and is
fair to the unaffiliated stockholders of the Corporation, from a
financial point of view.
At a hearing held on April 15, 1994, evidence of the
fairness of the Settlement, including the fairness opinion
prepared by the Plaintiffs' Financial Advisor was presented to
the Court of Chancery. At such hearing, the unaffiliated
stockholders of the Corporation were provided an opportunity to
object to the Settlement. No objection to the terms of the
Settlement was made and the court determined, after specific
review of the confirmatory discovery process undertaken by the
Plaintiffs' Representatives, that the terms of the Reverse Stock
Split, as set forth in the Settlement, are fair. On April 15,
1994, the Court of Chancery entered an order approving the terms
of the Settlement.
The Board urges each stockholder, if any such stockholder
becomes a Fractional Stockholder, to seek advice in connection
with such stockholder's decision to either receive the Cash
Consideration or "round up" his or her holdings, or if such
stockholder holds whole shares of New Common Stock after the
Reverse Stock Split, to seek advice in connection with such
stockholder's decision to tender such shares pursuant to the
Purchase Offer or remain a stockholder.
FAIRNESS OF THE REVERSE STOCK SPLIT
The Board of Directors met on April __, 1994 to consider the
fairness of the Settlement and the Amendment. As part of its
deliberations, the Board considered its initial determination
that the Initial Proposal was fair, the changes to the Initial
Proposal that resulted from the negotiations with the Plaintiffs'
Representatives, the affidavit of Plaintiffs' Financial Advisor
and the determination made by the Court of Chancery that the
Settlement was fair. After consideration of the factors
discussed below and elsewhere in this Information Statement, the
Board of Directors concluded that the Settlement and Amendment,
taken as a whole, was fair to, and in the best interests of, the
unaffiliated stockholders of the Corporation.
FAIRNESS OF THE SETTLEMENT AND THE AMENDMENT
In reaching its determination to approve the Initial
Proposal, the Board considered that a reverse stock split would
provide those stockholders who elect to receive the cash
consideration for fractional shares with an opportunity to
liquidate their holdings, without incurring brokerage costs that
could be disproportionately high given the low market price of
the Existing Shares. In this regard, the Board recognized that
the Corporation's list of 2,005 record holders contained a
disproportionately high number of stockholders holding small
numbers of shares. For example, 260 stockholders of record
(approximately 13% of the Corporation's unaffiliated
stockholders) held only one Existing Share each and 745
stockholders of record (approximately 37% of the Corporation's
unaffiliated stockholders) held 10 or less Existing Shares. Over
1,700 stockholders of record (approximately 85% of the
Corporation's unaffiliated stockholders) held 100 or less
Existing Shares. The Corporation does not have current mailing
addresses for approximately 950 stockholders. Approximately 87%
of such lost stockholders hold 100 or fewer shares and
approximately 44% of such lost stockholders hold 10 or fewer
shares. As these small stockholders would typically be charged
minimum brokerage commissions (which are in the $30 to $50 range)
if they sought to sell their Existing Shares, market sales
through brokerage firms would be uneconomical for many holders.
The Board also recognized that the cost savings the
Corporation would realize as a result of the de-registration of
the Common Stock under the Exchange Act, following the
consummation of a reverse stock split, will indirectly inure to
the benefit of the continuing unaffiliated stockholders to the
extent the Corporation will no longer incur the costs associated
with the regulatory and reporting requirements of the Commission.
Administrative control of the Corporation would be simplified by
de-registration of the Common Stock under the Exchange Act.
Moreover, the elimination of the need to devote senior management
time and attention to matters related to the Corporation's
publicly-traded status will enable the Corporation's management
to devote such time and attention to the Corporation's long-term
business plans involving the maintenance of its competitive
position through the modernization of its facilities and
strategic acquisitions and divestitures. Strategic planning and
other management decisions could be made solely on the basis of
the Corporation's long-term business interests without the
necessary consideration of possible adverse short-term effects
upon the interests of the smaller stockholders.
In its deliberations considering the Initial Proposal, the
Board determined that the Initial Proposal would be beneficial to
the Corporation as a whole because the costs associated with the
public reporting requirements of the Exchange Act have, in its
opinion, become excessive given the fact that only approximately
5% of outstanding Existing Shares are held by unaffiliated
stockholders. The Board also believes that the risks associated
with managing a public company in which a large percentage of the
stockholders have a relatively small equity interest is
disproportionately high relative to the benefits afforded such
stockholders by such public company status.
After considering the fairness of the Initial Proposal, the
Board considered various alternatives which could reduce the
number of record holders of Existing Shares to less than 300.
The Board considered the alternative of privately-negotiated or
open-market purchases to be unfeasible because of the large
number of persons who hold small numbers of the Existing Shares
and the fact that many of these small holders appear to be lost
stockholders. It would be very difficult for the Corporation or
its transfer agent to locate these stockholders, as the only
information available is the last known mailing address. The
Corporation believes that the list of bad addresses has
accumulated over the course of a number of years. In addition,
the Corporation does not have a record of the social security
numbers of stockholders since no dividends have been paid on the
Common Stock since 1958. Given the established difficulties in
reaching these small holders, and the relatively illiquid and
inactive market for the Existing Shares, the Board was of the
opinion that it might not be possible, in any reasonable period
of time, to make any significant reduction in the number of
stockholders through open-market purchases.
The Board of Directors also considered the alternative of a
possible self-tender offer with no reverse split. However, such
alternative was rejected because in light of the lack of means of
contacting approximately 50% of its unaffiliated stockholders,
there was no assurance that a self-tender would generate a
sufficient response in order to result in the Corporation having
fewer than 300 stockholders, thereby permitting the Corporation
to become a non-reporting company under the Commission's rules
and regulations. Moreover, the cost of a self-tender offer would
be disproportionately high compared to the benefits to the
stockholders. Consequently, the effectiveness of a negotiated
open market purchase or self-tender is severely diminished.
The Board concluded that the most efficient transaction
would be the Initial Proposal, pursuant to which each 300
Existing Shares held by a stockholder would be converted into one
share of new common stock. The Corporation anticipated that the
Initial Proposal would have reduced the number of stockholders
below the required going private threshold.
The Board then discussed the suggestion that stockholders
with fractional shares that would otherwise be redeemed be
allowed to purchase additional fractional shares from those
repurchased in order to round up to a whole share. This would
provide those stockholders who so chose to remain stockholders of
the Corporation rather than being cashed out. The Board
determined to structure the Initial Proposal to permit those
stockholders who would otherwise receive the Initial Proposal
Cash Consideration with an opportunity to continue to participate
in the equity of the Corporation by rounding up their fractional
holdings.
The Board also considered the effect on the remaining
stockholders of the Initial Proposal and noted, after discussion,
that although public information would no longer be required to
be filed with respect to the Corporation, the benefits discussed
above were more significant and, therefore, a reverse stock split
would be beneficial to the remaining stockholders. The Board
acknowledged the fact that approximately 96% of the Existing
Shares are beneficially owned by officers and directors who will
continue as stockholders of the Corporation following the
consummation of the transaction contemplated by the Initial
Proposal. However, the Board determined that it was not
appropriate to appoint an independent committee of the Board or
an independent appraiser to review the fairness of the Initial
Proposal, nor to neutralize the vote of a majority of
stockholders by requiring separate minority approval, in view of
the cost of such actions relative to the size of the transaction,
the significant interest of the majority stockholders and the
fact that stockholders who desire to retain an equity interest in
the Corporation will be given the opportunity to round up
fractional shares.
In connection with the Settlement of the Class Action
Lawsuits, the Initial Proposal was revised to increase the
Initial Proposal Cash Consideration to $2.25 per share and to
effect the reverse stock split at a ratio of 600 to one.
Stockholders will be given the opportunity to purchase additional
fractional shares in order to round up to a whole share at a
price of $2.25 per Existing Share. A limitation on the rounding
up, however, would be that it would be on a first-come, first-
served basis and only to the extent that shares being rounded up
were matched with fractional shares surrendered or Outstanding
Fractional Shares. In addition, holders of whole shares of New
Common Stock who do not wish to continue as a stockholders of the
Corporation, can tender each share of New Common Stock to the
Corporation for a purchase price of $1,350 per share, which is
equivalent to $2.25 per pre-split share. See "BACKGROUND OF
REVERSE STOCK SPLIT AND PURCHASE OFFER".
On April 15, 1994, a hearing was held to determine the
fairness of the Settlement, including the terms of the Reverse
Stock Split and the Purchase Offer. On April 15, 1994, the Court
of Chancery approved the terms of the Settlement, including the
Reverse Stock Split and the Purchase Offer. On April ___, 1994,
the Board of Directors approved the Amendment providing for the
Reverse Stock Split and reducing the number of authorized shares
from 40,000,000 shares of $.01 par value to 75,000 shares of
$1.00 par value.
FAIRNESS OF THE CASH CONSIDERATION
In deciding upon the fairness of the Settlement and the
Reverse Stock Split, the Board of Directors considered a number
of factors. In December 1992, the Board, in connection with its
consideration of the Initial Proposal, had concluded that due to
the infrequency of open market transactions, market prices were
not a meaningful factor. In fact, the Corporation believes that
much of the market activity prior to the announcement of the
Initial Proposal had been the result of the Corporation buying
its own shares directly from stockholders. The Corporation also
believes that previous bid prices by market makers did not
reflect any substantial market activity outside of the
Corporation's repurchase of Existing Shares. The Board
considered that the market price of the Common Stock might not be
a valid indication of fair value due to the large percentage of
stock owned by officers and directors and to the lack of a liquid
public market.
The Corporation's value on liquidation was determined by the
Board to be an inappropriate measure of value because (i) there
is no present intention of liquidating the Corporation or selling
a substantial portion of its assets; and (ii) if the Corporation
were compelled to liquidate in a distress setting, it would
receive a disproportionately low consideration for its properties
and businesses. In addition to other matters, the Board
considered the likelihood that the Corporation would not pay
dividends in the foreseeable future and perhaps for an indefinite
period of time because of restrictive debt covenants. Although
the Board considered going concern value, it did not give such
value special weight because the Corporation's principal
stockholder is not considering the sale of his interest or the
sale of the company as a whole. Furthermore, the Board did not
consider going concern value to be an appropriate measure since
the transaction contemplated by the Initial Proposal will not
result in the disposition of the Corporation's entire business
although it will result in the termination of the equity interest
of the Fractional Stockholders in the Corporation. The interest
of such Fractional Stockholders (based on the number of record
holders of less than 600 shares) represents only approximately 1%
of the total equity of the Corporation. The book value and
tangible book value of the Corporation as of December 31, 1993
were $20,409,000 ($1.39 per Existing Share) and a negative
$29,201,000 (a negative $1.99 per share), respectively. The
Board also noted that in 1990 it had considered, but determined
not to pursue, a reverse stock split pursuant to which the
consideration for fractional shares was set at $2.125 per
Existing Share.
The Board of Directors also considered the impact of various
factors on the Corporation. The Board considered the degree to
which Reeves Industries, the Corporation's only significant
asset, is leveraged. In June 1992, Reeves Industries completed a
successful debt offering of $122,500,000 of 11% Senior Notes.
The proceeds of the public debt offering were used to redeem all
the outstanding 12.5% Senior Notes and the 13% Senior Subordinated
Debentures as well as to repay and terminate the revolving loans
outstanding under a bank loan agreement. In connection with this
transaction, Reeves Industries recorded in 1992 an extraordinary
loss of approximately $5,459,000, net of applicable income tax
benefits of approximately $2,812,000, from the write-off of debt
issuance and financing costs associated with the retired debt and
the payment of premiums on the early extinguishment of such debt.
In August 1992, Reeves Industries obtained additional bank
financing which provides Reeves Industries and Reeves with an
aggregate $35,000,000 revolving line of credit. As a result of
the refinancing of Reeves Industries, management believes it has
reduced the risk of Reeves Industries' failing to meet its debt
obligations. However, the Corporation continues to be a highly
leveraged corporation.
Since the Board's consideration of the Initial Proposal, the
Corporation's wholly-owned subsidiary, Reeves Holdings, commenced
a public offering of approximately $170,000,000 face amount
($100,000,000 of proceeds) of senior discount debentures. After
giving effect to Reeves Holdings' offering and the application of
the proceeds, the Corporation's total consolidated indebtedness
on December 31, 1993, would have been $221.8 million. As of
December 31, 1993, the Corporation's debt to equity ratio was
approximately 6.5 to 1. Completion of the senior discount
debenture offering is subject to market conditions and a number
of factors outside the control of the Corporation. No assurances
can be given as to whether the offering will be completed or what
interest rate the debentures will bear if the offering is
completed.
The Reeves Industries debt obligations substantially
restrict the payment of dividends on the Reeves Industries common
stock. The new financing, if issued, for Reeves Holdings will
further limit the incurrence of additional indebtedness by the
Corporation's subsidiaries.
In considering the Initial Proposal, the Board of Directors
believed that the degree of leverage of Reeves Industries reduces
the availability of opportunities and increases the costs to the
Corporation if the Corporation were to raise additional capital
in the public market. The Board discussed the lack of liquidity
in the market for the Corporation's Common Stock and that the
public equity and debt markets had become more difficult to use
as alternative sources of financing. At that time, the Board
noted that there was no present intention to raise capital in the
public market.
The Board also reviewed a number of contingencies affecting
the Corporation and its subsidiaries, including certain
unresolved tax matters and certain pending litigation. Moreover,
the Board considered the Corporation's exposure to the
uncertainties facing the economies of certain foreign countries
in which it manufactures or sells its products.
The Board next considered its analysis and discussion in
connection with the approval in December 1991 of the
Corporation's exchange of 1,000 shares of Reeves Industries
Series I Preferred Stock, par value $1.00 per share, for
18,820,000 shares of Reeves Industries common stock, par value
$.01 per share (the "Exchange Transaction"). For purposes of the
Exchange Transaction, the Corporation adopted resolutions setting
the fair value of Reeves Industries common stock at $.50 per
share.
In view of the variety of factors considered in connection
with its evaluation of the fairness of the Initial Proposal, the
Board of Directors did not find it practicable to assign relative
weights to the factors considered in reaching its determination
that, taken as a whole, the Initial Proposal was fair to and in
the best interests of the Corporation.
No independent committee of the Board of Directors reviewed
the fairness of the Initial Proposal. No unaffiliated
representative acting solely on behalf of stockholders for the
purpose of negotiating the terms of the Initial Proposal, or
preparing a report covering the fairness of the Initial Proposal,
was retained by the Corporation.
The Board unanimously concluded that, based upon the above
stated factors, including the ability of stockholders to retain
an equity interest in the Corporation by rounding up their
holdings, the Initial Proposal was reasonable from the
Corporation's standpoint and fair to both the fractional
stockholders and remaining stockholders of the Corporation after
the consummation of the transactions contemplated by the Initial
Proposal.
The Board believes that all the factors set forth above,
which they considered relevant in connection with the Initial
Proposal, are relevant factors in their consideration of the
Settlement and the Amendment. Further, in connection with the
Settlement of the Class Action Lawsuits, the Cash Consideration
to be paid for fractional shares was increased 350% to $2.25. In
addition, holders of whole shares of New Common Stock following
the Reverse Stock Split have the opportunity to tender their
shares to the Corporation for a purchase price of $1,350 per
share of New Common Stock, which is the equivalent to $2.25 for
each pre-split share. The Plaintiffs' Representatives retained
an independent financial adviser which concluded that the Cash
Consideration was fair to unaffiliated stockholders of the
Corporation. On April 15, 1994, the Court of Chancery held a
hearing as to the fairness of the Settlement and provided
unaffiliated stockholders of the Corporation with the opportunity
to object to the Settlement. On April 15, 1994, the Court of
Chancery entered an order approving the terms of the Settlement.
The Board considered the process involved in the Settlement,
including the extensive negotiations, the fairness opinion
prepared by Plaintiffs' Financial Advisor, and the approval of
the Court of Chancery, as the most significant factor in
determining the fairness of the Reverse Stock Split. For these
reasons, and those described in "SPECIAL FACTORS -- Purposes of
the Reverse Stock Split" and "SPECIAL FACTORS -- Background and
Reasons for the Reverse Stock Split" above, the Board unanimously
approved the Reverse Stock Split.
VOTE OF MAJORITY STOCKHOLDER TO BE DETERMINATIVE
The Majority Stockholder has advised the Corporation that he
intends to vote his shares, representing approximately 95% of the
outstanding Common Stock, in favor of the Reverse Stock Split,
the Settlement and the Amendment. Consequently, no additional
vote of unaffiliated stockholders will be required for approval
of the transaction.
EFFECTS OF THE REVERSE STOCK SPLIT
GENERAL EFFECTS
Upon the Majority Stockholder's execution of a written
consent approving and adopting the Amendment, the number of
authorized shares of Common Stock will be decreased from
40,000,000 to 75,000 and the par value of such shares will be
increased from $.01 per share to $1.00 per share. After giving
effect to the Reverse Stock Split, management expects that the
number of stockholders of record will be reduced such that
registration of the shares of New Common Stock pursuant to the
Exchange Act could be terminated. In addition, the quotation of
prices of Existing Shares on the NASDAQ OTC Bulletin Board would
cease.
Following completion of the Reverse Stock Split, Fractional
Stockholders electing to receive the Cash Consideration and
holders of whole shares of New Common Stock electing to tender
their shares pursuant to the Purchase Offer will cease to be
stockholders or have any interest in the equity or future
prospects of the Corporation. Such stockholders will sustain the
detriment of foregoing any participation in the possible increase
in the value of the Corporation or the New Common Stock.
Fractional Stockholders who elect to round up their holdings and
holders of whole shares of New Common Stock who elect to retain
their shares, however, will no longer have a public market in
which they may liquidate their shares of New Common Stock. The
lack of such liquidity could restrict their ability to resell or
pledge shares of New Common Stock as collateral for loans.
TERMINATION OF EXCHANGE ACT REGISTRATION
The Existing Shares are currently registered under the
Exchange Act. Such registration may be terminated upon
application of the Corporation to the Commission if there are
fewer than 300 record holders of the shares. Upon the
consummation of the Reverse Stock Split, the Corporation will
have approximately 60 stockholders of record, assuming no
Fractional Stockholders elect to purchase Existing Shares under
the terms of the Reverse Stock Split so as to become holders of a
whole share of New Common Stock and no holders of whole shares of
New Common Stock exercise their option to tender their shares to
the Corporation. The Corporation intends to make an application
for termination of registration of the shares of New Common Stock
as promptly as possible after the Effective Date. Termination of
registration of the shares of New Common Stock under the Exchange
Act would substantially reduce the information required to be
furnished by the Corporation to its stockholders and to the
Commission and would make certain provisions of the Exchange Act,
such as the short-swing profit recovery provisions of Section
16(b), the requirement of furnishing a proxy or information
statement in connection with stockholder meetings pursuant to
Section 14(a), and the requirements of Rule 13E-3 under the
Exchange Act with respect to "going private" transactions, no
longer applicable to the Corporation. Furthermore, "affiliates"
of the Corporation may be deprived of the ability to dispose of
such securities pursuant to Rule 144 promulgated under the
Exchange Act. If registration under the Exchange Act were
terminated, the shares of New Common Stock could not be utilized
as "margin securities". The Corporation estimates that
termination of registration of the shares of New Common Stock
under the Exchange Act will save the Corporation approximately
$85,000 in legal, accounting, printing and other expenses per
year, after taking into account continuing reporting obligations
under Reeves Holdings' and Reeves Industries' respective loan
documents.
EFFECT ON MARKET FOR SHARES
If the Amendment is approved, and, as contemplated, the
shares of New Common Stock are deregistered under the Exchange
Act, the shares of New Common Stock will not be eligible for
quotation on the National Association of Securities Dealers'
Automated Quotation System ("NASDAQ") nor listing on any
securities exchange. There will be a significant decrease in the
amount and availability of information about the Corporation, as
well as a reduction in the number of stockholders. All of these
factors could adversely affect the liquidity and market value of
the shares of New Common Stock, and may also tend to make the
trading price of the shares of New Common Stock more volatile.
