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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-1
Tender Offer Statement Pursuant to
Section 14(d)(1) of the
Securities Exchange Act of 1934
(Amendment No. )*
SYNTHETIC INDUSTRIES L.P.
(Name of Subject Company)
MERCER ACQUISITION LLC
(Bidder)
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class of Securities)
Not Applicable
(CUSIP Number of Class of Securities)
Mark S. Britton
Connie R. Collingsworth
Preston Gates & Ellis LLP
701 Fifth Avenue, Suite 5000
Seattle, Washington 98104
(206) 623-7580
(Name, Address and Telephone Number of Persons Authorized to Receive
Notices and Communications on behalf of Bidder)
CALCULATION OF FILING FEE
Transaction Valuation(1) Amount of filing fee
$2,000,000.00 $400.00
(1) For purposes of calculating the filing fee only. This calculation
assumes the purchase of 40 Units at a purchase price of $50,000 per Unit in
the partnership. The amount of the filing fee, calculated in accordance with
Regulation 0-11 of the Securities and Exchange Act of 1934, as amended,
equals 1/50 of one percent of the value of units assumed to be purchased.
/ / 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:
Form or Registration No.: ___________________
Filing Party: _______________________________
Date Filed: _________________________________
NOTE: The remainder of this cover page is only to be completed if this Schedule
14D-1 (or amendment thereto) is being filed, inter alia, to satisfy the
reporting requirements of section 13(d) of the Securities Exchange Act of 1934.
See General Instructions D, E, and F to Schedule 14D-1.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter the
disclosure provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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CUSIP No.: Not applicable.
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1 NAME OF REPORTING PERSON
Mercer Acquisition LLC
1 I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
91-1768846
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
WC
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(e) OR 2(f) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Washington
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7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
39.625 Units
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8 CHECK IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ]
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9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
4.95%
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10 TYPE OF REPORTING PERSON
CO
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2
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ITEM 1. SECURITY AND SUBJECT COMPANY
(a) The name of the subject company is Synthetic Industries Limited
Partnership, a limited partnership organized under the laws of the state of
Delaware, and the address of its principal executive office is 309 LaFayette
Road, Chickamauga, Georgia 30707.
(b) The information set forth in the "Introduction" of the Offer to
Purchase is incorporated herein by reference.
This Schedule 14D-1 relates to a tender offer by Mercer Acquisition LLC,
a Washington limited liability company ("Purchaser"), to purchase up to 40
Units of Limited Partnership Interests ("Units") of Synthetic Industries
Limited Partnership, a Delaware limited partnership (the "Partnership"), at a
purchase price of $50,000 per Unit, without interest, less (i) transfer fees
in the amount of $3,750 per Unit, and (ii) the amount of any cash
distributions declared or paid, including any cash return of capital, if any,
with respect to the Units after May 4, 1999, upon the terms and subject to
the conditions set forth in the Offer to Purchase and in the related
Agreement of Sale (which together constitute the "Offer"), which are attached
to and filed with this Schedule 14D-1 as Exhibits (a)(1) and (a)(2),
respectively, and incorporated herein by reference. The Offer applies to
whole and fractional Units. The purchase price and transfer fees for
fractional Units will be adjusted according to the percentage of a full Unit
represented by the fractional Unit. For example the purchase price of a 1/2
Unit will be $25,000 (1/2 x $50,000), less transfer fees of $1,875 (1/2 x
3,750) and less the amount of any cash distributions declared or paid with
respect to the 1/2 Unit after May 4, 1999. The number of Units outstanding
as of December 28, 1998 was 800.
(c) The information set forth in the "Introduction" and Section 7
("Purpose and Effects of the Offer") of the Offer to Purchase is incorporated
herein by reference.
There is no established trading market for the Units. In addition, the
Partnership's Amended and Restated Limited Partnership Agreement dated
November 11, 1986, as amended (the "Partnership Agreement") places
restrictions on the transferability of Units. No transferee of all or any
part of a Unit may be admitted to the Partnership as a limited partner
("Limited Partner") without the written consent of the Partnership's general
partner ("Management L.P."), which consent may be withheld in the absolute
discretion of Management L.P. The Partnership Agreement also provides that
the transfer of the whole or any portion of a Unit shall not be effective to
entitle the transferee to receive distributions of cash or other property
from the Partnership applicable to the Unit acquired by reason of such
transfer, unless Management L.P. consents in writing to such transfer.
Purchaser is not aware of any bid quotations for the Units.
ITEM 2. IDENTITY AND BACKGROUND
(a)-(d) and (g) The information set forth in the "Introduction," Section
10 ("Certain Information Concerning the Purchaser"), Section 11 ("Source and
Amount of Funds") and Schedule 1 of the Offer to Purchase is incorporated herein
by reference.
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(e)-(f) During the last five years, neither the Purchaser, nor to the best
of its knowledge, any of the managers or members listed in Schedule 1 of the
Offer to Purchase (i) has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors), or (ii) was a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding any such person 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 CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY
(a) Not applicable.
(b) Not applicable.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a)-(b) The information set forth in Section 11 ("Source and Amount of
Funds") of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER
(a)-(g) The information set forth in the "Introduction," Section 7
("Purpose and Effects of the Offer") and Section 8 ("Future Plans") of the Offer
to Purchase is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
(a) The Purchaser beneficially owns 39.625 Units which represents
approximately 4.95% of the outstanding Units. To the knowledge of the
Purchaser, none of the Purchaser's managers or members owns any other Units.
(b) Between April 13, 1998 and December 30, 1998, via three consecutive
offer letters, the Purchaser purchased an aggregate of 39.625 Units, or 4.95% of
the total Units outstanding, in the following amounts and prices: 5.75 Units
for $80,000 per Unit, 26.875 Units for $60,000 per Unit and 7 Units for $50,000
per Unit. The investors who tendered their Units to the Purchaser for $60,000
and $50,000 per Unit paid all agency commissions associated with their
respective sale.
After acquiring the foregoing shares, the Purchaser was advised by legal
counsel that it may have violated Regulation 14D as promulgated under the
Securities Exchange Act of 1934. The Purchaser accordingly sent an offer of
rescission to all investors who sold Units to the Purchaser, disclosing that the
Purchaser may have violated the securities laws and setting forth
4
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the procedure for rescission. The offer of rescission remained open for 20
business days. No investors accepted the offer of rescission.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES
Not applicable.
ITEM 8. PERSONS RELATED, EMPLOYED OR TO BE COMPENSATED
The Purchaser has retained D.F. King & Co. to answer questions and solicit
responses to this Offer. The Purchaser has also retained Chase Manhattan Trust
Company, National Association to act as a depositary for tendered Units.
The information set forth in the "Introduction" and Section 14 ("Fees and
Expenses") of the Offer to Purchase are incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
(a) Not applicable.
(b) The information set forth in the "Introduction," Section 7 ("Purpose
and Effects of the Offer") and Section 13 ("Certain Legal Matters and Regulatory
Approvals") of the Offer to Purchase are incorporated herein by reference.
(c) The information set forth in Section 13 ("Certain Legal Matters and
Regulatory Approvals") of the Offer to Purchase is incorporated herein by
reference.
(d) Not applicable.
(e) Not applicable.
(f) Reference hereby is made to the Offer to Purchase and the related
Agreement of Sale, copies of which are attached hereto as Exhibits (a)(1) and
(a)(2), respectively, which are incorporated in their entirety herein by
reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS
(a)(1) Offer to Purchase, dated May 4, 1999.
(a)(2) Agreement of Sale
(b)-(e) Not applicable.
(f) See Exhibits (a)(1) and (2).
5
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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.
Dated: May 4, 1999 MERCER ACQUISITION LLC
/s/ Jennifer Sabelhaus
--------------------------
By: Jennifer Sabelhaus
its Manager
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<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
(a)(1) Offer to Purchase, dated May 4, 1999.
(a)(2) Agreement of Sale
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) See Exhibits (a)(1) and (2).
</TABLE>
7
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OFFER TO PURCHASE FOR CASH
UP TO 40 UNITS OF LIMITED PARTNERSHIP INTERESTS
OF
SYNTHETIC INDUSTRIES L.P.
AT
$50,000 PER UNIT WITHOUT INTEREST, LESS (i) TRANSFER FEES IN THE AMOUNT OF
$3,750 PER UNIT AND (ii) THE AMOUNT OF ANY CASH DISTRIBUTIONS DECLARED OR PAID
WITH RESPECT TO THE UNITS AFTER MAY 4, 1999
BY
MERCER ACQUISITION LLC
THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD
WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN TIME,
ON MAY 31, 1999, UNLESS THE OFFER IS EXTENDED.
Mercer Acquisition LLC, a Washington limited liability company (the
"Purchaser" or "Mercer"), hereby offers to purchase up to 40 units of limited
partnership interests including any rights attributable to claims, damages,
recoveries, including recoveries from any class action lawsuits, and causes
of action accruing to the ownership of such units of limited partnership
interests ("Units") in Synthetic Industries, L.P., a Delaware limited
partnership (the "Partnership"), at a purchase price of $50,000 per Unit,
without interest, less (i) transfer fees in the amount of $3,750 per Unit,
and (ii) the amount of any cash distributions declared or paid, including any
cash return of capital, if any, with respect to the Units after May 4, 1999,
upon the terms and subject to the conditions set forth in this Offer to
Purchase (the "Offer to Purchase") and in the related Agreement of Sale, as
each may be supplemented or amended from time to time (which together
constitute the "Offer"). The 40 Units sought to be purchased pursuant to the
Offer represent, to the best knowledge of the Purchaser, approximately 5% of
the Units outstanding as of the date of the Offer.
The Offer applies to whole and fractional units. The purchase price and
transfer fees for fractional Units will be adjusted according to the
percentage of a full Unit represented by the fractional Unit. For example
the purchase price of a 1/2 Unit will be $25,000 (1/2 X $50,000), less
transfer fees of $1,875 (1/2 X 3,750) and less the amount of any cash
distributions declared or paid with respect to the 1/2 Unit after May 4,
1999.
THE OFFER TO PURCHASE IS NOT CONDITIONED UPON THE VALID TENDER OF ANY
MINIMUM NUMBER OF UNITS. IF MORE THAN 40 UNITS ARE VALIDLY TENDERED AND NOT
WITHDRAWN, THE PURCHASER WILL ACCEPT FOR PURCHASE UP TO 40 OF THE TENDERED
UNITS, ON A PRO RATA BASIS, SUBJECT TO THE TERMS AND CONDITIONS HEREIN, SEE
"OFFER TO PURCHASE--SECTION 12. CERTAIN CONDITIONS OF THE OFFER." A HOLDER
OF UNITS ("UNIT HOLDER") MAY TENDER ANY OR ALL UNITS OWNED BY SUCH UNIT
HOLDER.
Any Unit Holder desiring to tender any or all of his/her Units should
complete and sign the Agreement of Sale in accordance with the instructions in
the Agreement of Sale and mail or deliver a fully executed original of the
Agreement of Sale along with any other required documents to Chase Manhattan
Trust Company, National Association ("Depositary") at 1301 5th Avenue, Suite
3410, Seattle, WA 98101. If you need any help completing the Agreement of
Sale, please call the Depository at (206) 903-4906.
The Purchaser has retained D.F. King & Co. (the "Information Agent") to
solicit responses to and answer any questions regarding this Offer. You may
reach the Information Agent at (800) 488-8075. Additionally, any requests
for assistance or additional copies of this Offer to Purchase or the
Agreement of Sale may be directed to Jennifer Sabelhaus, Mercer's Manager,
<PAGE>
at (800) 207-4698.
2
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TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
OFFER TO PURCHASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1. TERMS OF THE OFFER . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2. PRORATION; ACCEPTANCE FOR PAYMENT AND PAYMENT
FOR UNITS . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3. PROCEDURES FOR TENDERING UNITS . . . . . . . . . . . . . . . 5
VALID TENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
BACKUP FEDERAL INCOME TAX WITHHOLDING. . . . . . . . . . . . . . . . 5
TENDERS BY BENEFICIAL HOLDERS. . . . . . . . . . . . . . . . . . . . 6
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . 6
APPRAISAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 6
OTHER REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 6
DETERMINATION OF VALIDITY; REJECTION OF UNITS; WAIVER OF DEFECTS;
NO OBLIGATION TO GIVE NOTICE OF DEFECTS . . . . . . . . . . . . . 6
SECTION 4. WITHDRAWAL RIGHTS. . . . . . . . . . . . . . . . . . . . . . 7
SECTION 5. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT.. . . . . 8
SECTION 6. CERTAIN TAX CONSEQUENCES.. . . . . . . . . . . . . . . . . . 8
SECTION 7. PURPOSE AND EFFECTS OF THE OFFER.. . . . . . . . . . . . . . 8
PURPOSE OF THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . 8
DETERMINATION OF PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . 9
EFFECTS OF THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . 10
EFFECT ON TRADING MARKET AND PRICE RANGE OF THE UNITS. . . . . . . . . 10
SECTION 8. FUTURE PLANS . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 9. CERTAIN INFORMATION CONCERNING THE BUSINESS OF THE
PARTNERSHIP AND RELATED MATTERS. . . . . . . . . . . . . . . 11
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SUMMARY FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . 11
SECTION 10. CERTAIN INFORMATION CONCERNING THE PURCHASER. . . . . . . . 13
SECTION 11. SOURCE AND AMOUNT OF FUNDS. . . . . . . . . . . . . . . . . 13
SECTION 12. CERTAIN CONDITIONS OF THE OFFER . . . . . . . . . . . . . . 13
SECTION 13. CERTAIN LEGAL MATTERS AND REQUIRED REGULATORY
APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . . .15
i
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GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
STATE TAKEOVER LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . 16
LIQUIDATION OF THE PARTNERSHIP . . . . . . . . . . . . . . . . . . . . 16
SECTION 14. FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . 19
SECTION 15. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 19
INFORMATION REGARDING THE MANAGERS OF MERCER
ACQUISITION LLC. . . . . . . . . . . . . . . . . . . . . . . . . . SCHEDULE 1
FINANCIAL STATEMENTS OF SYNTHETIC INDUSTRIES L.P. . . . . . . . . .SCHEDULE 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS OF SYNTHETIC INDUSTRIES L.P.. . . . . . . . . . . . .SCHEDULE 3
</TABLE>
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INTRODUCTION
Mercer hereby offers to purchase up to 40 Units at a purchase price (the
"Purchase Price") of $50,000 per Unit, without interest, less (i) transfer
fees in the amount of $3,750 per Unit, and (ii) the amount of any cash
distributions declared or paid, including any cash return of capital, if any,
with respect to the Units after May 3, 1999 (collectively hereinafter
referred to as "Distributions"), upon the terms and subject to the conditions
set forth in this Offer to Purchase (the "Offer to Purchase") and in the
related Agreement of Sale, as each may be supplemented or amended from time
to time (which together constitute the "Offer"). The Offer applies to whole
and fractional Units. The purchase price and transfer fees for fractional
Units will be adjusted according to the percentage of a full Unit represented
by the fractional Unit. For example the purchase price of a 1/2 Unit will be
$25,000 (1/2 X $50,000), less transfer fees of $1,875 (1/2 X 3,750) and
less the amount of any cash distributions declared or paid with respect to
the 1/2 Unit after May 4, 1999. The 40 Units sought to be purchased pursuant
to the Offer represent, to the best knowledge of the Purchaser, approximately
5% of the Units outstanding as of the date of the Offer..
