<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1999
------------------------
APPLIED EXTRUSION TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-19188 51-0295865
(State of Incorporation) (Commission File No.) (I.R.S. Employer Identification No.)
</TABLE>
3 CENTENNIAL DRIVE
PEABODY, MASSACHUSETTS 01960
(Address of Principal Executive Offices)
(978) 538-1500
(Registrant's Telephone Number, Including Area Code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /.
The number of shares of the Registrant's Common Stock, $.01 par value per
share, outstanding as of February 9, 2000 was 11,782,762.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APPLIED EXTRUSION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 7,690 $ 5,323
Accounts receivable, net of allowance for doubtful accounts of $1,597
on December 31, 1999 and $1,554 on September 30, 1999 .................. 38,301 36,857
Inventory .................................................................. 44,397 38,611
Prepaid expenses and deferred taxes ........................................ 6,862 6,522
--------- ---------
Total current assets ................................................... 97,250 87,313
Property, plant and equipment, net ............................................. 277,003 278,118
Intangibles and deferred finance charges, net .................................. 2,860 3,035
Long-term note receivable and other assets ..................................... 6,957 6,584
--------- ---------
$ 384,070 $ 375,050
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable ........................................................... $ 20,716 $ 18,144
Accrued interest ........................................................... 5,264 9,113
Accrued expenses and other current liabilities ............................. 23,430 28,311
--------- ---------
Total current liabilities .............................................. 49,410 55,568
Long-term debt ................................................................. 195,500 182,500
Deferred taxes and other credits ............................................... 36,891 37,941
Commitments and contingencies .................................................. -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized, 1,000 shares, of which 300
are designated Junior Preferred Stock; no stock outstanding
Common stock, $.01 par value; 30,000 shares authorized; 11,357 and
11,575 shares issued at December 31, 1999 and September 30,
1999, respectively ..................................................... 119 116
Additional paid-in capital ..................................................... 99,559 97,701
Retained earnings .............................................................. 6,427 5,269
Accumulated other comprehensive income (loss) .................................. (1,393) (1,528)
--------- ---------
104,712 101,558
Treasury stock, at cost, and other, 248 and 247 shares at December 31,
1999 and September 30, 1999, respectively .......................... (2,443) (2,517)
--------- ---------
Total stockholders' equity ..................................................... 102,269 99,041
--------- ---------
$ 384,070 $ 375,050
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
2
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APPLIED EXTRUSION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
SALES ................................................. $ 60,151 $ 55,445
Cost of sales ......................................... 45,275 47,504
-------- --------
GROSS PROFIT .......................................... 14,876 7,941
OPERATING EXPENSES:
Selling, general and administrative ............... 6,469 5,879
Research and development .......................... 1,601 1,639
-------- --------
Total operating expenses ...................... 8,070 7,518
-------- --------
OPERATING PROFIT ...................................... 6,806 423
NON-OPERATING EXPENSES:
Interest expense, net ............................. 4,997 4,852
Acquisition costs ................................. -- 3,462
-------- --------
Total non-operating expenses .................. 4,997 8,314
-------- --------
Income (loss) before income taxes ..................... 1,809 (7,891)
Income tax expense (benefit) .......................... (3,156) 651
-------- --------
NET INCOME (LOSS) ..................................... $ 1,158 $ (4,735)
-------- --------
-------- --------
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE .... $ 0.10 $ (0.43)
-------- --------
-------- --------
AVERAGE COMMON AND POTENTIAL COMMON SHARES OUTSTANDING:
Basic ............................................. 11,681 11,112
Diluted ........................................... 11,814 11,112
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
Net income (loss) ......... $1,158 $(4,735)
Exchange rate changes ..... 135 (508)
------ -------
COMPREHENSIVE INCOME (LOSS) $1,293 $(5,243)
------ -------
------ -------
</TABLE>
See notes to condensed consolidated financial statements.
3
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APPLIED EXTRUSION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) .................................................................. $ 1,158 $ (4,735)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Provision for doubtful accounts ................................................ 93 89
Depreciation and amortization .................................................. 5,045 5,308
Deferred taxes and other credits ............................................... (3,861) (1,252)
Changes in assets and liabilities which provided (used) cash:
Prepaid expenses and other current assets .................................. (488) (28)
Accounts payable and accrued expenses ...................................... (2,420) (6,156)
Accounts receivable and inventory .......................................... (7,322) 2,879
-------- --------
Net cash used in operating activities .................................. (3,031) (8,659)
INVESTING ACTIVITIES:
Additions to property, plant and equipment ......................................... (3,969) (2,616)
-------- --------
Net cash used in investing activities .................................. (3,969) (2,616)
FINANCING ACTIVITIES:
Borrowings under line of credit agreement, net ..................................... 13,000 11,000
Proceeds from issuance of stock, net ............................................... 1,860 1,235
-------- --------
Net cash provided by financing activities .............................. 14,860 12,235
Effect of exchange rate changes on cash 135 (508)
-------- --------
Increase in cash and cash equivalents, net ......................................... 2,367 6,080
Cash and cash equivalents, beginning ............................................... 5,323 2,279
-------- --------
Cash and cash equivalents, ending .................................................. $ 7,690 $ 8,359
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, including capitalized interest of $578 and $705, respectively ........ $ 9,126 $ 9,401
Income taxes ................................................................... -- --
</TABLE>
See notes to condensed consolidated financial statements.
4
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APPLIED EXTRUSION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
1. BASIS OF PRESENTATION
The information set forth in these statements is unaudited and may be subject to
normal year-end adjustments. The information reflects all adjustments that, in
the opinion of management, are necessary to present a fair statement of the
results of operations of Applied Extrusion Technologies, Inc. (the "Company" or
"AET") for the periods indicated. Results of operations for the interim period
ended December 31, 1999 are not necessarily indicative of the results of
operations for the full fiscal year.
Certain information in footnote disclosures normally included in financial
statements has been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. These statements should
be read in conjunction with the Company's Annual Report on Form 10-K for the
year ended September 30, 1999, filed with the Securities and Exchange
Commission.
2. INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
using an average-cost method. Inventories consisted of the following on December
31, 1999 and September 30, 1999:
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
1999 1999
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<S> <C> <C>
Raw materials $ 7,288 $ 7,191
Finished goods 37,109 31,420
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Total $ 44,397 $ 38,611
---------- ----------
---------- ----------
</TABLE>
3. EARNINGS PER SHARE
For the three months ended December 31, 1999, basic income per share was
computed based on the weighted average number of common shares outstanding
during the period of 11,681,376. Diluted income per share also includes the
impact of 132,793 potential shares from options, computed using the treasury
stock method. For the three months ended December 31, 1998, 178,000 potential
shares from options were excluded from the shares used to calculate diluted
earnings per share, as the effect of including these shares in the calculation
would be to decrease the loss per share.