FEDERAL INCOME TAX CONSEQUENCES
The receipt by each Fractional Stockholder of cash in lieu
of fractional shares of New Common Stock pursuant to the Reverse
Stock Split and the receipt by each holder of whole shares of New
Common Stock of cash in connection with the tender of such shares
pursuant to the Purchase Offer will be a taxable transaction for
federal income tax purposes under the United States Internal
Revenue Code of 1986, as amended (the "Code").
Under Section 302 of the Code, a stockholder will recognize
gain or loss upon receiving cash in lieu of fractional shares or
upon the tender of whole shares of New Common Stock pursuant to
the Purchase Offer if (i) the Reverse Stock Split or tender, as
applicable, results in a "complete redemption" of all of the
stockholder's Existing Shares and shares of New Common Stock,
(ii) the receipt of cash is "substantially disproportionate" with
respect to the stockholder, or (iii) the receipt of cash is "not
essentially equivalent to a dividend" with respect to the
stockholder. These three tests are applied by taking into
account not only shares that a stockholder actually owns, but
also shares that a stockholder constructively owns pursuant to
Section 318 of the Code, described below.
If any one of these three tests is satisfied, the
stockholder will recognize gain or loss equal to the difference
between the amount of cash received by the stockholder pursuant
to the Reverse Stock Split or the tender, as applicable, and the
tax basis in the Existing Shares or the shares of New Common
Stock held by the stockholder. Provided that the Existing Shares
or the shares of New Common Stock, as applicable, constitute a
capital asset in the hands of the stockholder, this gain or loss
will be long-term capital gain or loss if such shares are held
for more than one year and will be short-term capital gain or
loss if such shares are held for one year or less. In
determining the basis and holding period of a stockholder's New
Common Stock, the basis and holding period of such stockholder's
Existing Shares will carry over as the basis and holding period
of such shares of New Common Stock.
Pursuant to the constructive ownership rules of Section 318
of the Code, a stockholder is deemed to constructively own shares
owned by certain related individuals and entities in addition to
shares actually owned by the stockholder. For instance, an
individual stockholder is considered to own shares owned by or
for his spouse and his children, grandchildren and parents
("family attribution"). In addition, a stockholder is considered
to own a proportionate number of shares owned by estates or
certain trusts in which the stockholder has a beneficial
interest, by partnerships in which the stockholder is a partner,
and by corporations in which 50% or more in value of the stock is
owned directly or indirectly by or for such stockholder.
Similarly, shares directly or indirectly owned by beneficiaries
of estates of certain trusts, by partners of partnerships and,
under certain circumstances, by stockholders of corporations
maybe considered owned by these entities ("entity attribution").
A stockholder is also deemed to own shares which the stockholder
has the right to acquire by exercise of an option.
The receipt of cash by a stockholder pursuant to the Reverse
Stock Split or the Purchase Offer, as applicable, will result in
a "complete redemption" of all of the stockholder's Existing
Shares or shares of New Common Stock so long as the stockholder
does not constructively own any shares of New Common Stock
immediately after the Reverse Stock Split or the receipt of
payment pursuant to the Purchase Offer. However, a stockholder
may qualify for gain or loss treatment under the "complete
redemption" test even though such stockholder constructively owns
shares of New Common Stock provided that (i) the stockholder
constructively owns shares of New Common Stock as a result of the
family attribution rules (or, in some cases, as a result of a
combination of the family and entity attribution rules), and (ii)
the stockholder qualifies for a waiver of the family attribution
rules (such waiver being subject to several conditions, one of
which is that the stockholder has no interest in the Corporation
immediately after the Reverse Stock Split or the receipt of
payment pursuant to the Purchase Offer (including as an officer,
director or employee), other than an interest as a creditor).
It is anticipated that most Fractional Stockholders and
stockholders tendering shares of New Common Stock will qualify
for capital gain or loss treatment as a result of satisfying the
"complete redemption" requirements. However, if the constructive
ownership rules prevent compliance with these requirements, such
stockholder may nevertheless qualify for capital gain or loss
treatment by satisfying either the "substantially
disproportionate" or the "not essentially equivalent to a
dividend" requirements. In general, the receipt of cash pursuant
to the Reverse Stock Split or the Purchase Offer will be
"substantially disproportionate" with respect to the stockholder
if the percentage of shares of New Common Stock constructively
owned by the stockholder immediately after the Reverse Stock
Split, or the receipt of payment pursuant to the Purchase Offer,
is less than 80% of the percentage of Existing Shares actually
and constructively owned by the stockholder immediately before
the Reverse Stock Split or the Purchase Offer. Alternatively,
the receipt of cash pursuant to the Reverse Stock Split or the
Purchase Offer will, in general, be "not essentially equivalent
to a dividend" if the Reverse Stock Split or the receipt of
payment pursuant to the Purchase Offer results in a "meaningful
reduction" in the stockholder's proportionate interest in the
Corporation.
If none of the three tests described above is satisfied, the
stockholder will be treated as having received a taxable dividend
in an amount equal to the entire amount of cash received by the
stockholder pursuant to the Reverse Stock Split or the Purchase
Offer.
The receipt of whole shares of New Common Stock in the
Reverse Stock Split by stockholders of the Corporation who do not
exercise their tender option with respect to such shares will be
a non-taxable transaction for federal income tax purposes.
Consequently, a stockholder of the Corporation receiving shares
of New Common Stock will not recognize gain or loss, or dividend
income, as a result of the Reverse Stock Split with respect to
the shares of New Common Stock received. In addition, the basis
and holding period of such stockholder's Existing Shares will
carry over as the basis and holding period of such stockholder's
shares of New Common Stock, subject to a basis increase equal to
any payment made to round up fractional shares.
The backup withholding rules require a payor to deduct and
withhold a tax if (a) the payee fails to furnish a taxpayer
identification number ("TIN") to the payor, (b) the IRS notifies
the payor that the TIN furnished by the payee is incorrect, (c)
the payee has failed to report properly the receipt of
"reportable payments" on several occasions and the IRS has
notified the payor that withholding is required, or (d) there has
been a failure of the payee to certify under the penalty of
perjury that a payee is not subject to withholding under Section
3406 of the Code. As a result, if any one of the events
discussed above occurs, the Corporation, its paying agent or
other withholding agent will be required to withhold a tax equal
to 31% of any "reportable payment" made in connection with the
Reverse Stock Split or the Purchase Offer. A "reportable
payment" includes, among other things, dividends and amounts paid
through brokers in retirement of securities. Any amounts
withheld from a payment to a stockholder under the backup
withholding rules will be allowed as a refund or credit against
such stockholder's federal income tax, provided that the required
information is furnished to the IRS. Certain stockholders
(including, among other things, corporations and certain tax
exempt organizations) are not subject to the backup withholding
and information reporting requirements.
THE FOREGOING IS ONLY A GENERAL DESCRIPTION OF CERTAIN OF
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE
STOCK SPLIT AND THE PURCHASE OFFER TO THE STOCKHOLDERS WITHOUT
REFERENCE TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY
PARTICULAR STOCKHOLDER. EACH STOCKHOLDER IS URGED TO CONSULT HIS
OR HER OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO SUCH STOCKHOLDER OF THE REVERSE STOCK SPLIT AND
PARTICIPATION IN THE PURCHASE OFFER (INCLUDING THE APPLICATION
AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX LAWS).
APPRAISAL RIGHTS
No appraisal rights are provided to dissenting stockholders
under the laws of the State of Delaware, the jurisdiction in
which the Corporation is incorporated, nor are such rights
provided under the Corporation's Restated Certificate of
Incorporation in connection with the Reverse Stock Split.
RECOMMENDATION OF BOARD OF DIRECTORS, VOTE REQUIRED
The Board of Directors, including Richard A. Vollmer, the
only Director who is not a stockholder or officer of the
Corporation, has unanimously approved the Amendment necessary to
effect the Reverse Stock Split. There are no contracts,
arrangements, understandings or relationships in connection with
the Reverse Stock Split or the Purchase Offer between the
Corporation, its officers or its directors, and any other person
with respect to any securities of the Corporation.
The proposed Amendment to effect the Reverse Stock Split
must, under the terms of the Corporation's Restated Certificate
of Incorporation, be approved by a vote of not less than a
majority of the Existing Shares. The General Corporation Law of
the State of Delaware, specifically Section 228(a) thereof,
provides that ". . . any action required by this chapter to be
taken at any annual or special meeting of such stockholders of a
corporation, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by
holders of outstanding stock having not less than the minimum of
votes that would be necessary to authorize or take such action at
a meeting at which all shares entitled to vote thereon were
present and voted . . .". The Board of Directors has been
informed that the Majority Stockholder intends to execute a
written consent in favor of the Amendment (see "VOTE OF MAJORITY
STOCKHOLDER TO BE DETERMINATIVE").
EXCHANGE OF SHARES AND PAYMENT IN LIEU OF
ISSUANCE OF FRACTIONAL SHARES
If the Amendment is approved by the Majority Stockholder,
the Board of Directors will cause the Certificate of Amendment to
be filed with the Secretary of State of the State of Delaware and
a notice of such filing ("Notice of Filing") along with the
Letter of Transmittal (as hereinafter defined) and instructions
to be transmitted to the stockholders of the Corporation promptly
after the Effective Date. American Stock Transfer & Trust
Company has been appointed exchange agent (the "Exchange Agent")
to carry out the exchange of certificates for shares of New
Common Stock and/or the Cash Consideration.
On the Effective Date, each certificate representing shares
of Common Stock will be deemed for all corporate purposes, and
without any further action on the part of the holder thereof, to
evidence ownership of the appropriate reduced number of shares of
New Common Stock and/or the right to receive the Cash
Consideration for any fractional interest. In addition, any
stockholder holding fewer than 600 Existing Shares will cease to
have any rights with respect to the New Common Stock, except to
receive the Cash Consideration or, for a period of 30 days
following the Effective Date, to round up (through the Exchange
Agent) such stockholder's fractional interest in shares of New
Common Stock. Stockholders may elect to forego the Cash
Consideration and round up their fractional holdings by paying
$2.25 for each 1/600 of a share needed to round up their holdings
to equal a whole share (or an additional whole share, as the case
may be) of New Common Stock. After the expiration of such 30-day
period, the holder of a fractional share of New Common Stock
shall only be entitled to receive the Cash Consideration. Each
stockholder whose share holdings exceed 600 Existing Shares, but
are not evenly divisible by 600, will be treated as a Fractional
Stockholder with respect to such stockholder's fractional shares
of New Common Stock.
Fractional shares of New Common Stock (i) will be provided
to stockholders desiring to round up their holdings by the
Exchange Agent on a first-come, first-served basis, (ii) will be
provided only from fractional shares of New Common Stock which
have been surrendered by other stockholders or Outstanding
Fractional Shares and (iii) based on the foregoing, may therefore
be of limited availability. As the Corporation's Exchange Agent
receives elections from stockholders desiring to round up their
holdings, it will "match up" fractional shares surrendered by
other stockholders with the fractional shares needed to provide
rounding up stockholders with a whole share of New Common Stock.
To the extent that fractional shares surrendered by stockholders
during such 30-day period are not sufficient to cover the number
of fractional shares needed to provide all stockholders desiring
to round up to whole shares of New Common Stock, those
stockholders who are not "matched up" with surrendered fractional
shares will be "matched up" with Outstanding Fractional Shares.
In the event Outstanding Fractional Shares are not available for
"matching up" purposes, those stockholders who are not "matched
up" with fractional shares will receive the Cash Consideration in
exchange for their fractional shares. In order to round up, the
stockholder must own the fractional interest as of the Settlement
Approval Date as well as the Effective Date. To the extent that
a beneficial stockholder divides his shares into more than one
record holder position, the Corporation will not allow such
beneficial stockholder to purchase more fractional shares than
necessary to round up to one whole share of New Common Stock as
if such beneficial stockholder had not divided his shares.
Each holder of the Corporation's Existing Shares will
receive one share of New Common Stock for each 600 Existing
Shares previously held by such stockholder. After the Effective
Date, no transfer of record of fractions of shares of New Common
Stock will be permitted. For a period of 30 days following the
Effective Date, holders of whole shares of New Common Stock may
elect to tender all or a portion of such shares to the
Corporation for a purchase price of $1,350 per share of New
Common Stock.
Stockholders having fractional interests in shares of New
Common Stock will be requested to so instruct the Exchange Agent
within 30 days following the Effective Date if they elect to
round up such interests and to enclose the appropriate payment
therefor with their Letters of Transmittal. Stockholders seeking
to have their fractional holdings rounded up will be promptly
notified by the Exchange Agent as to the amount of their
resulting share ownership and will receive a refund of any amount
paid by them to the Exchange Agent for additional fractional
shares if fractional shares were not available for rounding up.
Stockholders will be entitled to receive shares of New Common
Stock, or the Cash Consideration, only by transmitting to the
Exchange Agent stock certificate(s) for Existing Shares, together
with the properly executed and completed Letter of Transmittal
and such evidence of ownership of such shares as the Corporation
may require. The payment of the Cash Consideration will be made
to Fractional Stockholders only upon surrender of the relevant
certificates; such payment will be made promptly after receipt of
a properly completed Letter of Transmittal and stock
certificate(s) for Existing Shares. Similarly, stockholders who
will remain such after the Effective Date will not receive
certificates for shares of New Common Stock unless and until the
certificates representing their Existing Shares are surrendered.
Stockholders seeking to tender all or any portion of their
shares of New Common Stock must do so at or prior to the
Expiration Date. Such stockholders will be entitled to receive
$1,350 per each share of New Common Stock tendered only by
transmitting to the Exchange Agent stock certificate(s) for
shares of New Common Stock, together with the properly executed
and completed Letter of Transmittal and such evidence of
ownership of shares as the Corporation may require. Payment for
tendered shares of New Common Stock will be made to stockholders
only upon surrender of the relevant certificates; such payment
will be made promptly after receipt of a properly completed
Letter of Transmittal and stock certificates for the tendered
shares.
THE NOTICE OF FILING AND THE LETTER OF TRANSMITTAL WILL BE
TRANSMITTED BY THE CORPORATION TO STOCKHOLDERS AT A DATE
SUBSEQUENT TO THE EFFECTIVE DATE. STOCKHOLDERS SHOULD NOT SEND
IN THEIR CERTIFICATES UNTIL THE NOTICE OF FILING AND LETTER OF
TRANSMITTAL ARE RECEIVED AND SHOULD SURRENDER THEIR CERTIFICATES
ONLY TO THE EXCHANGE AGENT WITH SUCH LETTER OF TRANSMITTAL.
There will be no service charges payable by stockholders in
connection with the exchange of their certificates or in
connection with the payment of cash either in lieu of the
issuance of fractional shares of New Common Stock or the tender
of whole shares of New Common Stock. These costs will be borne
by the Corporation.
SOURCE AND AMOUNT OF FUNDS, EXPENSES
The total amount of funds which will be required by the
Corporation to fund the cash payments in lieu of the issuance of
fractional shares of New Common Stock under the Reverse Stock
Split and to purchase shares of New Common Stock from
unaffiliated stockholders pursuant to the Purchase Offer is
estimated to be as much as $1,300,000 (based on the stock records
of the Corporation as of April 13, 1994 and assuming no
stockholders elect to round up fractional holdings and all
unaffiliated stockholders tender shares of New Common Stock),
including estimated fees and expenses of approximately
$__________.
The Corporation will pay all expenses in connection with the
Reverse Stock Split and Purchase Offer and intends to finance
such expenses from its current cash reserves. The following
table sets forth the approximate amount of such expenses expected
to be incurred in connection with the effectuation of the Reverse
Stock Split and the Purchase Offer:
Approximate
Item Amount
Legal..............................
Printing...........................
Accounting.........................
Exchange Agent.....................
Filing Fees........................
Miscellaneous......................
Total.........................
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below
with respect to the years ended December 31, 1989, 1990, 1991,
1992 and 1993 and at the end of such periods has been derived
from the consolidated financial statements of the Corporation
which have been audited by Price Waterhouse, independent
accountants. The financial data set forth below is qualified by
and should be read in conjunction with the Consolidated Financial
Statements and the related notes thereto and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" included elsewhere in this Information Statement.
The historical operations and balance sheet data included in
the selected data set forth below are derived from the
consolidated financial statements of the Corporation (in
thousands except per share data and ratios).
<PAGE>
December 31,
1989 1990 1991 1992 1993
Statement of
Operations Data (1):
Net Sales
Industrial Coated
Fabrics Group $ 114,313 $119,749 $121,264 $126,576 $140,735
Apparel Textile Group $ 143,035 $138,110 $148,295 $144,528 $142,918
Total net sales $ 257,348 $257,859 $269,559 $271,104 $283,653
Operating income
Industrial Coated
Fabrics Group $ 24,715 $ 23,250 $ 23,940 $ 24,732 $ 29,287
Apparel Textile Group $ 11,513 $ 10,059 $ 10,121 $ 10,693 $ 11,583
Corporate expenses $ (6,888) (8,137) (8,059) (8,851) (10,915)
Facility restructuring charges (1,003)
Total operating income $ 29,340 $ 25,172 $ 26,002 $ 26,574 $ 28,952
Income from continuing
operations $ 5,812 $ 5,348 $ 4,214 $ 6,145 $ 8,238
Interest expense and
amortization of financing
costs and debt discount $ 22,590 $ 19,934 $21,777 $17,633 $16,426
Income from continuing
operations per share $ .33 $ .35 $ .28 $ .41 $ .56
Ratio of earnings to
fixed charges (2) 1.5x 1.3x 1.2x 1.5x 1.8x
<PAGE>
December 31,
1989 1990 1991 1992 1993
Earnings (loss) per
common share
Primary:
Income from continuing
operations $ .33 $ .35 $ .28 $ .41 $ .56
Income (loss) before
extraordinary item .83 (1.77) .44 .41 .56
Dividends paid
Net income (loss) .85 (1.77) .44 .23 .56
Fully diluted:
Income from continuing
operations $ .33 $ .35 $ .27 $ .41 $ .56
Income (loss) before
extraordinary item .83 (1.77) .43 .41 .56
Dividends paid
Net income (loss) .85 (1.77) .43 .23 .56
Weighted average number of shares
Primary 15,998 15,242 15,228 15,130 14,686
Fully diluted 15,998 15,256 15,339 15,130 14,686
Operating Data:
Depreciation and goodwill
amortization expense $ 6,394 $ 6,707 $ 7,178 $ 8,187 $ 8,624
Capital expenditures 6,821 7,007 11,015 15,788 16,506
Balance Sheet Data:
Total assets (3) $ 249,550 $230,597 $217,135 $196,006 $206,375
Long-term debt (including
current portion) 149,863 148,837 148,960 132,921 132,677
Stockholders' equity (4) 39,675 11,513 17,283 14,184 20,409
Footnotes to Statement of Operations and Balance Sheet Data:
(1) The fiscal year ended December 31, 1989 has been restated to
reflect the exclusion of the discontinued operations of the
ARA Automotive Group. See Footnote 3, Discontinued
Operations and Facility Restructuring Charges, of the Notes
to Consolidated Financial Statements of the Corporation.
(2) For the purpose of calculating the ratio of earnings to
fixed charges, earnings consist of income from continuing
operations before income taxes, plus fixed charges. Fixed
charges consist of interest on all indebtedness,
amortization of financing costs and debt discount, and one-
third of all rentals, which is considered representative of
the interest portion included therein, after adjustments for
amounts related to discontinued operations.
(3) Total assets include the assets of discontinued operations
prior to disposal. In 1990, Reeves discontinued the
operations of Reeves' ARA Automotive Group.
(4) The decline in stockholders' equity from 1989 to 1990
includes the recognition of a net loss of $34,594,000 from
the disposal of the remaining operations of Reeves' ARA
Automotive Group. The decline in stockholders' equity from
1991 to 1992 primarily reflects translation adjustments of
$6,626,000 caused by foreign currency fluctuations.
The Reverse Stock Split will not have a material impact on the
Corporation's financial position or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Corporation is a holding company, the principal assets
of which consist of its ownership of 100% of the stock of Reeves
Industries (approximately 90% on a fully-diluted basis). The
Corporation currently derives all of its operating income from
Reeves Industries.