We encourage you to consider the following factors:
- Unit Holders who tender their Units will be giving up the opportunity
to participate in any future potential benefits represented by
ownership of Units, including, for example, the right to participate
in any future distribution of cash or property, whether from
operations, the proceeds of a sale of the Partnership's assets or in
connection with any future liquidation of the Partnership. However,
there is no guarantee of future results of the Partnership and
investment in the Partnership.
- In this regard, it is particularly important to note that attorneys
for certain Unit Holders and the General Partner of the Partnership
have entered into a preliminary settlement agreement, subject to court
approval, which is intended to resolve several pending lawsuits and
outstanding claims between the Unit Holders and the General Partner
and ultimately result in the liquidation of the Partnership. See
"Section 13. Certain Legal Matters and Required Regulatory Approvals,
Liquidation of the Partnership." The basic terms of the settlement
are summarized in a notice ("Notice of Settlement"), which was
purportedly sent to all limited partners of the Partnership. If you
did not receive a copy of the Notice of Settlement, contact the Mills
Law Firm, 300 Drake's Landing, Suite 155, Greenbrae, California 94904,
Telephone: (415) 464-4770, Facsimile: (415) 464-4777; or Smith,
Katzenstein & Furlow, LLP, 800 Delaware Avenue, P.O. Box 410,
Wilmington, DE 19899, Telephone: (302) 652-8400; Facsimile:
(302) 652-8405.
- Although the Purchaser cannot predict the future value of the
Partnership's assets on a per Unit basis, the Purchase Price could
differ significantly from the net proceeds that would be recognized on
a per Unit basis from the sale of the Partnership's assets or that may
be realized upon a future liquidation of the Partnership.
- The tax consequences of the Offer to a particular Unit Holder may be
different from those of other Unit Holders and we urge you to consult
your own tax advisors in connection with the Offer.
- The Purchaser is making the Offer with a view towards making a profit.
Accordingly, there may be a conflict between the desire of the
Purchaser to acquire the Units at a low price and the desire of the
Unit Holders to sell the Units at a high price. No independent person
has
<PAGE>
been retained to evaluate or render any opinion with respect to
the fairness of the Purchase Price and no representation is made as to
such fairness. Other measures of value may be relevant to a Unit
Holder and all Unit Holders are urged to carefully consider all of the
information contained in the Offer to Purchase and Agreement of Sale
and to consult with their own advisors (tax, financial or otherwise)
in evaluating the terms of the Offer before deciding whether to tender
their Units.
If you wish to accept this offer and sell some or all of your Units now,
please read carefully the enclosed Offer to Purchase and the Agreement of
Sale. All you need to do is complete the Agreement of Sale, including all
forms attached thereto, in accordance with the instructions provided therein,
sign where indicated, have your signature Medallion Guaranteed and return it
to the Depositary in the pre-addressed return envelope. Please carefully
follow the instructions on the Agreement of Sale. Errors will delay and
possibly prevent acceptance of your tender of the Units.
If, prior to the Expiration Date, the Purchaser increases the
consideration offered to Unit Holders pursuant to the Offer, such increased
consideration will be paid with respect to all Units that are purchased
pursuant to the Offer, whether or not such Units were tendered prior to such
increase in consideration. The term "Expiration Date" shall mean 12:00
midnight, Eastern Time, on May 31, 1999, unless and until the Purchaser shall
have extended the period of time for which the Offer is open, in which event
the term "Expiration Date" shall mean the latest date on which the Offer, as
so extended by the Purchaser shall expire.
The Offer is being made by the Purchaser as a speculative investment based
upon the belief that the Units represent an attractive investment at the price
offered based upon, in part, the expected liquidation of the Partnership's
assets. The purpose of the Offer is to allow the Purchaser to benefit from any
of the following: (i) cash distributions from Partnership operations in the
ordinary course of business; (ii) distributions of net proceeds from the
liquidation of any Partnership assets after the Partnership has satisfied its
liabilities; and/or (iii) cash from any redemption of the Units by the
Partnership.
The Offer is not conditioned upon the valid tender of any minimum number
of the Units. If more than 40 Units are validly tendered and not withdrawn,
the Purchaser will accept up to 40 of the tendered Units for purchase on a
pro rata basis, subject to the terms and conditions herein. See "Section 12.
Certain Conditions of the Offer." The Purchaser expressly reserves the right
to terminate the Offer at any time and to waive any or all of the conditions
of the Offer, although the Purchaser does not presently intend to waive any
such conditions.
The Partnership is subject to the information and reporting requirements of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), and in
accordance therewith is required to file reports and other information with the
Securities and Exchange Commission ("Commission") relating to its business,
financial condition and other matters. Such reports and other information are
available on the Commission's Electronic Data Gathering and Retrieval System
("EDGAR"), at its internet website at www.sec.gov and may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street N.W., Washington, D.C. 20549, as well as at the Regional
Offices of the Commission at the New York Regional Office, 7 World Trade Center,
12th Floor, New York, New York 10007, and the Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of the schedule can also be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street
N.W., Washington D.C. 20549.
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The Purchaser has filed with the Commission a Tender Offer Statement on
Schedule 14D-1 (including exhibits) pursuant to Rule 14d-3 of the General Rules
and Regulations under the Exchange Act, which provides certain additional
information with respect to the Offer. Such Statement and any amendments
thereto, including exhibits, may be inspected and copies may be obtained from
the Commission in the manner specified above.
According to publicly available information, there were 800 Units issued
and outstanding at December 31, 1998, held by approximately 1,917 Unit Holders
of record. The Purchaser currently owns 39.625 Units which is approximately
4.95% of the outstanding Units.
Information contained in this Offer to Purchase which relates to, or
represents statements made by the Partnership or the General Partner, has been
derived from information provided in reports and other information filed with
the Commission by the Partnership and General Partner.
Unit Holders are urged to read this Offer to Purchase and the accompanying
Agreement of Sale carefully before deciding whether to tender their Units.
OFFER TO PURCHASE
SECTION 1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer, the Purchaser
will accept for payment and pay for up to 40 Units that are validly tendered on
or prior to the Expiration Date and not withdrawn in accordance with Section 4
of this Offer to Purchase.
Subject to the approval rights of the General Partner under and pursuant
to the terms of the Partnership's Amended and Restated Limited Partnership
Agreement dated November 11, 1986, as amended (the "Partnership Agreement"),
the Purchaser reserves the right to transfer or assign (in whole or in part
from time to time) to one or more of the Purchaser's affiliates, the right to
purchase all or any portion of the Units tendered pursuant to the Offer. Any
such transfer or assignment will not relieve the Purchaser of its obligations
under the Offer or prejudice the rights of tendering Unit Holders to receive
payment for Units validly tendered and accepted for payment pursuant to the
Offer.
The Offer is conditioned on satisfaction of certain conditions, including
the General Partner's approval of the transfer of the Units to the Purchaser.
See "Section 12. Certain Conditions of the Offer," which sets forth in full the
conditions of the Offer. The Purchaser reserves the right (but shall not be
obligated), for any reason, or for no reason, to waive any or all of such
conditions other than the General Partner's right to approve the transfer, which
is not within the Purchaser's control, or to terminate the offer at any time.
If any or all of such conditions have not been satisfied or waived by the
Expiration Date, the Purchaser reserves the right (but shall not be obligated)
to (i) decline to purchase any of the Units tendered, (ii) terminate the Offer
and return all tendered Units to tendering Unit Holders, (iii) waive all the
unsatisfied conditions within its control, and assuming the receipt of the
General Partner's approval of the transfers as required by the Partnership
Agreement and, subject to compliance with applicable rules and regulations of
the Commission, purchase all Units validly tendered, (iv) extend the Offer and,
subject to the right of Unit Holders to withdraw Units until the Expiration
Date, retain the Units that have been tendered during the period or periods for
which the Offer is extended, or (v) to otherwise amend the Offer.
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The Offer to Purchase and the related Agreement of Sale are being mailed at
the Purchaser's expense to Unit Holders or beneficial owners of Units (in case
of Individual Retirement Accounts (IRA) and qualified plans).
SECTION 2. PRORATION; ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
If not more than 40 Units are validly tendered and not properly withdrawn
prior to the Expiration Date, the Purchaser, upon the terms and subject to the
conditions of the Offer, will accept for payment all such Units so tendered.
If more than 40 Units are validly tendered and not properly withdrawn on or
prior to the Expiration Date, the Purchaser, upon the terms and subject to the
conditions of the Offer, will accept for payment 40 Units so tendered, on a pro
rata basis with appropriate adjustments to avoid tenders of fractional Units and
purchases that would violate transfer restrictions contained in the Partnership
Agreement.
In the event that proration is required, because of the difficulty of
immediately determining the precise number of Units to be accepted, the
Purchaser will announce the final results of proration as soon as practicable,
but in no event later than five to ten business days following the Expiration
Date. Subject to the Purchaser's obligations under Rule 14e-1(c) under the
Exchange Act to pay Unit Holders the Purchase Price in respect of Units tendered
or to return those Units promptly after termination or withdrawal of the Offer,
the Purchaser will not pay for any Units tendered until after the final
proration results have been determined.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension
or amendment), the Purchaser will accept for payment, and will pay for, Units
validly tendered and not withdrawn in accordance with Section 4 below, as
promptly as practicable following the Expiration Date. Upon written
notification by the General Partner that the Units purchased by the Purchaser
have been approved for transfer to it and that the selling Unit Holder's
address has been changed to Purchaser's address, the Purchaser will pay for
the Units. In all cases, payment for Units purchased pursuant to the Offer
will be made only after the Expiration Date and timely receipt by the
Purchaser of a properly completed and duly executed Agreement of Sale and any
other documents required by the Agreement of Sale.
For purposes of the Offer, the Purchaser shall be deemed to have accepted
for payment (and thereby purchased) tendered Units when, as and if the Purchaser
gives oral or written notice to the Depositary of the Purchaser's acceptance for
payment of such Units pursuant to the Offer. Upon the terms and subject to the
conditions of the Offer, payment for Units purchased pursuant to the Offer will
in all cases be made by the deposit of the Purchase Price with the Depositary
who will act as agent for the purpose of receiving payment from the Purchaser
and transmitting payment to the tendering Unit Holders. Under no circumstances
will interest be paid on the Purchase Price for any Unit by reason of any delay
in making such payment.
If any tendered Units are not purchased for any reason, the Agreement of
Sale with respect to such Units not purchased will be of no force or effect.
If, for any reason whatsoever, acceptance for payment of, or payment for, any
Units tendered pursuant to the Offer is delayed, then, without prejudice to
the Purchaser's rights under Section 12 (but subject to compliance with Rule
14e-1(c)
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<PAGE>
under the Exchange Act), the Purchaser may retain tendered Units, subject to
any limitations of applicable law, and such Units may not be withdrawn except
to the extent that the tendering Unit Holders are entitled to withdrawal
rights as described in Section 4.
If, prior to the Expiration Date, the Purchaser shall increase the
consideration offered to Unit Holders pursuant to the Offer, such increased
consideration shall be paid for all Units accepted for payment pursuant to the
Offer, whether or not such Units were tendered prior to such increase.
SECTION 3. PROCEDURES FOR TENDERING UNITS
VALID TENDER
For Units to be validly tendered pursuant to the Offer, a properly
completed and duly executed Agreement of Sale must be received by the Depositary
at its address set forth in the Agreement of Sale on or prior to the Expiration
Date. A Unit Holder may tender any or all Units owned by such Unit Holder.
In order for a tendering Unit Holder to participate in the Offer, Units
must be validly tendered and not withdrawn prior to the Expiration Date, which
is 12:00 midnight, Eastern Time, on May 31, 1999.
Although the Purchaser has included a pre-addressed envelope with this
Offer for the convenience of Unit Holders, the method of delivery of the
Agreement of Sale is at the option and sole risk of the tendering Unit Holder,
and the delivery will be deemed made only when actually received by the
Purchaser. If delivery is by mail, registered mail with return receipt
requested is recommended. In all cases, sufficient time should be allowed to
ensure timely delivery.
BACKUP FEDERAL INCOME TAX WITHHOLDING
To prevent the possible application of backup federal income tax
withholding with respect to payment of the Purchase Price for Units purchased
pursuant to the Offer, a tendering Unit Holder must verify such Unit Holder's
correct taxpayer identification number or social security number, as applicable,
and make certain certifications that the Unit Holder is not subject to backup
federal income tax withholding.
The Unit Holder is required to certify in the Agreement of Sale, under
penalties of perjury, that (i) the tax identification number shown on the
Agreement of Sale is the Unit Holder's correct taxpayer identification number,
and (ii) the Unit Holder is not subject to backup withholding either because the
Unit Holder has not been notified by the Internal Revenue Service (the "IRS")
that the Unit Holder is subject to backup withholding as a result of failure to
report all interest or dividends, or the IRS has notified the Unit Holder that
the Unit Holder is no longer subject to backup withholding.
The Unit Holder is also required to certify in the Agreement of Sale,
under penalties of perjury, that the Unit Holder, if an individual, is not a
nonresident alien for purposes of U.S. income taxation, and if not an
individual, is not a foreign corporation, foreign partnership, foreign trust,
or foreign estate (as those terms are defined in the Internal Revenue Code of
1986 (the "Code"), as amended, and Income Tax Regulations). The Unit Holder
understands that this certification may be
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disclosed to the IRS by the Purchaser and that any false statements contained
therein could be punished by fine, imprisonment, or both.
TENDERS BY BENEFICIAL HOLDERS
Tenders of Units made by beneficial holders of Units will be deemed an
instruction to brokers, dealers, commercial banks, trust companies, custodians
and similar persons or entities whose names, or the names of whose nominees,
appear as the registered owner of such Units, to tender such Units on behalf of
such beneficial holder. A tender of Units can only be made by the registered
owner of such Units.
SIGNATURE GUARANTEES
The signature(s) on the Agreement of Sale must be Medallion Guaranteed
by a commercial bank, savings bank, credit union, savings and loan
association or trust company having an office, branch or agency in the United
States, a brokerage firm that is a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., as provided in the Agreement of Sale.
APPRAISAL RIGHTS
Unit Holders will not have any appraisal or dissenter's rights with respect
to or in connection with the Offer.
OTHER REQUIREMENTS
By executing and delivering the Agreement of Sale, a tendering Unit Holder
irrevocably appoints the Purchaser and/or designees of the Purchaser and each of
them as such Unit Holder's proxies, with full power of substitution, in the
manner set forth in the Agreement of Sale.
By executing and delivering the Agreement of Sale, a tendering Unit Holder
also irrevocably assigns to the Purchaser, and its assigns, all of the right,
title and interest, free and clear of all liens and encumbrances of any kind, of
such Unit Holder in the Partnership with respect to the Units tendered and
purchased pursuant to the Offer, including, without limitation, such Unit
Holder's right, title and interest in and to any and all Distributions made by
the Partnership after May 4, 1999 in respect of the Units tendered by such Unit
Holder and accepted for payment by the Purchaser, regardless of the fact that
the record date for any such Distribution may be a date prior to May 31, 1999.