4. COMMITMENTS AND FOREIGN EXCHANGE CONTRACTS
The Company entered into foreign exchange contracts, the last of which expired
in January, 2000, to hedge firm purchase commitments for the purchase of
equipment denominated in German Marks. Gains and losses on the contracts which
result from market risk associated with changes in the market values of the
underlying currencies are deferred and reported as part of the capitalized
asset. In entering into these contracts, the Company has assumed the risk that
might arise from the possible inability of counterparties to meet the terms of
their contracts. The Company does not expect any losses as a result of
counterparty defaults. The Company had outstanding foreign exchange contracts
with notional values of $1,512 and $2,161 at December 31, 1999 and 1998,
respectively. These contracts had no carrying value and net unrealized losses of
$714 and $299 as of December 31, 1999 and 1998, respectively. The Company does
not enter into foreign exchange contracts for trading purposes.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARATIVE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999 WITH THE THREE MONTHS ENDED DECEMBER 31, 1998
INTRODUCTION
The Company is the largest producer of oriented polypropylene ("OPP") films in
North America. Consumer product companies worldwide use AET's OPP films in
labeling, packaging and overwrap applications that often require special
attributes such as high gloss, vivid graphics, exceptional clarity and barriers
to air, light and moisture to preserve freshness. The Company generally sells
its film products to converters, which are companies specializing in processes
such as laminating multiple films or other materials together and printing text
and graphics to form the final label or packaging material for end-users.
For the purposes of this discussion and analysis, the periods ended December 31,
1999 and 1998 are referred to as the first quarters of 2000 and 1999,
respectively. All dollar amounts are in thousands.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Sales ............................. 100.0% 100.0%
Cost of sales ..................... 75.3 85.7
Gross profit ...................... 24.7 14.3
Selling, general and administrative 10.8 10.6
Research and development .......... 2.7 3.0
Operating profit .................. 11.3 0.1
Interest expense .................. 8.3 8.8
Net income (loss) ................. 1.9 (8.5)
</TABLE>
The Company reported record first quarter sales of $60,151, an increase of
$4,706 or 8.5 percent over the same quarter in 1999, resulting from both an
increase in OPP films sales volumes and an improved sales mix resulting from our
extensive product development efforts over the past four years. Market
conditions in the first quarter did not allow the Company to pass on all of its
raw material cost increases; however the North American OPP films industry is
expected to gradually strengthen due to steady growth in demand and lack of new
production capacity in North America. Sales and operating profit derived from
sales outside the United States were 16.5 percent of sales and 6.1 percent of
operating profit, respectively, for the three months ended December 31, 1999,
compared with 19.3 percent of sales and 8.5 percent of operating profit for the
three months ended December 31, 1998.
Gross profit was $14,876 or 24.7 percent of sales, a record for the first
quarter, compared with $10,846 or 19.6 percent of sales in the first quarter of
1999, exclusive of plant shutdown costs recorded in the 1999 quarter.
Profitability increases continue to be driven by manufacturing improvements as
manufacturing costs have been significantly reduced through increases in
productivity realized through continuous improvement programs and the
introduction of highly efficient production assets and improved mix of
products sold.
Total operating expenses of $8,070 for the first quarter of fiscal 2000 were
$552 higher than the first quarter of 1999, primarily due to increased sales,
marketing and infrastructure expenses related to higher sales and production
volumes, as well as annual salary and related benefits increases. Operating
expenses were 13.5 percent of sales for the first quarter of 2000 compared with
13.6 percent of sales for the first quarter of 1999.
Net interest expense for the first quarter of 2000 of $4,997 was $145 higher
than the borrowings in the first quarter of 1999 due to a slightly higher
average debt balance in the first quarter of 2000.
6
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Income tax as a percent of income before income taxes was 36 percent at December
31, 1999 and 40 percent at December 31, 1998. The lower percentage reflects the
benefit of tax planning and is expected to remain at this level for at least the
next two years.
LIQUIDITY AND CAPITAL RESOURCES
AET maintains a credit agreement with a group of lenders to provide bank
financing. This credit agreement, as amended and restated, is a $70,000
revolving credit facility (the "Revolving Credit Facility") with a final
maturity of the earlier of (i) November 1, 2001, if the AET Senior Notes are not
refinanced prior to such date; or (ii) January 29, 2003. The Revolving Credit
Facility is secured by all the assets of AET. It includes covenants that limit
borrowings based on certain asset levels, require AET to maintain a minimum
tangible net worth and specified interest coverage and leverage ratios, restrict
payment of cash dividends to stockholders, and establish maximum capital
expenditure levels. It also contains other covenants customary in transactions
of this type. At December 31, 1999, AET had approximately $39,000 outstanding
under its Revolving Credit Facility. The Company also has $150,000 of Senior
Notes outstanding that are due on April 7, 2002 with 11.5 percent interest due
semiannually on October 1 and April 1, and $6,500 of Revenue Bonds outstanding
that are due November 4, 2004.
Operating activities in the first quarter of 2000 used $8,659 of cash, which was
the result of net income of $5,307 before depreciation and amortization and
other non-cash expenditures offset by an increase in working capital of $13,966.
The net working capital increase was primarily the result of decreases in
accounts payable and accrued expenses of $6,156, and increases in inventory,
accounts receivable and prepaid expenses of $5,786, $1,537 and $488,
respectively. Accounts payable and accrued expenses decreased primarily due to
payment of the Company's semi-annual interest on its Senior Notes and the
Company's annual contributions to employee benefit plans. In addition, during
the quarter, payments against restructuring reserves reduced such accounts by
$786 to $11,380 at December 31, 1999. The remainder of the decreases in accounts
payable and accruals, and the increases in inventory and receivables since
September 30, 1999 are primarily the result of seasonality of the business.
YEAR 2000
AET's company-wide Year 2000 project is complete. The Company's transition to
Year 2000 was incident-free, with no known Year 2000 problems within the Company
or at any of our customers or third-party suppliers. The total cost associated
with Year 2000 compliance activities was approximately $10,000, of which
approximately $8,000 was spent on the new enterprise-wide system which was fully
implemented by September 1999 and offers many enhancements in comparison to our
previous systems. No critical information technology projects were deferred due
to our Year 2000 compliance efforts.
INFLATION
Management reviews the prices charged for its products on a regular basis. When
market conditions allow, adjustments are made to reflect changes in product
costs due to fluctuations in the cost of materials and labor as well as
inflation. The costs of raw materials make up a significant portion of AET's
costs and have historically fluctuated. There can be no assurance, however, that
future market conditions will support any direct correlation between raw
material cost fluctuations and finished product films pricing.
SEASONAL NATURE OF CERTAIN OPP MARKETS
Certain of the end-use markets for the Company's OPP films are seasonal. For
example, demand in the snack food, soft drink and candy markets is generally
higher in the spring and summer. As a result, sales and net income are generally
higher in those periods.
7
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE CONTRACTS
See Note 4, "Commitments and Foreign Exchange Contracts" on page 5.
SHORT-TERM AND LONG-TERM DEBT
The Company is exposed to interest rate risk primarily through borrowings under
its Revolving Credit Facility. The Company's policy has been to utilize United
States dollar denominated borrowings to fund its working capital and investment
needs. Short-term debt, if required, is used to meet working capital
requirements, while long term debt is generally used to finance long term
investments. There is inherent rollover risk for borrowings as they mature and
are renewed at current market rates. The extent of this risk is not quantifiable
or predictable because of the variability of future interest rates and the
Company's future financing requirements. At December 31,1999, the Company had no
short term debt outstanding and had long term debt outstanding of $195,500, of
which $39,000 was outstanding on its Revolving Credit Facility, which has a
variable interest rate, based on either LIBOR or prime rates. A 10 percent
adverse change in interest rates on the portion of the Company's debt bearing
interest at a variable rate would result in an increase in interest expense of
approximately $328.