The Corporation acquired Reeves Industries in 1986. Under
the direction of the Corporation's management, Reeves Industries'
operations have benefited from new product developments and a
series of productivity improvements, including improved
manufacturing processes and information systems, work force
reductions and technological upgrading of facilities and
production methods. Between 1991 and 1993, the Corporation
invested approximately $52.1 million in its businesses, including
the cost of equipment leased under operating leases of $8.8
million, in order to modernize and expand capacity, reduce its
overall cost structure, increase productivity and enhance its
competitive position. Between 1991 and 1993, the Corporation's
sales and operating income increased from $257.9 million to
$283.7 million and from $25.2 million to $29.0 million (before
facility restructuring charges of $1.0 million and other charges
of $.5 million in 1993), respectively. The Corporation's
operating results have improved primarily due to increased sales
and profits related to coated automotive airbag materials and
productivity improvements achieved through increased capital
investment. These results have been achieved despite the
continuation of recessionary influences which have adversely
affected sales of Reeves Industries' apparel textile and printing
blanket products in its U.S. and European markets.
RESULTS OF OPERATIONS (1991-1993)
SALES
Consolidated sales increased from $269.6 million in 1991 to
$283.7 million in 1993 (5.2%) due to increased sales of the
Industrial Coated Fabrics Group (16.0%) related primarily to
growth in coated automotive airbag materials, partially offset by
a decline in sales of the Apparel Textile Group (3.6%) due to a
shift to basic, lower margin products, price competition, adverse
recessionary influences affecting domestic textile markets and
the cessation of ATG's weaving operations at its Woodruff, South
Carolina facility in 1993.
INDUSTRIAL COATED FABRICS GROUP.
ICF's sales were $121.3 million, $126.6 million and $140.7
million in 1991, 1992 and 1993, respectively. The 16.0% increase
during the period was due to increased sales of specialty coated
fabrics, primarily coated automotive airbag materials, partially
offset by a decline in offset printing blanket volume. The
increase in coated automotive airbag materials sales was due to
an increase in unit volume caused by the increased use of
driver-side airbags primarily in cars manufactured in the United
States. The decline in domestic printing blanket sales was
primarily due to reduced demand as a result of the slowdown in
the printing industry. Sales of Reeves Industries' Italian
subsidiary ("Reeves S.p.A.") fluctuated during the period
primarily due to movements in foreign currency exchange rates.
APPAREL TEXTILE GROUP.
ATG's sales were $148.3 million, $144.5 million and $142.9
million in 1991, 1992 and 1993, respectively. The 2.6% sales
decline in 1992 as compared to 1991 was evenly distributed
between ATG's greige and finishing divisions. The decline in each
division was primarily due to unusually strong sales in 1991 to
the U.S. military as a result of Operation Desert Storm and, to a
lesser extent, the economic recession in the United States in
1992. ATG's products experienced both a decline in unit volume as
well as a shift to more basic, lower margin products in 1992 as
compared to 1991. The 1.1% decline experienced in 1993 as
compared to 1992 resulted from a decrease in greige goods sales
as a result of the cessation of weaving operations at the
Woodruff, South Carolina facility due to declining sales to the
U.S. military, offset partially by increased sales of finished
goods due to greater demand for higher quality and more varied
product offerings and styles.
OPERATING INCOME
Consolidated operating income was $26.0 million, $26.6
million and $29.0 million in 1991, 1992 and 1993, respectively.
The 11.5% increase between 1991 and 1993 resulted primarily from
increased profits contributed by ICF's specialty materials
products (predominantly coated automotive airbag materials) and,
to a lesser extent, increased profits contributed by ATG (in
spite of reduced sales volume) as a result of cost reductions and
productivity gains achieved during the period related to its
capital investment program. The operating income increase
experienced during the period was partially offset by increased
corporate expenses and, in 1993, by facility restructuring
charges of $1.0 million. Operating income, as a percentage of
sales, increased from 9.6% in 1991 to 9.8% in 1992 and to 10.2%
in 1993.
INDUSTRIAL COATED FABRICS GROUP.
ICF's operating income was $23.9 million, $24.7 million and
$29.3 million in 1991, 1992 and 1993, respectively, and
represented 19.7%, 19.5% and 20.8% of ICF's sales in such years.
Operating income growth in 1992 as compared to 1991 was due
primarily to increased sales of coated automotive airbag
materials and, to a lesser extent, the elimination of certain
lower-margin specialty coated fabric products. The 18.6% increase
in operating income in 1993 as compared to 1992 was primarily due
to the benefits of economies of scale realized in connection with
increased sales of coated automotive airbag materials. Operating
income from printing blankets declined in 1992 and 1993
reflecting the worldwide slowdown in the printing industry
partially offset by efficiencies experienced by Reeves S.p.A.
primarily related to increased material yields.
APPAREL TEXTILE GROUP.
ATG's operating income was $10.1 million, $10.7 million and
$11.6 million in 1991, 1992 and 1993, respectively, and
represented 6.8%, 7.4% and 8.1% of ATG's sales in such years. The
operating income and margin improvement experienced during the
period was achieved in spite of an overall 3.6% sales decline
reflecting the benefits of cost reductions and productivity
improvements realized from ATG's capacity modernization program
initiated at its Chesnee and Bishopville, South Carolina
facilities.
CORPORATE EXPENSES.
Corporate expenses were $8.1 million, $8.9 million and $10.9
million in 1991, 1992 and 1993, respectively, and represented
3.0%, 3.3% and 3.8% of consolidated sales in such years. The
increase in corporate expenses during the period related
primarily to increased staffing and compensation expense
necessary to support corporate development activities. In 1993,
corporate expenses included a provision for costs related to
Reeves Industries' discontinued Buena Vista, Virginia facility of
$.5 million.
GOODWILL AMORTIZATION AND FACILITY RESTRUCTURING CHARGES.
The Corporation recorded provisions for goodwill
amortization of $1.2 million in 1991 and $1.3 million in 1992 and
1993. In 1993, the Corporation also recorded facility
restructuring charges of $1.0 million. The one-time charges
related primarily to the cessation of weaving activities at
Reeves Industries' Woodruff, South Carolina facility due to
declining sales to the U.S. military, the conversion of that
facility into a captive yarn mill and consolidation of weaving
capacity at ATG's remaining facilities.
INTEREST EXPENSE, NET
Interest expense, net consists of consolidated interest
expense plus amortization of financing costs and debt discounts
less interest income on investments. Interest expense, net was
$20.7 million, $17.2 million and $16.2 million in 1991, 1992 and
1993, respectively. Included in such net amounts are provisions
for the amortization of financing costs and debt discounts
totaling $1.3 million, $1.0 million and $.7 million in 1991, 1992
and 1993, respectively. The decline in interest expense, net
during the period resulted primarily from the repayment of bank
debt, the refinancing of Reeves Industries' long-term debt in
1992 with proceeds from the sale of the 11% Senior Notes and the
repurchase of a portion of the outstanding subordinated
debentures.
INCOME TAXES
The Corporation's effective income tax rate on income from
continuing operations before income taxes for 1991, 1992 and 1993
was 9.8%, 30.6% and 34.9%, respectively. The effective income tax
rate on income from continuing operations for 1991 and 1992
differed from the federal statutory rate of 34% primarily due to
the impact of goodwill amortization and Reeves S.p.A.'s lower
effective tax rate. The higher effective income tax rate in 1992
as compared to 1991 was primarily due to an increase in domestic
taxable income which is taxed at a higher rate than income earned
at Reeves S.p.A., a new Italian tax affecting Reeves S.p.A.'s tax
liability and the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("FAS 109").
During 1993, the Corporation established a $.8 million
valuation reserve against its deferred tax assets reflecting
estimated utilization of foreign tax credits. The Corporation has
foreign tax credit carryforwards of $1.9 million of which $1.7
million expire in 1994 and $.2 million expire at varying dates
through 1997. The valuation reserve was established based on its
estimate of foreign source taxable income expected to be received
from Reeves S.p.A. during the foreign tax credit carryover
period.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations was $4.2 million, $6.1
million and $8.2 million in 1991, 1992 and 1993, respectively.
Income from continuing operations excluded (i) a gain on disposal
of discontinued operations, net of taxes, aggregating $2.8
million in 1991, (ii) an extraordinary loss of $6.1 million in
1992 from the write-off of financing costs and debt discounts
related to the early extinguishment of long-term debt in the
Corporation's 1992 refinancing and (iii) a gain of $3.0 million
in 1992 related to the cumulative effect of adopting a change in
accounting principle (FAS 109).
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES
The Corporation has made substantial capital investments in
its businesses (approximately $83 million) since 1986. Commencing
in 1991, the Corporation began significantly increasing its
levels of capital investment in its businesses in order to
modernize and expand capacity, reduce its overall cost structure,
increase productivity and enhance its competitive position.
Between 1991 and 1993, the Corporation invested approximately
$52.1 million in aggregate ($11.0 million in 1991, $15.8 million
in 1992, $16.5 million in 1993 and $8.8 million, representing the
cost of manufacturing equipment leased under operating leases, in
1992 and 1993).
Between 1991 and 1993, the Corporation invested
approximately $13 million in ICF's domestic facilities in order
to purchase new production equipment, increase productivity and
expand capacity in its traditional lines of business as well as
to enter the coated automotive airbag materials market. In
addition, ICF spent approximately $12 million in its Reeves
S.p.A. facilities to construct an 80,000 square foot addition and
purchase related equipment. Such investment increased capacity to
manufacture offset printing blankets and installed coated fabrics
capacity in Europe to meet anticipated demand for sophisticated
specialty materials. Between 1991 and 1993, the Corporation
invested approximately $24.2 million in ATG's facilities at
Chesnee and Bishopville, South Carolina to increase productivity
and manufacturing flexibility, expand capacity for more
sophisticated fabrics and allow more rapid response to market
demand and a broader product offering. Of such $24.2 million,
approximately $8.8 million represents the cost of manufacturing
equipment leased under operating leases.
The Corporation intends to substantially increase its
capital investment in its existing businesses during the
1994-1997 period. The Corporation currently anticipates in excess
of $40 million of capital expenditures in 1994 and in excess of
$100 million of aggregate spending between 1995 and 1997. In
1994, the Corporation anticipates spending approximately $17
million to construct, furnish and equip a state-of-the-art plant
in Spartanburg, South Carolina to weave automotive airbag
materials, approximately $5 million to complete the capacity
expansion of ATG's Chesnee, South Carolina plant and
approximately $16 million to expand the capacity of and improve
productivity at ICF's worldwide coated fabrics and offset
printing blanket facilities. Projected capital expenditures
beyond 1994 are expected to complete ATG's modernization and
expansion of its textile capacity, expand ICF's automotive airbag
materials capacity in response to anticipated domestic and
international market requirements and enhance the profitability
and competitive position of ICF's printing blanket and
traditional coated fabrics businesses through additional spending
for cost reductions and productivity improvements.
As a result of the nature of the Corporation's business and
its substantial expenditures for capital improvements over the
last several years, current and future capital expenditure
requirements are flexible as to both timing and amount of capital
required. In the event that cash flow proves inadequate to fund
currently projected expenditures, such expenditures can be
adjusted so as not to exceed available funds.
LIQUIDITY
The Corporation's EBITDA (before facility restructuring and
other charges) was $32.7 million, $33.9 million and $38.1 million
in 1991, 1992 and 1993, respectively. The Corporation's net cash
provided by operating activities increased from $8.4 million in
1991 to $15.3 million in 1992 and $25.6 million in 1993. The
improvement in net cash provided by operating activities resulted
from higher levels of income from continuing operations and
significant improvements in working capital management.
The Corporation anticipates that it will be able to meet its
projected working capital, capital expenditure and debt service
requirements through internally generated funds, borrowings
available under an existing $35 million Bank Credit Agreement and
if completed, a portion of the net proceeds from the sale of the
Reeves Holdings' senior discount debentures.
In August 1992, in conjunction with the refinancing of the
Corporation's bank and institutional indebtedness, the
Corporation entered into the Bank Credit Agreement which provides
it with an aggregate $35 million revolving line of credit and
letter of credit facility. The Bank Credit Agreement expires on
December 31, 1995 and is secured by accounts receivable and
inventories. As of March 31, 1994, the Corporation had available
borrowing capacity (net of $1.3 million of outstanding letters of
credit) of $28.6 million under the Bank Credit Agreement.
IMPACT OF INFLATION
The Corporation does not believe that its financial results
have been materially impacted by the effects of inflation.
OTHER MATTERS
In February 1992, the Corporation received approximately
$17 million from the federal government in payment of a tax
refund. The refund resulted from the Corporation carrying back
tax operating losses generated in 1991, primarily related to the
disposal of the ARA Automotive Group, to offset previous years'
taxable income.
In 1992, the Corporation adopted FAS 109 effective as of the
beginning of 1992. Under FAS 109, in the year of adoption,
previously reported results of operations for the year are
restated to reflect the effects of applying FAS 109, and the
cumulative effect of adoption on prior years' results of
operations is shown in the income statement in the year of
change. The cumulative effect of this change in accounting
principle increased net income by $3.0 million in 1992.
BUSINESS
GENERAL
The Corporation, through its subsidiary, Reeves Industries,
is a diversified industrial corporation with operations in two
principal business segments, industrial coated fabrics, conducted
through its Industrial Coated Fabrics Group, and apparel
textiles, conducted through its Apparel Textile Group. In 1993,
ICF contributed approximately 49.6% of the Corporation's net
sales and approximately 71.7% of its operating income, and ATG
contributed approximately 50.4% of the Corporation's net sales
and approximately 28.3% of its operating income (in each case,
excluding corporate expenses, goodwill amortization and facility
restructuring charges). Throughout its businesses, the
Corporation emphasizes specialty products, product quality,
technological innovation and rapid responses to the changing
needs of its customers.
ICF specializes in the coating of various substrate fabrics
with a variety of products such as synthetic rubber, vinyl,
neoprene, urethane and other elastomers, to produce a diverse
line of products for industrial applications. ICF's principal
products include: (1) a complete line of printing blankets used
in offset lithography, (2) coated automotive airbag materials,
(3) specialty coated fabrics and (4) coated fabrics used in
industrial coverings.
The Corporation believes that ICF is one of the world's
leading producers of offset printing blankets and that ICF has
the leading share of the domestic market for coated automotive
airbag materials. The Corporation also believes that ICF is a
leading domestic producer of specialty coated fabrics used for a
broad range of industrial applications. ICF's products generally
involve significant amounts of technological expertise and
precise production tolerances. The Corporation believes that
ICF's product development, formulation and production methods are
among the most sophisticated in the coated fabrics industry.
ATG manufactures, processes and sells specialty textile
fabrics to apparel and other manufacturers. Through its Greige
Goods Division, ATG processes raw materials into griege goods
(i.e., undyed woven fabrics). Through its Finished Goods
Division, ATG functions as a converter and commission finisher,
purchasing greige goods (from the Griege Goods Division and
others) and contracting to have the goods dyed and finished or
dyeing and finishing the goods itself. The dyed and finished
goods are then sold for use in a variety of end-products.
The Corporation believes that ATG has developed strong
positions in niche markets in the apparel textile industry by
offering unique, custom-designed fabrics to leading apparel and
specialty garment manufacturers. ATG emphasizes "short-run"
product orders and targets market segments in which its
manufacturing flexibility, rapid response time, superior service
and quality and the ability to supply exclusive blends are key
competitive factors.
The Corporation's business strategy has focused on the sale
of higher-margin niche products and the establishment of leading
positions in its principal markets. The Corporation believes that
this strategy, combined with its diverse product and customer
base, the development of new products and substantial capital
investment, has helped the Corporation increase its sales and
profitability in spite of adverse economic conditions in its U.S.
and European markets during 1990-1993.
Since 1991, the Corporation has significantly increased its
level of capital investment in its businesses to modernize and
expand capacity, reduce its overall cost structure, increase
productivity and enhance its competitive position. The
Corporation intends to substantially increase its capital
investment in its businesses to approximately $140 million during
the 1994-1997 period. In addition, as opportunities arise, the
Corporation may seek to augment its growth through strategic
acquisitions, joint ventures and investments in other industrial
companies where the Corporation believes that it can apply its
professional management techniques to enhance a company's
operating performance.
The following table shows the amount of total revenue
contributed by product lines which accounted for 10% or more of
the Corporation's consolidated revenues in any of the last three
fiscal years.
Year Ended December 31,
1991 1992 1993
(in thousands)
Industrial Coated Fabrics Group:
Specialty Materials $ 55,581 $ 61,684 $ 78,151
Graphic Arts 65,683 64,892 62,584
$121,264 $126,576 $140,735
Apparel Textile Group:
Finished Goods and Dyeing and Finishing $ 74,893 $ 72,977 $ 77,416
Greige Goods $ 73,402 $ 71,551 $ 65,502
$148,295 144,528 142,918
INDUSTRIAL COATED FABRICS GROUP
The Industrial Coated Fabrics Group specializes in the
coating of various substrate fabrics with a variety of products,
such as synthetic rubber, vinyl, neoprene, urethane, and other
elastomers, to produce a diverse line of products for industrial
applications.
ICF's products comprise four categories: (1) a complete line
of printing blankets used in offset lithography, (2) coated
automotive airbag materials, (3) specialty coated fabrics,
including fluid control diaphragm materials, tank seals, ducting
materials and coated fabric materials used for military and
commercial life rafts and vests, aircraft escape slides, flexible
fuel tanks and general aviation products, and (4) coated fabrics
used in industrial coverings, including fabrics coated with
rubber and vinyl which are used to make tarpaulins, loading dock
shelters and other industrial products.
ICF's products require significant amounts of technological
expertise and the Corporation believes that ICF's product
development, formulation and production methods are among the
most sophisticated in the coated fabrics industry. Since 1990,
ICF has been awarded six patents with respect to polyurethane
coatings and has nine pending patent applications relating to
printing blankets, airbag fabric and specialty coatings.
Approximately eight other patent applications are in process.
ICF generally manufactures specialty coated fabrics
according to a production backlog. ICF's products, other than
printing blankets and coated automotive airbag material, involve
relatively short runs and custom manufacturing. Printing blankets
are sold primarily to distributors and dealers. ICF's other
products are sold directly to end users and fabricators by its
direct sales force.
PRINTING BLANKETS
The Corporation believes that ICF is one of the world's
leading producers of printing blankets used in offset
lithography, the predominant printing process for the commercial,
financial, publication and industrial printing markets.
Offset printing blankets are used in the printing process to
transfer a printed image from a metal printing plate onto paper
or other printing material. ICF markets a complete line of
conventional, compressible and sticky-back blankets under the
Vulcan+ name. The Corporation's line includes the 714+, the first
compressible printing blanket, the 2,000+ Plus, an advanced
general purpose blanket, the Vision SRTM, a premium blanket
targeted at the sheet-fed market, and the Marathon+, a blanket
targeted to the high-speed web press market. Each blanket in the
product line is designed for a specific printing need and ICF
sells an appropriate blanket for most types of commercial,
financial, publication and industrial printing applications.
The Corporation believes that ICF's blankets consistently
offer high performance and quality. This performance is due to a
number of proprietary features of the blankets, many of which are
the subject of pending patent applications. Distinctive
characteristics of ICF's blankets include unique printing surface
compounds, improved composition and placement of compressible
layers, surface buffing and water and solvent-resistant backplies.
Purchasers of ICF's blankets include commercial, financial
and industrial printers and publishers of newspapers and
magazines. ICF's blankets are sold to over 10,000 U.S. printers
and more than 15,000 foreign printers, in 64 countries worldwide.
ICF has established a network of over 60 distributors and
125 dealers in the United States, Canada and Latin America to
market its printing blankets. In addition, ICF is represented by
a distributor in most of the other countries in which it does
business. The Corporation's distributors typically purchase rolls
of uncut blankets from ICF and then cut, finish and package the
blankets prior to delivery to dealers or end-users.