By executing an Agreement of Sale as set forth above, a tendering Unit
Holder also agrees that notwithstanding any provisions of the Partnership
Agreement which provide that any transfer is not effective until a date
subsequent to the date of any transfer of Units under the Offer, the Purchase
Price shall be reduced by any Distributions with respect to the Units after
May 4, 1999.
DETERMINATION OF VALIDITY; REJECTION OF UNITS; WAIVER OF DEFECTS; NO
OBLIGATION TO GIVE NOTICE OF DEFECTS
All questions as to the form of documents and validity, eligibility
(including time of receipt) and acceptance for payment of any tender of Units
will be determined by the Purchaser, in its sole
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discretion, which determination will be final and binding on all parties. The
Purchaser reserves the absolute right to reject any or all tenders determined
by it not to be in proper form or the acceptance of or payment for which may,
in the opinion of the Purchaser or Purchaser's counsel, be unlawful. The
Purchaser also reserves the absolute right to waive any of the conditions of
the Offer or any defect or irregularity in any tender of Units of any
particular Unit Holder whether or not similar defects or irregularities are
waived in the case of other Unit Holders.
The Purchaser's interpretation of the terms and conditions of the Offer
(including the Agreement of Sale and the instructions thereto) will be final and
binding. No tender of Units will be deemed to have been validly made until all
defects and irregularities with respect to such tender have been cured or
waived. Neither the Purchaser nor any of its affiliates or assigns, if any, or
any other person will be under any duty to give any notification of any defects
or irregularities in tenders or incur any liability for failure to give any such
notification.
The Purchaser's acceptance for payment of Units tendered pursuant to any of
the procedures described above will constitute a binding agreement between the
tendering Unit Holder and the Purchaser upon the terms and subject to the
conditions of the Offer.
SECTION 4. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 4, tenders of Units made
pursuant to the Offer are irrevocable. Units tendered pursuant to the Offer
may be withdrawn at any time on or prior to the Expiration Date and, unless
previously accepted for payment as provided herein, may also be withdrawn at
any time after July 2, 1999.
If, for any reason whatsoever, acceptance for payment of any Units
tendered pursuant to the Offer is delayed, or the Purchaser is unable to
accept for payment or pay for Units tendered pursuant to the Offer, then,
without prejudice to the Purchaser's rights set forth herein, the Purchaser
may retain tendered Units and such Units may not be withdrawn, except to the
extent that the tendering Unit Holder is entitled to and duly exercises
withdrawal rights as described in this Section 4. Any such delay will be by
an extension of the Offer to the extent required by law.
In order for a withdrawal to be effective, a written notice of
withdrawal must be timely received by the Depositary at its address set forth
on the last page of this Offer to Purchase. Any such notice of withdrawal
must specify the name of the person who tendered the Units to be withdrawn,
with the signature of such person Medallion Guaranteed in the same manner as
the signature in the Agreement of Sale, the number of Units to be withdrawn,
and (if the Agreement of Sale has been delivered) the name of the Unit Holder
as set forth in the Agreement of Sale. Withdrawals of Units may not be
rescinded. Any Units properly withdrawn will be deemed not validly tendered
for purposes of the Offer, but may be retendered at any subsequent time prior
to the Expiration Date by following any of the procedures described in
Section 3.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. Neither the
Purchaser nor any of its affiliates or assigns, if any, or any other person
will be under any duty to give any notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification.
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<PAGE>
SECTION 5. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The Purchaser expressly reserves the right, in its sole discretion, at
any time and from time to time, (i) to extend the period of time during which
the Offer is open and thereby delay acceptance for payment of, and the
payment for, any Units by giving oral or written notice of such extension,
(ii) to terminate the Offer at any time for any or no reason and not accept
for payment any Units not theretofore accepted for payment or paid for, by
giving oral or written notice of such termination, (iii) upon the failure to
satisfy any of the conditions specified in Section 12, to delay the
acceptance for payment of, or payment for, any Units not heretofore accepted
for payment or paid for, by giving oral or written notice of such termination
or delay, and (iv) to amend the Offer in any respect (including, without
limitation, by increasing or decreasing the consideration offered or the
number of Units being sought in the Offer or both) by giving oral or written
notice of such amendment. Any extension, termination or amendment will be
followed as promptly as practicable by public announcement, the announcement
in the case of an extension to be issued no later than 9:00 a.m., Eastern
Time, on the next business day after the previously scheduled Expiration
Date, in accordance with the public announcement requirement of Rule 14e-1(d)
under the Exchange Act.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
the Purchaser will extend the Offer to the extent required by Rules 14d-4(c)
and 14d-6(d) under the Exchange Act. The minimum period during which an offer
must remain open following a material change in the terms of the offer or of
information concerning the offer, other than a change in price or a change in
percentage of securities sought, will depend upon the facts and circumstances,
including the relative materiality of the change in the terms or information.
With respect to a change in price or a change in percentage of securities sought
(other than an increase of not more than 2% of the securities sought), however,
a minimum ten business day period is generally required to allow for adequate
dissemination to security holders and for investor response. As used in this
Offer, "business day" means any day other than a Saturday, Sunday or a federal
holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight,
Eastern Time.
SECTION 6. CERTAIN TAX CONSEQUENCES
UNIT HOLDERS SHOULD CONSULT THEIR RESPECTIVE TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO EACH SUCH UNIT HOLDER OF SELLING UNITS PURSUANT
TO THE OFFER.
SECTION 7. PURPOSE AND EFFECTS OF THE OFFER
PURPOSE OF THE OFFER
The Purchaser is making the Offer for investment purposes only (See
"Section 8 -- Future Plans") with a view towards making a profit. The
Purchaser's intent is to acquire the Units at a discount to the value that the
Purchaser might ultimately realize from owning the Units.
The Offer is being made by the Purchaser as a speculative investment based
upon the belief that the Units represent an attractive investment at the price
offered based upon, in part, the remaining assets of the Partnership. The
purpose of the Offer is to allow the Purchaser to benefit from any of the
following: (i) cash distributions from Partnership operations in the ordinary
course of business; (ii) distributions of net proceeds from the liquidation of
any Partnership assets after the
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<PAGE>
Partnership has satisfied its liabilities; and/or (iii) any cash from
redemption of the Units by the Partnership.
DETERMINATION OF PURCHASE PRICE
The Purchaser established the Purchase Price of $50,000 per Unit based on a
number of factors, including (i) the remaining assets of the Partnership,
(ii) the illiquid nature of the investment, and (iii) the costs to the Purchaser
associated with acquiring the Units.
The Purchase Price represents the price at which the Purchasers are willing
to purchase Units. No independent person has been retained by the Purchaser to
evaluate or render any opinion with respect to the fairness of the Purchase
Price to the Sellers and no representation is made as to such fairness. The
Purchaser urges those Unit Holders that are considering tendering their Units
pursuant to the Offer to first consult with their own advisors (e.g., tax,
financial) in evaluating the terms of the Offer before deciding whether or not
to tender Units.
The Purchaser is offering to purchase Units which are a relatively
illiquid investment and is not offering to purchase the Partnership's
underlying assets. Consequently, the Purchaser does not believe that the
underlying asset value of the Partnership is determinative in arriving at the
Purchase Price. Nevertheless, using publicly available information concerning
the Partnership contained in the Partnership's Annual Report on Form 10-K for
the year ended September 30, 1998, and the Quarterly Report on Form 10-Q for
the period ended December 31, 1998, the Purchaser used an estimated asset
value to derive an estimated market value for the Units solely for purposes
of formulating the Offer.
In determining the estimated value of the Units, the Purchaser first
calculated the estimated current net operating income in accordance with the
Partnership's financial statements. Then, in consideration of the factors
discussed above, the Purchaser determined the appropriate capitalization rate
for the Partnership's net operating income. The resulting net asset value of
the Partnership's properties was added to the Partnership's net current assets
and the Partnership's total estimated asset value was then reduced by the
Purchaser's estimate of the hypothetical costs to liquidate the Partnership's
assets plus the Purchaser's estimated acquisition and transfer costs.
Other measures of value may be relevant to a Unit Holder and all Unit
Holders are urged to carefully consider all of the information contained in the
Offer to Purchase, the Agreement of Sale and the Notice of Settlement and to
consult with their own advisors (tax, financial or otherwise) in evaluating the
terms of the Offer before deciding whether to tender Units. The Offer is being
made as a speculative investment by the Purchaser based on its belief that there
is inherent underlying value in the assets of the Partnership.
The Partnership disclosed in its Annual Report on Form 10-K for the year
ended September 30, 1998 filed with the Commission in December, 1998 (the "1998
10-K"), the following information with regard to restrictions on transfer of
Units:
"There is no established trading market for the Units. In addition,
the limited partnership agreement of the Partnership (the "Limited
Partnership Agreement") places restrictions on the transferability of
Units. No transferee of all or any part of a Unit may be admitted to
the Partnership as a limited partner ("Limited Partner") without the
written consent of Management L.P., which consent may be withheld in
the absolute discretion of Management L.P. The Limited Partnership
Agreement also
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provides that the transfer of the whole or any portion of a
Unit shall not be effective to entitle the transferee to receive
distributions of cash or other property from the Partnership
applicable to the Unit acquired by reason of such transfer, unless
Management L.P. consents in writing to such transfer."
EFFECTS OF THE OFFER
Purchaser believes that the fact that the Units are to be purchased
pursuant to a tender offer pursuant to Schedule 14D-1 filed with the Commission
should not cause the Partnership to constitute a "publicly traded partnership"
for federal income tax purposes. In determining the number of Units for which
the Offer is made (representing approximately 5% of the outstanding Units), the
Purchaser took these restrictions into account and has conditioned the Offer on
not causing the Partnership to constitute a "publicly traded partnership." See
"Section 12. Certain Conditions of the Offer." The foregoing are hereafter
referred to as the "Transfer Restrictions."
EFFECT ON TRADING MARKET AND PRICE RANGE OF THE UNITS
If a substantial number of Units are purchased pursuant to the Offer, the
result will be a reduction in the number of Unit Holders. In the case of
certain kinds of equity securities, a reduction in the number of security
holders might be expected to result in a reduction in the liquidity and volume
of activity in the trading market for the security. In this case, however,
there is a limited trading market for the Units and, therefore, the Purchaser
does not believe a reduction in the number of Unit Holders will materially
further restrict the Unit Holders' ability to find purchasers for their Units.
The Partnership disclosed in its 1998 10-K that there is no public market
for the Units, and it is not anticipated that a public market will develop.
The Units are registered under Section 12(g) of the Exchange Act, which
means, among other things, that the Partnership is required to file periodic
reports with the Commission and to comply with the Commission's proxy rules.
The Purchaser does not expect or intend that consummation of the Offer will
cause the Units to cease to be registered under Section 12(g) of the Exchange
Act. Currently, there are approximately 1,917 Unit Holders. If the Units
were to be held by fewer than 300 persons, the Partnership could apply to
de-register the Units under the Exchange Act. Because the Units are widely
held, however, the Purchaser expects that even if it purchases the maximum
number of Units in the Offer, after that purchase the Units will be held of
record by more than 300 persons.
SECTION 8. FUTURE PLANS
The successful purchase of 5% of the outstanding Units by the Purchaser
will cause the Purchaser to own approximately 9.95% of the outstanding Units.
The Purchaser may then be in a position to influence the General Partner and the
operation of the Partnership. However, the Purchaser is acquiring the Units
pursuant to the Offer for investment purposes only, has no current intentions to
change current management or operations of the Partnership and has no current
plans for any extraordinary transactions involving the Partnership.
The Purchaser believes that current market conditions are such that a sale
of the Partnership's assets would be in the best interests of the Unit Holders.
The Purchaser supports the proposal to
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liquidate the Partnership as described in the Notice of Settlement. See
"Section 13. Certain Legal Matters and Required Regulatory Approvals,
Liquidation of the Partnership".
The Purchaser and its affiliates may acquire additional Units through
private purchases, one or more future tender offers or by any other means deemed
advisable. Such future purchases will also be for investment purposes only and
may be at prices higher or lower than the Purchase Price.
SECTION 9. CERTAIN INFORMATION CONCERNING THE BUSINESS OF THE PARTNERSHIP AND
RELATED MATTERS
BUSINESS
The following information was extracted from the Partnership's 1998 10-K
and the Quarterly Report on Form 10-Q for the three-month period ended
December 31, 1998 (collectively, the "Reports"), which were filed with the
Commission. The Purchaser did not prepare any of the information contained
in the Reports and extracted in this Offer and the Purchaser makes no
representation as to the accuracy or completeness of such information. The
Partnership is a limited partnership organized under the laws of the state of
Delaware. The Partnership disclosed in the 1998 10-K that:
"In December 1986, the Partnership acquired all of the issued and
outstanding shares (the "Shares") of the capital stock of Synthetic Industries,
Inc., a Delaware corporation (the "Company"). The Partnership currently owns
approximately 66% of the Company's common stock, par value $1.00 per share (the
"Common Stock"). The Company manufactures and markets a wide range of
polypropylene-based fabric and fiber products designed for industrial
applications. The information set forth under the heading "Business" in the
Form 10-K of the Company for the fiscal year ended September 30, 1998 (the
"Form 10-K") is incorporated herein by reference.
"Since its organization in 1986, the Partnership has conducted no business
except (i) engaging in the transactions described in a confidential offering
memorandum dated January 16, 1987, as supplemented, relating to the offering and
sale of units of limited partnership interest in the Partnership (the "Units");
and (ii) owning and voting the Shares. The Partnership's principal executive
offices are located at 309 LaFayette Road, Chickamauga, Georgia 30707, and its
telephone number is (706) 375-3121.
"The sole general partner of the Partnership is SI Management L.P., a
Delaware limited partnership ("Management L.P." or the "General Partner"). The
sole general partner of Management L.P. is Synthetic Management G.P. ("Synthetic
G.P."). Synthetic G.P. is a Georgia general partnership whose partners are
controlled by certain members of the Company's senior management. See "Directors
and Executive Officers--Partners of Synthetic G.P." Since their respective dates
of the formation, neither Synthetic G.P. nor Management L.P. has engaged in any
business, other than Synthetic G.P. acting as the general partner of Management
L.P. and Management L.P. acting as the general partner of Synthetic L.P."
SUMMARY FINANCIAL INFORMATION
Set forth below is a summary of certain financial information with respect
to the Partnership, which has been excerpted or derived from the Partnership's
1998 10-K and Quarterly Report on Form 10-Q for the Quarterly Period ended
December 31, 1998. More comprehensive financial and
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other information is included in such reports and other documents filed by
the Partnership with the Commission, and the following summary is qualified
in its entirety by reference to such reports and other documents and all the
financial information and related notes contained therein. Such reports and
other documents may be examined and copies may be obtained from the offices
of the Commission at the addresses set forth in the "Introduction." The
Purchaser disclaims any responsibility for the information included in such
reports and documents, and extracted in this Offer to Purchase. The
Partnership disclosed in its 1998 10-K that:
"The selected consolidated financial data presented below for, and as of
the end of, each of the fiscal years in the five year period ended
September 30,1998 have been derived from the audited consolidated financial
statements of Synthetic Industries L.P. The consolidated financial statements
as of September 30, 1998 and 1997 and for the three-year period ended
September 30, 1998 and the independent auditor's report thereon are included in
Item 8 of this Form 10-K. Dollars are in thousands, except unit and per unit
information."