The Company does not enter into financial instrument transactions for trading or
other speculative purposes or to manage interest rate exposure. With respect to
the foreign exchange contracts, an adverse change in the underlying exchange
rates would not have a significant effect on the Company's reported results, as
any gain or loss on the contract would be offset by changes in the value of the
firm purchase commitment.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN
THIS REPORT ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS, INCLUDING THOSE RELATED TO THE TIMELY DEVELOPMENT
AND ACCEPTANCE OF NEW PRODUCTS, FLUCTUATIONS IN RAW MATERIALS AND OTHER
PRODUCTION COSTS, THE LOSS OF ONE OR MORE SIGNIFICANT CUSTOMERS, THE IMPACT OF
COMPETITIVE PRODUCTS AND PRICING, THE TIMELY COMPLETION OF CAPITAL PROJECTS, THE
SUCCESS OF THE COMPANY'S EFFORTS TO EXPAND INTO NEW MARKETS AND OTHER RISKS
DETAILED IN EXHIBIT 99 OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED SEPTEMBER 30, 1999 AND FROM TIME TO TIME IN THE COMPANY'S OTHER REPORTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims that have arisen in the
ordinary course of its business and have not been fully adjudicated. These
actions, when ultimately concluded and determined, will not, in the opinion of
management, have a material adverse effect upon the financial position or
results of operations of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<S> <C>
3.1 Amended and Restated Certificate of Incorporation.
3.1.1 Amendment dated February 26, 1992 to Amended and Restated
Certificate of Incorporation. 3.1.2(n) Amendment dated March
21, 1999 to Amended and Restated Certificate of
Incorporation.
3.2(k) Amended and Restated By-Laws.
4.1(d) Indenture dated as of April 7,1994 between the Registrant and
United States Trust Company of New York Trustee. 4.2(d) Form
of 11 1/2 percent Senior Note due 2002 (included in Exhibit
4.1). 4.3(a) Specimen Common Stock Certificate.
4.4(m) Rights Agreement dated as of March 2, 1998 between the
Company and BankBoston, N.A., as Rights Agent. 10.1(n)
Amended and Restated Credit Agreement dated as of March 15,
1999 between the Registrant and The Chase Manhattan Bank as
Administrative Agent.
10.1.1(n) Amendment No. 1 dated as of April 23, 1999 to the Amended and
restated Credit Agreement dated as of March 15, 1999. 10.2(b)
1986 Stock Option Plan, as amended.
10.3(j) Amendment dated December 7, 1999 to the 1986 Stock Option
Plan.
10.4(c) 1991 Stock Option Plan, as amended.
10.5(j) Amendment dated December 7, 1999 to the 1991 Stock Option
Plan.
10.6(b) 1991 Stock Option Plan for Directors, as amended.
10.7(j) Amendment dated August 4, 1999 to the 1991 Stock Option Plan
for Directors, as amended.
10.8(d) 1994 Stock Option Plan, as amended.
10.9(j) Amendment dated December 7, 1999 to the 1994 Stock Option
Plan.
10.10(e) 1996 Employee Stock Purchase Plan.
10.11(g) Employment Agreement dated as of April 1, 1999 between the
Registrant and Mark S. Abrahams.
10.12(g) Employment Agreement dated as of April 1, 1999 between the
Registrant and David N. Terhune.
10.13(k) Letter Agreement dated May 18, 1998 between the Registrant
and David N. Terhune.
10.14(h) Employment Agreement dated as of August 15, 1998 between the
Registrant and Anthony J. Allott.
10.15(k) Letter Agreement dated May 18, 1998 between the Registrant
and Anthony J. Allott.
10.16(g) Employment Agreement dated as of April 1, 1999 between the
Registrant and Amin J. Khoury.
10.17(k) Letter Agreement dated May 18, 1998 between the Registrant
and Amin J. Khoury.
10.18(g) Employment Agreement dated as of April 1, 1999 between the
Registrant and Thomas E. Williams.
10.19(k) Letter Agreement dated May 18, 1998 between the Registrant
and Thomas E. Williams.
10.20(o) Employment Agreement dated as of April 1, 1999 between the
Registrant and Anthony J. Allott.
10.21(o) Employment Agreement dated as of April 1, 1999 between the
Registrant and Gerald M. Haines II.
10.22(i) Employment Agreement dated as of September 19, 1998 between
the Registrant and Gerald M. Haines II.
10.23* Amended and Restated Executive Deferred Compensation Plan
dated as of December 31, 1999.
10.24(j) 1999 Supplemental Executive Retirement Plan dated November
30, 1999.
10.25* 1999 Deferred Compensation Trust dated November 30, 1999.
10.26.1(l) Equipment Lease Agreement dated as of December 29, 1997
between Registrant and LaSalle National Leasing Corporation.
10.26.2(n) Letter Agreement dated April 28,1999, amending Equipment
Lease Agreement dated as of December 29, 1997.
</TABLE>
9
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<TABLE>
<S> <C>
10.27(k) Asset Purchase and Sale Agreement dated as of April 6, 1998
between the Registrant and ProNet Corporation.
21(d) Subsidiaries of the Registrant.
27* Financial Data Schedule.
99(j) Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995.
</TABLE>
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(a) Contained in Exhibits to Registrant's Registration Statement on Form S-1, as
amended (No. 33-40145), filed with the Commission on April 24, 1991.
(b) Contained in Exhibits to the Registrant's Registration Statement on Form S-8
(No. 33-44449), filed with the Commission on December 18, 1991.
(c) Contained in Exhibits to the Registrant's Registration Statement on Form S-8
(No. 33-48841), filed with the Commission on June 25, 1992.
(d) Contained in Exhibits to the Registrant's Registration Statement on Form S-4
(No. 33-78006), filed with the Commission on April 21, 1994.
(e) Contained in Exhibits to the Registrant's Registration Statement on Form S-8
(No. 33-31464), filed with the Commission on February 16, 1996.
(f) Contained in Exhibits to the Registrant's Form 10-K for the fiscal year
ended September 30, 1994.
(g) Contained in Exhibits to the Registrant's Form 10-K for the fiscal year
ended September 30, 1996.
(h) Contained in Exhibits to the Registrant's Form 10-K for the fiscal year
ended September 30, 1997.
(i) Contained in Exhibits to the Registrant's Form 10-K for the fiscal year
ended September 30, 1998.
(j) Contained in Exhibits to the Registrant's Form 10-K for the fiscal year
ended September 30, 1999.
(k) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
ended December 31, 1997.
(l) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
ended June 30, 1998.
(m) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
ended December 31, 1999.
(n) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
ended March 31, 1999.
(o) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
ended June 30, 1999.
(p) Contained in Exhibits to the Registrant's Form 8-K dated January 2, 1998.
(q) Contained in Exhibits to the Registrant's Form 8-K dated March 6, 1998.
* Filed herewith
The above referenced exhibits are, as indicated, either filed herewith or have
heretofore been filed with the Commission under the Securities Act and the
Exchange Act and are referred to and incorporated herein by reference to such
filings.
B. REPORTS ON FORM 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIED EXTRUSION TECHNOLOGIES, INC.
(Registrant)
By: /s/ Anthony J. Allott
-------------------------------
Anthony J. Allott
Vice President, Chief Financial
Officer and Treasurer
February 11, 2000
10
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APPLIED EXTRUSION TECHNOLOGIES, INC.