Internationally, ICF's relationships with distributors tend to be
long-standing and exclusive, with most distributors dealing only
in ICF's printing blankets and ICF selling only to such
distributors in their respective territories. Domestic
distributors tend to carry printing blankets from a number of
manufacturers. Dealers generally purchase finished blankets from
distributors for resale. ICF services all of its customers, and
its direct sales force actively markets and promotes ICF's
printing blankets.
AUTOMOTIVE AIRBAG MATERIALS
Reeves believes that ICF has the leading share of the
domestic market for coated automotive airbag materials. ICF is a
significant supplier of such material to TRW, Inc. ("TRW") and
the Safety Restraints Division of Allied-Signal, Inc.
("Allied-Signal"). Allied-Signal supplies Morton International
("Morton") with airbag components. TRW and Morton are two of
four major domestic manufacturers of airbag systems and, together
with Allied-Signal, supply all of the domestic automobile
manufacturers and many of the European and Japanese automobile
manufacturers. The Corporation believes that TRW and Morton
account for in excess of 50% of the worldwide market for airbag
systems.
National Highway Traffic Safety Administration regulations
currently mandate the use of both driver-side and passenger-side
airbags for all 1998 model year passenger cars and 1999 model
year light trucks, vans and multipurpose vehicles ("LTVs"). A
phase-in `schedule establishes that at least 95% of a
manufacturer's passenger cars built on or after September 1, 1996
for sale in the United States, must be equipped with an airbag at
the driver's and the right front passenger's seating positions.
All LTVs built after September 1, 1997, must have some form of
automatic occupant protection, and at least 80% must have either
driver-side or driver-side and passenger-side airbags.
Due to market demand for airbag-equipped vehicles,
automobile manufacturers have been installing airbags (primarily
driver-side) more extensively than required by the foregoing
regulations. The Corporation expects sales of airbag systems and
coated airbag fabric to increase substantially in future years
and believes that ICF is well-positioned to benefit from such
growth.
Following the lead of the U.S. automobile manufacturers,
European and Asian automobile manufacturers have begun
installation of automobile airbags. No legislation or regulation
presently requires the installation of airbags outside of the
United States market. Reeves S.p.A. has sufficient capacity for
production of coated airbag material if demand develops outside
of the United States for such products.
Corporation participation in the airbag market to date has
been through the use of coated airbag fabric in driver-side
applications where coated airbag fabric offers certain advantages
such as greater thermal insulation to withstand the rapid
inflation of the airbag by means of hot gases and impermeability
to prevent the escape of gases. Side-impact airbags (presently
offered on certain models of Volvo and Mercedes Benz) are
expected to use coated airbag fabric.
Most passenger-side airbags are currently designed to use
uncoated fabrics. Passenger-side airbags deploy more slowly than
driver-side airbags. Consequently, they can be manufactured at a
lower cost using uncoated fabric. The Corporation does not
presently produce an uncoated airbag fabric. Although there can
be no assurance that it will be able to do so, the Corporation
plans to participate in the growth of passenger-side applications
through an expansion program capitalizing on its textile
expertise and research and development efforts. As part of this
program, the Corporation is constructing an approximately 100,000
square foot facility in Spartanburg, South Carolina for weaving
both coated and uncoated airbag fabric. The facility is expected
to be operational by the end of 1994.
Through its research and development activities, the
Corporation is continuously working to develop new proprietary
fabric technologies and procedures for the next generation of
driver-side and passenger-side airbags. Airbag fabrics must meet
rigorous specifications, testing and certification requirements
and airbag fabric contracts tend to be awarded several years in
advance. These factors may deter the entry of other
manufacturers into this business.
SPECIALTY COATED FABRICS
The Corporation believes that ICF is a leading domestic
producer of specialty coated fabrics used for a broad range of
industrial applications. ICF's specialty coated fabrics business
is largely customer or "job shop" oriented. In 1993, more than
90% of ICF's sales of specialty coated fabrics were derived from
fabrics manufactured to meet particular customers'
specifications.
Specialty coated fabrics generally consist of a fabric base,
or substrate layer, and an elastomer coating (i.e., coating
consisting of an elastic substance, such as rubber) which is
applied to the fabric base. The Corporation believes that ICF's
line of elastomer-fabric combinations is the most comprehensive
in the industry, enabling it to design products to satisfy its
customers' needs. Fabric bases used in ICF's specialty coated
fabrics include polyester, nylon, cotton, fiberglass and silk.
ICF's elastomers include natural rubber, nitrile, Thiokol+,
Neoprene+, silicone, Hypalon+, Viton+ and polyurethane.
ICF sells its specialty coated fabrics under the registered
trademark Reevecote+. The Corporation believes that ICF has
established a reputation for quality and product innovation in
specialty coated fabrics by virtue of ICF's technological
capability, advanced plant and equipment, research and
development facilities and specialized chemists and engineers.
ICF's specialty coated fabrics are separated into five
product lines:
GENERAL PURPOSE GOODS.
This product line includes air cells, tank seals, gaskets,
compressor valves, aerosol seals and washers and coated fabrics
used by other manufacturers in the production of insulation
materials, soundproofing and inflatable "lifting bags" used to
jack up automobiles or trucks.
GAS METER DIAPHRAGMS.
ICF manufactures a line of rubber diaphragm material for use
in gas meters which are the primary mechanisms in gas meters for
controlling gas flow. ICF's products are sold to most of the
major manufacturers of gas meters.
SYNTHETIC DIAPHRAGMS.
The Corporation's synthetic diaphragms are used in
carburetors, controls, meters, compressors, fuel pumps and other
applications.
SPECIALTY PRODUCTS.
ICF manufactures a large number of miscellaneous specialty
coated products, including v-cups for oil rig drills, expansion
joints and urethane specialty items, such as fuel containers,
commercial diaphragms and desiccant bags.
MILITARY, MARINE AND AEROSPACE PRODUCTS.
ICF produces coated fabrics used in truck and equipment
covers, waterproof duffel bags, pneumatic air mattresses,
collapsible tanks for fuel and water storage, temporary shelters,
rafts, inflatable boats, various types of safety devices,
pneumatic and electrical plane de-icers, specialty molded
aircraft parts, aerospace fuel cells, aircraft evacuation slides,
helicopter floats, surveillance balloons and miscellaneous items.
A portion of ICF's work in this area is performed as a
subcontractor on United States government contracts.
ICF's direct sales force sells primarily to fabricators who
use ICF's specialty coated fabrics in products sold to end-users.
INDUSTRIAL COVERINGS FABRICS
ICF sells coated fabrics to customers that produce a wide
variety of industrial coverings, including truck tarpaulins,
trailer covers, cargo covers, agricultural covers, hangar
curtains, industrial curtains, boat covers, athletic field
covers, temporary shelters, semi-bulk containers and specialized
flotation devices used for the containment of oil spills and
other environmental pollutants. ICF's industrial coverings
fabrics are produced by the same methods as its specialty coated
fabrics and are sold under the Coverlight+ registered trademark.
The industrial coverings fabrics business also includes
coated fabric for loading dock shelters, which are pads or
bumpers placed around the exterior of a loading dock door for
weathersealing. ICF sells to manufacturers of loading dock
shelter systems and believes it is the leading supplier of
loading dock shelter material produced with rubber and other
special elastomers.
ICF's sales force sells primarily to fabricators of
industrial coverings who in turn sell to end-users. Sales
personnel concentrate on the largest producers of industrial
coverings and loading dock shelter systems in the United States.
COMPETITION
ICF's competitive environment varies by product line. For
graphic arts products, the Corporation's principal competitors
are Day International and W.R. Grace. To a lesser extent, the
Corporation also competes with a number of other firms, including
David M, Kinyo, Zippy, Sumitomo, DYC and Meiji. The specialty
materials product line, except for airbag materials, competes in
a number of highly fragmented market segments where competition
varies by product. In the United States, competition comes from
Chemprene, Archer Rubber, Seaman Corp., Cooley, Fairprene and
selected foreign suppliers. Airbag products compete against
those of Milliken and Highland Industries as well as several
other small manufacturers. Quality, compliance with exacting
product specifications, delivery terms and price are important
factors in competing effectively in ICF's markets.
APPAREL TEXTILE GROUP
The Apparel Textile Group consists of two divisions, Greige
Goods and Finished Goods. ATG concentrates on segments of the
market where its manufacturing flexibility, rapid response time,
superior service, quality and the ability to supply customers
with exclusive blends are key competitive factors.
ATG's Greige Goods Division processes raw materials into
undyed woven fabrics known as greige goods. The Greige Goods
Division manufactures greige goods of synthetic fibers, wool,
silk, flax and various combinations of these fibers. Products of
the Greige Goods Division are primarily utilized for apparel and
the Greige Good Division's most significant customers are outside
converters and, to a lesser extent, ATG's Finished Goods
Division.
The Corporation believes that the Greige Goods Division is
distinguished from its competitors by its ability to efficiently
manufacture small yardage runs, its rapid response time, the high
quality of its products and its ability to produce samples
rapidly on demand. ATG's greige goods plants engage principally
in short production runs producing specialty fabrics requiring a
variety of blends and textures. Fabrics are produced by the
Greige Goods Division according to an order backlog and are
typically "sold ahead" three to four months in advance. Most of
the Greige Goods Division's sales are sold under firm contracts.
In comparison to manufacturers of large volume commodity fabrics
such as print cloth, corduroy and denim, the Greige Goods
Division has been less adversely affected in recent years by
foreign imports because of its position as a small quantity,
specialty fabric producer.
ATG's Finished Goods Division functions as a converter and
commission finisher. The Finished Goods Division purchases
greige goods from the Greige Goods Division and other greige
suppliers and either contracts to have such goods converted into
finished fabrics of varying weights, colors, designs and finishes
or converts them itself. The dyed and finished fabrics are used
in various end-products and sold primarily to apparel
manufacturers in the women's wear, rainwear/outerwear,
men's/boys' wear and career apparel markets.
The Corporation believes that ATG's Finished Goods Division
is one of the most flexible operations of its kind in the United
States due to the variety of products it can finish and the broad
range of dyeing processes and finishes it is able to offer. The
Finished Goods Division focuses on high value-added fabrics with
unique colors and specialty finishes. The Finished Goods
Division's fabrics are currently being used by a number of the
leading men's and women's sportswear manufacturers and its dyeing
and finishing services are sold to major domestic converters.
A wide variety of fabrics can be woven at the Greige Goods
Division's two weaving plants. The dyeing and finishing plant of
the Finished Goods Division is equipped to do a variety of piece
dyeing, as well as to provide specialty finishings. This
manufacturing flexibility increases ATG's ability to respond
rapidly to changes in market demand.
Substantially all of the Apparel Textile Group's products
are sold directly to customers through its own sales force. The
balance is sold through brokers and agents.
PRINCIPAL CUSTOMERS
ATG markets its fabrics to a wide range of customers
including H.I.S., the Thompson+ men's pants division of Salant
Corporation, Eddie Haggar Ltd. and V.F. Corporation. ATG also
markets its fabrics to major retailers, including J.C. Penney,
which specify the Corporation's fabrics. ATG is a direct
supplier of rainwear fabric to Londontown Corporation, the maker
of London Fog+, and also markets its fabrics to specialty
catalogue houses such as Patagonia, L.L. Bean and Eddie Bauer.
COMPETITION
The textile industry is highly competitive. While there are
a number of integrated textile companies, many larger than ATG,
no single company dominates the United States market.
Competition from imported fabrics and garments continues to be a
significant factor adversely affecting much of the domestic
textile industry. Because of the nature of ATG's markets, the
Corporation believes it is less susceptible to foreign imports
than the industry as a whole and is more insulated from the risk
of foreign imports than high-volume commodity producers. The
most important factors in competing effectively in ATG's product
markets are service, price, quality, styling, texture, pattern
design and color. ATG seeks to maintain its market position in
the industry through a high degree of manufacturing flexibility,
product quality and competitive pricing policies.
The Greige Goods Division distinguishes itself from its
competitors by its ability to manufacture runs as small as 40,000
square yards, its rapid response time and the high quality of the
products manufactured. The Greige Goods Division has extensive
proprietary technical knowledge in the structure of its spinning
and weaving operations, which the Corporation believes represents
a significant competitive advantage.
The Finished Goods Division is capable of finishing a wide
variety of products and offers a broad range of dyeing processes
and finishes. This manufacturing flexibility increases the
Finished Goods Division's ability to respond rapidly to changes
in market demand, which the Corporation believes enhances its
competitive position.
RAW MATERIALS, MANUFACTURERS AND SUPPLIERS
The principal raw materials used by ICF include polymeric
resins, natural and synthetic elastomers, organic and inorganic
pigments, aromatic and aliphatic solvents, polyurethanes,
polyaramids and calendered fabrics. ATG principally utilizes
wool, flax, specialty yarn, man-made fibers, including acrylics,
polyesters, acetates, rayon and nylon and a wide variety of dyes
and chemicals. Such raw materials are largely purchased in
domestic markets and are available from a variety of sources. The
Corporation is not presently experiencing any difficulty in
obtaining raw materials. However, the Corporation has from time
to time experienced difficulty in obtaining the substrate fabric
that it uses to produce coated automotive airbag materials. The
Corporation anticipates that the completion of its new weaving
facility in Spartanburg, South Carolina may reduce the risk of
such supply shortages. Airbag fabric produced by the new facility
will be subject to rigorous testing and certification before it
will be available for production.
FOREIGN OPERATIONS
All of Reeves' foreign operations are conducted through
Reeves S.p.A., a wholly-owned subsidiary located in Lodi Vecchio,
Italy. Reeves S.p.A. forms a part of Reeves' ICF Group. The
financial data of Reeves S.p.A. is as follows :
1991 1992 1993
(in thousands)
Sales.................... $ 35,437 $ 38,444 36,932
Net income............... 6,808 9,165 7,446
Assets................... 33,011 31,608 33,092
The financial results of Reeves S.p.A. do not include any
allocations of corporate expenses or consolidated interest
expense.
Backlog
The following is a comparison of open order backlogs at
December 31 of each year presented:
1991 1992 1993
(in thousands)
Industrial Coated Fabrics Group $16,824 $16,942 $17,072
Apparel Textile Group.... 47,129 32,994 39,390
------ ------ ------
Totals................... $64,071 $49,818 $56,462
======= ======= ======
The increase in ICF's backlog from 1992 to 1993 is due to
growth in the coated automotive airbag materials business. The
decrease in the Apparel Textile Group backlog from 1991 to 1992
was the result of a decrease in government business and reduced
orders due to market uncertainty. The increase in the ATG backlog
from 1992 to 1993 is due to the addition of several new customers
in the Finished Goods Division.
The December 31, 1993 backlogs for the Industrial Coated
Fabrics Group and the Apparel Textile Group are reasonably
expected to be filled in 1994. Under certain circumstances,
orders may be canceled at the Corporation's discretion prior to
the commencement of manufacturing. Any significant decrease in
backlog resulting from lost customers could adversely affect
future operations if these customers are not replaced in a timely
manner.
ENVIRONMENTAL MATTERS
The Corporation is subject to a number of federal, state and
local laws and regulations pertaining to air emissions, water
discharges, waste handling and disposal, workplace exposure and
release of chemicals. During 1993, expenditures in connection
with the Corporation's compliance with federal, state and local
environmental laws and regulations did not have a material
adverse effect on its earnings, capital expenditures or
competitive position. Although the Corporation cannot predict
what laws, regulations and policies may be adopted in the future,
based on current regulatory standards, the Corporation does not
expect such expenditures to have a material adverse effect on its
operations.
EMPLOYEES
On February 1, 1994, the Corporation employed approximately
2,289 people, of whom 1,855 were in production, 183 were in
general and administrative functions, 52 were in sales and 199
were at Reeves S.p.A. At such date, ICF had approximately 639
employees and ATG had approximately 1,398 employees, with the
remainder of the Corporation's employees in general and
administrative positions.
PROPERTIES
The Corporation's principal facilities, their primary
functions and their locations are as follows:
Location Function Owned Leased
Size (Sq. Ft.)
Manufacturing Facilities
Industrial Coated Fabrics Group
Ruthrfordton, NC Specialty Materials 215,000
Spartanburg, SC Graphic Arts...... 308,364
Lodi Vecchio, Italy Graphic Arts and
Specialty Materials 160,000 4,900
Subtotal.......... 683,364 4,900
Apparel Textile Group
Woodruff, SC Greige Goods...... 368,587
Chesnee, SC Greige Goods...... 303,100
Bessemer City, NC Greige Goods...... 218,992
Bishopville, SC Finished Goods.... 226,684 2,400
Bishopville, SC Warehouse......... 72,650
Subtotal.......... 1,117,363 75,050
Total Manufacturing Facilities...... 1,800,727 79,950
Non-Manufacturing Facilities
New York, NY Administrative and Sales 12,000
Spartanburg, SC Administrative and Sales 43,000
Darien, CT Administrative.... 6,800
Total Manufacturing Facilities...... 43,000 18,800
TOTAL...................................... 1,843,727 98,750
The Corporation is a party to leases with terms ranging from
month-to-month to fifteen years, with rental expense aggregating
$1.5 million for the twelve months ended December 31, 1993. The
Corporation believes that all of its facilities are suitable and
adequate for the current conduct of its operations.
LEGAL PROCEEDINGS
The Corporation believes that there are no legal
proceedings, other than ordinary routine litigation incidental to
the business of the Corporation, to which the Corporation or any
of its subsidiaries is a party. Management is of the opinion that
the ultimate outcome of existing legal proceedings would not have
a material adverse effect on the Corporation's consolidated
financial position or results of operations.
MARKET AND DIVIDEND INFORMATION
The Existing Shares consist of the Corporation's Common
Stock, par value $.01 per share. SUCCESSFUL COMPLETION OF THE
REVERSE STOCK SPLIT IS EXPECTED TO RESULT IN THE DEREGISTRATION
OF THE NEW COMMON STOCK UNDER THE EXCHANGE ACT AND THE NEW COMMON
STOCK NOT BEING ELIGIBLE FOR QUOTATION ON NASDAQ NOR LISTING ON
ANY SECURITIES EXCHANGE. The Corporation's Existing Shares are
traded over-the-counter.
The range of high and low bid prices of the Existing Shares
for each quarterly period during the last two fiscal years as
supplied by the National Quotation Bureau, Inc. is set forth
below. These over-the-counter market quotations represent
inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
Fiscal Year Ended High Low
December 31, 1992
First Quarter 2 1/2 2 1/2
Second Quarter 2 1/2 2 1/2
Third Quarter 2 3/4 2 1/2
Fourth Quarter 3 1/4 1
December 31, 1993
First Quarter 1 1
Second Quarter 1 1/2 1
Third Quarter 1 1
Fourth Quarter 1 1
On April 14, 1994, the last trading day prior to the
announcement of the entry by the Court of Chancery of an order
approving the Settlement, the high and low bid price of the
Existing Shares of the Corporation was $1.00. At March 30, 1994,
there were 12,895,100 Existing Shares outstanding held by
approximately 2,005 holders of record.
Although there are no contractual restrictions on the
Corporation's ability to pay dividends, as a practical matter,
such ability is limited as a result of significant restrictions
on the ability of Reeves Holdings, Reeves Industries and Reeves
Brothers to pay dividends or make advances or distributions to
their stockholders, including the Corporation, pursuant to the
terms of the loan agreements and the indentures covering existing
public indebtedness. The Corporation has not paid dividends
since 1958.
FINANCIAL INFORMATION
The Corporation hereby incorporates by reference the
information on industry segments contained in Part 1, Item 1,
pages 1 through 6 of the portions of the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992
which are attached hereto as an Exhibit (the "1992 10-K"), the
information on foreign operations contained in Part 1, Item 1,
pages 5 and 6 of the 1992 10-K, the Selected Financial Data
contained in Part II, Item 6, pages 7 through 9 of the 1992 10-K,
the Financial Statements and notes thereto contained in Part II,
Item 8, following page 19 of the 1992 10-K, the report of
independent accountants thereon contained in Part II, Item 8,
page 19 of the 1992 10-K, the Management's Discussion and
Analysis of Financial Condition and Results of Operations
contained in Part II, Item 7, pages 10 through 16 of the 1992 10-
K, the information on industry segments contained in Part I, Item
1, pages 3 through 12 of the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1993 (the "1993 10-
K"), the information on foreign operations contained in Part I,
Item 1, page 11 of the 1993 10-K, the Selected Financial Data
contained in Part II, Item 6, pages 15 through 17 of the 1993 10-
K, the Financial Statements and the notes thereto contained in
Part II, Item 8, pages 23 through 43 of the 1993 10-K, the report
of independent accountants thereon contained in Part II, Item 8,
page 22 of the 1993 10-K, and the Management's Discussion and
Analysis of Financial Condition and Results of Operations
contained in Item 7, pages 17 through 21 of the 1993 10-K.