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS DATA:
YEAR ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $368,996 $345,572 $299,532 $271,427 $234,977
Gross profit 122,319 112,385 91,211 76,721 82,672
Operating Income 48,695 50,291 37,813 28,687 41,007
Income from continuing operations 29,451 29,552 14,341 5,436 20,257
before provision for income taxes,
minority interest in subsidiary net
income and extraordinary item
Income from continuing operations 17,596 17,011 7,441 1,936 11,657
before minority interest in
subsidiary net income and
extraordinary item
Income from continuing operations 11,314 3,165 7,367 1,917 11,540
attributable to limited partners
Extraordinary item--loss from early -- (11,950) -- -- --
extinguishment of debt
Net income (loss) 11,429 3,197 7,441 1,936 11,657
Income from continuing operations $14,143 $3,956 $9,209 $2,396 $14,425
per limited partnership unit
Limited partnership units 800 800 800 800 800
outstanding
</TABLE>
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BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Working capital. . . . . . . $ 85,602 $ 88,032 $ 63,418 $ 69,041 $ 44,116
Total assets . . . . . . . . 439,851 394,795 323,756 312,302 287,935
Long-term debt . . . . . . . 236,843 220,464 194,353 192,048 172,490
Partners' Capital. . . . . . 80,545 68,876 65,185 57,758 55,819
</TABLE>
SECTION 10. CERTAIN INFORMATION CONCERNING THE PURCHASER
The Purchaser is a Washington Limited Liability Company which was
organized for the purpose of entering into strategic investments. The
Purchaser's offices are located at 425 Pike Street, Suite 600, Seattle,
Washington 98101. The Purchaser owns 39.625 Units which is approximately
4.95% of the issued and outstanding Units.
Except as otherwise set forth herein: (i) neither the Purchaser nor, to
the best knowledge of the Purchaser, any of the persons listed on Schedule 1,
or any affiliate of the Purchaser beneficially owns or has a right to acquire
any Units; (ii) neither the Purchaser nor, to the best knowledge of the
Purchaser, any of the persons listed on Schedule 1, or any affiliate of the
Purchaser or any member, director, executive officer, or subsidiary of any of
the foregoing has effected any transaction in the Units; (iii) neither the
Purchaser nor, to the best knowledge of the Purchaser, any of the persons
listed on Schedule 1 or any affiliate of the Purchaser has any contract,
arrangement, understanding, or relationship with any other person with
respect to any securities of the Partnership, including but not limited to,
contracts, arrangements, understandings, or relationships concerning the
transfer or voting thereof, joint ventures, loan or option arrangements, puts
or calls, guarantees of loans, guarantees against loss, or the giving or
withholding of proxies, consents, or authorizations; (iv) there have been no
transactions or business relationships which would be required to be
disclosed under the rules and regulations of the SEC between any of the
Purchasers, or, to the best knowledge of the Purchaser, any of the persons
listed on Schedule 1 or any affiliate of the Purchaser, on the one hand, and
the Partnership or affiliates, on the other hand; and (v) there have been no
contracts, negotiations, or transactions between the Purchaser or to the best
knowledge of the Purchaser, any of the persons listed on Schedule 1 or any
affiliate of the Purchaser, on the one hand, and the Partnership or its
affiliates, on the other hand, concerning a merger, consolidation or
acquisition, tender offer (other than as described in Section 8 of this
Offer) or other acquisition of securities, an election or removal of the
General Partner, or a sale or other transfer of a material amount of assets.
SECTION 11. SOURCE AND AMOUNT OF FUNDS
The Purchaser expects that approximately $2,000,000 (exclusive of fees and
expenses) will be required to purchase 40 Units (approximately 5% of the
800 Units outstanding), if tendered. The source of these funds shall be the
Purchaser's working capital and, therefore, the Offer is not contingent upon the
Purchaser obtaining financing.
SECTION 12. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the Offer, the Purchaser will not
be required to accept for payment or, subject to any applicable rules or
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to the Purchaser's obligation to pay for or return
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tendered Units promptly after the expiration or termination of the Offer), to
pay for any Units tendered, and may postpone the acceptance for payment or,
subject to the restriction referred to above, payment for any Units tendered,
and may amend or terminate the Offer if (i) the Purchaser shall not have
confirmed to its reasonable satisfaction that, upon purchase of the Units
pursuant to the Offer, the Purchaser will have full rights to ownership as to
all such Units and that the Purchaser will become a registered owner on the
books and records of the Partnership, (ii) the Purchaser shall not have
confirmed to its reasonable satisfaction that, upon the purchase of the Units
pursuant to the Offer, the Transfer Restrictions will have been satisfied, or
(iii) all authorizations, consents, orders or approvals of, or declarations
or filings with, or expirations of waiting periods imposed by, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, necessary for the consummation of the
purchase contemplated by the Offer shall not have been filed, occurred or
been obtained. Furthermore, notwithstanding any other term of the Offer, the
Purchaser will not be required to accept for payment or pay for any Units not
theretofore accepted for payment or paid for and may terminate or amend the
Offer as to such Units if, at any time on or after the date of the Offer and
before the Expiration Date any of the following conditions exist:
(a) the acceptance by the Purchaser of Units tendered and not
withdrawn pursuant to the Offer or the transfer of such Units to the
Purchaser violates restrictions in the Partnership Agreement which prohibit
any transfer of Units which would cause a termination of the Partnership or
would cause the Partnership to be taxed as a "publicly traded partnership"
under the Code;
(b) there shall have been threatened, instituted or pending any
action or proceeding before any court or governmental agency or other
regulatory or administrative agency or commission or by any other person,
challenging the acquisition of any Units pursuant to the Offer or otherwise
directly or indirectly relating to the Offer, or otherwise, in the judgment
of the Purchaser, adversely affecting the Purchaser or the Partnership;
(c) any statute, rule or regulation shall have been proposed,
enacted, promulgated or deemed applicable to the Offer, or any action or
order shall have been proposed, entered into or taken, by any government,
governmental agency, or other regulatory or administrative agency or
authority, which, in the judgment of the Purchaser, might (i) result in a
delay in the ability of the Purchaser or render the Purchaser unable, to
purchase or pay for some or all of the tendered Units, (ii) make such
purchase or payment illegal, or (iii) otherwise adversely affect the
Purchaser or the Partnership;
(d) any change shall have occurred or be threatened in the business,
financial condition, results of operations, tax status or prospects of the
Partnership which, in the judgment of the Purchaser, is or may be adverse
to the Partnership, or the Purchaser shall have become aware of any facts
which, in the judgment of the Purchaser, have or may have adverse
significance with respect to the value of the Units;
(e) there shall have occurred (i) any general suspension of, or
limitation on prices for or trading in, securities in the over-the-counter
market or on the New York Stock Exchange, Inc., (ii) a declaration of a
banking moratorium or any suspension of payment in respect of banks in the
United States or any limitation by federal or state authorities on the
extension of credit by lending institutions, or (iii) the commencement of a
war, armed hostilities or other international or national calamity directly
or indirectly involving the
-14-
<PAGE>
United States; or, in the case of any of the foregoing existing at the
time of the commencement of the Offer, a material acceleration or
worsening thereof;
(f) a tender or exchange offer for some or all of the Units is made,
or publicly proposed to be made or amended, by another person;
(g) the Partnership shall have (i) issued, or authorized or proposed
the issuance of, any partnership interests of any class, or any securities
convertible into, or rights, warrants or options to acquire, any such
interests or other convertible securities, (ii) issued or authorized or
proposed the issuance of any other securities, in respect of, in lieu of,
or in substitution for, all or any of the presently outstanding Units,
(iii) declared or paid any distribution, other than in cash, on any of its
partnership interests, (iv) authorized, proposed or announced its intention
to propose any merger, consolidation or business combination transaction,
acquisition of assets, disposition of assets or material change in its
capitalization, or any comparable event not in the ordinary course of
business, or (v) proposed or effected any amendment to the Partnership
Agreement;
(h) the failure to occur of any necessary approval or authorization
by any federal or state authorities necessary to consummation of the
Purchaser of all or any part of the Units to be acquired hereby, which in
the sole judgment of the Purchaser in any such case, and regardless of the
circumstances (including any action of the Purchaser) giving rise thereto,
makes it inadvisable to proceed with such purchase or payment; or
(i) the Purchaser or any of its affiliates and the Partnership shall
have agreed that the Purchaser shall amend or terminate the Offer or
postpone the payment for the Units pursuant thereto.
The foregoing conditions are for the sole benefit of the Purchaser and its
affiliates and may be asserted by the Purchaser regardless of the circumstances
(including, without limitation, any action or inaction by the Purchaser or any
of its affiliates) giving rise to such condition, or may be waived by the
Purchaser, in whole or in part, from time to time in its sole discretion. The
failure by the Purchaser at any time to exercise the foregoing rights will not
be deemed a waiver of such rights, which rights will be deemed to be ongoing and
may be asserted at any time and from time to time. Any determination by the
Purchaser concerning the events described in this Section 12 will be final and
binding upon all parties.
SECTION 13. CERTAIN LEGAL MATTERS AND REQUIRED REGULATORY APPROVALS
GENERAL
Except as set forth in this Offer to Purchase, based on its review of
publicly available filings by the Partnership with the Commission and other
publicly available information regarding the Partnership, the Purchaser is not
aware of any licenses or regulatory permits that would be material to the
business of the Partnership, taken as a whole, and that might be adversely
affected by the Purchaser's acquisition of Units as contemplated herein, or any
filings, approvals or other actions by or with any domestic, foreign or
governmental authority or administrative or regulatory agency that would be
required prior to the acquisition of Units by the Purchaser pursuant to the
Offer as contemplated herein. Should any such approval or other action be
required, there can be no assurance that any such additional approval or action,
if needed, would be obtained without
-15-
<PAGE>
substantial conditions or that adverse consequences might not result to the
Partnership's business, or that certain parts of the Partnership's or the
Purchaser's business might not have to be disposed of or held separate or
other substantial conditions complied with in order to obtain such approval.
The Purchaser's obligation to purchase and pay for Units is subject to
certain conditions. See "Offer to Purchase --Section 12. Certain Conditions
of the Offer."
STATE TAKEOVER LAWS
The Purchaser has not attempted to comply with any state takeover
statutes in connection with the Offer. The Purchaser reserves the right to
challenge the validity or applicability of any state law allegedly applicable
to the Offer and nothing in the Offer, nor any action taken in connection
herewith, is intended as a waiver of that right. In the event that any state
takeover statute is found applicable to the Offer, the Purchaser might be
unable to accept for payment or purchase Units tendered pursuant to the Offer
or be delayed in continuing or consummating the Offer. In such case, the
Purchaser may not be obligated to accept for purchase, or pay for, any Units
tendered.
LIQUIDATION OF THE PARTNERSHIP
It is important to note that during 1997 and 1998 there has been a
significant amount of litigation between the General Partner and certain
limited partners regarding whether the Partnership should be liquidated and/or
the price of such liquidation.
Synthetic and others have filed various proxy statements with the SEC in
this regard. In its Quarterly Report on Form 10-Q for the Quarterly Period
ended December 31, 1998, the Partnership described this litigation as follows:
"In connection with the proposed dissolution of the Partnership, pursuant
to an Agreement and Plan of Withdrawal and Dissolution (the "Plan"), the
Company [Synthetic Industries, Inc.], its directors and certain other of
the Company's officers who are affiliated with the General Partner have
been named in two putative class and derivative action lawsuits filed by
certain limited partners of the Partnership. In the first action, filed on
February 11, 1997 in the Delaware Court of Chancery and thereafter amended,
the plaintiffs have alleged, among other things, breach of contract with
respect to the Partnership Agreement which governs the Partnership, breach
of the defendants' fiduciary duty to the limited partners and the Company,
that the Plan was unlawfully coercive, that the General Partner has
allegedly failed to satisfy certain conditions precedent to the right of
limited partners to amend the partnership agreement and that certain
amendments necessary to implement the Plan violate the terms of the
partnership agreement. The plaintiffs sought, among other equitable and
legal remedies, removal of the General Partner, dissolution of the
Partnership, appointment of a liquidating trustee, to enjoin the
implementation of the Plan and compensatory damages in an undetermined
amount. On October 23, 1997, the Court preliminarily enjoined the
implementation of the Plan, although the Plan was subsequently approved by
limited partners on November 7, 1997. On November 7, 1997, the Delaware
Supreme Court accepted the defendants' petition for an expedited appeal of
this injunction, and briefing and oral argument on the appeal was completed
as of January 6, 1998. On March 19, 1998, the Delaware Supreme Court
issued an opinion affirming the Court of Chancery's grant of a preliminary
injunction and remanded the case for further proceedings. On April 27,
1998, the Court of Chancery granted the motion of certain pro-Plan
intervenors to intervene in the action, but denied their motion to
disqualify plaintiffs' counsel. On May 14, 1998, the General Partner
-16-
<PAGE>
withdrew the Plan. After the withdrawal of the Plan, plaintiffs, on June
3, 1998, filed a Consolidated Third Amended and Supplemental Class and
Derivative Complaint (the "Third Amended Complaint"). The Third Amended
Complaint, among other things, eliminated certain requests for relief
related to the Plan and added certain allegations related to the Company's
Employee Stock Purchase Plan and certain options granted to certain
directors and officers of the Company. In addition to the relief sought in
prior complaints, the Third Amended Complaint seeks declaratory relief with
respect to certain provisions of the Partnership Agreement, the
invalidation of the Company's Employee Stock Purchase Plan, the
invalidation of certain options granted to the Company's directors and
officers, and the invalidation of certain amendments to the Company's
certificate of incorporation and bylaws relating to voting by consent and
the calling of special meetings. On July 20, 1998, defendants filed a
motion to dismiss the Third Amended Complaint. The defendants have denied
any allegation of wrongdoing.
"The second lawsuit was filed in the U.S. District Court of the Northern
District of California on May 1, 1997, and thereafter amended. The
plaintiff has alleged in his amended complaint various federal securities
and proxy violations allegedly arising out of the joint proxy statement and
prospectus that was mailed to limited partners in connection with the
solicitation of proxies for the vote on the Plan and other related
documents. The plaintiff also added the Company as a named defendant,
alleging that all defendants acted in concert with, and as agents of, each
other; however the plaintiff made no specific independent allegations with
respect to the Company. The plaintiff sought, among other equitable and
legal remedies, to enjoin the implementation of the Plan and unspecified
damages. On November 6, 1997, the Court granted in part the plaintiff's
motion for a temporary restraining order enjoining the implementation of
the Plan. After the withdrawal of the Plan, defendants, on June 19, 1998,
filed a motion to dismiss the claims as moot. On July 17, 1998, plaintiff
moved to amend his complaint purportedly to include an additional plaintiff
and additional claims for relief, including permanent injunctive relief for
any violations of the securities laws in the future. The amended complaint
also adds the Partnership as a nominal defendant. On September 24, 1998,
the Court denied the defendants' motion to dismiss and granted plaintiff's
motion to amend the complaint. The defendants have denied any allegation
of wrongdoing.