1999 DEFERRED COMPENSATION PLAN TRUST
THIS AGREEMENT made this 30th day of November, 1999, by and between APPLIED
EXTRUSION TECHNOLOGIES, INC. (the "Company") and COMERICA BANK, a Michigan
banking corporation ("Trustee").
RECITALS:
The Company has adopted the nonqualified deferred compensation plan known
as the APPLIED EXTRUSION TECHNOLOGIES, INC. 1999 SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN, said plan sometimes hereinafter being referred to as the
"Plan."
The Company wishes to establish a grantor trust (hereinafter called the
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event of Insolvency, as
herein defined, until paid to participants in the Plan.
It is the intention of the Company to make contributions to the Trust to
provide itself with a source of funds to assist it in the meeting of its
liabilities under the Plan.
NOW, THEREFORE, the parties do hereby establish the Trust pursuant to the
following terms and provisions.
SECTION 1.
ESTABLISHMENT OF TRUST
( a) The Company hereby deposits with the Trustee in trust one hundred
dollars ($100), which shall become the initial principal of the Trust to be
held, administered and disposed of by the Trustee as provided in this Trust
Agreement.
( b) The Trust hereby established shall be irrevocable.
( c) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
( d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used exclusively for
the uses and purposes of participants under the Plan and general creditors as
herein set forth. Plan participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Plan and this Trust Agreement shall be mere
unsecured
<PAGE>
contractual rights of Plan participants and their beneficiaries against Company.
Any assets held by the Trust will be subject to the claims of Company's general
creditors under federal and state law in the event of Insolvency, as defined in
Section 3(a) herein.
( e) It is the intention of the parties that this Trust shall constitute an
unfunded arrangement and shall not affect the status of the Plan as an unfunded
plan maintained for the purpose of providing deferred compensation for a select
group of management or highly compensated employees for purposes of Title I of
the Employee Retirement Income Security Act of 1974.
( f) It is the intention of Company to make contributions to the Trust to
provide itself with a source of funds to assist it in the meeting of its
liabilities under the Plan.
SECTION 2.
PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES
( a) The Company shall deliver to the Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each participant
(and his or her beneficiaries) under the Plan, that provides a formula or other
instructions acceptable to the Trustee for determining the amounts so payable,
the form in which such amount is to be paid (as provided for or available under
the Plan), and the time of commencement for payment of such amounts. Except as
otherwise provided herein, the Trustee shall make payments to the Plan
participants and their beneficiaries in accordance with such Payment Schedule.
The Company shall make provision for the reporting and withholding of any
federal, state or local taxes that may be required to be withheld with respect
to the payment of benefits pursuant to the terms of the Plan and shall pay
amounts withheld to the appropriate taxing authorities or determine that such
amounts have been reported, withheld and paid by Company.
( b) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan shall be determined by the Company or such party as it
shall designate under the Plan, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan.
( c) The Company may make payment of benefits directly to Plan participants
or their beneficiaries as they become due under the terms of the Plan. The
Company shall notify the Trustee of its decision to make payment of benefits
directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Plan, the Company shall make the balance of each such payment as it
falls due. The Trustee shall notify the Company where principal and earnings are
not sufficient.
2
<PAGE>
SECTION 3.
TRUSTEE RESPONSIBILITY REGARDING PAYMENTS
TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT
( a) The Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if the Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to
pay its debts as they become due, or (ii) the Company is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
( b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.
( i) The Board of Directors of the Company shall have the duty to
inform the Trustee in writing of the Company's Insolvency. If a person
claiming to be a creditor of the Company alleges in writing to the Trustee
that the Company has become Insolvent, the Trustee shall determine whether
the Company is Insolvent and, pending such determination, the Trustee shall
discontinue payment of benefits to Plan participants or their
beneficiaries.
( ii) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming to
be a creditor alleging that the Company is Insolvent, the Trustee shall
have no duty to inquire whether the Company is Insolvent. The Trustee may
in all events rely on such evidence concerning the Company's solvency as
may be furnished to the Trustee and that provides the Trustee with a
reasonable basis for making a determination concerning the Company's
solvency.
( iii) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to Plan participants or
their beneficiaries and shall hold the assets of the Trust for the benefit
of the Company's general creditors. Nothing in this Trust Agreement shall
in any way diminish any rights of Plan participants or their beneficiaries
to pursue their rights as general creditors of the Company with respect to
benefits due under the Plan or otherwise.
( iv) The Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined that the Company is
not Insolvent (or is no longer Insolvent).
( c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
3
<PAGE>
SECTION 4.
INVESTMENT AUTHORITY
The Trustee shall invest the assets of the Trust in such manner as shall be
directed by the Committee under the Plan. Notwithstanding the preceding
sentence, the Committee may select an investment manager (or managers) meeting
the definition of an "investment manager" under Section 3(38) of the Employee
Retirement Income Security Act of 1974, which may direct the Trustee to invest
any part of the Trust in any securities or property (except Company property or
securities), and direct that it make sales of any securities or property
constituting part of the Trust, and the Trustee shall act on such recommendation
and shall have no liability for acting in accordance with such recommendation or
for the retention of any securities or property so purchased. The Trustee will
be protected in relying upon any telegram or letter purporting to have been sent
by the investment manager which it believes in good faith to be genuine. In
directing investments, the investment manager shall diversify the investments so
as to minimize the risk of large losses, unless under the circumstances it is
the investment manager's opinion that it is clearly prudent not to do so. The
Trustee shall be fully protected in relying upon the certification of the
Committee with respect to the selection of such investment manager and it shall
not be the responsibility of the Trustee to determine or review investment
instructions given to it by such investment manager. Each investment manager
shall be a fiduciary under the Trust and shall acknowledge that it is a
fiduciary under the Trust in writing delivered to the Trustee and the Committee.
SECTION 5.
DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
SECTION 6.
ACCOUNTING BY TRUSTEE
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. Within sixty (60) days following the close of each
calendar year and within thirty (30) days after the removal or resignation of
the Trustee, the Trustee shall deliver to Company a written account of its
administration of the Trust during such year or during the period from the close
of the last preceding year to the date of such removal or resignation, setting
forth all investments receipts, disbursements and other transactions effected by
it, including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued interest paid
or receivable being shown separately), and showing all cash, securities and
other property held in the Trust at the end of such year or as of the date of
such removal or resignation, as the case may be.
4
<PAGE>
SECTION 7.
RESPONSIBILITY OF TRUSTEE
( a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company which is contemplated by,
and in conformity with the terms of the Plan or this Trust and is given in
writing by the Company. In the event of a dispute between the Company and a
party, the Trustee may apply to a court of competent jurisdiction to resolve the
dispute.
( b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
the Trustee's costs, expenses and liabilities (including without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs, expenses and liabilities
in a reasonably timely manner, the Trustee may obtain payment from the Trust.
( c) The Trustee may consult with legal counsel (who may also be counsel
for the Company generally) with respect to any of its duties or obligations
hereunder.
( d) The Trustee may hire agents, accountants, actuaries investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
( e) The Trustee shall have, without exclusion, all powers conferred on the
Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
the Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
( f) Notwithstanding the provisions of Section 7(e) above, the Trustee may
loan to the Company the proceeds of any borrowing against an insurance policy
held as an asset of the Trust.