BOARD OF DIRECTORS, EXECUTIVE OFFICERS,
AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of
December 31, 1993 known to the Corporation regarding the
directors, executive officers and principal stockholders of the
Corporation and their beneficial ownership of Existing Shares.
Each person set forth in the table below is a United States
citizen. The business address of each of Messrs. Richard W. Ball
and David L. Dephtereos, Ms. Jennifer H. Fray and Messrs. Douglas
B. Hart, James W. Hart, James W. Hart, Jr., Steven W. Hart and
Joseph P. O'Brien is c/o Hart Holding Company Incorporated, 1120
Boston Post Road, Darien, Connecticut 06820. The business
address of Anthony L. Cartagine is 104 West 40th Street, New
York, New York 10018. The business address of each of Messrs. V.
William Lenoci and Patrick M. Walsh is c/o Reeves Industries,
Inc., Highway 29 South, P.O. Box 1898, Spartanburg, South
Carolina 29304.
The directors, executive officers and principal stockholders
and information with respect to the occupation and employment
during the last five years of such persons, as applicable, are
set forth below:
Name Position Age as of Amount Of Percentage
January 1, 1993 Beneficial Common Stock
Ownership of
Common Stock
Richard W. Ball Treasurer of Reeves 47 0 0%
Industries and
Reeves
Anthony L. Cartagine Vice President of 59 1,000 .01%
Reeves Industries
and Reeves;
President-Apparel
Textile Group of
Reeves
Jennifer H. Fray Assistant General 29 0 0%
Counsel and
Secretary of the
Corporation, Reeves
Industries and
Reeves
Douglas B. Hart Senior Vice 31 0 0%
President-Operations
of Reeves Industries
and Reeves
James W. Hart (1)(2) Director, Chairman 60 13,623,507 94.6%
of the Board,
President, Chief
Executive Officer,
Chief Operating
Officer and Chief
Financial Officer of
the Corporation;
Chairman of the
Board and Director
of Reeves Industries
and Reeves
James W. Hart, Jr.(3) President, Chief 40 60,300 0.5%
Executive Officer
and Chief Operating
Officer of Reeves
Industries and
Reeves
Steven W. Hart (4) Executive Vice 37 240,300 1.9%
President and Chief
Financial Officer of
Reeves Industries
and Reeves
David L. Dephtereos General Counsel of 39 0 0%
the Corporation;
Vice President and
General Counsel of
Reeves Industries
and Reeves
V. William Lenoci Vice President of 58 5,000 0.4%
Reeves Industries
and Reeves;
President and Chief
Executive Officer-
Industrial Coated
Fabrics Group of
Reeves
Joseph P. O'Brien Vice President- 53 0 0%
Finance of Reeves
Industries and
Reeves
Richard A. Vollmer Director of the 66 0 0%
Corporation
Patrick M. Walsh Vice President- 53 0 0%
Administration of
Reeves Industries
and Reeves
All Officers and 13,930,107 95%
Directors as a Group
(12 persons) (1)
______________
(1) As of March 31, 1994, James W. Hart is the beneficial owner
of 13,623,507 shares of Common Stock (approximately 95%) of which
(i) 12,123,507 shares are owned directly, and (ii) 1,500,000
shares are subject to a presently exercisable option (the "Hart
Holding Option") issued in November 1993. The Hart Holding
Option expires on December 31, 2028 and provides for the issuance
of up to 4,000,000 shares upon exercise of options as follows:
1,500,000 immediately exercisable at $2.25 per share; 1,500,000
exercisable one year from grant date at $2.50 per share; and
1,000,000 exercisable two years from grant date at $2.75 per
share. James W. Hart may be deemed the controlling person of the
Corporation.
(2) On January 26, 1994, James W. Hart was granted an option to
purchase up to 3,800,000 shares of common stock of Reeves
Industries, which has an expiration date of December 31, 2023.
The option is exercisable at $.56 per share for 1,400,000 shares
(exercisable immediately), $.75 per share for 1,400,000 shares
(exercisable one year from grant date) and $1.00 per share for
1,000,000 shares (exercisable two years from grant date).
(3) As of March 31, 1994, James W. Hart, Jr. is the beneficial
owner of 60,300 shares of Common Stock (representing less than 1%
of such outstanding Common Stock), of which 300 shares are owned
directly and the balance is subject to a presently exercisable
option.
(4) As of March 31, 1994, Steven W. Hart is the beneficial owner
of 240,300 shares of Common Stock (1.9%) of which 180,300 shares
are owned directly and the balance is subject to a presently
exercisable option.
<PAGE>
Mr. Ball joined Reeves in January 1992 as Treasurer. He
served as Treasurer of the Corporation from June 1992 to December
1992. Form 1990 through 1991, Mr. Ball was Corporate Treasurer
for Turner Corporation, a world-wide construction and development
company. From 1988 through 1989, Mr. Ball was Vice President and
Chief Financial Officer of Nuclear Energy Services, Inc., an
engineering services subsidiary of Penn Central Corporation.
Mr. Cartagine has been with Reeves Brothers since 1964. He
was named President - Greige Goods Division of the Apparel
Textile Group in 1984 and President of the Apparel Textile Group
in 1986. He was named Vice President of Reeves Industries and
Reeves in 1988.
Mr. Dephtereos joined the Corporation, Reeves Industries and
Reeves in May 1991 as Vice President, General Counsel and
Secretary. He served as Vice President and Secretary of Reeves
Industries and Reeves from 1991 until 1992. From 1985 through
May 1991, Mr. Dephtereos was Vice President, General Counsel and
Secretary of Air Express International Corporation, a publicly-
held, international transportation company.
Ms. Fray joined the Corporation, Reeves Industries and
Reeves in September 1992 as Assistant General Counsel. In 1992,
she was named Secretary of the Corporation, Reeves Industries and
Reeves. From 1990 to 1992, Ms. Fray was engaged in studies
leading to a Master of Laws Degree in Taxation from Boston
University, from 1990 to 1991 she was employed as a Tax Associate
at Coopers & Lybrand, certified public accountants in Boston,
Massachusetts and from 1987 to 1990 she was engaged in studies
leading to a Juris Doctor Degree from Suffolk University.
Mr. Douglas B. Hart served as a Director of Reeves
Industries and Reeves from 1991 to 1992. He was named Vice
President - Real Estate in 1989, Senior Vice President in 1991 an
Senior Vice President - Operations in 1992 of Reeves Industries
and Reeves. Mr. Hart served as a Director of the Corporation
from 1991 to 1992, as Vice President - Real Estate of the
Corporation from 1988 to 1991 and as Senior Vice President of the
Corporation from 1991 to 1992. In 1992, Mr. Hart became
President, Chief Executive Officer and Chief Operating Officer of
Hart Investment Properties Corporation, a wholly-owned
diversified corporate investment entity of the Corporation, with
current holdings in real estate. Prior to 1989, Mr. Hart was
Assistant Vice President at Sentinel Real Estate Corporation in
New York, an owner/developer of malls, shopping centers, office
buildings and single family residential communities throughout
the United States.
Mr. James W. Hart has been Director of Reeves Industries and
Reeves since 1986 and became Chairman of the Board in 1987. Mr.
Hart served as President and Chief Executive Officer of Reeves
Industries and Reeves from 1988 until 1992. Mr. Hart has been a
Director, President, Chief Executive Officer, and Chairman of the
Board of the Corporation since 1975 and became Chief Operating
Officer and Chief Financial Officer of the Corporation in 1992.
Mr. James W. Hart, Jr. served as a Director of Reeves
Industries and Reeves from 1986 to 1992. Mr. Hart became Vice
President of Reeves Industries and Reeves in 1987 and was named
Senior Vice President - Operations in 1988 and Executive Vice
President and Chief Operating Officer in 1989. In 1992, he was
named President, Chief Executive Officer and Chief Operating
Officer of Reeves Industries and Reeves. Mr. Hart served as a
Director of the Corporation from 1984 to 1992. He served as Vice
President of the Corporation from 1984 to 1992, Senior Vice
President - Operations of the Corporation from 1988 to 1992 and
as Executive Vice President and Chief Operating Officer of the
Corporation from 1989 to 1992.
Mr. Steven W. Hart served as a Director of Reeves Industries
and Reeves from 1986 to 1992. He became Vice President of Reeves
Industries and Reeves in 1987 and was named Senior Vice President
and Chief Financial Officer in 1988 and Executive Vice President
and Chief Financial Officer in 1989. Mr. Hart served as a
Director, Treasurer and Chief Financial Officer of the
Corporation from 1984 to 1988, Senior Vice President of the
Corporation from 1988 to 1989 and Executive Vice President of the
Corporation from 1989 to 1992. Mr. Hart joined the Corporation
in 1983 as Vice President - Strategic Planning.
Mr. Lenoci has been with Reeves since 1967. He was named
President - Industrial Coated Fabrics Group in 1986 and Vice
President of Reeves Industries and Reeves in 1988. In 1990 he
became Chief Executive Officer of the Industrial Coated Fabrics
Group.
Mr. O'Brien joined Reeves Industries and Reeves in 1993 as
Vice President - Finance. From 1980 to 1993, Mr. O'Brien served
as Vice President - Finance of Howmet Corporation, an integrated
manufacturer of components for gas turbine jet engines and
aircraft structural parts.
Mr. Richard A. Vollmer has been a Director of the
Corporation since 1983. Mr. Vollmer served as a Director of
Reeves Industries and Reeves from 1987 to 1989. From 1989 to
1992, Mr. Vollmer served as Director - Financial Planning of
Reeves Industries and Reeves. In 1992, Mr. Vollmer retired from
Reeves Industries and Reeves. Prior to 1989, Mr. Vollmer was an
independent financial consultant.
Mr. Walsh has been with Reeves since 1987, as Director of
Human Resources. IN 1990, he was elected Vice President -
Administration of Reeves and, in 1993, Vice President -
Administration of Reeves Industries.
Mr. James W. Hart is the father of Ms. Fray and Messrs.
Douglas B. Hart, James W. Hart, Jr. and Steven W. Hart.
Directors of the Corporation are elected at each annual
meeting of the stockholders. The term of office of each director
is from the time of his election and qualification until the next
annual meeting of stockholders and until his successor shall have
been duly elected and qualified, unless such director shall have
earlier been removed. Executive officers serve at the discretion
of the Boards of Directors of the Corporation, Reeves Industries
and Reeves, as applicable.
One of the two directors is an officer of the Corporation
and beneficially owns approximately 95% of the Existing Shares.
One director recently retired as an officer of Reeves Industries
and Reeves and such director does not own any Existing Shares.
ADDITIONAL INFORMATION
The Corporation is subject to the informational requirements
of the Exchange Act and in accordance therewith files periodic
and current reports and other information with the Commission.
The Corporation has filed a Schedule 13E-3 with the Commission in
connection with the proposed Reverse Stock Split and a Schedule
13E-4 with the Commission in connection with Purchase Offer.
This Information Statement does not contain all of the
information set forth in the Schedule 13E-3 and the Schedule 13E-
4, certain portions of which have been omitted pursuant to the
rules and regulations of the Commission. The Schedule 13E-3,
including exhibits, Schedule 13E-4, including exhibits, and other
filings made by the Corporation as described above, may be
inspected without charge, and copies may be obtained at
prescribed rates, at the public reference facilities maintained
by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549; 14th Floor, 75 Park Place, New York
10007; and 14th Floor, 500 West Madison Street, Chicago, Illinois
60661. Copies of such materials can also be obtained by mail,
upon payment of the Commission's prescribed rates, from the
Commission's Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
By Order of the Board of Directors
/s/ James W. Hart
James W. Hart
Chairman
<PAGE>
EXHIBIT: 1992 10-K Report (Selected Portions)
PART I
ITEM 1. BUSINESS
Hart Holding Company Incorporated, incorporated in
Delaware in 1940 ("Hart Holding" or "the Registrant"), is a
diversified industrial company engaged in two business segments
through its 98.6% majority-owned subsidiary Reeves Industries,
Inc. ("Reeves Industries"). Reeves Industries' principal asset
is the capital stock of its wholly-owned subsidiary, Reeves
Brothers, Inc. ("Reeves"). Reeves is a diversified industrial
company with operations in two business segments consisting of:
(i) the Industrial Coated Fabrics Group, which manufactures and
sells rubber and synthetic coated fabrics, and (ii) the Apparel
Textile Group, which manufactures, processes and sells specialty
textile fabrics.
Pursuant to a November 1992 court-ordered settlement of
a lawsuit brought by Hart Holding and Reeves Industries against
Drexel Burnham Lambert and certain of its affiliates
(collectively, "the Defendants"), Reeves Industries will receive
1,918,132 shares of its common stock from the Defendants. The
stock was issued in connection with the exercise of the
underlying warrants in 1990 at an aggregate exercise price of
$1,158,000. Pursuant to the court-ordered settlement, Reeves
Industries deposited $1,075,000 to an escrow account to be held
for the Defendants in exchange for the common stock. After
giving effect to this transaction, Hart Holding owns
approximately 98.6% of the 34,967,973 shares of Reeves Industries
common stock outstanding on March 26, 1993.
INDUSTRY SEGMENTS
Hart Holding is a diversified industrial company
engaged in two business segments through its 98.6% majority-owned
subsidiary Reeves Industries: industrial coated fabrics and
apparel textiles. The Industrial Coated Fabrics Group
manufactures and sells rubber and synthetic coated fabrics such
as offset printing blankets, truck tarpaulins, gaskets, gas meter
and other molded and flat diaphragms, materials used in
automobile airbags and other graphic arts products for industrial
applications. The Apparel Textile Group manufactures, processes
and sells specialty textile fabrics to apparel and other
manufacturers. Throughout its businesses, Reeves Industries
emphasizes specialty products, product quality and innovation,
state-of-the-art technology and quick response to the changing
needs of its customers.
The products of the Industrial Coated Fabrics Group and
the Apparel Textile Group are sold in the United States and in
foreign countries primarily by Reeves' merchandising and sales
personnel and through a network of independent distributors to a
variety of customers including converters, apparel manufacturers,
industrial users, government agencies and contractors. Sales
offices are maintained in New York, New York; Dallas, Texas;
Spartanburg, South Carolina and Milan, Italy.
The following table sets forth the amount of total
revenue contributed by product line in each of the two industry
segments which accounted for 10% or more of the Registrant's
consolidated revenue in any of the last three fiscal years.
(in thousands)
1990 1991 1992
Industrial Coated Fabrics Group:
Graphic Arts $69,198 $ 65,683 $64,892
Specialty Materials 50,551 55,581 61,684
$119,749 $121,264 $126,576
Apparel Textile Group:
Greige Goods $68,221 $ 73,402 $71,551
Finished Goods and
Dyeing and Finishing 69,889 74,893 72,977
$138,110 $148,295 $144,528
Hart Holding does not hold any patents, trademarks,
licenses and/or franchises the loss of which would have a
material adverse affect on any of its industry segments.
Additional information about industry segments of Hart
Holding is contained in Footnote 12 of the Notes to the Audited
Consolidated Financial Statements of Hart Holding.
Industrial Coated Fabrics Group
The Industrial Coated Fabrics Group ("ICF") specializes
in the coating of various substrate fabrics with a variety of
products such as synthetic rubber, vinyl, neoprene, urethane, and
other elastomers to produce a diverse line of products for
industrial applications. Its principal products include: (1) a
complete line of compressible, conventional and sticky-back
offset printing blankets, (2) coated fabric materials used in
producing automobile airbags, (3) specialty coated fabrics,
including fluid control diaphragm materials, tank seals, ducting
materials and coated fabric materials used for military and
commercial life rafts and vests, aircraft escape slides, flexible
fuel tanks and general aviation products, and (4) coated fabrics
used in industrial coverings, including fabrics coated with
rubber and vinyl which are used to make tarpaulins, loading dock
shelter and other industrial products.
ICF generally manufactures specialty coated fabrics
according to a production backlog. ICF's products, other than
printing blankets and automobile airbag fabric material, involve
relatively short-runs and custom manufacturing. All products
require a significant amount of technological expertise. ICF's
products are sold by its direct sales force. Printing blankets
are sold primarily to distributors and dealers. ICF's other
products are sold directly to end-users and fabricators.
Hart Holding believes that ICF is the world's leading
producer of printing blankets used in offset lithography, the
predominant printing process for the commercial, financial,
publication and industrial printing markets. Management believes
that ICF is the largest of three domestic manufacturers of coated
fabric material used in automobile airbags and is a significant
supplier of such material to TRW Inc. ("TRW") and Bendix Safety
Restraints Division of Allied-Signal, Inc. ("Allied-Bendix").
Allied-Bendix supplies Morton International ("Morton") with
airbag components. TRW and Morton are two of four major domestic
manufacturers of airbag systems, and together with Allied-Bendix
supply all of the domestic automobile manufacturers and many of
the European and Japanese automobile manufacturers. Management
believes that TRW and Morton account for in excess of 50% of the
worldwide market for airbag systems.
Reeves S.p.A., a wholly-owned subsidiary of Reeves, is
based in Lodi Vecchio, Italy just outside of Milan. The
principal product lines produced at this facility are graphic
arts and specialty materials. The graphic arts products are sold
worldwide through a network of independent distributors.
Competition
ICF's competitive environment varies by product line.
For graphic arts products, Day International and W.R. Grace are
two significant competitors, although Japanese firms compete in
this market as well. The coated fabric product line, except for
airbag materials, competes in a number of highly fragmented
market segments and competition varies depending on the product.
In the United States, competition comes from manufacturers such
as Takata, Milliken, Chemprene, Archer Rubber, Seaman Corp.,
Cooley, Fairprene, and selected foreign suppliers. Quality,
compliance with exacting product specifications, delivery terms
and price are important factors in competing effectively in ICF's
markets.
Principal Customers
There was no customer of the Industrial Coated Fabrics
Group that accounted for more than 10% of consolidated Reeves'
sales during the years 1990, 1991 or 1992.
Apparel Textile Group
The Apparel Textile Group ("ATG") consists of two
divisions: Griege Goods and Finished Goods. ATG concentrates on
segments of the market where its manufacturing flexibility, rapid
response time, superior service, quality and the ability to
supply customers with exclusive blends are key competitive
factors.
ATG's Greige Goods Division processes raw materials
into undyed woven fabrics known as greige goods. The Greige
Goods Division manufacturers greige goods of synthetic fibers,
cotton, wool, silk, flax and various combinations of these
fibers. Products of the Greige Goods Division are primarily
utilized for apparel and the Greige Goods Division's most
significant customers are outside converters and, to a lesser
extent, ATG's Finished Goods Division.
Reeves Industries believes that the Greige Goods
Division is distinguished from its competitors by its ability to
manufacture small yardage runs, its rapid response time, the high
quality of its products and the ability to produce samples
rapidly on demand. ATG's greige goods plants engage principally
in short production runs producing specialty fabrics requiring a
variety of blends and textures. Fabrics are produced by the
Greige Goods Division according to an order backlog and are
typically "sold ahead" three to four months in advance. Most of
the Greige Goods Division's sales are sold under firm contracts.
In comparison to manufacturers of large volume commodity fabrics
such as print cloth, and denim, the Greige Goods Division has
been less adversely affected in recent years by foreign imports
because of its position as a small quantity, specialty fabric
producer.
ATG's Finished Goods Division functions as a converter
and commission finisher. The Finished Goods Division purchases
greige goods from the Greige Goods Division and other greige
suppliers and either contracts to have such goods converted into
finished fabrics of varying weights, colors, designs and finishes
or converts them itself. The dyed and finished fabrics are used
in various end-products and sold primarily to apparel
manufacturers in the women's wear, rainwear/outerwear, men's-
boy's and career apparel markets.