"On December 29, 1997, a purported derivative action was filed in the
Delaware Chancery Court by a limited partner of the Partnership against
certain of the Company's officers and directors with regard to certain
stock options plans adopted by the Company in 1994. Both the Partnership
and the Company were named as nominal defendants. The plaintiff alleged
that the defendants breached their fiduciary duties by adoption of the
stock option plans. The plaintiff seeks, among other things, a declaration
that the stock options granted under the plans are invalid, the
establishment of a constructive trust over the stock options, unspecified
compensatory damages and reasonable attorneys' fees and expenses. By order
dated June 23, 1998, this action was consolidated with the Delaware action
described above. The defendants deny any allegation of wrongdoing and
intend to vigorously contest the lawsuit.
"Based on the Company's review of the allegations made in the above actions
to date, the Company does not believe that the ultimate resolution of these
actions will have a material adverse effect on the Company's results of
operations or financial condition.
-17-
<PAGE>
"The Partnership is a principal stockholder of the Company and certain
members of the Company's management control the General Partner."
On April 19, 1996, the Company announced that preliminary approval of a
settlement agreement relating to the civil suits described above was granted by
the United States District Court for the Northern District of California. A
summary of the settlement agreement ("Notice of Settlement") was purportedly
sent to all limited partners of the Partnership. If you did not receive a copy
of the Notice of Settlement, contact The Mills Law Firm, 300 Drake's Landing,
Suite 155, Greenbrae, California 94904, Telephone: (415) 464-4770, Facsimile:
(415) 464-4777; or Smith, Katzenstein & Furlow, LLP, 800 Delaware Avenue,
P.O. Box 410, Wilmington, DE 19899, Telephone: (302) 652-8400; Facsimile:
(302) 652-8405. The Notice of Settlement describes the proposed settlement
as follows:
"The Settlement resolves a number of disputes involving the Partnership and
the Company. (See "IV. Definitions Used In This Notice" for definitions of
all capitalized terms.) The Settlement will result in a diligent,
cooperative effort to sell the Company in a transaction that maximizes
value for the Company's stockholders, followed by the orderly liquidation
of the Partnership. If the Company is sold, the sale proceeds received by
the Partnership for its stock in the Company will be distributed PRO RATA
to the Partners in the Partnership liquidation, after provision for
liabilities including, but not limited to, the costs of Settlement and
attorneys' fees and expenses that may be awarded by the Court
("Liabilities"). If the Company is not sold, the Partnership will
nonetheless be dissolved and liquidated in accordance with the terms of the
Partnership Agreement, and, after provision for Liabilities, the Company
stock held by the Partnership will be distributed PRO RATA to the Partners
in an orderly manner."
The Notice of Settlement describes the procedure for selling the Company
(defined therein as the "Sales Process") as follows:
"The Sales Process will formally commence on the first date following final
approval of the Settlement that the Company, or the Financial Advisor on
behalf of the Company, distributes written information inviting interested
persons to contact the Company or the Financial Advisor with respect to a
Sale of the Company Transaction. The Sales Process will continue for an
initial term of six (6) months from the date of commencement. The Sales
Process, under certain conditions specified in the Settlement Agreement,
may be extended for such reasonable amount of time as the Special Committee
in its good faith business judgment, and in consultation with the Special
Advisory Committee, determines to be appropriate. The Special Committee
may, in consultation with the Special Advisory Committee, terminate the
Sales Process prior to the date on which the six-month term (or any
extension of that term) is scheduled to expire, if a bona fide offer for a
Sale of the Company Transaction is accepted by the Special Committee.
"A Sale of the Company Transaction will not be consummated until the
Settlement is deemed 'Final' (meaning that it can no longer be disapproved
or overturned by any court)."
The Sales Process cannot formally commence until after final approval of
the Settlement. The Notice of Settlement describes the Settlement approval
process as follows:
"The Court will hold a Settlement Hearing on May 24, 1999 at 2:00 p.m.,
before the Honorable Claudia Wilken, United States District Judge, at the
United States Courthouse,
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<PAGE>
(1301 Clay Street, 4th Floor, Oakland, California 94612). The purpose of
the Settlement Hearing will be to determine, among other things: (1)
whether the approval of the Settlement and full release of the claims
which were or could have been asserted in the California and Delaware
Actions in exchange for the terms of the Settlement is fair, just,
reasonable and adequate and in the best interests of the Settlement Class
and the Partnership and should be approved by the Court; (2) whether the
application of the Plaintiffs' Counsel for an award of attorneys' fees
and expenses should be approved; (3) whether the California and Delaware
Actions should be dismissed on the merits and with prejudice as set forth
in the Stipulation and Agreement of Settlement filed with the Court,
dated as of April 1, 1999.
. . . .
"The fairness hearing may be continued by the Court without further notice
to the Settlement Class."
SECTION 14. FEES AND EXPENSES
The Purchaser will pay all expenses of the Offer, including the fees and
expenses of the Depositary, but excluding the $3,750 in transfer fees
associated with each Unit (or portion thereof), which will be subtracted from
the price per Unit. Transfer fees for fractional Units will be equal to the
percentage of a full unit times $3,750. The Purchaser will pay the
Information Agent and the Depositary reasonable and customary compensation
for their services hereunder and reimbursement for their reasonable
out-of-pocket expenses. Brokers, dealers, commercial banks and trust
companies and other nominees, if any, will, upon request and prior approval
of the Purchaser, be reimbursed by the Purchaser for reasonable and customary
clerical and mailing expenses incurred by them in forwarding materials to
their customers.
SECTION 15. MISCELLANEOUS
THE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON
BEHALF OF) UNIT HOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OF THE OFFER OR
THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH
JURISDICTION. THE PURCHASER IS NOT AWARE OF ANY JURISDICTION WITHIN THE UNITED
STATES IN WHICH THE MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD BE
ILLEGAL.
The Purchaser has filed with the Commission the Schedule 14D-1, together
with exhibits, pursuant to Rule 14d-3 of the General Rules and Regulations under
the Exchange Act, furnishing certain information with respect to the Offer, and
may file amendments thereto. Such Schedule 14D-1 and any amendments thereto,
including exhibits, may be examined and copies may be obtained from the
Commission as set forth above in "Introduction."
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<PAGE>
No person has been authorized to give any information or to make any
representation on behalf of the Purchaser that is contrary to the information
contained in this Offer to Purchase or in the Agreement of Sale and, if given or
made, any such information or representation must not be relied upon as having
been authorized. Neither the delivery of the Offer to Purchase nor any purchase
pursuant to the Offer shall, under any circumstances, create any implication
that there has been no change in the affairs of the Purchaser or the Partnership
since the date as of which information is furnished or the date of this Offer to
Purchase.
Mercer Acquisition LLC
May 4, 1999
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<PAGE>
SCHEDULE 1
INFORMATION REGARDING THE MANAGERS OF MERCER ACQUISITION LLC
Set forth in the table below are the names of the managers and/or members
of Mercer Acquisition LLC and their present principal occupations and five (5)
year employment histories. Each individual is a citizen of the United States
and the business address of each person is 425 Pike Street, Suite 600, Seattle,
WA 98101.
NAME PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
AND FIVE-YEAR EMPLOYMENT HISTORY
Eric Dillon Mr. Dillon is currently employed as Senior
Vice President Investments of Salomon Smith
Barney and has held this position since
November 1993. Mr. Dillon is also Managing
General Partner of Dillon/Flaherty Partners
Ltd. and has held this position since June
1994. Mr. Dillon has been a member of Mercer
Acquisition LLC since February 1997.
Dan Evans Mr. Evans has been a Vice President of
Salomon Smith Barney since March 1999. From
July 1986 to March 1999, Mr. Evans served as
Vice President of R.L. Evans Co. Mr. Evans
has been a member of Mercer Acquisition LLC
since February 1997.
Gary Furukawa Mr. Furukawa has been President of Freestone
Management Capital since February 26, 1999.
From January 1994 to February 1999, Mr.
Furukawa served as a Senior Vice President of
Salomon Smith Barney. Mr. Furukawa has been
a member of Mercer Acquisition LLC since
February 1997.
Jennifer Sabelhaus Ms. Sabelhaus has been Manager of Mercer
Acquisition LLC since February 1997. Prior
to February 1997, Ms. Sabelhaus was a student
at Seattle Pacific University.
<PAGE>
SCHEDULE 2
FINANCIAL STATEMENTS OF SYNTHETIC INDUSTRIES L.P.
(EXTRACTED FROM THE SYNTHETIC INDUSTRIES L.P. QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1998 AND ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1998)
<PAGE>
FORM 10-Q
Part I-FINANCIAL INFORMATION
Item 1. Financial Information
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except limited partnership units outstanding)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1998 1998
------------ -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash............................................. $ 147 $ 287
Accounts receivable, net of allowance for
doubtful accounts of $2,630 and $2,714.......... 49,513 64,251
Inventory (Note 3)............................... 54,885 52,450
Other current assets............................. 17,165 16,644
-------- --------
TOTAL CURRENT ASSETS......................... 121,710 133,632
PROPERTY, PLANT AND EQUIPMENT, net (Note 4)........ 220,199 218,449
OTHER ASSETS....................................... 7,184 87,770
-------- --------
$429,093 $439,851
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................. $ 23,807 $ 26,438
Accrued expenses and other current liabilities... 9,837 13,653
Income taxes payable (Note 6).................... 54 285
Interest payable................................. 6,051 2,154
Current maturities of long-term debt (Note 5).... 1,274 5,500
-------- --------
TOTAL CURRENT LIABILITIES.................... 41,023 48,030
LONG-TERM DEBT (Note 5)............................ 232,118 236,843
DEFERRED INCOME TAXES (Note 6)..................... 32,996 32,996
MINORITY INTEREST IN SUBSIDIARY.................... 41,806 41,437
PARTNERS' CAPITAL:
General Partner capital.......................... 810 805
Limited Partners' capital, 800 units
issued and outstanding.......................... 80,340 79,740
-------- --------
TOTAL PARTNERS' CAPITAL...................... 81,150 80,545
-------- --------
$429,093 $439,851
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements
<PAGE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except net income per partnership unit and limited
partnership units)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
1998 1997
------- -------
<S> <C> <C>
Net sales.................................................. $87,162 $76,581
------- -------
Costs and expenses:
Cost of sales............................................ 59,794 53,197
Selling expenses......................................... 9,789 8,327
General and administrative expenses...................... 8,594 7,375
Plant consolidation costs (Note 7)....................... 1,619 -
Amortization of excess of purchase price over net
assets acquired and other intangibles................... 726 648
------- -------
80,522 69,547
------- -------
Operating income..................................... 6,640 7,034
------- -------
Other expenses:
Interest expense, net ................................... 4,948 4,790
Amortization of deferred financing costs................. 196 151
------- -------
5,144 4,941
------- -------
Income before income tax provision and minority
Interest in subsidiary net income......................... 1,496 2,093
Income tax provision (Note 6).............................. 652 935
------- -------
Income before minority interest in subsidiary net income... 844 1,158
Minority interest in net income............................ 324 448
------- -------
NET INCOME................................................. $ 520 $ 710
======= =======
Net income attributable to:
General Partner.......................................... $ 5 $ 5
Limited Partner.......................................... $ 516 $ 705
----- -----
Net income............................................... $ 520 $ 710
===== =====
Net income per partnership unit............................ $ 645 $ 881
Limited Partnership units outstanding...................... 800 800
</TABLE>
See notes to consolidated financial statements
<PAGE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 520 $ 710
Adjustments to reconcile net income to net cash
provided by operations:
Minority interest in subsidiary net income.......................... 324 448
Depreciation and amortization....................................... 5,714 5,021
Provision for bad debts............................................. (81) 212
Deferred income taxes .............................................. - 500
Change in assets and liabilities:
Accounts receivable................................................. 14,823 17,040
Inventory........................................................... (2,430) (4,128)
Other assets........................................................ (854) (1,069)
Accounts payable.................................................... (2,670) (4,994)
Accrued expenses and other current liabilities...................... (3,818) (3,825)
Income taxes payable................................................ (231) 320
Interest payable.................................................... 3,897 3,492
-------- --------
Net cash provided by operating activities......................... 15,194 13,727
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............................ (4,658) (14,379)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under term loan............................................ - (25,000)
(Repayments) borrowings under the Credit Facility..................... (9,218) 33,485
Redemption of 12 3/4% Senior subordinated debentures.................. - (7,403)
Repayments under capital lease obligations and
other long term debt................................................. (1,618) (189)
Deferred financing costs.............................................. - (422)
Proceeds from sale of treasury stock under the Employee
Stock Purchase Plan.................................................. 148 -
Proceeds from exercise of stock options............................... 38 85
-------- --------
Net cash (used) provided by financing activities.................. (10,650) 556
Effect of exchange rate changes on cash........................... (26) 9
-------- --------
NET DECREASE IN CASH.................................................... (140) (87)
CASH AT BEGINNING OF PERIOD............................................. 287 340
-------- --------
CASH AT END OF PERIOD................................................... $ 147 $ 253
======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.............................................................. $ 1,051 $ 1,298
Income taxes.......................................................... 883 115
Net capital obligation for purchase of equipment (Note 5)............. 1,884 -
</TABLE>
See notes to consolidated financial statements
<PAGE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
(Information as of December 31, 1998 and for the
periods ending December 31, 1998 and 1997 is unaudited)
1. ORGANIZATION
Synthetic Industries, L.P. (the "Partnership") is a limited partnership
organized under the laws of Delaware. In December 1986, the Partnership
acquired all of the issued and outstanding shares of Synthetic Industries,
Inc. (the "Company"). The Company manufactures and markets a wide range of
polypropylene-based fabric and fiber products designed for industrial
applications. The Company's diverse mix of products are marketed to the
floor covering, construction and technical textile markets for such end-use
applications as carpet backing, geotextiles, erosion control, concrete
reinforcement and furniture construction fabrics.
Since its organization in 1986 and subsequent admission of limited partners
the Partnership has conducted no business except owning and voting the
shares of the Company. The Company had 8,672,382 shares of Common Stock
outstanding at December 31, 1998, of which approximately 66% are owned by
the Partnership. As the Partnership has no independent operations or assets
other than its investment in the Company, the Partnership's financial
statements are substantially identical to those of the Company, with the
exception of the minority interest and certain expenses recognized by the
Partnership associated with a withdrawn common stock offering. As a result,
the footnote information presented below relates to that of the Company,
except as disclosed. Accordingly, all references to fiscal year refer to
the Company's fiscal year which ends on September 30th.
2. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of December 31, 1998 and for the
periods ended December 31, 1998 and 1997 included herein have been
prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the financial position at December 31, 1998, and the
results of operations for the three months ended December 31, 1998 and
1997, have been made on a consistent basis. Certain information and
footnote disclosures included in consolidated financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures herein are adequate to make the
information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
and the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1998. Operating
results for the three months ended December 31, 1998 may not necessarily be
indicative of the results that may be expected for the full year.