( g) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
(h) Without in any way limiting the Trustee's powers described in this
Agreement, the Trustee shall have the power to do any of the following as
directed by the Committee from time to time: (i) place all or part of the
marketable securities of the Trust in a custody account maintained with Paine
Webber Incorporated (hereinafter known as Paine Webber); (ii) engage Paine
Webber
5
<PAGE>
to act as custodian of the custody account and to act, pursuant to the Trustee's
or an Investment Manager's instructions, as broker or dealer to execute
transactions and to provide other services with respect to the custody account,
including purchasing securities currently distributed, underwritten or issued by
Paine Webber or any of its affiliates; and (iii) pay out of the Trust fund all
reasonable custody charges, brokerage commissions, and other fees and expenses
incurred pursuant to clause (i) or (ii) above.
SECTION 8.
COMPENSATION AND EXPENSES OF TRUSTEE
The Company shall pay all administrative and Trustee's fees and expenses.
If not so paid, the fees and expenses shall be paid from the Trust.
SECTION 9.
RESIGNATION AND REMOVAL OF TRUSTEE
( a) The Trustee may resign at any time by written notice to the Company,
which shall be effective thirty (30) days after receipt of such notice unless
the Company and the Trustee agree otherwise.
( b) The Trustee may be removed by the Company on thirty (30) days notice
or upon shorter notice accepted by the Trustee.
( c) Upon a Change of Control, as defined herein, the Trustee may not be
removed by the Company.
( d) If the Trustee resigns after a Change of Control, as defined herein,
the Company shall apply to a court of competent jurisdiction for the appointment
of a successor the Trustee or for instructions.
( e) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within thirty (30) days after receipt
of notice of resignation, removal or transfer, unless the Company extends the
time limit.
( f) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 10 hereof, by the effective date or resignation or
removal under paragraphs (a) or (b) of this section. If no such appointment has
been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
6
<PAGE>
SECTION 10.
APPOINTMENT OF SUCCESSOR
( a) If the Trustee resigns or is removed in accordance with Section 9(a)
or 9(b) hereof, the Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace the Trustee upon resignation or removal.
The appointment shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by Company or the successor Trustee
to evidence the transfer.
( b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 6 and 7 hereof. The successor Trustee shall not be responsible for and
Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.
SECTION 11.
AMENDMENT OR TERMINATION
( a) This Trust Agreement may be amended by a written instrument executed
by the Trustee and the Company. Notwithstanding the foregoing, no such amendment
shall conflict with the terms of the Plan or shall make the Trust revocable, or
otherwise authorize the Trustee to transfer the assets of the Trust to or for
the benefit of the Company prior to the time all benefit payments under the Plan
have been made.
( b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan. Upon termination of the Trust, any assets remaining in
the Trust shall be returned to the Company.
( c) Upon written approval of participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the Plan, the Company may terminate
this Trust prior to the time all benefit payments under the Plan have been made.
All assets in the Trust at termination shall be returned to Company.
( d) Except as otherwise provided in Section 3 hereof, in the event that a
Change of Control shall occur with respect to the Company, as defined in the
Plan, the Trustees shall use the assets of the Trust to make payment of benefits
to the Plan Participants and their Beneficiaries in accordance with the terms of
the Plan as in effect prior to the Change in Control to the extent such benefits
are not paid by the Company.
7
<PAGE>
SECTION 12.
MISCELLANEOUS
( a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
( b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
( c) This Trust Agreement shall be governed by and construed in accordance
with the laws of Michigan.
SECTION 13.
EFFECTIVE DATE
The effective date of this Trust Agreement shall be December 1, 1999.
APPLIED EXTRUSION TECHNOLOGIES,
INC., a Delaware corporation
By:/s/GERALD M. HAINES II
-----------------------------------
Gerald M. Haines II
Vice President, General Counsel
and Secretary
COMERICA BANK
By:/s/RALPH JOHNSTON
-----------------------------------
Ralph Johnston
Trust Officer
<PAGE>
APPLIED EXTRUSION TECHNOLOGIES, INC.
EXECUTIVE DEFERRED COMPENSATION RETIREMENT PLAN
(AMENDED AND RESTATED AS OF DECEMBER 31, 1999)
<PAGE>
APPLIED EXTRUSION TECHNOLOGIES, INC.
EXECUTIVE DEFERRED COMPENSATION RETIREMENT PLAN
(AMENDED AND RESTATED AS OF DECEMBER 31, 1999)
ARTICLE 1. - INTRODUCTION
1.1. AMENDMENT AND RESTATEMENT. This Plan amends, restates, renames, and
continues, effective December 31, 1999, the Applied Extrusion Technologies, Inc.
Executive Deferred Compensation Plan, originally established effective September
1, 1994. Except as otherwise expressly provided herein, the rights of
Participants who ceased to be employees prior to December 31, 1999 and do not
subsequently become Eligible Employees shall be determined in accordance with
the terms of the Plan as in effect when they ceased to be employees.
1.2. PURPOSE OF PLAN. Applied Extrusion Technologies, Inc. has adopted the
Plan set forth herein to provide a competitive level of retirement benefits to
certain designated employees by allowing them to defer receipt of designated
percentages of their compensation and to provide additional Company Credits in
certain cases.
1.3. STATUS OF PLAN. The Plan is intended to be "a plan which is unfunded
and is maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees"
within the meaning of Sections 201(2), 301(a)(3), 401(a)(1), and 4021(b)(6) of
ERISA, and shall be interpreted and administered to the extent possible in a
manner consistent with that intent.
ARTICLE 2. - DEFINITIONS
Wherever used herein, the following terms have the meanings set forth
below, unless a different meaning is clearly required by the context:
2.1. "ACCOUNT" means, for each Participant, the account established for his
or her benefit under Section 5.1.
2.2. "ADMINISTRATOR" means a committee comprised of such members of the
Board of Directors or executive officers of the Company as may be appointed by
its Chief Executive Officer from time to time.
2.3. "CODE" means the Internal Revenue Code of 1986, as amended from time
to time. Reference to any section or subsection of the Code includes reference
to any comparable or succeeding provisions of any legislation which amends,
supplements or replaces such section or subsection.
<PAGE>
2.4. "COMPANY" means Applied Extrusion Technologies, Inc., any affiliates
that adopt the Plan with the knowledge and consent of the Administrator, and any
successor to all or a major portion of the Company's assets or business which
assumes the obligations of the Company generally.
2.5. "COMPANY CREDIT" means any credit which is received by a Participant
under Section 4.2.
2.6. "COMPANY CREDIT ELIGIBLE EMPLOYEE" means each employee of the Company
selected by the Administrator as eligible for Company Credits under Section 4.2
from among the group of highly compensated or managerial employees of the
Company, provided such individual has been employed by the Company for at least
90 days, and is not a participant in the Applied Extrusion Technologies, Inc.
1999 Supplemental Executive Retirement Plan.
2.7. "ELECTIVE DEFERRAL" means the portion of Compensation which is
deferred by a Participant under Section 4.1.
2.8. "ELECTIVE DEFERRAL ELIGIBLE EMPLOYEE" means each employee of the
Company selected by the Administrator as eligible for Elective Deferrals under
Section 4.1. from among the group of highly compensated or managerial employees
of the Company, provided such individual has been employed by the Company for at
least 90 days.
2.9. "ELIGIBLE EMPLOYEE" means an employee of the Company who is a Company
Credit Eligible Employee, an Elective Deferral Eligible Employee, or both.