Reeves Industries believes that ATG's Finished Goods
Division is one of the most flexible operations of its kind in
the United States due to the variety of products it can finish
and the broad range of dyeing processes and finishes it is able
to offer. The Finished Goods Division focuses on high value-
added fabrics with unique colors and specialty finishes. The
Finished Goods Division's fabrics are currently being used by a
number of the leading men's and women's sportswear manufacturers
and its dyeing and finishing services are sold to major domestic
converters.
A wide variety of fabrics can be woven at any of the
Greige Goods Division's three plants. The dyeing and finishing
plant of the Finished Goods Division is equipped to do a variety
of garment dyeing, as well as to provide specialty finishings.
This manufacturing flexibility increases ATG's ability to respond
rapidly to changes in market demand.
Substantially all of the Apparel Textile Group's
products are sold directly to customers through its own sales
force. The balance is sold through brokers and agents.
Competition
The textile industry is highly competitive. While
there are a number of integrated textile companies, many larger
than ATG, no single company dominates the United States market.
Competition from imported fabrics and garments continues to be a
significant factor adversely affecting much of the domestic
textile industry. Because of the nature of ATG's markets, Hart
Holding believes it is less susceptible to foreign imports than
the industry as a whole and is more insulated from the risk of
foreign imports than high-volume commodity producers. The most
important factors in competing effectively in ATG's product
markets are service, price, quality, styling, texture, pattern
design and color. ATG seeks to maintain its market position in
the industry through a high degree of manufacturing flexibility,
product quality and competitive pricing policies.
Principal Customers
There was no customer of the Apparel Textile Group that
accounted for more than 10% of consolidated Reeves' sales during
the years 1990, 1991 or 1992.
FOREIGN OPERATIONS
The following table provides approximate sales,
operating income and identifiable assets for each of the last
three fiscal years attributable to Hart Holding's sales from
continuing operations outside of the United States, which
excludes export sales of approximately $6,898,000 in 1992:
(in thousands)
1990 1991 1992
Sales $40,698 $35,437 $38,444
Net Income 7,272 6,808 9,165
Identifiable Assets 31,405 33,011 31,608
BACKLOG
At December 31, 1992, Hart Holding had unfilled
domestic orders from continuing operations of approximately
$42,818,000 as compared to approximately $57,571,000 at December
31, 1991. The following is a comparison, by Group, of open order
backlogs at December 31 of each year presented:
1990 1991 1992
Industrial Coated Fabrics Group $8,321 $10,442 $9,824
Apparel Textile Group 42,951 47,129 32,994
Totals $51,272 $57,571 $42,818
The increase in the Apparel Textile Group backlog from
1990 to 1991 was the result of increased market share caused by
new product offerings and increased industry demand in the fourth
quarter of 1991. The decrease in the Apparel Textile Group
backlog from 1991 to 1992 was the result of a decrease in
government business and reduced orders due to market uncertainty.
The increase in the Industrial Coated Fabrics Domestic
backlog from 1990 to 1991 is primarily due to an increase in
automobile airbag and printing blanket orders. The slight
decline in the Industrial Coated Fabrics Domestic backlog from
1991 to 1992 is due to a reduction in government procurement
affecting specialty materials.
The Industrial Coated Fabrics Group began compiling
information regarding foreign backlogs in mid-1991. At December
31, 1992, ICF had unfilled foreign orders of approximately $7.0
million as compared to approximately $6.5 million at December 31,
1991.
The December 31, 1992 backlogs for the Industrial
Coated Fabrics Group and the Apparel Textile Group are reasonably
expected to be filled in 1993. Under certain circumstances,
orders may be cancelled at Reeves' discretion prior to the
commencement of manufacturing. Any significant decrease in
backlog resulting from lost customers could adversely affect
future operations if these customers are not replaced in a timely
manner.
RAW MATERIALS, MANUFACTURING AND SUPPLIERS
The principal raw materials used by ICF include
polymeric resins, natural and synthetic elastomers, organic and
inorganic pigments, aromatic and aliphatic solvents,
polyurethanes and polyaramid and calendered fabrics. ATG
principally utilizes raw cotton, wool, flax, specialty yarn, man-
made fibers, including acrylics, polyesters, acetates, rayon and
nylon and a wide variety of dyes and chemicals. Such raw
materials are largely purchased in domestic markets and are
available from a variety of sources. Hart Holding is not
presently experiencing any difficulty in obtaining raw materials.
REGULATORY ENVIRONMENT
Hart Holding is subject to a number of federal, state
and local laws and regulations pertaining to air emissions, water
discharges, waste handling and disposal, workplace exposure and
release of chemicals. During 1992, expenditures in connection
with Hart Holding's compliance with federal, state and local
environmental laws and regulations did not have a material
adverse effect on its earnings, capital expenditures or
competitive position. Although Hart Holding cannot predict what
laws, regulations and policies may be adopted in the future,
based on current regulatory standards, Hart Holding does not
expect such expenditures to have a material adverse effect on its
operations.
EMPLOYEES
On February 1, 1993, Hart Holding employed
approximately 2,490 people, of whom 2,091 were in production, 168
were in general and administrative functions, 47 were in sales
and 184 were at Reeves S.p.A. At such date, the Industrial
Coated Fabrics Group had approximately 774 employees and the
Apparel Textile Group had approximately 1,653, with the remainder
of Hart Holding's employees in general and administrative
positions.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The historical operations and balance sheet data
included in the selected financial data set forth below are
derived from the consolidated financial statements of Hart
Holding.
(In thousands, except per share data and ratios)
December 31,
1988 1989 1990 1991 1992
Statement of
Operations Data (1):
Net sales
Industrial Coated
Fabrics Group $107,052 $114,313 $119,749 $121,264 $ 126,576
Apparel Textile Group 143,525 143,035 138,110 148,295 144,528
Total net sales $250,577 $257,348 $257,859 $269,559 $271,104
Operating income
Industrial Coated
Fabrics Groups $19,061 $ 24,715 $ 23,250 $ 23,940 $ 24,732
Apparel Textile Group 12,130 11,513 10,059 10,121 10,693
Corporate expenses (7,916) (6,888) (8,137) (8,059) (8,851)
Total operating income $23,275 $29,340 $25,172 $26,002 $ 26,574
(Loss) income from
continuing operations $(1,361) $ 5,812 $ 5,348 $ 4,214 $ 6,145
Interest expense and
amortization of financing
costs and debt discount $ 22,125 $ 22,590 $ 19,934 $ 21,777 $ 17,633
(Loss) income from
continuing operations
per common share $ (.08) $ .33 $ .35 $ .28 $ .41
Ratio of earnings
to fixed charges (2) 1.12x 1.52x 1.34x 1.24x 1.52x
(In thousands, except per share data and ratios)
December 31,
1988 1989 1990 1991 1992
Statement of
Operations Data (1):
Earnings (loss) per common share
Primary:
(Loss) income from
continuing operations $ (.08) $ .33 $ .35 $ .28 $ .41
Income (loss) before
extraordinary item .00 .83 (1.77) .44 .41
Cumulative effect of
change in accounting
for income taxes -- -- -- -- .20
Net (loss) income $ (.31) .85 (1.77) .44 .23
Fully Diluted:
(Loss) income from
continuing operations $ (.08) $ .33 $ .35 $ .27 $ .41
Income (loss) before
extraordinary item .00 .83 (1.77) .43 .41
Cumulative effect of a
change in accounting
for income taxes -- -- -- -- .20
Net (loss) income (.31) .85 (1.77) .43 .23
Weighted average number of shares
Primary 16,831 15,998 15,242 15,228 15,130
Fully diluted 17,049 15,998 15,256 15,339 15,130
Operating Data:
Depreciation and goodwill
amortization expense $5,975 $6,394 $6,707 $7,178 $8,187
Capital expenditures 7,230 6,821 7,007 11,015 15,788
Balance Sheet Data:
Total assets (3) $398,906 $249,550 $230,597 $217,135 $196,006
Long-term debt
(including current portion) 303,508 149,863 148,837 148,960 132,968
Shareholders' equity (4) 26,663 39,675 11,513 17,283 14,184
Cash dividends per common share None None None None None
Footnotes to Statement of Operations and Balance Sheet Data:
(1) The fiscal years ended December 31, 1988, and 1989 have been
restated to reflect the exclusion of the discontinued
operations of the Curon, Consumer Products and the ARA
Automotive Groups.
(2) For the purpose of calculating the ratio of earnings to
fixed charges, earnings consist of income from continuing
operations before income taxes, plus fixed charges. Fixed
charges consist of interest on all indebtedness,
amortization of financing costs and debt discount, and one-
third of all rentals, which is considered representative of
the interest portion included therein, after adjustments for
amounts related to discontinued operations.
(3) Total assets include the assets of discontinued operations
prior to disposal. In 1989, Reeves Industries sold
substantially all the assets of Reeves' Curon Group and
Consumer Products Group. In 1990, Reeves Industries
discontinued the operations of Reeves' ARA Automotive Group.
(4) The increase in shareholders' equity from 1988 to 1989
includes the recognition of a net gain of $23,489,000 as a
result of the sale of Reeves' Curon and Consumer Products
Groups and the discontinuance of Reeves' ARA Automotive
Group's Electronic Products Division. The decline in
shareholders' equity from 1989 to 1990 includes the
recognition of a net loss of $34,594,000 from the disposal
of the remaining operations of Reeves' ARA Automotive Group.
The decline in shareholders' equity from 1991 to 1992
primarily reflects translation of $6,626,000 caused by
foreign currency fluctuations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OR OPERATIONS
RESULTS OF OPERATIONS
Sales
Consolidated sales in 1992 increased 0.6% over 1991
principally due to increased sales at the Industrial Coated
Fabrics Group. 1991 sales were 4.5% higher than 1990 due to
increases in both the Apparel Textile and Industrial Coated
Fabrics Groups and 1990 sales were virtually equal to 1989.
Sales increased in the Industrial Coated Fabrics Group 4.4%, 1.3%
and 4.8% in 1992, 1991 and 1990, respectively, while the Apparel
Textile Group's sales decreased 2.5% in 1992, increased 7.4% in
1991 and decreased 3.4% in 1990.
Industrial Coated Fabrics Group
The Industrial Coated Fabrics Group experienced a 4.4%
increase in sales in 1992 from 1991 as both Domestic and
International sales grew. The Domestic sales increase of 2.7%
was caused by higher automobile airbag volume while the
International sales increase of 8.5% was principally caused by
favorable foreign currency exchange gains and to a lesser degree,
volume.
The Industrial Coated Fabrics Group's sales increased
1.3% in 1991 as compared with 1990. Domestic sales in 1991
increased 8.6% over 1990 sales. Automobile airbag, specialty
coated fabric and printing blanket volume led to the sales
increase in 1991. International sales decreased 12.9% versus
1990 due primarily to the European recession.
The Industrial Coated Fabrics Group's sales increased
4.8% in 1990 as compared with 1989. ICF's domestic sales
decreased by 0.8% in 1990 as compared with 1989. An increase in
automobile airbag sales volume in 1990 was offset by a decrease
in specialty coated fabrics and printing blanket volume. The
decrease in specialty coated fabrics volume was the result of a
reduction in sales to the government and management's decision to
eliminate certain lower-margin products from ICF's product lines.
The decrease in printing blanket volume resulted from
recessionary forces which began in the third quarter and deepened
in the fourth quarter of 1990. International sales increased
17.5% in 1990 over 1989 primarily due to a strengthening of the
Italian Lira to the U.S. dollar and to a lesser extent, a price
and unit volume increase in printing blankets.
Apparel Textile Group
The Apparel Textile Group sales decreased 2.5% in 1992
as compared to 1991. The sales decrease was evenly distributed
between the Group's two divisions and reflects continued market
softness. The decrease was primarily volume/mix related.
Sales of the Apparel Textile Group increased 7.4% in
1991 as compared to 1990. This sales increase was evenly
proportioned among ATG's Greige Goods Division and Finished Goods
Division and reflected increased growth across all product lines
resulting from ATG's strong position within its niche markets.
The sales increase was primarily due to a unit volume increase
and a shift to more fancy or higher priced goods.
Sales of the Apparel Textile Group decreased 3.4% in
1990 as compared to 1989. The Greige Goods Division's 1990 sales
were unchanged from 1989 sales. The Finished Goods Division's
sales decrease was primarily due to a decrease in unit volume as
a result of a soft 1990 retail environment and a shift to less
fancy or lower priced goods.
Operating Income
Consolidated operating income for 1992 was slightly
higher than 1991 with both groups experiencing increased
operating income. Overall, operating income as a percent of
sales for 1990, 1991 and 1992 was 9.7%, 9.6% and 9.8%,
respectively, and averaged 9.7%.
Consolidated operating income increased 3.9% in 1991 as
compared with 1990 due to a strengthening of the domestic markets
served by ICF and ATG primarily in the fourth quarter of 1991.
Operating income in 1990 decreased 17.3% as compared to 1989 as
recessionary conditions adversely affected both ATG and ICF.
Industrial Coated Fabrics Group
Operating income of the Industrial Coated Fabrics Group
increased 3.3% in 1992 compared to 1991 as increased
International operating income was partially offset by a decrease
in domestic operating income due to the continuing recession.
The International increase was principally caused by favorable
foreign currency exchange gains and to a lesser degree, volume.
ICF's operating income increased 3.0% in 1991 as
compared to 1990 and decreased 5.9% in 1990 as compared to 1989.
The 1991 increase was due to increased domestic operating income
partially offset by a decrease in International operating income.
Domestic operating income increased 17.2% primarily due to the
increased unit volume and improved manufacturing performance.
International operating income decreased 19.9% in 1991 as
compared to 1990 due to lower volume, primarily as a result of
the continuing European recession.
The 1990 decrease in ICF's operating income resulted
from domestic recessionary forces which began in the third
quarter. Operating income from international operations for 1990
decreased 7.9% from 1989 primarily as a result of the strength of
the Italian Lira relative to the other currencies in which ICF
invoices its customers.
Apparel Textile Group
Operating income of the Apparel Textile Group increased
5.7% in 1992 as compared to 1991. Although sales during 1992
decreased 2.5% due to volume/mix, the Apparel Textile Group
achieved its higher results due to cost reductions derived from
previous and current capital expenditures and non-capital related
cost improvements.
Operating income of the Apparel Textile Group increased
0.6% in 1991 as compared to 1990. Sales of lower priced goods to
the government in the first half of the year was offset, to some
extent, by an improvement in margins in the second half of the
year resulting from the sale of more fancy goods. In addition,
cost reductions derived from previous and current capital
expenditures and non-capital related cost improvements also
contributed to ATG's operating income increase.
ATG's operating income decreased 12.6% in 1990 as
compared to 1989. The Greige Goods Division's operating income
increase was offset by a decrease in the Finished Goods
Division's operating income. The Greige Goods Division's
increase in operating income was primarily due to significant
cost savings derived from modernization of equipment at ATG's
Bessemer City, North Carolina plant. As markets softened, the
Finished Goods Division incurred lower volume and was unable to
pass along cost increases.
Other Income (Expense)
Other income (net), primarily interest income from
investments, decreased $0.6 million in 1992 to $0.4 million
matching the $0.6 million decrease in 1991 to $1.1 million. This
was primarily due to a continuing decline in interest rates
available for invested funds during 1992 and 1991, and
management's continued emphasis on maintaining minimal cash
balances in order to minimize revolver borrowing thereby saving
Hart Holding the interest spread between revolver borrowing
interest expense and investment interest income, currently
approximating 3.5%. During 1990, other income (net) decreased
$3.6 million to $1.7 million because of management's decision to
minimize revolver borrowing. Interest income was higher in 1989
as a result of investing the proceeds from the sale of the Curon
and Consumer Products Groups prior to using such proceeds to pay
down long-term debt in the first quarter of 1989.
Interest expense and amortization of financing costs
decreased 19.0% from $21.8 million in 1991 to $17.6 million in
1992. 1991 increased 9.2% from $19.9 million in 1990 to $21.8
million in 1991 and decreased 11.8% from $22.6 million in 1989 to
$19.9 million in 1990. The significant 19.0% decrease in 1992
reflects the refinancing of long-term debt in 1992. The 9.2%
increase in 1991 reflects $1.9 million interest on an assessment
by the Internal Revenue Service of approximately $2.1 million in
additional taxes, covering four tax periods beginning December
1985 and ending December 1987. The liability relating to the tax
assessment had previously been provided for.
Under Hart Holding's debt structure as of December 31,
1992, and based on interest rates in effect at December 31, 1992,
interest expense for the next five years, on a pro-forma basis,
would be approximately $15.0 million for each year.
Income Taxes
The effective income tax rate on income for continuing
operations before income taxes of Hart Holding for the years
ending December 31, 1992, 1991 and 1990 was 30%, 8% and 11%,
respectively. The higher effective income tax rate in 1992 was
principally due to a new Italian tax affecting Reeves S.p.A. in
1992 not present in the other years, a shift in mix increasing
domestic income which carries a higher effective tax rate and the
adoption of FAS 109.
The lower effective income tax rate in 1991 and 1990
was due principally to Reeves S.p.A.'s implementation of a
reorganization in 1990 allowable under Italian income tax laws.
The transaction resulted in Reeves S.p.A. revaluing upward its
net assets for income tax purposes. Additional depreciation and
amortization relating to this revaluation is deductible in
determining income tax expense for both financial and income tax
reporting. The effect of this revaluation resulted in Reeves
S.p.A.'s effective income tax rate declining to 5% in 1991 and
1990 from 46% in 1989. Due to tax rate increases, the new
Italian tax and the adoption of FAS 109, the foreign
subsidiaries' effective income tax rate for 1992 was
approximately 22% versus the statutory rate of 52.2%.
Extraordinary Item
The extraordinary loss of $5.7 million in 1992, net of
applicable income taxes of $3.1 million, resulted from the write-
off of financing costs and debt discounts related to the early
extinguishing of long-term debt.
LIQUIDITY AND CAPITAL RESOURCES
In March 1992, Reeves Industries paid the $30.0 million
revolving loan outstanding under its 1988 loan agreement which
was due March 31, 1992 and executed an amendment to the 1988 loan
agreement providing a maximum revolving loan capacity of $20.0
million to Reeves.
In June 1992, Reeves Industries completed a public
offering of $122.5 million aggregate principal amount of 11%
Senior Notes due 2002 (the "11% Senior Notes"). Proceeds of the
offering were used to redeem all of Reeves Industries'
outstanding 12 1/2% Senior Notes due 1996 and 13% Senior
Subordinated Debentures due 1998 and to repay and terminate the
revolving loans outstanding under the 1988 loan agreement.
In connection with the liquidation of the 12 1/2%
Senior Notes, the 13% Senior Subordinated Debentures and the
Reeves revolving loan, Reeves Industries paid early payment
premiums of approximately $4.6 million and wrote off related debt
issuance costs and debt discounts of approximately $3.0 million.
In August 1992, Reeves Industries and Reeves entered
into a new revolving loan agreement with a group of banks which
provides Reeves Industries and Reeves with an aggregate $35.0
million revolving line of credit (the "Credit Agreement"). The
Credit Agreement bears interest at the Alternate Base Rate plus 1
1/2% of Eurodollar Rate plus 2 1/2%, at the election of the
borrower. The Alternate Base Rate is defined as the higher of
the Prime Rate, Based CD Rate plus 1%, or the Federal Funds
Effective Rate plus 1/2%. The applicable rates above the
Alternate Base Rate and Eurodollar Rate decline based on a ratio
of earnings to fixed charges, as defined. The Credit Agreement
terminates December 31, 1995. The Credit Agreement is secured by
Reeves' accounts receivable and inventory. As of December 31,
1992, Reeves Industries and Reeves had available borrowing of
approximately $33.5 million under the Credit Agreement. A
commitment fee of 1/2% per annum is required on the unused
portion of the Credit Agreement.