<PAGE>
3. INVENTORY
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
<S> <C> <C>
Finished goods........................ $39,214 $37,689
Work in process....................... 7,443 7,107
Raw materials......................... 8,228 7,654
------- -------
$54,885 $52,450
======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
<S> <C> <C>
Land.................................... $ 4,585 $ 4,585
Buildings and improvements.............. 42,588 42,588
Equipment under capital lease........... 12,800 12,500
Machinery and equipment and
leasehold improvements................. 273,214 266,972
-------- --------
333,187 326,645
Accumulated depreciation................ 112,988 108,196
-------- --------
$220,199 $218,449
======== ========
</TABLE>
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
<S> <C> <C>
Credit facility:
Securitization........................ $24,262 $ 29,162
Revolver.............................. 25,704 30,022
9 1/4% senior subordinated
notes, due 2007........................ 170,000 170,000
Capital lease obligation................ 12,229 10,647
Other................................... 1,197 2,512
-------- --------
233,392 242,343
Less current portion.................... 1,274 5,500
-------- --------
Total long term portion................. $232,118 $236,843
======== ========
</TABLE>
At December 31, 1998, interest rates under the Securitization and Revolver
ranged from 6.05% to 7.75%, respectively. Availability under the Credit
Facility was approximately $34,300 at December 31, 1998.
<PAGE>
On October 4, 1998, the Company entered into a 7.03% eight-year capital
lease for the acquisition of equipment of $5,300 and repaid the balance of
the May 15, 1996 capital lease of $3,416.
6. INCOME TAXES
The provision for income taxes in the consolidated statements of operations
reflects an effective tax rate of 41% for the three months ended December
31, 1998 and 1997.
7. PLANT CONSOLIDATION COSTS
On November18,1998the Company announced its plans to combine its non- woven
manufacturing operations into one modern facility. As a result, in the
first quarter of 1999, the Company recorded a pretax charge of $1,619
($0.11 per share on an after tax basis). The charge primarily reflects
severance provisions incurred related with workforce reductions of
approximately 105 employees. As of December 31, 1998, payments of $274
have been made for these charges.
8. LITIGATION
The Company and its subsidiaries are parties to litigation arising out of
their business operations. Such litigation primarily involves claims for
personal injury, property damage, breach of contract and claims involving
employee relations and certain administrative proceedings. The Company
believes such claims are either adequately covered by insurance or do not
involve a risk of material loss to the Company.
In connection with the proposed dissolution of the Partnership, pursuant to
an Agreement and Plan of Withdrawal and Dissolution (the "Plan"), the
Company, its directors and certain other of the Company's officers who are
affiliated with the General Partner have been named in two putative class
and derivative action lawsuits filed by certain limited partners of the
Partnership. In the first action, filed on February 11, 1997 in the
Delaware Court of Chancery and thereafter amended, the plaintiffs have
alleged, among other things, breach of contract with respect to the
Partnership Agreement which governs the Partnership, breach of the
defendants' fiduciary duty to the limited partners and the Company, that
the Plan was unlawfully coercive, that the General Partner has allegedly
failed to satisfy certain conditions precedent to the right of limited
partners to amend the partnership agreement and that certain amendments
necessary to implement the Plan violate the terms of the partnership
agreement. The plaintiffs sought, among other equitable and legal remedies,
removal of the General Partner, dissolution of the Partnership, appointment
of a liquidating trustee, to enjoin the implementation of the Plan and
compensatory damages in an undetermined amount. On October 23, 1997, the
Court preliminarily enjoined the implementation of the Plan, although the
Plan was subsequently approved by limited partners on November 7, 1997. On
November 7, 1997, the Delaware Supreme Court accepted the defendants'
petition for an expedited appeal of this injunction, and briefing and oral
argument on the appeal was completed as of January 6, 1998. On March 19,
1998, the Delaware Supreme Court issued an opinion affirming the Court of
<PAGE>
Chancery's grant of a preliminary injunction and remanded the case for
further proceedings. On April 27, 1998, the Court of Chancery granted the
motion of certain pro-Plan intervenors to intervene in the action, but
denied their motion to disqualify plaintiffs' counsel. On May 14, 1998, the
General Partner withdrew the Plan. After the withdrawal of the Plan,
plaintiffs, on June 3, 1998, filed a Consolidated Third Amended and
Supplemental Class and Derivative Complaint (the "Third Amended
Complaint"). The Third Amended Complaint, among other things, eliminated
certain requests for relief related to the Plan and added certain
allegations related to the Company's Employee Stock Purchase Plan and
certain options granted to certain directors and officers of the Company.
In addition to the relief sought in prior complaints, the Third Amended
Complaint seeks declaratory relief with respect to certain provisions of
the Partnership Agreement, the invalidation of the Company's Employee Stock
Purchase Plan, the invalidation of certain options granted to the Company's
directors and officers, and the invalidation of certain amendments to the
Company's certificate of incorporation and bylaws relating to voting by
consent and the calling of special meetings. On July 20, 1998, defendants
filed a motion to dismiss the Third Amended Complaint. The defendants have
denied any allegation of wrongdoing.
The second lawsuit was filed in the U.S. District Court of the Northern
District of California on May 1, 1997, and thereafter amended. The
plaintiff has alleged in his amended complaint various federal securities
and proxy violations allegedly arising out of the joint proxy statement and
prospectus that was mailed to limited partners in connection with the
solicitation of proxies for the vote on the Plan and other related
documents. The plaintiff also added the Company as a named defendant,
alleging that all defendants acted in concert with, and as agents of, each
other; however the plaintiff made no specific independent allegations with
respect to the Company. The plaintiff sought, among other equitable and
legal remedies, to enjoin the implementation of the Plan and unspecified
damages. On November 6, 1997, the Court granted in part the plaintiff's
motion for a temporary restraining order enjoining the implementation of
the Plan. After the withdrawal of the Plan, defendants, on June 19, 1998,
filed a motion to dismiss the claims as moot. On July 17, 1998, plaintiff
moved to amend his complaint purportedly to include an additional plaintiff
and additional claims for relief, including permanent injunctive relief for
any violations of the securities laws in the future. The amended complaint
also adds the Partnership as a nominal defendant. On September 24, 1998,
the Court denied the defendants' motion to dismiss and granted plaintiff's
motion to amend the complaint. The defendants have denied any allegation of
wrongdoing.
On December 29, 1997, a purported derivative action was filed in the
Delaware Chancery Court by a limited partner of the Partnership against
certain of the Company's officers and directors with regard to certain
stock options plans adopted by the Company in 1994. Both the Partnership
and the Company were named as nominal defendants. The plaintiff alleged
that the defendants breached their fiduciary duties by adoption of the
stock option plans. The plaintiff seeks, among other things, a declaration
that the stock options granted under the plans are invalid, the
establishment of a constructive trust over the stock options, unspecified
compensatory damages and reasonable attorneys' fees and expenses. By order
dated June 23, 1998, this action was consolidated with the Delaware action
described above. The defendants deny any allegation of wrongdoing and
intend to vigorously contest the lawsuit.
Based on the Company's review of the allegations made in the above actions
to date, the Company does not believe that the ultimate resolution of these
actions will have a material adverse effect on the Company's results of
operations or financial condition.
<PAGE>
The Partnership is a principal stockholder of the Company and certain
members of the Company's management control the General Partner.
By letter dated October 22,1998, a demand for indemnification was received
from a customer with respect to utilization of Fibermesh (reserved) in
concrete slabs in the State of California. The demand for indemnification
pertained to any and all damages relating to their use of the Fibermesh
(reserved) product. No lawsuits have been filed against the Company and
based upon the information provided to the Company, the scope of liability
and potential damages, if any, cannot be ascertained at this time. The
Company has engaged outside counsel to investigate this claim and intends
to vigorously defend its product.
<PAGE>
FORM 10-K
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT LIMITED PARTNERSHIP UNITS OUTSTANDING)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.......................................................... $ 287 $ 340
Accounts receivable, net (Note 4)............................. 64,251 60,031
Inventory (Note 5)............................................ 52,450 54,139
Other current assets (Note 6)................................. 16,644 15,402
-------- --------
TOTAL CURRENT ASSETS........................................ 133,632 129,912
PROPERTY, PLANT AND EQUIPMENT, net (Note 7)..................... 218,449 182,102
OTHER ASSETS (Note 8)........................................... 87,770 82,781
-------- --------
$439,851 $394,795
-------- --------
-------- --------
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable.............................................. $ 26,438 $ 27,030
Accrued expenses and other current liabilities................ 13,653 11,613
Income taxes payable (Note 10)................................ 285 52
Interest payable.............................................. 2,154 2,467
Current maturities of long-term debt (Note 9)................. 5,500 718
-------- --------
TOTAL CURRENT LIABILITIES................................... 48,030 41,880
LONG-TERM DEBT (Note 9)......................................... 236,843 220,464
DEFERRED INCOME TAXES (Note 10)................................. 32,996 28,430
MINORITY INTEREST IN SUBSIDIARY................................. 41,437 35,145
COMMITMENTS AND CONTINGENCIES (Note 15)
PARTNERS' CAPITAL
General Partner Capital....................................... 805 688
Limited Partners' Capital, 800 Units issued and outstanding... 79,746 68,188
-------- --------
TOTAL PARTNERS' CAPITAL..................................... 80,545 68,876
-------- --------
$439,851 $394,795
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT LIMITED PARTNERSHIP UNITS OUTSTANDING)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................................... $368,996 $345,572 $299,532
-------- -------- --------
Costs and expenses:
Cost of sales..................................................... 246,677 233,187 208,321
Selling expenses.................................................. 39,358 31,801 27,488
General and administrative expenses............................... 31,479 27,701 23,318
Amortization of excess of purchase price over net assets
acquired and other intangibles................................... 2,787 2,592 2,592
-------- -------- --------
320,301 295,281 261,719
-------- -------- --------
Operating income.................................................. 48,695 50,291 37,813
-------- -------- --------
Other expenses:
Interest expense, net............................................. 18,515 20,085 22,773
Amortization of deferred financing costs.......................... 729 654 699
-------- -------- --------
19,244 20,739 23,472
-------- -------- --------
Income before provision for income taxes, minority interest
in subsidiary net income and extraordinary item................... 29,451 29,552 14,341
Provision for income taxes (Note 10)................................ 11,855 12,541 6,900
-------- -------- --------
Income before minority interest in subsidiary net income
and extraordinary item............................................. 17,596 17,011 7,441
Minority interest in subsidiary net income.......................... 6,167 1,864 --
-------- -------- --------
Income before extraordinary item.................................... 11,429 15,147 7,441
Extraordinary item--Loss from early extinguishment of debt
(net of tax benefit of $7,481) (Note 9)............................ -- 11,950 --
---------- ---------- ----------
NET INCOME.......................................................... $ 11,429 $ 3,197 $ 7,441
-------- -------- --------
-------- -------- --------
Net income attributable to:
General partner................................................... $ 115 $ 32 $ 74
Limited partners.................................................. 11,314 3,165 7,367
-------- -------- --------
$ 11,429 $ 3,197 $ 7,441
-------- -------- --------
-------- -------- --------
Net income per limited partnership unit............................. $ 14,143 $ 3,956 $ 9,209
-------- -------- --------
-------- -------- --------
Limited partnership units outstanding............................... 800 800 800
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNER CAPITAL
------- ------- --------
<S> <C> <C> <C>
Balance, September 30, 1995................................... $575 $57,183 $57,758
Net income.................................................... 74 7,367 7,441
Foreign currency translation.................................. -- (14) (14)
---- ------- -------
Balance, September 30, 1996................................... 649 64,536 65,185
Net income.................................................... 32 3,165 3,197
Equity from the Offering...................................... 5 424 429
Foreign currency translation.................................. 2 63 65
---- ------- -------
Balance, September 30, 1997................................... 688 68,188 68,876
Net income.................................................... 115 11,314 11,429
Foreign currency translation.................................. -- 39 39
Exercise stock options........................................ 1 52 53
Stock transfer................................................ 1 147 148
---- ------- -------
Balance, September 30, 1998................................... $805 $79,740 $80,545
---- ------- -------
---- ------- -------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
SYNTHETIC INDUSTRIES L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income in minority interest................................................ $ 11,429 $ 3,197 $ 7,441
Adjustments to reconcile net income to cash provided by operations:
Minority Interest in subsidiary net income................................... 6,167 1,864 --
Extraordinary loss on early extinguishment of debt........................... -- 19,431 --
Depreciation and amortization................................................ 21,261 18,236 16,299
Deferred income taxes........................................................ 4,977 2,270 3,400
(Recoveries of) provision for bad debts...................................... (13) 520 1,024
Change in operating assets and liabilities, net of acquisition:
Accounts receivable.......................................................... (2,478) (9,993) (943)
Inventory.................................................................... 3,343 (13,634) 6,451
Other assets................................................................. (1,232) 236 (647)
Accounts payable............................................................. (3,166) 6,803 (3,801)
Accrued expenses and other current liabilities............................... 2,046 1,111 2,648
Income taxes payable......................................................... 323 (1,355) (48)
Interest payable............................................................. (313) (3,557) (403)
-------- --------- --------
Net cash provided by operating activities.................................. 42,344 25,129 31,421
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment..................................... (46,112) (53,980) (29,253)
Acquisition of business, net of cash acquired.................................. (6,000) (9,354) --
-------- --------- --------
Net cash used in investing activities...................................... (52,112) (63,334) (29,253)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under term loan.................................... (25,000) (20,000) 19,000
Net borrowings (repayments) under the credit facility.......................... 43,607 9,427 (20,734)
Issuance of 9 1/4% Senior subordinated notes................................... -- 170,000 --
Redemption of 12 3/4% Senior subordinated debentures........................... (7,403) (132,597) --
Prepayment costs on early extinguishment of debt............................... -- (15,920) --
Proceeds from underwritten public offering..................................... -- 33,681 --
Proceeds from exercise of stock options........................................ 85 -- --
Proceeds from sale of treasury stock under the Employee Stock Purchase Plan.... 130 -- --
Repayments of capital lease obligation and other long-term debt................ (1,002) (660) (342)
Debt issuance costs............................................................ (792) (5,525) (101)
-------- --------- --------
Net cash provided by (used in) financing activities........................ 9,625 38,406 (2,177)
Effect of exchange rate changes on cash.................................... 90 36 2
-------- --------- --------
NET (DECREASE) INCREASE IN CASH.................................................. (53) 237 (7)
CASH AT BEGINNING OF PERIOD...................................................... 340 103 110
-------- --------- --------
CASH AT END OF PERIOD............................................................ $ 287 $ 340 $ 103
-------- --------- --------
-------- --------- --------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest......................................................................... $ 21,232 $ 23,642 $ 23,176
Income taxes................................................................... 5,927 4,145 3,548
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Capital lease obligation incurred for purchase of equipment.................... $ 7,500 $ -- $ 5,000
Treasury stock transferred to Synthetic Industries, Inc. in exchange
for note receivable........................................................... 1,759 -- --
Payable incurred for acquisition of business................................... 1,302 -- --
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
1. ORGANIZATION
Synthetic Industries, L.P. (the "Partnership") is a limited partnership
organized under the laws of Delaware. In December 1986, the Partnership acquired
all of the issued and outstanding shares of Synthetic Industries, Inc. (the
"Company"). The Company manufactures and markets a wide range of
polypropylene-based fabric and fiber products designed for industrial
applications. The Company's diverse mix of products are marketed to the floor
covering, construction and technical textile markets for such end-use
applications as carpet backing, geotextiles, erosion control, concrete
reinforcement and furniture construction fabrics.