2.10. "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Reference to any section or subsection of ERISA
includes reference to any comparable or succeeding provisions of any legislation
which amends, supplements or replaces such section or subsection.
2.11. "PARTICIPANT" means any individual who participates in the Plan in
accordance with Article 3.
2.12. "PLAN" means the Applied Extrusion Technologies, Inc. Executive
Deferred Compensation Retirement Plan set forth herein and all subsequent
amendments hereto.
2.13. "PLAN YEAR" means the 12-month period ending each September 30.
ARTICLE 3. - PARTICIPATION
3.1. COMMENCEMENT OF PARTICIPATION. Any individual who is an Eligible
Employee and who has elected to defer part of his or her regular salary or bonus
for the Plan Year in
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<PAGE>
accordance with Section 4.1, or who has been selected to receive an Company
Credit in accordance with Section 4.2, shall become a Participant on the date
such election or credit is made.
3.2. CONTINUED PARTICIPATION. Subject to Section 3.3, an individual who has
become a Participant in the Plan shall continue to be a Participant so long as
any amount remains credited to his or her Account.
3.3. TERMINATION OF PARTICIPATION. The Administrator may terminate an
employee's participation in the Plan prospectively or retroactively for any
reason, including but not limited to the Administrator's determination that such
termination is necessary in order to maintain the Plan as a "plan which is
unfunded and is maintained by an employer primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees" within the meaning of sections 201(2), 301(a)(3), 401(a)(1), and
4021(b)(6) of ERISA. Amounts credited to a Participant's Account shall be paid
out to such Participant in a single lump sum cash payment as soon as reasonably
practical following termination of participation hereunder.
ARTICLE 4. - DEFERRALS AND CREDITS
4.1. ELECTIVE DEFERRALS.
(a) IN GENERAL. An Elective Deferral Eligible Employee may elect to
defer a designated portion of regular salary to be earned during a Plan
Year, by filing a written election with the Administrator prior to the
first day of the Plan Year in which such salary is to be earned. Such
Eligible Employee may also elect to defer a designated portion of any bonus
to be earned during a Plan Year (which would otherwise be determined and
payable after the end of the Plan Year) by filing a written election with
the Plan Administrator no later than March 31st of the Plan Year. An
individual who first becomes an Elective Deferral Eligible Employee on or
after the first day of any Plan Year may elect to defer a portion of base
salary and/or bonus to be earned during the remainder of the Plan Year and
after the written election is filed with the Administrator.
(b) NATURE OF ELECTION. Each election under this Section 4.1 for a
Plan Year (or the balance of a Plan Year) shall be made on a form approved
or prescribed by the Administrator, shall be irrevocable by the Participant
for the Plan Year, and (except as provided in Section 4.1(a)) shall apply
only to regular salary or bonus earned after the date the election form is
completed and filed with the Administrator. The election form shall also
specify whether the deferral election is to apply to payments of base
salary, bonuses, or both, and shall specify the whole percentage or flat
dollar amount of each that is to be deferred. The deferred amounts shall be
credited to the
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<PAGE>
Participant's Account as of the date such compensation would otherwise
have been paid to the Participant.
4.2. COMPANY CREDITS.
(a) IN GENERAL. As of June 30, 2000, and each June 30 thereafter,
the Company will credit to the Account of each individual who is a
Company Credit Eligible Employee as of such date a Company Credit
equal to 7.5% (or such other amount determined by the Company's Board
of Directors) of the Company Credit Eligible Employee's "Compensation"
for the year. "Compensation" for purposes of this section 4.2(a) means
the sum of (i) the actual amount of base salary paid to the Eligible
Employee for the 12-month period ending on the applicable June 30, and
(ii) the amount of any cash bonus actually received by the Eligible
Employee from the Company during the 12-month period ending on the
applicable June 30.
(b) IN THE EVENT OF DEATH. Notwithstanding section 4.2(a), in the
event that a Company Credit Eligible Employee, who at the time of his
death is fully vested in his Company Credits pursuant to section 5.4
below, dies in service prior to a particular June 30, the Company will
credit his Account with a Company Credit equal to 7.5% (or such other
amount determined by the Company's Board of Directors) of his
"Compensation." "Compensation" for purposes of this section 4.2(b)
means the sum of (i) the actual amount of base salary paid to the
Eligible Employee for the period beginning on the July 1 immediately
preceding his death and ending on the date of his death, and (ii) the
amount of any cash bonus actually received by the Eligible Employee
from the Company during the period beginning on the July 1 immediately
preceding his death and ending on the date of his death. Any Company
Credit made pursuant to this section 4.2(b) will be made as of either
the date of the Company Credit Eligible Employee's death, or the
immediately following June 30, in the discretion of the Company.
ARTICLE 5. - ACCOUNTS; INTEREST
5.1. ACCOUNTS. The Administrator shall establish an Account for each
Participant reflecting Elective Deferrals, Company Credits, and any adjustments
hereunder. As soon as reasonably practical after the end of each Plan Year, the
Administrator shall provide the Participant with a statement of his or her
Account.
5.2. EARNINGS MEASUREMENT. The Administrator shall identify one or more
funds (such as mutual funds, bank collective funds, or a hypothetical fund
comprised solely of Company common stock) from time to time for the purpose of
measuring earnings credits to Participants' Accounts. Each Participant may
specify which one or more of such funds he or she wishes to be used as a
measuring vehicle for designated percentages of his or her Account,
-4-
<PAGE>
in such form and manner, and with such notice, as the Administrator may
prescribe, provided that such directions may be given on a prospective basis
only. Changes in Participant directions hereunder may be made as of the first
business day of any calendar quarter (or such other times as the Administrator
may prescribe). Each Participant's Account shall be adjusted from time to time
(at least quarterly) to reflect the fair market value that would be ascribed to
the Account if the amounts credited to the Account were actually invested in the
funds as directed by the Participant. For purposes of Company Credits, earnings
credits (if any) shall begin to accrue as of the actual date of contribution and
investment by the Company of Funds into a grantor trust pursuant to Section 9.1
hereof.
5.3. PAYMENTS. Each Participant's Account shall be reduced by the amount of
any payment made to or on behalf of the Participant under Article 6 as of the
date such payment is made.
5.4. VESTING. A Participant will at all times be 100% vested in the portion
of his or her Account attributable to Elective Deferrals, and will earn a
nonforfeitable interest to be vested in the portion of the Account attributable
to any Company Credits according to the following schedule, based on his or her
aggregate years of service with the Company or its affiliates, including all
service prior to the date Company Credits are first made.
<TABLE>
<CAPTION>
<S> <C>
YEARS OF SERVICE % VESTED
less than 5 0
5 or more 100
</TABLE>
ARTICLE 6. - PAYMENTS
6.1. SEVERE FINANCIAL HARDSHIP (ELECTIVE DEFERRALS). A Participant who
believes he or she is suffering a severe financial hardship may apply to the
Administrator for a distribution under the Plan in order to alleviate such
hardship. The Administrator, in its sole discretion (but after taking into
account, among other factors, the nature and foreseeability of the alleged
hardship, the Participant's other resources, and the effect of making a
distribution on the intended tax status of the deferrals made under the Plan),
may direct the Company to pay to the Participant an amount which it determines
is necessary or appropriate, not to exceed the Participant's Account balance
attributable to Elective Deferrals under Section 4.1, if any, and the Company
shall pay such amount to the Participant in a single lump sum cash payment.