In November 1992, Reeves Industries redeemed $5.0
million principal amount of the outstanding $16.0 million
aggregate principal amount of its 13-3/4% Subordinated Debentures
due 2001 for approximately $5.3 million.
As a result of the debt redemptions and repayments made
in 1992, Reeves Industries recognized an extraordinary loss of
approximately $8.7 million, net of applicable income tax benefits
of approximately $3.0 million ($.16 per share).
Capital Expenditures
Capital expenditures for continuing operations
aggregated $7.0 million for the fiscal year ended December 31,
1990, $11.0 million for 1991 and $15.8 million for 1992 and
depreciation expense as a percentage of capital expenditures
equalled 78.6%, 54.1% and 43.0% in fiscal 1990, 1991 and 1992,
respectively.
Capital expenditures for continuing operations
increased during 1992 primarily due to the completion of the
Apparel Textile Group's modernization program at the Chesnee,
South Carolina textile plant. The 1991 increase was due to the
International capacity expansion program, installation of a
solvent recovery system at the Rutherfordton, North Carolina
plant of the Industrial Coated Fabrics Group and increased
capital spending for automobile airbag fabric production.
Capital spending, together with the sale of assets and
closure of plants where necessary, have enabled Hart Holding to
increase capacity, improve productivity and to maintain its
competitive position. Historically, the funds required by Hart
Holding for working capital and capital expenditures have been
provided primarily from operations.
Hart Holding believes that its cash flow from
operations and funds available under the Credit Agreement will be
sufficient to fund working capital and capital expenditure
requirements in future years. As a result of the nature of Hart
Holding's business and its substantial expenditures for capital
improvements over the last several years, future capital
expenditure requirements are flexible as to both timing and
amount of capital required. In the event that cash flow proves
inadequate to fund currently projected expenditures, such
expenditures can be adjusted so as not to exceed available funds.
Working capital requirements of Hart Holding are not particularly
subject to seasonal fluctuations.
Indebtedness
During 1992, Hart Holding increased its long-term
obligations through Reeves Industries' public offering of $122.5
million aggregate principal amount of 11% Senior Notes. However,
the reduced coupon of the 11% Senior Notes, the prepayment of
$5.0 million of the 13-3/4% Subordinated Debentures and a reduced
level of outstanding bank loans will significantly reduce Hart
Holding's interest expense in future years.
In February 1990, Reeves Industries settled a long-term
debt obligation of $1.1 million which was due in 1991 for $1.0
million.
The principal amounts of Reeves Industries' long-term
debt obligations maturing in each of the five years subsequent to
December 31, 1992, are as follows: 1993 - $18.0 thousand; 1994 -
$15.0 thousand; 1995 - $8.0 thousand; 1996 - $5.0 thousand; 1997
- - $0.
To date Hart Holding, through Reeves Industries, has
met, and in the future expects to meet, its debt service
requirements, including interest payments on the 11% Senior
Notes, primarily out of internally generated funds.
The Credit Agreement provides Reeves and Reeves
Industries with a $35.0 million revolving line of credit
including letters of credit. The balance outstanding under the
revolving line of credit at December 31, 1992 was approximately
$1.5 million, all of which consisted of letters of credit. At
December 31, 1992, Reeves Industries had available borrowing
capacity of approximately $33.5 million. Management believes
that funds available under this credit facility are sufficient to
supplement funds generated from operations to meet the working
capital and capital expenditure requirements of Hart Holding.
The Credit Agreement, the 11% Senior Notes and 13-3/4%
Subordinated Debentures restrict Reeves Industries' ability to
incur additional indebtedness until certain financial tests are
met. In addition, the ability of Reeves Industries to pay
dividends or make advances or distributions to its shareholders,
or any affiliates thereof, is significantly restricted by the
terms of the Credit Agreement and the indentures governing the
11% Senior Notes and 13-3/4% Subordinated Debentures.
In February 1992, Reeves Industries received
approximately $17.0 million from the federal government in
payment of Reeves Industries' tax refund receivable which was
recorded as of December 31, 1991. The refund resulted from
Reeves Industries carry back of tax operating losses generated in
1991, primarily related to the disposal of the ARA Automotive
Group, to offset a previous year's taxable income.
At December 31, 1990, 1991 and 1992, Hart Holding's
debt to equity ratio was 12.9:1, 8.6:1 and 9.4:1, respectively.
Reeves Industries' 11% Senior Notes are unsecured and
the Credit Agreement is secured by Reeves' accounts receivable
and inventory as set forth in Note 7 to the financial statements.
The payment terms of the Credit Agreement, 11% Senior Notes and
13-3/4% Subordinated Debentures are also discussed in Note 7 to
the financial statements.
Impact of Inflation
Hart Holding does not believe that its financial
results have been distorted by the effects of inflation.
Other Matters
In December 1990, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards
No. 106 "Employers' Accounting for Post-retirement Benefits Other
than Pensions" (FAS 106). FAS 106 requires accrual, during an
employee's active years of service, of the expected costs of
providing post-retirement benefits to employees and their
beneficiaries and dependents. Adoption of FAS 106 is required
for fiscal years beginning after December 15, 1992. Hart Holding
adopted FAS 106 in the current year, the effect of which was not
material to the financial statements.
In February 1992, FASB issued Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (FAS
109). FAS 109 mandates the liability method for computing
deferred income taxes. One of the principal differences from the
deferred method used in the accompanying financial statements is
that changes in tax rates and laws will be reflected in income in
the period such changes are enacted; under the deferred method
such changes are reflected over time, if at all.
Adoption of FAS 109 is required no later than 1993;
earlier adoption is permitted. During the third quarter of 1992,
Hart Holding adopted FAS 109 effective as of the beginning of
1992. FAS 109 is an asset and liability approach that requires
the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
recognized in Hart Holding's financial statements or tax returns.
Under FAS 109, in the year of adoption, previously
reported results of operations for the year are restated to
reflect the effects of applying FAS 109, and the cumulative
effect of adoption on prior year's results of operations is shown
in the income statement in the year of change. The adoption of
FAS 109 did not have a material effect on Hart Holding's income
from continuing operations before income taxes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14, for index to financial
statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
HART HOLDING COMPANY
INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Hart Holding Company Incorporated
In our opinion, the consolidated financial statements listed in
the index appearing under Item 14(a)(1) and (2) on page 38
present fairly, in all material respects, the financial position
of Hart Holding Company Incorporated and its subsidiaries at
December 31, 1991 and 1992, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1992, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which
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, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
As discussed in Notes 2 and 8 to the consolidated financial
statements, the Company changed its method of accounting for
income taxes in 1992.
/s/ Price Waterhouse
Price Waterhouse
Atlanta, Georgia
February 12, 1993
<PAGE>
HART HOLDING COMPANY INCORPOARTED
CONSOLIDATED BALANCE SHEET
(in thousands except share data)
December 31,
1991 1992
ASSETS
Current assets
Cash and cash equivalents of
$13,513 and $4,286 $ 20,995 $ 4,668
Accounts receivable, less allowance
for doubtful accounts
of $2,081 and $1,570 41,449 38,876
Inventories (Note 4) 39,510 35,310
Deferred income taxes (Note 8) 4,198 6,477
Other current assets 3,005 10,331
Current investment in discontinued
operations (Note 3) 15,823 2,466
Total current assets 124,980 98,128
Property, plant and equipment, at cost less
accumulated depreciation (Note 5) 36,663 43,548
Unamortized financing costs, less
accumulated amortization of $5,722 and $550 3,386 4,390
Goodwill, less accumulated amortization
of $6,877 and $8,280 48,073 47,079
Other assets 737 2,205
Noncurrent investment in
discontinued operations (Note 3) 3,296 656
Total assets $217,135 $196,006
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Revolving loans payable to banks (Note 7) $30,000
Current portion of long-term debt (Note 7) 43 $ 18
Accounts payable 15,851 15,305
Accrued expenses and other
liabilities (Note 6) 21,655 23,000
Current liabilities related to
discontinued operations (Note 3) 4,835 3,367
Total current liabilities 72,384 41,690
Long-term debt (Note 7) 118,917 132,950
Deferred income taxes (Note 8) 2,554 4,393
Long-term liabilities related
to discontinued operations (Note 3) 4,666 2,575
Minority interest (Note 14) 1,331 214
Total liabilities 199,852 181,822
Shareholders' equity (Note 11)
Common stock, $.01 par value, 40,000,000
shares authorized; 16,073,037 and
15,987,475 shares issued; 12,976,142 and
12,895,080 shares outstanding 161 160
Capital in excess of par value 15,034 14,783
Retained earnings 3,661 7,103
Equity adjustments from translation 4,419 (1,879)
Common stock held in treasury, at cost,
3,096,895 and 3,092,395 shares (5,992) (5,983)
17,283 14,184
Commitments and contingencies (Note 13)
Total liabilities and shareholders' equity $217,135 $196,006
======== =========
The accompanying notes are an integral part of these financial
statements
<PAGE>
HART HOLDING COMPANY INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share data)
Year ended December 31,
1990 1991 1992
Net sales $257,859 $269,559 $271,104
Cost of sales 206,258 216,179 216,043
Gross profit on sales 51,601 53,380 55,061
Selling, general and
administrative expenses 26,429 27,378 28,487
Operating income 25,172 26,002 26,574
Other income (expense)
Other income, net 1,742 1,072 435
Interest expense and amortization
of financing costs and debt
discounts (19,934) (21,777) (17,633)
(18,192) (20,705) (17,198)
Income from continuing operations before income taxes,
minority interest, extraordinary
item and cumulative effect of a
change in accounting principle 6,980 5,297 9,376
Income taxes (Note 8) 905 520 2,871
Minority interest (Note 14) 727 563 360
Income from continuing operations 5,348 4,214 6,145
Discontinued operations
Loss from discontinued operations,
less applicable income tax benefit
of $1,564 (Note 3) (2,662)
Net gain (loss) on disposal of
discontinued operations, less
applicable income tax provision
(benefit) of ($19,459)
and $1,732 (Note 3) (34,594) 2,830
Minority interest in
discontinued operations 4,949 (377)
(32,307) 2,453
Income (loss) before extraordinary
item and cumulative
effect of a change in
accounting principle (26,959) 6,667 6,145
Extraordinary loss from early
extinguishment of debt, less applicable
income tax benefits of $3,148 (5,715)
Cumulative effect of a change
in accounting for income
taxes (Note 8) 3,012
Net income (loss) $(26,959) $6,667 $ 3,442
Earnings per common share (Note 11)
Primary
Income from continuing operations $ .35 $ .28 $ .41
Income (loss) before extraordinary
item and cumulative effect of
a change in accounting principle (1.77) .44 .41
Cumulative effect of a change in
accounting for income taxes .20
Net income (loss) (1.77) .44 .23
Fully diluted
Income from continuing operations .35 .27 .41
Income (loss) before extraordinary
item and cumulative
effect of a change in
accounting principle (1.77) .43 .41
Cumulative effect of a change
in accounting for income taxes .20
Net income (loss) (1.77) .43 .23
Weighted average number of
common shares outstanding
Primary 15,242 15,228 15,130
Fully diluted 15,256 15,339 15,130
The accompanying notes are an integral part of these financial
statements.
<PAGE>
HART HOLDING COMPANY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year ended December 31,
1990 1991 1992
Cash flows from operating activities
(including discontinued operations)
Net income (loss) $(26,959) $ 6,667 $ 3,442
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities
Write-off of financing costs from
early extinguishment of debt 5,715
Cumulative effect of a change
in accounting for income taxes (3,012)
Net (gain) loss on disposal of
discontinued operations 34,594 (2,830)
Depreciation and amortization 8,451 8,458 9,216
Deferred income taxes (256) 601 (112)
Minority interest (4,222) 940 360
Changes in operating assets
and liabilities Decrease in
accounts receivable 9,353 565 2,574
Decrease in inventories 4,740 486 4,200
Increase in other current assets (124) (2,002) (9,605)
(Increase) decrease in other assets(332) (254) 484
Increase (decrease) in accounts payable (3,545) 492 (546)
Increase (decrease) in accrued expenses
and other liabilities (10,922) (4,407) 6,009
Equity adjustments from translation 1,502 (223) (3,656)
Net cash provided by operating activities 12,280 8,493 15,069
Cash flows from investing activities (including discontinued
operations)
Additions to property, plant and equipment (7,208) (11,015) (15,788)
Proceeds from sale of discontinued operations, net of
income taxes and transaction costs paid 5,426 2,331 12,438
Cash of discontinued operations (656)
Net cash used in investing activities (2,438) (8,684) (3,350)
Cash flows from financing activities
(including discontinued operations)
Borrowings under long-term debt 121,989
Borrowings on revolving loans 19,600
Principal payments of long-term debt (1,194) (56)
(108,726)
Payments on revolving loans (49,600)
Debt issuance costs (5,115)
Purchase of common stock (249) (816) (243)
Premium on early retirement of debt (4,876)
Proceeds from sale of
subsidiary stock 1,705
Common stock of subsidiary
held in escrow (1,075)
Other, net (136)
Net cash provided by (used in)
financing activities 126 (872) (28,046)
Increase (decrease) in cash and
cash equivalents 9,968
(1,063) (16,327)
Cash and cash equivalents,
beginning of year 12,090 22,058 20,995
Cash and cash equivalents,
end of year $ 22,058 $20,995 $4,668
======= ======== =======
The accompanying notes are an integral part of these financial
statements.
<PAGE>
1. BUSINESS AND ORGANIZATION
Hart Holding Company Incorporated (Hart Holding or the
Company) is a holding company whose principal asset is 98.6%
of the outstanding common stock of its majority owned
subsidiary, Reeves Industries, Inc. (Reeves Industries).
Hart Holding acquired Reeves Industries on May 6, 1986.
Reeves Industries is a holding company whose principal asset
is the common stock of its wholly-owned subsidiary, Reeves
Brothers, Inc. (Reeves). Reeves is a diversified industrial
company engaged in two business segments: industrial coated
fabrics and apparel textiles (see Note 3 for information
regarding discontinued operations).
Effective September 30, 1991, the Company formed Hart
Investment Properties Corporation (HIPC), a wholly-owned
subsidiary. HIPC was incorporated for the purpose of
investing in real estate properties. In addition, during
1992 the Company formed Hart Capital Corporation, a wholly-
owned subsidiary whose primary business will be the
investment of its own equity and that of outside investors
in buy-outs, build-ups, leveraged minority positions and
restructurings. Hart Capital Corporation had no activity
during 1992.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Cash and cash equivalents
Cash and cash equivalents as of December 31, 1992 includes
restricted cash of $350,000.
Inventories
Inventories are stated at the lower of cost or market. Cost
for approximately 29% of total inventory is determined on
the last-in, first-out (LIFO) method. With respect to the
remainder of the inventories, cost is determined principally
on the first-in, first-out (FIFO) method. Market is
determined on the basis of replacement costs or selling
prices less costs of disposal. The application of
Accounting Principles Board Opinion No. 16 for the
acquisition of Reeves Industries caused the inventories in
the accompanying balance sheet to exceed inventories used
for income tax purposes by approximately $7,356,000 as of
December 31, 1992.
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
Property, plant and equipment
Property, plant and equipment are stated at cost.
Improvements which extend the useful lives of the assets are
capitalized while repairs and maintenance are charged to
operations as incurred. Depreciation is provided using
primarily the straight-line method for financial reporting
purposes while accelerated methods are used for income tax
purposes. When assets are replaced or otherwise disposed
of, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is reflected
in income.
Foreign currency translation
For Reeves' wholly-owned foreign subsidiary, the local
currency of the country of operation is used as the
functional currency for purposes of translating the local
currency asset and liability accounts at current exchange
rates into the reporting currency. The resulting
translation adjustments are accumulated as a separate
component of shareholders' equity reflected in the equity
adjustments from translation account in the accompanying
financial statements. The allocation for income taxes
included in the translation adjustments to shareholders'
equity was not significant. Gains and losses resulting from
translating asset and liability accounts that are
denominated in currencies other than the functional currency
are included in income.
Amortization policy
The Company is amortizing goodwill on a straight-line basis
over forty years. Financing costs and debt discounts are
being amortized by the interest method over the life of the
respective debt securities.
Revenue recognition
Sales are generally recorded when the goods are shipped. At
the customer's request, shipment of the completed product is
sometimes delayed. In such instances, revenues are
recognized when the customer acknowledges transfer of title
and accepts the related billing.
Income taxes
During 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
(FAS 109). Income tax accounting information is disclosed
in Note 8 to the consolidated financial statements.
For the year ended December 31, 1992, the provision for
income taxes was based on reported earnings before income
taxes and includes appropriate provisions for deferred
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
income taxes resulting from the tax effect of the
differences between the tax basis of assets and liabilities
and their carrying amounts for financial reporting purposes.
Prior to January 1, 1992, deferred income taxes arose from
the reporting of certain expenses, principally depreciation,
pension costs and other expenses differently for financial
reporting purposes than for income tax reporting purposes.
At December 31, 1992, unremitted earnings of the foreign
subsidiary were approximately $12,000,000. United States
income taxes have not been provided on these unremitted
earnings as it is the Company's intention to indefinitely
reinvest these earnings. However, the foreign subsidiary
has, in previous years, remitted a portion of its current
year earnings as dividends and expects to continue this
practice in the future.
Pension plans
The Company has noncontributory pension plans covering all
eligible domestic employees (Note 9).
Earnings per share
Earnings per share are computed based on the weighted
average number of common and common equivalent shares, where
dilutive, outstanding during each period. Hart Holding's
earnings per share calculations include a deduction for the
effect of Reeves Industries' outstanding securities which,
if exercised, would have a dilutive effect on Hart Holding's
earnings per share. Fully diluted earnings per share are
computed assuming that outstanding stock options and
warrants, where dilutive, were exercised at the beginning of
the period or date of issuance, if later.
Statement of cash flows
For purposes of the statement of cash flows, cash
equivalents are defined as highly liquid investment
instruments purchased with a maturity of three months or
less.
3. DISCONTINUED OPERATIONS AND RESTRUCTURING
In the fourth quarter of 1991, the Company recognized a gain
on disposal of discontinued operation of $2,830,000, net of
applicable income taxes of $1,732,000. The gain was the
result of management adjusting, based on actual experience,
certain significant estimates made of costs and asset
recovery values related to the disposal of the ARA
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
Automotive Group in 1990 and the sale of two of the
Company's operating groups in 1989.
In November 1990, the Board of Directors of the Company
approved a plan to dispose of the operations of the ARA
Automotive Group. As a result, the Company recognized a
loss in 1990 of approximately $34,594,000, net of applicable
income tax benefits of $19,459,000.
The assets and liabilities and the results of operations of
the ARA Automotive Group have been accounted for as
discontinued operations in the accompanying financial
statements for all years presented.
Revenues from discontinued operations amounted to
$51,624,000 in 1990. The preceding amount and loss from
discontinued operations include results of the ARA
Automotive Group through September 30, 1990.
The investment is discontinued operations classified
separately in the December 31, 1991 and 1992 consolidated
balance sheet is comprised of the following (in thousands):
1991 1992
Cash $ 4
Accounts receivable 1,035 $ 159
Other current assets 50
Property, plant and equipment, net 19
Income tax refund receivable 15,021 2,963
Deferred income taxes 2,990
Total investment in discontinued operations $19,119
$ 3,122
========
======
4. INVENTORIES
Inventories at December 31, 1991 and 1992 are comprised of
the following (in thousands):
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
1991 1992
Raw materials $8,001 $7,084
Work in process 10,092 8,777
Manufactured and finished goods 21,417 19,449
$39,510 $35,310
======= =======
If inventories had been calculated on a current cost basis,
they would have been valued higher by approximately
$3,087,000 and $2,933,000 at December 31, 1991 and 1992,
respectively.