Since its organization in 1986 and subsequent admission of limited partners,
the Partnership has conducted no business except owning and voting the shares of
the Company. As a result of its public offering of Common Stock in November
1996, the Company had 8,668,750 shares of Common Stock outstanding at September
30, 1998, of which approximately 66% are owned by the Partnership. As the
Partnership has no independent operations or assets other than its investment in
the Company, the Partnership's financial statements are substantially identical
to those of the Company, with the exception of the minority interest and certain
expenses recognized by the Partnership associated with a withdrawn common stock
offering. As a result, the footnote information presented below relates to that
of the Company, except as disclosed. Accordingly, all references to fiscal year
refer to the Company's fiscal year which ends on September 30(th).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany transactions and balances have been eliminated.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of foreign subsidiaries are translated at the
fiscal year-end rates of exchange, and the results of operations are translated
at the average rates of exchange for the years presented. Gains or losses
resulting from translating foreign currency financial statements are accumulated
in the cumulative translation adjustments account in the stockholders' equity
section of the accompanying consolidated balance sheets. Foreign currency
transaction gains and losses are included in results of operations. Foreign
currency realized and unrealized gains and losses for the years presented were
not material.
INVENTORY
Inventory is stated at the lower of cost, determined using the first-in,
first-out method, or market.
F-6
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation is provided on the straight-line
method based on estimated useful lives, as follows:
<TABLE>
<S> <C>
Building and improvements......................................... 25 years
Machinery and equipment........................................... 14 years
</TABLE>
Leasehold improvements are amortized over the shorter of the useful life of
the asset or the term of the lease. Expenses for repairs, maintenance and
renewals are charged to operations as incurred. Expenditures which improve an
asset or extend its useful life are capitalized. When properties are retired or
otherwise disposed of, the related cost and accumulated depreciation and
amortization are removed from the accounts and any gain or loss is included in
the results of operations.
Capitalized interest is charged to machinery and equipment and amortized
over the lives of the related assets. Interest capitalized during fiscal 1998,
1997 and 1996 was $2,404, $838 and $392, respectively.
INCOME TAXES
The Company accounts for income taxes using an asset and liability approach
in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS
109"). Under SFAS 109, deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in the statement
of operations for the period that includes the enactment date.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
The excess of purchase price over net assets acquired is amortized on a
straight-line basis over a period of 20 to 40 years. Excess of purchase price
over net assets acquired is assessed for recoverability on a regular basis. In
evaluating the value and future benefits of goodwill, its carrying value would
be reduced by the excess, if any, of the balance over management's best estimate
of undiscounted future cash flows before amortization of the related intangible
assets over the remaining amortization period.
DEFERRED FINANCING AND INTANGIBLE ASSETS
Deferred financing costs are amortized over periods from 5 to 12 years.
Intangible assets consist primarily of a Fibermesh-Registered Trademark-
trademark and patents on civil engineering products, which are amortized on a
straight-line basis over 40 and 15 years, respectively.
INCOME PER LIMITED PARTNERSHIP UNIT
Income per limited partnership unit is based upon the weighted average
number of units outstanding during each respective year. Net income is allocated
to the General Partner, the Limited Partners, and the minority interest based on
their respective ownership percentages.
F-7
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which must be adopted for fiscal years beginning after
December 15, 1997. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS 130 will not have a material effect on the Company's
results of operations or financial condition.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"), which must be adopted for fiscal years beginning
after December 15, 1997. Under the new standard, companies will be required to
report certain information about operating segments in consolidated financial
statements. Operating segments will be determined based on the method that
management organizes its businesses for making operating decisions and assessing
performance. SFAS 131 also requires companies to report certain information
about their products and services, the geographic areas in which they operate,
and their major customers. The Company is currently evaluating the effect SFAS
131 will have on its financial statement presentation.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which must be adopted for fiscal quarters of fiscal years beginning after
June 15,1999. SFAS 133 requires the recognition of all derivatives as either
assets or liabilities in the statement of financial position and measurement of
those instruments at fair value. SFAS 133 will not have a material effect on the
Company's results of operations or financial condition.
RESEARCH AND DEVELOPMENT
The Company's research and market development is focused primarily on
development and as such the Company engages in product design, development and
performance validation to improve existing products and to create new products.
The Company expended $8,100, $4,208, and $2,942 in fiscal 1998, 1997, and 1996,
respectively. Research and market development costs are expensed as incurred and
included in general and administrative expenses.
RECLASSIFICATION OF PRIOR FINANCIAL STATEMENTS
Certain reclassifications have been made to previous years' financial
statements to conform with 1998 classifications.
F-8
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
3. BUSINESS ACQUISITIONS
On March 18, 1998, pursuant to a Stock Purchase Agreement, as subsequently
amended, the Company acquired all of the outstanding shares of Novocon
International, Inc. (the "Novocon Acquisition"), a manufacturer and marketer of
steel concrete reinforcing fibers, for $7,302. The acquisition has been
accounted for using the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets acquired of $5,293 (primarily
accounts receivable and inventory of $1,731 and $1,654, respectively) and the
liabilities assumed of $4,880 (primarily accounts payable and other debt of
$2,545 and $2,335, respectively) based upon the fair market value at the date of
acquisition. The excess purchase price over the fair values of the net assets
acquired has been recorded as goodwill, which is being amortized on a
straight-line basis over 20 years. The operating results of the acquired
business have been included in the consolidated statement of operations from the
date of acquisition.
On February 27, 1997, the Company acquired certain assets of the Spartan
Technologies division of Spartan Mills (the "Spartan Acquisition") for
approximately $9,400. The Spartan Acquisition has been accounted for using the
purchase method of accounting, and, accordingly, the purchase price has been
allocated to the net assets acquired (accounts receivable, inventory, and
property, plant and equipment) based on the fair market value (which
approximated cost) at the date of acquisition. The operating results of the
acquired business have been included in the consolidated statement of operations
from the date of acquisition.
4. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of the doubtful allowances of $2,714,
$2,707 and $3,036 for fiscal 1998, 1997 and 1996, respectively. The Company had
net recoveries for the year ended September 30, 1998 of $20 and amounts written
off against established allowances of $849 and $2,041 for the years ended
September 30, 1997 and 1996, respectively.
The Company grants uncollateralized trade terms to most U.S. customers. A
majority of the Company's carpet backing sales are with customers located in the
state of Georgia. As of September 30, 1998 and 1997, $27,766 and $26,126,
respectively of the Company's accounts receivable balances were due from
customers located in this state. Net sales to one customer represented
approximately 25%, 20% and 18% of consolidated net sales for 1998, 1997 and
1996, respectively.
5. INVENTORY
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1998 1997
------- -------
<S> <C> <C>
Finished goods................................................ $37,689 $33,572
Work in process............................................... 7,107 7,427
Raw materials................................................. 7,654 13,140
------- -------
$52,450 $54,139
------- -------
------- -------
</TABLE>
F-9
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
6. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1998 1997
------- -------
<S> <C> <C>
Prepaid supplies....................................... $ 9,603 $ 9,003
Deferred tax assets (Note 10).......................... 4,639 5,050
Insurance receivable................................... 1,110 191
Other.................................................. 1,292 1,158
------- -------
$16,644 $15,402
------- -------
------- -------
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Land..................................................... $ 4,585 $ 4,585
Buildings and improvements............................... 42,588 35,398
Equipment under capital leases........................... 12,500 4,973
Machinery and equipment and leasehold improvements....... 266,972 227,304
-------- --------
326,645 272,260
Accumulated depreciation................................. 108,196 90,158
-------- --------
$218,449 $182,102
-------- --------
-------- --------
</TABLE>
Depreciation expense on property, plant and equipment was $17,745, $14,990
and $13,008 in fiscal 1998, 1997 and 1996, respectively.
8. OTHER ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1998 1997
------- --------
<S> <C> <C>
Excess of purchase price over net assets acquired.......... $107,379 $ 99,818
Intangible assets.......................................... 3,698 3,546
Deferred financing costs................................... 12,443 11,651
-------- --------
123,520 115,015
Accumulated amortization................................... 35,750 32,234
-------- --------
$ 87,770 $ 82,781
-------- --------
-------- --------
</TABLE>
Amortization expense was $3,516, $3,246 and $3,291 in fiscal 1998, 1997 and
1996, respectively.
F-10
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Credit facility:
Securitization....................................... $ 29,162 $ --
Revolver............................................. 30,022 13,420
Term loan portion.................................... -- 25,000
9 1/4% senior subordinated notes, due2007.............. 170,000 170,000
12 3/4% senior subordinated debentures, due 2002....... -- 7,403
Capital lease obligation (Note 16)..................... 10,647 4,083
Other.................................................. 2,512 1,276
-------- --------
242,343 221,182
Less current portion................................... 5,500 718
-------- --------
Total long-term portion................................ $236,843 $220,464
-------- --------
-------- --------
</TABLE>
CREDIT FACILITY
On December 18, 1997, the Company and its lenders, with BankBoston as agent,
entered into a new five-year credit facility (the "Credit Facility"). Proceeds
from the Credit Facility were used to repay the Fourth Amended and Restated
Revolving Credit Agreement dated October 20, 1995. The Credit Facility consists
of up to a $40 million asset based securitization program (the
"Securitization"), with amounts borrowed through a wholly owned subsidiary,
Synthetic Funding Corporation, and a $60 million senior secured revolver
facility (the "Revolver"). In conjunction with the Securitization, the Company
entered into a five-year agreement with its subsidiary providing for the sale of
substantially all of its receivables on a revolving basis. Securitization and
Revolver borrowings are collateralized by the Company's accounts receivable and
substantially all of the assets of the Company, excluding real property,
respectively.
Interest on the Securitization is based on the applicable commercial paper
rate in effect plus a spread. The Revolver permits borrowings which bear
interest, at the Company's option, (i) for domestic borrowings based on the
lender's base rate or (ii) for Eurodollar borrowings based on a spread over the
Interbank Eurodollar rate at the time of conversion. Spreads for the
Securitization and the Eurodollar borrowings are determined by the operational
performance of the Company. At September 30, 1998, the balances under the
Securitization and Revolver were $29,162 and $30,022, respectively, at interest
rates ranging from 6.27% to 8.5%.
The Revolver provides for borrowings under letters of credit of up to
$10,000, which borrowings reduce amounts available under the Revolver. At
September 30, 1998, letters of credit of $402 were outstanding.
The Credit Facility contains covenants related to the maintenance of certain
operating ratios and limitations as to the amount of capital expenditures. The
Company's ability to pay dividends on Common Stock is prohibited under the
Credit Facility.
F-11
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
9. LONG-TERM DEBT (CONTINUED)
SENIOR SUBORDINATED DEBENTURES AND NOTES
On February 11, 1997, the Company issued $170,000 in aggregate principal
amount of 9 1/4% Senior Subordinated Notes due 2007 (the "Notes"), which
represent unsecured obligations of the Company. The Notes are redeemable at the
option of the Company at any time on or after February 15, 2002, initially at
104.625% of their amount, together with accrued interest, with declining
redemption prices thereafter. Interest on the Notes is payable semi-annually on
February 15 and August 15.
In connection with the issuance of the Notes, the Company redeemed
approximately $132,600 principal amount of its 12 3/4% Senior Subordinated
Debentures due 2002 (the "Debentures") at a redemption price of 111.07% of the
principal amount thereof. In addition, the Company repaid $20,000 of its
outstanding term loan borrowings as of March 5, 1997. In connection with the
early extinguishment of debt, the Company recorded an extraordinary loss of
$11,950 (representing call premium and prepayment fees of $15,920 and write off
of deferred financing costs of $3,511, net of an income tax benefit of $7,481)
during the second quarter of fiscal 1997.
On December 1, 1997 the Company redeemed the remaining $7,403 aggregate
principal amount of Debentures outstanding at a redemption price of 106.375% of
the principal amount thereof, together with accrued interest as of the
redemption date.
AGGREGATE MINIMUM PAYMENTS AND FAIR VALUE
Approximate aggregate minimum annual payments due on long term debt and
capital leases (see Note 16), for the subsequent five years, are as follows:
1999, $2,549; 2000, $1,408; 2001, $1,516; 2002, $1,631; 2003, $60,940; and
thereafter, $176,212.
The fair value of the Company's Notes is estimated to be $169,150 and
$176,375 at September 30, 1998 and 1997, respectively. The fair value of the
Debentures were estimated to be $7,875 at September 30, 1997. The fair values
are based on quoted market prices for the Notes and Debentures in the
over-the-counter market.
10. INCOME TAXES
The sources of the Company's income before provision for income taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
United States............................................ $28,575 $29,609 $14,083
Foreign.................................................. 1,498 1,082 919
------- ------- -------
Earnings before income taxes............................. $30,073 $30,691 $15,002
------- ------- -------
------- ------- -------
</TABLE>
F-12
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
10. INCOME TAXES (CONTINUED)
The provision for income taxes contributable to the amounts shown above
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Current:
Federal................................................ $ 4,875 $ 8,796 $2,600
State.................................................. 591 1,120 600
Foreign................................................ 500 355 300
------- ------- ------
5,966 10,271 3,500
------- ------- ------
Deferred:
Federal................................................ 6,594 1,900 3,200
State.................................................. (705) 370 200
------- ------- ------
5,889 2,270 3,400
------- ------- ------
Total.................................................. $11,855 $12,541 $6,900
------- ------- ------
------- ------- ------
</TABLE>
As described in Note 9, the Company recorded a current tax benefit of $7,481
in fiscal 1997 as a result of the early extinguishment of debt.
A reconciliation of US income tax computed at the statutory rate and actual
tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1998 1997 1996
-------- ------- ------
<S> <C> <C> <C>
Amount computed at statutory rate................................... $ 10,526 $10,742 $5,250
State and local taxes less applicable federal income tax benefit.... 978 998 550
Amortization of goodwill............................................ 942 873 873
Tax credits......................................................... (991) (405) --
Other nondeductible expenses........................................ 202 181 115
Other, net.......................................................... 198 152 112
-------- ------- ------
$ 11,855 $12,541 $6,900
-------- ------- ------
-------- ------- ------
</TABLE>
F-13
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
10. INCOME TAXES (CONTINUED)
The tax effects of significant items comprising the Company's net deferred
tax liability are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1998 1997
------- -------
<S> <C> <C>
Property, plant and equipment........................................... $31,754 $27,345
Trademarks and patents.................................................. 1,242 1,085
------- -------
Total deferred tax liabilities.......................................... 32,996 28,430
------- -------
Accounts receivable..................................................... 968 1,018
Inventory............................................................... 749 815
Accrued expenses........................................................ 1,869 2,013
AMT credit carryforward................................................. -- 1,204
State tax credit carryforward........................................... 1,053 --
------- -------
Total deferred tax assets............................................... 4,639 5,050
------- -------
Net deferred tax liability.............................................. $28,357 $23,380
------- -------
------- -------
</TABLE>
At September 30, 1998 the Company has available state income tax credits of
approximately $1,053 which are available to reduce future state income taxes,
subject to statutory limitations, which will expire in 2007.
11. RETIREMENT PROGRAMS
For US employees, the Company maintains a trusteed profit-sharing plan
("Plan") which is qualified under Section 401(k) of the Internal Revenue Code.
All full-time employees over the age of 21 who have been employed continuously
for at least one year are eligible for participation in the Plan. The Company
may, but has not elected to, contribute a portion of its profits to the Plan, as
determined by the Board of Directors. Employer contributions vest over 1 to 5
years. The Company has elected to match employee contributions to the Plan on a
50% basis but not to exceed 3% of the employee's annual compensation. During
fiscal years 1998, 1997 and 1996, the Company contributed $1,117, $1,098 and
$999, respectively. The Plan provides for the Company to bear the expense of the
administration of the Plan. Pension expense on the foreign plans is not
significant.