6.2. TERMINATION OF EMPLOYMENT. As soon as reasonably practical following
termination of employment for any reason including retirement or death, a
Participant shall receive distributions as follows:
(a) Payment will normally be made in five annual cash installments,
the first such installment to be made as soon as reasonably practicable
following termination of
-5-
<PAGE>
employment, and succeeding installments to be made approximately at each of
the four following anniversaries thereof. The amount of each installment
shall be determined by dividing the Participant's Account balance (adjusted
through the day before the installment) by the number of installments
remaining.
(b) Notwithstanding paragraph (a) above at least 13 months prior to
the Participant's termination of employment he or she may elect to receive
payment:
(i) in either three or ten annual cash installments, such
installments to be determined in a manner similar to that described in
Section 6.2(a) above, adjusted appropriately to reflect the three-year
or ten-year term, or
(ii) in a single lump sum cash payment to be received as soon as
reasonably practicable following such termination, provided, however,
that if the Participant's total Account balance exceeds $50,000 a lump
sum payment shall not be made without the approval of the
Administrator in its sole discretion after taking into account the
Participant's other resources, the financial obligations of
Participant with respect to which the lump sum is sought, and the
impact of such payment on the cash needs and tax position of the
Company.
Any election made under this Section 6.2 shall be made in writing on a
form prescribed or approved by the Administrator, and may be similarly
revoked at any time prior to the beginning of the 13-month period
described above. In addition, if a Participant dies prior to the
complete distribution of his or her Account, the remaining balance
shall be distributed to his or her beneficiary as determined under
Section 6.3 below as soon as reasonably practicable following the
Participant's death.
6.3. BENEFICIARY DESIGNATION. A Participant shall designate a beneficiary
who shall be entitled to receive the single lump sum payment due the Participant
under the Plan in the event of the Participant's death. Such designation shall
be made in writing on a form approved or prescribed by the Administrator, and
may be changed by the Participant at any time. If there is no such designation
or no designated beneficiary survives the Participant, payment shall be made to
the Participant's estate.
ARTICLE 7. - ADMINISTRATOR
7.1. PLAN ADMINISTRATION AND INTERPRETATION. The Administrator shall
oversee the administration of the Plan. The Administrator shall have complete
discretionary control and authority to administer all aspects of the Plan,
including without limitation the power to appoint agents and counsel, and to
determine the rights and benefits and all claims, demands and actions arising
out of the provisions of the Plan of any Participant, beneficiary, deceased
-6-
<PAGE>
Participant, or other person having or claiming to have any interest under the
Plan, in a manner consistent with Section 7.2. The Administrator shall have the
exclusive discretionary power to interpret the Plan and to decide all matters
under the Plan. Such interpretation and decision shall be final, conclusive and
binding on all Participants and any person claiming under or through any
Participant, in the absence of clear and convincing evidence that the
Administrator acted arbitrarily and capriciously. Any individual serving as
Administrator, or on a committee acting as Administrator, who is a Participant
will not vote or act on any matter relating solely to himself or herself. When
making a determination or calculation, the Administrator shall be entitled to
rely on information furnished by a Participant, a beneficiary, or any other
person or entity. The Administrator shall be deemed to be the Plan administrator
with responsibility for complying with any reporting and disclosure requirements
of ERISA.
7.2. CLAIMS PROCEDURE.
(a) IN GENERAL. If any person believes he or she is being denied any
rights or benefits under the Plan, such person may file a claim in writing
with the Administrator. If any such claim is wholly or partially denied,
the Administrator will notify such person of its decision in writing. Such
notification will contain (i) specific reasons for the denial, (ii)
specific reference to pertinent plan provisions, (iii) a description of any
additional material or information necessary for such person to perfect
such claim and an explanation of why such material or information is
necessary and (iv) information as to the steps to be taken if the person
wishes to submit a request for review. Such notification will be given
within 90 days after the claim is received by the Administrator (or within
180 days, if special circumstances require an extension of time for
processing the claim, and if written notice of such extension and
circumstances is given to such person within the initial 90 day period). If
such notification is not given within such period, the claim will be
considered denied as of the last day of such period and such person may
request a review of his or her claim.
(b) APPEALS. Within 60 days after the date on which a person receives
a written notice of a denied claim (or, if applicable, within 60 days after
the date on which such denial is considered to have occurred) such person
(or his or her duly authorized representative) may (i) file a written
request with the Administrator for a review of his or her denied claim and
of pertinent documents and (ii) submit written issues and comments to the
Administrator. The Administrator will notify such person of its decision in
writing. Such notification will be written in a manner calculated to be
understood by such person and will contain specific reasons for the
decision as well as specific references to pertinent plan provisions. The
decision on review will be made within 60 days after the request for review
is received by the Administrator (or within 120 days, if special
circumstances require an extension of time for processing the request, such
as an election by the Administrator to hold a hearing, and if written
notice of such extension and circumstances is given to such person within
the initial 60
-7-
<PAGE>
day period). If the decision on review is not made within such period, the
claim will be considered denied.
7.3. INDEMNIFICATION OF ADMINISTRATOR. The Company agrees to indemnify and
to defend to the fullest extent permitted by law any director, officer or
employee of the Company or any affiliated company who serves as the
Administrator or as a member of a committee appointed to serve as Administrator,
or who assists the Administrator in carrying out its duties as part of his
employment (including any such individual who formerly served in any such
capacity) against all liabilities, damages, costs and expenses (including
attorneys' fees and amounts paid in settlement of any claims approved by the
Company) occasioned by any act or omission to act in connection with the Plan,
if such act or omission is in good faith.
ARTICLE 8. - AMENDMENT, TERMINATION OR ASSIGNMENT
8.1. AMENDMENTS. Prior to a Change of Control as defined in Appendix A
hereof the Company shall have the right to amend this Plan (including Appendix
A) from time to time, subject to Section 8.4, by an instrument in writing which
has been executed on its behalf by an officer thereof or by vote of its Board of
Directors. No amendment to the Plan with respect to any Participant may be made
after a Change in Control without the written consent of such Participant (or
beneficiary, if applicable).
8.2. NET WORTH TEST. Notwithstanding any provision to the contrary in this
Plan, in the event that as of the last day of any fiscal quarter of the Company
that occurs after the Effective Date, either (i) the Tangible Net Worth of the
Company is less the $25,000,000, or (ii) the Interest Coverage Ratio of the
Company shall be below 0.9:1, then the Plan immediately shall terminate, and the
Company shall distribute to each Participant his or her Account balance, in a
lump sum payment, as soon as practicable thereafter. For purposes of this Plan:
(a) "TANGIBLE NET WORTH" shall mean at any date the consolidated
stockholders' equity of the Company and its subsidiaries determined as of
such date, less any intangible assets included on the balance sheet at the
same date;
(b) "INTEREST COVERAGE RATIO" shall mean the Cash Flow of the Company
for the trailing four quarters divided by the Interest Expense of the
Company for the trailing four quarters;
(c) "CASH FLOW" shall mean for any period, (i) the sum (without
duplication), determined on a consolidated basis for the Company and its
subsidiaries, of (x) the operating profit of the Company and its
subsidiaries (calculated before provision for income taxes, interest
expense, extraordinary and non-recurring items and income attributable to
equity in affiliates) for such period, plus (y) depreciation, amortization
-8-
<PAGE>
and other non-cash items (to the extent deducted in determining operating
profit) for such period minus (ii) proceeds received by the Company and its
subsidiaries during such period (to the extent included in determining
operating profit) of any property insurance policy.