5. PROPERTY, PLANT AND EQUIPMENT
The principal categories of property, plant and equipment at
December 31, 1991 and 1992 are as follows (in thousands):
1991 1992
Land and land improvements $ 925 $ 794
Buildings and improvements 11,244 14,355
Machinery and equipment 50,891 56,845
63,060 71,994
Less - Accumulated depreciation
and amortization (26,397) (28,446)
$36,663 $43,548
======= =======
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at December 31, 1991
and 1992 are comprised of the following (in thousands):
1991 1992
Accrued salaries,
wages and incentives $ 1,035 $ 3,013
Income taxes payable 3,729 4,538
Product claims reserve 1,707 1,277
Interest payable 4,545 6,493
Italian severance pay program 2,746 2,405
Deferred compensation 1,260 1,322
Accrued costs related to
discontinued operations 2,248 145
Other 4,385 3,807
$21,655 $23,000
======= =======
7. LONG-TERM DEBT
Long-term debt at December 31, 1991 and 1992 consists of the
following (in thousands):
1991 1992
11% Senior Notes of Reeves
Industries due July 15,
2002, net of unamortized
discount of $835 121,665
12-1/2% Senior Notes of
Reeves Industries, due May 1,
1995, net of unamortized discount of $223 $49,457
13% Senior Subordinated Debentures of Reeves
Industries, due May 1, 1998, net of
unamortized discount of $411 53,589
13-3/4% Subordinated Debentures
of Reeves Industries,
due May 1, 2000, net of
unamortized discount
of $148 and $89 15,852 10,911
Other 62 392
118,960 132,968
(43) (18)
Less - Current portion $118,917 $132,950
======== ========
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
<PAGE>
In June 1992, Reeves Industries completed a public offering
of $122,500,000 of 11% Senior Notes due 2002 (New Senior
Notes). Proceeds of the offering were used to redeem all of
Reeves Industries' then outstanding 12 1/2% Senior Notes and
13% Senior Subordinated Debentures and to pay and terminate
the revolving loan outstanding under a prior loan agreement.
The loan agreement was terminated.
In connection with the liquidation of the Reeves Industries'
12 1/2% Senior Notes, the Reeves Industries' 13% Senior
Subordinated Debentures and the Reeves Industries' prior
revolving loan, early payment premiums of $4,601,000 were
paid and related debt issuance costs and debt discounts of
$3,016,000 were written off. In addition, during 1992
Reeves Industries purchased $5,000,000 face value of 13 3/4%
Subordinated Debentures for $5,275,000. As a result of
these transactions, an extraordinary loss of $5,378,000
($.36 per share), net of applicable income tax benefits of
$3,148,000 was recognized.
Reeves Industries is required to make sinking fund payments
with respect to its remaining 13 3/4% Subordinated
Debentures of $6,000,000 on May 1, 1999 and $5,000,000 on
May 1, 2000.
On August 7, 1992, Reeves Industries and Reeves entered into
a credit agreement with a group of banks which provides an
aggregate $35,000,000 revolving line of credit (Revolving
Loan) and letter of credit facility. The Revolving Loan
bears interest at the Base Rate plus 1 1/2% or Eurodollar
Rate plus 2 1/2%, at the election of the borrower. The Base
Rate is defined as the higher of the Prime Rate, Base CD
Rate plus 1%, or the Federal Funds Effective Rate plus 1/2%.
The applicable rates above the Base Rate and Eurodollar Rate
decline based on a ratio of earnings to fixed charges, as
defined. The Revolving Loan is due December 31, 1995. The
Revolving Loan is secured by Reeves' account receivable and
inventory. As of December 31, 1992, Reeves Industries and
Reeves had available borrowings, net of $1,523,000 of
outstanding letters of credit, of $33,477,000 under the
Revolving Loan. A commitment fee of 1/2% per annum is
required on the unused portion of the Revolving Loan.
The New Senior Notes, Revolving Loan, and 13 3/4%
Subordinated Debentures contain certain restrictive
covenants with respect to Reeves Industries and Reeves
including, among other things, limitations on the payments
of dividends, the incurrence of additional indebtedness and
certain liens, restrictions on capital expenditures, mergers
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
or acquisitions, investments and transactions with
affiliates, and require the maintenance of certain financial
ratios and compliance with certain financial tests and
limitations.
In connection with the purchase of certain real estate
property, HIPC assumed a $345,000 mortgage note which is
included in other long-term debt in the table above. The
principle amount is due January 1997 in one lump-sum.
Interest is payable monthly at 9% per annum.
The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 107 (FAS
107), "Disclosure About Fair Value of Financial
Instruments."
FAS 107 extends existing fair value disclosure practices for
some instruments by requiring entities to disclose the fair
value of financial instruments, both assets and liabilities,
recognized and not recognized in the statement of financial
position. The estimated fair value of the 11% Senior Notes
of Reeves Industries and 13 3/4% Subordinated Debentures of
Reeves Industries at December 31, 1992 is $126,175,000 and
$11,546,000, respectively. The estimated fair value was
determined based on a recent market price quote.
Interest paid, including that related to discontinued
operations, amounted to $19,598,000, $18,155,000 and
$12,350,000 in 1990, 1991 and 1992, respectively.
8. INCOME TAXES
During the third quarter of 1992, the Company adopted FAS
109 effective as of the beginning of 1992. FAS 109 is an
asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized
in the Company's financial statements or tax returns.
Under FAS 109, in the year of adoption, previously reported
results of operations for the year are restated to reflect
the effects of applying FAS 109, and the cumulative effect
of adoption on prior years' results of operations is shown
in the income statement in the year of change. The adoption
of FAS 109 did not have a material effect on the Company's
income from continuing operations before income taxes.
The provision (benefit) for income taxes from continuing
operations is comprised of the following (in thousands):
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
1990 1991 1992
Current:
Federal $ 473 $(2,551) $ (129)
Foreign 1,266 354 954
State 719 147 180
2,458 (2,050) 1,005
Deferred:
Federal (560) 1,770 983
Foreign (884) 641
State (109) 800 242
(1,553) 2,570 1,866
$ 905 $ 520 $2,871
======= ====== ======
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
<PAGE>
The provision (benefit) for income taxes from continuing
operations differs from taxes computed using the statutory
federal income tax rate as follows (in thousands):
1990 1991 1992
Consolidated computed
statutory taxes $ 2,373$ 1,801 $3,187
State income taxes, net of
federal income tax benefit 403 412 281
Amortization of goodwill 388 415 456
Foreign tax rate less than statutory rate (2,220)
(2,081) (868)
Other, net (39) (27) (185)
$ 905 $ 520 $2,871
======= ======= =======
In 1990, Reeves' foreign subsidiary implemented a
reorganization allowed under the applicable country's income
tax laws. This transaction resulted in the foreign
subsidiary revaluing upward its net assets for income tax
purposes. Additional depreciation and amortization relating
to this revaluation is deductible in determining income tax
expense for both financial and income tax reporting. The
effect of this revaluation resulted in the foreign
subsidiary's effective income tax rate declining from its
statutory rate of approximately 46% to 5% for 1990 and 1991.
Due to tax rate increases, other tax law changes, and the
adoption of FAS 109, the foreign subsidiary's effective
income tax rate for 1992 is approximately 22% versus the
statutory rate of 52.2%.
The provision (benefit) from continuing operations for
deferred federal income taxes for years prior to the
effective date of adoption of FAS 109 is comprised of the
following timing differences (in thousands):
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
1990 1991
Provisions for product claims, bad debts,
insurance and other expenses not deductible
until incurred $ (329) $ 791
Plant relocation costs 100 8
Pension costs 37 55
Depreciation and amortization (101) 121
Compensation agreements (208) 688
Other, net (59) 107
$ (560) $1,770
======= =======
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
<PAGE>
Deferred tax liabilities (assets) under FAS 109 are
comprised of the following temporary differences (in
thousands):
January 1, December
31,
1992 1992
Inventories $2,525 $2,523
Depreciation 1,623 1,870
Gross deferred tax liabilities 4,148 4,393
Tentative minimum tax credits (854) (854)
Accrued expenses (3,437) (3,677)
Foreign tax credit carryforwards (1,604) (1,946)
(5,895) (6,477)
Depreciation on Italian subsidiary
(included in other long term assets) (3,518)
(1,951)
Gross deferred tax assets (9,413) (8,428)
$(5,265) $(4,035)
======== ========
The sources of income (loss) from continuing operations
before income taxes are as follows (in thousands):
1990 1991 1992
Domestic $ (674) $(1,865) $2,134
Foreign 7,654 7,162 7,242
$6,980 $5,297 $9,376
====== ====== ======
Income taxes paid amounted to approximately $1,850,000, $0
and $2,125,000 in 1990, 1991 and 1992, respectively.
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
<PAGE>
9. PENSION PLANS
Reeves exclusive of the ARA Automotive Group
Reeves sponsors two noncontributory defined benefit pension
plans covering substantially all of its domestic salaries
and hourly employees. The Reeves' salaried pension plan
benefits are based on an employee's years of accredited
service. The Reeves' hourly pension plan provides benefits,
exclusive of benefits related to former ARA Automotive Group
retirement plan participants, of stated amounts based on
years of accredited service. Reeves' funding policy is to
fund at least the minimum amount required by the Employee
Retirement Income Security Act of 1974.
ARA Automotive Group (Note 3)
The ARA Automotive Group sponsored two noncontributory
defined benefit pension plans covering substantially all
non-union and union employees. The retirement plan covering
non-union employees provided benefits based on an employee's
years of accredited service and average compensation for the
last ten completed calendar years of service. The union
plan provided benefits of stated amounts based on years of
accredited service. In connection with the Company's
decision to dispose of the ARA Automotive Group, the Company
elected to merge the non-union retirement plan into the
Reeves hourly plan, effective December 1990. The union plan
remains in existence in its present form. The Company's
funding policy is to fund at least the minimum amount
required by the Employee Retirement Income Security Act of
1974.
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
<PAGE>
Combined data
The following table presents the combined funded status of
the Company's plans at December 31, 1991 and 1992 (in
thousands):
1991 1992
Actuarial present value of accumulated
benefit obligation:
Vested $12,519 $13,731
Nonvested 830 866
Accumulated benefit obligation $13,349 $14,597
======= =======
Projected benefit obligation for services
rendered to date $18,555 $19,129
Plan assets at fair value 21,354 24,148
Plan assets greater than projected
benefit obligation 2,799 5,019
Unrecognized net transition obligation 2,249
2,132
Unrecognized net gain subsequent to transition (5,067)
(7,097)
Pension liability recognized in the consolidated
balance sheet $ (19) $ 54
======= =======
Plan assets consist primarily of fixed income securities,
equity securities and certificates of deposit.
<PAGE>
Pension cost includes the following components (in
thousands):
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
1990 1991 1992
Service cost - benefits
earned during
the period $ 878 $ 929 $ 942
Interest cost on
projected benefit
obligation 1,059 1,409 1,456
Actual return on
plan assets (1,052) (3,700) (2,961)
Net amortization and deferral (61) 2,283 1,351
Pension cost $ 824 $ 921 $ 788
======= ======= ======
Assumptions used in accounting for the pension plans at
December 31, 1991 and 1992 were a weighted average discount
rate of approximately 8.5%, expected weighted average rate
of return on plan assets of approximately 8% and future
compensation rate increases of approximately 5.5%.
The ARA Automotive Group disposal resulted in a significant
decline in the ARA Automotive Group workforce which caused a
curtailment with respect to the ARA Automotive Group's
retirement and union plans. As a result, the Company
recognized a pre-tax gain of approximately $229,000, which
is included in the loss on disposal of discontinued
operations in the accompanying financial statements in 1990.
In December 1990, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other
Than Pensions" (FAS 106), which requires accrual, during an
employee's active years of service, of the expected costs of
providing postretirement benefits to employees and their
beneficiaries and dependents. The Company adopted FAS 106
in the current year, the effect of which was not material to
the financial statements.
10. RELATED PARTY TRANSACTIONS
Effective December 31, 1991, Reeves Industries' Board of
Directors approved the exchange of all of the outstanding
Reeves Industries preferred stock owned by Hart Holding for
18,820,000 shares of Reeves Industries common stock. This
transaction resulted in the Company's ownership in Reeves
Industries common stock increasing from 86.7% to 93.5% at
December 31, 1991.
During the third quarter of 1990, Hermitage Corporation
(Hermitage) was merged into Schick/Hermitage Inc.
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
(Schick/Hermitage), a wholly-owned subsidiary of the
Company, with Schick/Hermitage the surviving corporation.
Subsequently, Schick/Hermitage changed its name to
Fenchurch, Inc. (Fenchurch). Prior to the merger, Hermitage
was 30% owned by the Company and 70% owned by the Chairman
of the Board of the Company (the Chairman). Pursuant to the
Agreement and Plan of Merger dated July 13, 1990 among
Hermitage, Schick/Hermitage and the Company, the Company
issued 1,623,507 shares of common stock, par value $.01 per
share, to the Chairman in exchange for his 70% ownership of
Hermitage (70% of the 2,319,296 shares of the Company owned
by Hermitage). Subsequent to the merger, Fenchurch owns
3,092,395 shares of the Company's common stock. The Company
has accounted for these holdings as common stock held in
treasury as a result of its 100% ownership of Fenchurch.
At December 31, 1991 and 1992, the Chairman holds stock
options granted in connection with a loan to the Company and
an employee stock option plan entitling him to acquire an
additional 3,050,000 shares of the Company's common stock.
His direct ownership of the present common shares
outstanding approximates 94%. Assuming exercise of options
held, his direct ownership would approximate 95% of the then
outstanding shares of common stock.
11. SHAREHOLDERS' EQUITY
Capital Stock
During 1991 and 1992, the Company acquired 273,354 and
81,062 shares of its common stock for $816,882 and $242,182
and cancelled all shares so acquired. During 1990, the
Company acquired 110,227 shares of its common stock for
$248,979 and cancelled 105,727 of such shares.
Additionally, in 1990, the Company issued 1,623,507 shares
of its common stock to the Chairman in exchange for his 70%
ownership in Hermitage (Note 10).
Stock options
Stock options are available for issuance to key employees,
independent contractors and consultants, and directors of
the Company pursuant to the Company's 1975 Stock Option Plan
(the Plan), as amended. Options issued pursuant to the Plan
are exercisable as determined on an option-by-option basis,
but in no event may be exercised more than fifteen years
from the date of grant. In 1991, the Board of Directors of
the Company approved an amendment to the Plan whereby the
total number of shares of common stock which may be issued
pursuant to options granted under the Plan was increased
from 5,000,000 shares to 13,000,000 shares. Additionally,
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
pursuant to the amended Plan, the Board of Directors, at its
discretion, can provide within the option agreement for a
cash bonus to be paid to the optionee upon exercise of the
options granted, subject to limitations as defined in the
Plan.
Options granted under the Plan are not qualified within the
meaning of the Internal Revenue Code. At December 31, 1990,
1991 and 1992 there were 4,594,000 shares reserved and
3,232,500 options outstanding at exercise prices ranging
from $.375 or $1.88 per share.
In 1989, Reeves Industries filed a registration statement
(the Registration Statement) with the Securities and
Exchange Commission relating to the issuance of up to
2,742,394 shares of its common stock upon exercise of
certain warrants. The warrants had been issued in prior
years in connection with Reeves Industries' merger and
financing transactions. The Registration Statement was
declared effective December 24, 1989. Reeves Industries
elected to include in the Registration Statement the common
stock issuable upon exercise of each of the outstanding
warrants, thereby causing an Event Permitting Exercise, as
defined in the respective warrant agreements, with respect
to all of the warrants. The warrants must have been
exercised upon surrender of the certificate evidencing such
warrants on or prior to March 23, 1990. Warrants not
exercised by the March 23, 1990 expiration date expired and
holders had no further rights with respect thereto. Prior
to March 23, 1990, 2,399,439 of the warrants were exercised
for 2,399,439 shares of its common stock which then
represented 13.28% of the outstanding stock of Reeves
Industries after giving effect to the transaction.
Shareholders' equity was reduced in 1990 by approximately
$2,932,000 as a result of this transaction.
Settlement of litigation
In November 1992, pursuant to a court ordered settlement of
a lawsuit brought by the Reeves Industries against Drexel
Burnham Lambert and certain of its affiliates (collectively,
the Defendants), Reeves Industries will receive 1,918,133
shares of its common stock from the Defendants. The stock
was issued in connection with the exercise of the underlying
warrants in 1990 at an aggregate exercise price of
$1,158,000. Pursuant to the court ordered settlement,
Reeves Industries deposited $1,075,000 to an escrow account
to be held for the Defendants in exchange for the common
stock. Reeves Industries has treated these escrowed shares
as if they were canceled and retired on the settlement date,
December 1, 1992. Accordingly, Hart Holding's percentage
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
ownership of Reeves Industries increased from 93.5% to 98.6%
as a result of this transaction.
12. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company, through Reeves, operates in two principal
industry segments: industrial coated fabrics and apparel
textiles. The Industrial Coated Fabrics Group manufactures
newspaper and graphic arts printing press blankets,
protective coverings, inflatable aerospace and survival
equipment, diaphragms for meters, pump and tank seals and
material used in automobile airbags. The Apparel Textiles
Group manufactures, dyes and finishes greige goods.
The products of the Industrial Coated Fabrics Group and the
Apparel Textiles Group are sold in the United States and in
certain foreign countries primarily by Reeves' merchandising
and sales personnel and through a network of independent
distributors to a variety of customers including convertors,
apparel manufacturers, industrial users, government agencies
and contractors. Sales offices are maintained in New York
City, Dallas, Spartanburg and Milan, Italy.
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
<PAGE>
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
The following tables present certain information concerning
each segment (in thousands):
1990 1991 1992
Net sales
Industrial coated fabrics $ 119,749 $ 121,264 $126,576
Apparel textiles 138,110 148,295 144,528
$257,859 $269,559 $271,104
======== ======== ========
Operating income:
Industrial coated fabrics $23,250 $23,940 $ 24,732
Apparel textiles 10,059 10,121 10,693
Corporate expenses (8,137) (8,059) (8,851)
Operating income 25,172 26,002 26,574
Other income, net 1,742 1,072 435
Interest expense and amortization
of financing costs and
debt discounts (19,934) (21,777) (17,633)
Income from continuing operations
before income taxes, minority
interest, extraordinary items and
cumulative effect of a change in
accounting principle $6,980 $5,297 $9,376
====== ====== ======
Depreciation:
Industrial coated fabrics $2,393 $2,598 $ 3,175
Apparel textiles 2,846 2,983 2,913
Corporate 265 377 695
$5,504 $5,958 $6,783
====== ====== ======
Capital expenditures:
Industrial coated fabrics $ 3,772$ 7,579$ 6,353
Apparel textiles 3,191 2,994 8,623
Corporate 44 442 812
$7,007 $11,015 $15,788
====== ======= =======
Identifiable assets:
Industrial coated fabrics $ 62,184 $68,403 $65,752
Apparel textiles 58,264 60,410 65,111
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
Other, principally discontinued
operations, goodwill and debt
issuance costs 110,149 88,322 65,143
$230,597 $217,135 $196,006
======== ======== ========
HART HOLDING COMPANY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1992
<PAGE>
Financial data of Reeves' foreign operation is as follows
(in thousands):
1990 1991 1992
Sales $40,698 $35,437 $38,444
Net income 7,272 6,808 9,165
Assets 31,405 33,011 31,608
Intersegment sales are not material.
13. COMMITMENTS AND CONTINGENCIES
The Company leases certain operating facilities and
equipment under long-term operating leases. At December 31,
1992 future minimum rentals, related to continuing
operations, required by operating leases having initial or
remaining noncancellable lease terms in excess of one year
are as follows: 1993 - $1,064,000; 1994 - $989,000; 1995 -
$843,000; 1996 - $843,000; 1997 - $843,000; thereafter -
$2,088,000.
Rental expense charged to continuing operations was
approximately $1,358,000, $1,388,000 and $1,434,000 for the
years ended December 31, 1990, 1991 and 1992, respectively.
There are various lawsuits and claims pending against the
Company and its subsidiaries, including those relating to
commercial transactions. The outcome of these matters is
not presently determinable but, in the opinion of
management, the ultimate resolution of these matters will
not have a material adverse effect on the results of
operations and financial position of the Company.
14. MINORITY INTEREST
The minority interest recorded in the accompanying financial
statements relates to outstanding shares of Reeves
Industries common stock issued in 1990 pursuant to the
exercise of the warrants as described in Note 11.