(d) "INTEREST EXPENSE" shall mean for any period, the sum (determined
without duplication) of the aggregate amount of interest accruing during
such period on indebtedness of the Company and its subsidiaries (on a
consolidated basis), including the interest portion of payments under
capital lease obligations and any capitalized interest, and excluding
amortization of debt discount and expense.
8.3. TERMINATION OF PLAN. This Plan is strictly a voluntary undertaking on
the part of the Company and shall not be deemed to constitute a contract between
the Company and any Eligible Employee (or any other employee) or a consideration
for, or an inducement or condition of employment for, the performance of
services by any Eligible Employee (or other employee). The Company reserves the
right to terminate this Plan at any time, subject to Section 8.4, by an
instrument in writing which has been executed its behalf by an officer thereof
or by vote of its Board of Directors.
8.4. EXISTING RIGHTS. No amendment or termination of the Plan shall
adversely affect the rights of any Participant with respect to amounts credited
to his or her Account as of the date of such amendment or termination (subject
to future adjustments as a result of investment measurements).
8.5. ASSIGNMENT. The rights and obligations of the Company shall enure to
the benefit of and shall be binding upon the its successors and assigns.
ARTICLE 9. - MISCELLANEOUS
9.1. GRANTOR TRUST. The Company shall establish a trust of which the
Company is treated as the owner under Subpart E of Subchapter J, Chapter 1 of
the Internal Revenue Code of 1986, as amended (a "grantor trust") and as soon as
practicable (but in any event within 30 days) after an amount is credited to an
Account hereunder, shall deposit with the trustee of the trust an amount of cash
or marketable securities (including, in the Company's discretion, Company stock
to the extent such stock is an earnings measurement under the Plan) sufficient
to cause the fair market value of the assets held in the trust to be not less
than the sum of the Account balances under the Plan. Any such deposits shall be
irrevocable and for the exclusive purpose of paying benefits under the Plan and
such other purposes as may be set forth in the trust. Except for the foregoing,
nothing in this Plan will be construed to create a trust or to obligate the
Company or any other person to segregate a fund, purchase an insurance contract,
set aside any shares of Company stock, or in any other way currently to fund the
future payment of any benefits hereunder, nor will anything herein be construed
to give any
-9-
<PAGE>
employee or any other person rights to any specific assets of the Company or of
any other person. Any benefits which become payable hereunder that are not paid
out of the grantor trust shall be paid from the general assets of the Company.
9.2. NATURE OF CLAIM FOR PAYMENT. Each Participant and beneficiary will be
an unsecured general creditor of the Company with respect to all benefits
payable under the Plan. Except with respect to amounts deposited in a grantor
trust and consistent with the terms of any such trust, nothing in this Plan will
be construed to give any individual rights to any specific assets of the Company
or other person or entity.
9.3. NONALIENATION OF BENEFITS. None of the benefits, payments, proceeds or
claims of any Participant or beneficiary shall be subject to any claim of any
creditor and, in particular, the same shall not be subject to attachment or
garnishment or other legal process by any creditor, nor shall any Participant or
beneficiary have any right to alienate, anticipate, commute, pledge, encumber or
assign any of the benefits or payments or proceeds which he may expect to
receive, contingently or otherwise, under this Plan.
9.4. NO CONTRACT OF EMPLOYMENT. Participation in this Plan shall not give
any Eligible Employee the right to be retained in the employ of the Company or
any right or interest in the Plan other than as herein provided. The Company
reserves the right to dismiss any Eligible Employee without any liability for
any claim against the Company, except to the extent provided herein.
9.5. RECEIPT AND RELEASE. Any payment to any Participant or beneficiary in
accordance with the provisions of this Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Company and the Administrator under
this Plan, and the Administrator may require such Participant or beneficiary, as
a condition precedent to such payment, to execute a receipt and release to such
effect. If any Participant or beneficiary is determined by the Administrator to
be incompetent by reason of physical or mental disability (including minority)
to give a valid receipt and release, the Administrator may cause the payment or
payments becoming due to such person to be made to another person for his or her
benefit without responsibility on the part of the Administrator or the Company
to follow the application of such funds.
9.6. SEVERABILITY OF PROVISION. If any provision of this Plan shall be held
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provisions hereof, and this Plan shall be construed and enforced as if
such provision had not been included.
9.7. GOVERNMENT REGULATIONS. It is intended that this Plan will comply with
all applicable laws and government regulations, and the Company shall not be
obligated to perform an obligation hereunder in any case where, in the opinion
of the Company's counsel, such performance would result in the violation of any
law or regulation.
-10-
<PAGE>
9.8. GOVERNING LAW. This Plan shall be construed, administered, and
governed in all respects under and by the laws of the Commonwealth of
Massachusetts. If any provision shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
9.9. HEADINGS AND SUBHEADINGS. Headings and subheadings in this Plan are
inserted for convenience only and are not to be considered in the construction
of the provisions hereof.
IN WITNESS WHEREOF, Applied Extrusion Technologies, Inc. has caused this
Plan to be executed by its duly authorized officer this 31st day of December,
1999.
APPLIED EXTRUSION TECHNOLOGIES. INC.
By: /s/GERALD M. HAINES II
----------------------------------
Gerald M. Haines II
Vice President, General Counsel
and Secretary
-11-
<PAGE>
EXHIBIT A
A Change of Control will occur for purposes of this Plan if (i) any
individual, corporation, partnership, company or other entity (including a
"group" of the type referred to in Rule 13d-5 under the Securities Exchange Act
of 1934, as amended (the "Act"), (a "Person") becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act) of securities of the Company representing
more than 30% of the combined voting power of the Company's then outstanding
securities (other than as a result of acquisitions of such securities from the
Company), (ii) there is a change of control of the Company of a kind which would
be required to be reported under Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Act (or a similar item in a similar schedule or form),
whether or not the Company is then subject to such reporting requirement, (iii)
the Company is a party to, or the stockholders approve, a merger, consolidation,
or other reorganization (other than (a) a merger, consolidation, or other
reorganization which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent, either by
remaining outstanding or by being converted into voting securities of the
surviving entity, more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger, consolidation, or other reorganization, or (b) a merger,
consolidation, or other reorganization effected to implement a recapitalization
of the Company, or similar transaction, in which no Person acquires more than
20% of the combined voting power of the Company's then outstanding securities),
a sale or all or substantially all assets, or a plan of liquidation, or (iv)
individuals who, at the date hereof, constitute the Board cease for any reason
to constitute a majority thereof; PROVIDED, HOWEVER, that any director who is
not in office at the date hereof but whose election by the Board or whose
nomination for election by the Company's shareholders was approved by a vote of
at least a majority of the directors then still in office who either were
directors at the date hereof or whose election or nomination for election was
previously so approved (other than an election or nomination of an individual
whose initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act)
shall be deemed to have been in office at the date hereof for purposes of this
definition.
Notwithstanding the foregoing provisions of this Exhibit A, a "Change of
Control" will not be deemed to have occurred solely because of the acquisition
of securities of the Company (or any reporting requirements under the Act
relating thereto) by an employment benefit plan maintained by the Company for
its employees.
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<NAME> APPLIED EXTRUSION TECHNOLOGY
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