12. EMPLOYEE STOCK PURCHASE PLAN
On February 25, 1998, the stockholders approved the Synthetic Industries,
Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"), reserving 325,000
shares of Common Stock for issuance under this Plan. The Company adopted the
Stock Purchase Plan with an initial option period commencing effective April 1,
1998, and continuing in three-month option periods thereafter. The Stock
Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions or lump sum contributions, which may not exceed $25 in a
calendar year, at a price equal to 85% of the Common Stock price as reported by
NASDAQ at the beginning or end of each option period, whichever is lower. As of
September 30, 1998, 10,510 shares were purchased out of treasury stock under the
Stock Purchase Plan.
F-14
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
13. STOCK OPTIONS
DIRECTOR'S PLAN
In August 1994, the Company adopted a stock option plan (the "Director's
Plan") pursuant to which non-qualified stock options to purchase an aggregate of
125,261 shares of Common Stock were granted to the four non-employee Directors
of the Company at an exercise price of $6.83 per share which was determined by
reference to the fair market value of the Company's equity at the time such
Directors joined the Board. The stock options were fully vested as of October 1,
1996 and have a term which expires on August 4, 2004. The Director's Plan does
not provide for any further grants or options thereunder.
MANAGEMENT PLAN
The Company's 1994 and 1996 Stock Option Plans (collectively, the
"Management Plans") for its key employees, provides for the granting of
incentive stock options ("ISOs"), as provided in Section 422A of the Internal
Revenue Code, and non-qualified stock options. The maximum aggregate number of
shares of Common Stock that may be issued under the 1994 Plan and the 1996 Plan
is 491,413 and 289,062, respectively.
Stock option transactions during 1998, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
SHARES
RESERVED FOR SHARES
ISSUANCE UNDER AVAILABLE WEIGHTED
THE MANAGEMENT SHARES FOR AVERAGE
PLANS GRANTED GRANT PRICE PRICE
-------------- --------- ----------- --------------- --------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995...... 491,413 316,697 174,716 $10.72 $10.72
Options granted.................. 289,062 194,439 -- $10.72 $10.72
------- ------- ------- --------------- ------
Balance at September 30, 1996...... 780,475 513,136 267,339 $10.72 $10.72
Options granted.................. -- 175,500 -- $17.875-$21.375 $18.77
------- ------- ------- --------------- ------
Balance at September 30, 1997...... 780,475 688,636 91,839 $10.72-$21.375 $12.77
Options granted.................. -- 80,900 -- $15.00 $15.00
------- ------- ------- --------------- ------
Balance at September 30, 1998...... 780,475 769,536 10,939 $10.72-$21.375 $13.01
</TABLE>
At September 30, 1998, 506,917 options were exercisable at exercise prices
ranging from $10.72 to 21.375 per share.
The purchase price of the shares of Common Stock subject to options under
the Management Plans must be no less than the fair market value of the Common
stock at the date of grant; provided, however, that the purchase price of shares
of Common Stock subject to ISOs granted to any optionee who owns shares
possessing more than 10% of the combined voting power of the Company ("Ten
Percent Shareholder') must not be less that 110% of the fair market value of the
Common Stock at the date of the grant. The maximum term of an option may not
exceed ten years from the date of the grant, except with respect to ISOs granted
to Ten Percent Shareholders which must expire within five years of the date of
grant.
The Company has elected to continue measuring stock-based compensation using
the intrinsic value approach under APB Opinion No. 25 and has adopted the
disclosure-only provision of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123").
F-15
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
13. STOCK OPTIONS (CONTINUED)
Accordingly, no compensation expense has been recognized for the options
described above. Had compensation costs for the options been determined based on
the fair value on the grant date consistent with the provisions of SFAS 123, the
Company's net income and diluted income per share would have been changed to the
following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Pro forma net income............................... $17,640 $6,009 $8,012
Pro forma income per share......................... 1.96 0.69 1.35
</TABLE>
The fair values for the years presented were determined using a
Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Dividend yield.................... None None None
Volatility........................ 64% 33% 33%
Risk-free interest rate........... 5.5% to 6.8% 6.4% to 6.8% 5.8% to 6.7%
Expected life..................... 4 years 4 years 4 years
</TABLE>
The weighted average fair value of options granted in 1998, 1997 and 1996
was $8.04, $10.30 and $5.78, respectively.
For options outstanding and exercisable at September 30, 1998, the
exercisable price ranges and average remaining lives were:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
SHARES AVERAGE AVERAGE SHARES AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE OUTSTANDING EXERCISE
PRICES AT 9/30/98 CONTRACTUAL LIFE PRICE AT 9/30/98 PRICE
- -------- ----------- ---------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$10.72 513,136 7.4 $10.72 335,743 $10.72
$15.00 80,900 9.8 15.00 16,300 15.00
$17.875 130,500 8.6 17.875 130,500 17.875
$21.375 45,000 8.75 21.375 24,375 21.375
</TABLE>
14. RELATED PARTY TRANSACTIONS
SI Management L.P. is the sole general partner of the Partnership. Synthetic
Management G.P. is the sole general partner of SI Management L.P. By virtue of
these relationships, Synthetic Management G.P. controls the management and
affairs of the Partnership and therefore, the Company. The Partnership owns
5,699,194 shares of Common Stock, or approximately 66% of the issued and
outstanding shares of Common Stock, and therefore, holds the voting power to
determine the outcome of all matters upon which stockholders vote.
The partners of Synthetic Management G.P. are the following five Delaware
corporations: Chill Investments, Inc., Beckman Investments, Inc., Freed
Investments, Inc., Kenner Investments, Inc. and W.G. Wright Investments, Inc.
Each of Messrs. Chill, Beckman, Freed, Kenner and Wright is the sole director
F-16
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
14. RELATED PARTY TRANSACTIONS (CONTINUED)
and the sole stockholder of one of Synthetic Management G.P.'s partners. For
further information concerning Messrs. Chill, Freed, Kenner and Wright, see
"Executive Officers and Directors of the Company."
The Company and the Partnership have entered into a Registration Rights
Agreement pursuant to which the Company has agreed that upon request of the
Partnership the Company will register under the Securities Act and applicable
state securities laws the sale of the Common Stock owned by the Partnership and
as to which registration has been requested. The Company's obligation is subject
to certain limitations relating to a minimum amount required for registration,
the timing of a registration and other similar matters. The Company is obligated
to pay any registration expenses incidental to such registration, excluding
underwriters' commissions and discounts. In connection with the Company's
initial public offering of Common Stock in November 1996, the Company incurred
approximately $650 of such incidental registration expenses on the behalf of the
Partnership. The above description is qualified in its entirety by reference to
the Registration Rights Agreement, a copy of which has been filed as an exhibit
to Amendment No. 1 to the Company's Registration Statement on Form S-1 (File No.
333-9377), filed with the Securities and Exchange Commission on September 13,
1996.
On September 19, 1997, the Company and the Partnership entered into the
Agreement and Plan of Withdrawal and Dissolution of the Partnership (the
"Plan"). Pursuant to the Plan, the Partnership was to be dissolved in two
separate phases. The first phase was to be an underwritten public offering of
the number of shares of Common Stock that limited partners have elected to sell,
and the second phase is to be one to three liquidating distributions of the
unsold portions of the Partnership's shares of Common Stock, beginning 180 days
after the completion of the public offering. On November 7, 1997, the limited
partners approved the adoption of the Plan. However, the implementation of the
Plan has been enjoined by courts in Delaware and California in connection with
two lawsuits filed by certain limited partners of the Partnership against the
Partnership and its general partner (the "General Partner"), among others. See
"Claims and Legal Proceedings." Among other equitable and legal remedies, the
plaintiff is seeking the removal of the General Partner and the liquidation of
the Partnership. The Company is only a nominal defendant in these proceedings
and does not presently possess any contractual rights with respect to their
ultimate resolution. If, in connection with these lawsuits, the General Partner
is removed or resigns, or the Partnership is liquidated under a court-appointed
receiver, there can be no assurance that the resulting sale and/or distribution
of the Partnership's shares of Common Stock will be made in the same or similar
manner as that contemplated by the Plan. The General Partner has denied the
allegations of the plaintiff and is vigorously contesting the lawsuits; however,
in the event of an adverse ruling, the Company cannot predict the volume and
price at which the Common Stock trades might be affected.
A former executive officer of the Company and an affiliate of the
Partnership, is being retained as a consultant to the Company. Pursuant to his
consulting agreement with the Company, the former executive officer will
receive, until January 31, 2000, or upon earlier termination of his consulting
agreement, $125 per year and various insurance coverages, and will be authorized
to exercise all stock options awarded to him, subject to applicable vesting
provisions. Under this agreement, the former executive officer is required to
provide the Company with 20 hours of consultation per month, has released the
Company from any liability resulting from his employment and has also agreed not
to compete against the Company.
F-17
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
14. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company leases office space under a five-year lease with one of the
Company's executive officers. The term of the lease expires on September 30,
2003 and the rent is approximately $52 per year, which the Company believes is
within prevailing market rates.
Pursuant to a licensing agreement with the Company, an executive officer of
the Company, receives royalties related to the manufacture and sale of a certain
product for which the executive officer owns all of the U.S. and foreign
patents. Under this agreement, the Company paid royalties of approximately $9
and $13 in fiscal 1998 and 1997, respectively, and will continue to pay such
royalties until 2012 or the earlier termination of the licensing agreement.
During fiscal 1998 and 1997 the Company paid fees of approximately $125 and
$241, respectively, to a law firm in which Mr. Joseph Dana, a director of the
Company was a member until May 21, 1997. Effective May 21, 1997, Mr. Dana became
employed as Chief Operating Officer and General Counsel of the Company.
In May 1998, the Company acquired 82,056 shares of Common Stock from the
Partnership in exchange for $1,759 of amounts receivable from the Partnership,
in partial settlement of expenses incurred by the Company on behalf of the
Partnership during the last several years. The shares were acquired at their
fair market value and are held in treasury for issuance under the Employee Stock
Purchase Plan. At September 30, 1998, the remaining balance due the Company was
$663.
15. COMMITMENTS AND CONTINGENCIES
A. LEASE COMMITMENTS
On April 7, 1998, the Company entered into an eight-year capital lease
agreement to finance $7,500 of equipment at 7.25%. On October 4, 1998, the
Company entered into an eight-year capital lease for the acquisition of
equipment of $5,300 at an interest rate of 7.03%. The proceeds were primarily
used to repay the balance of the May 15, 1996 capital lease of $3,416. The
Company also leases certain factory and warehouse buildings and equipment under
long-term operating leases expiring periodically through 2009.
F-18
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under noncancelable lease obligations at
September 30, 1998, including the October 4, 1998 capital lease are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ------------------------------------------------------------ ------- ---------
<S> <C> <C>
1999........................................................ $2,111 $ 4,836
2000........................................................ 2,111 3,319
2001........................................................ 2,111 1,901
2002........................................................ 2,111 1,198
2003........................................................ 2,111 557
Thereafter.................................................. 5,816 603
------- -------
Total minimum lease payments................................ $16,371 $12,414
-------
-------
Less amount representing interest........................... 3,841
-------
Present value of net minimum lease payments................. 12,530
Less current maturities of capital lease obligation......... 1,207
-------
Long-term capital lease obligation.......................... $11,323
-------
-------
</TABLE>
Total rental expense for the above operating leases and other short-term
leases for the fiscal years 1998, 1997 and 1996 was $5,813, $4,112 and $4,499,
respectively.
B. CAPITAL EXPENDITURES
In fiscal 1999, the Company plans to incur approximately $25,000 in
connection with an expansion of its existing manufacturing facilities, primarily
to increase capacity, subject to prevailing market conditions.
16. LITIGATION
In connection with the proposed dissolution of the Partnership, pursuant to
an Agreement and Plan of Withdrawal and Dissolution (the "Plan"), the Company,
its directors and certain other of the Company's officers who are affiliated
with the General Partner have been named in two putative class and derivative
action lawsuits filed by certain limited partners of the Partnership. In the
first action, filed on February 11, 1997 in the Delaware Court of Chancery and
thereafter amended, the plaintiffs have alleged, among other things, breach of
contract with respect to the Partnership Agreement which governs the
Partnership, breach of the defendants' fiduciary duty to the limited partners
and the Company, that the Plan was unlawfully coercive, that the General Partner
has allegedly failed to satisfy certain conditions precedent to the right of
limited partners to amend the partnership agreement and that certain amendments
necessary to implement the Plan violate the terms of the partnership agreement.
The plaintiffs sought, among other equitable and legal remedies, removal of the
General Partner, dissolution of the Partnership, appointment of a liquidating
trustee, to enjoin the implementation of the Plan and compensatory damages in an
undetermined amount. On October 23, 1997, the Court preliminarily enjoined the
implementation of the Plan, although the Plan was subsequently approved by
limited partners on November 7, 1997. On November 7, 1997, the Delaware Supreme
Court accepted the defendants' petition for an expedited appeal
F-19
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
16. LITIGATION (CONTINUED)
of this injunction, and briefing and oral argument on the appeal was completed
as of January 6, 1998. On March 19, 1998, the Delaware Supreme Court issued an
opinion affirming the Court of Chancery's grant of a preliminary injunction and
remanded the case for further proceedings. On April 27, 1998, the Court of
Chancery granted the motion of certain pro-Plan intervenors to intervene in the
action, but denied their motion to disqualify plaintiffs' counsel. On May 14,
1998, the General Partner withdrew the Plan. After the withdrawal of the Plan,
plaintiffs, on June 3, 1998, filed a Consolidated Third Amended and Supplemental
Class and Derivative Complaint (the "Third Amended Complaint"). The Third
Amended Complaint, among other things, eliminated certain requests for relief
related to the Plan and added certain allegations related to the Company's
Employee Stock Purchase Plan and certain options granted to certain directors
and officers of the Company. In addition to the relief sought in prior
complaints, the Third Amended Complaint seeks declaratory relief with respect to
certain provisions of the Partnership Agreement, the invalidation of the
Company's Employee Stock Purchase Plan, the invalidation of certain options
granted to the Company's directors and officers, and the invalidation of certain
amendments to the Company's certificate of incorporation and bylaws relating to
voting by consent and the calling of special meetings. On July 20, 1998,
defendants filed a motion to dismiss the Third Amended Complaint. The defendants
have denied any allegation of wrongdoing.
The second lawsuit was filed in the U.S. District Court of the Northern
District of California on May 1, 1997, and thereafter amended. The plaintiff has
alleged in his amended complaint various federal securities and proxy violations
allegedly arising out of the joint proxy statement and prospectus that was
mailed to limited partners in connection with the solicitation of proxies for
the vote on the Plan and other related documents. The plaintiff also added the
Company as a named defendant, alleging that all defendants acted in concert
with, and as agents of, each other; however the plaintiff made no specific
independent allegations with respect to the Company. The plaintiff sought, among
other equitable and legal remedies, to enjoin the implementation of the Plan and
unspecified damages. On November 6, 1997, the Court granted in part the
plaintiff's motion for a temporary restraining order enjoining the
implementation of the Plan. After the withdrawal of the Plan, defendants, on
June 19, 1998, filed a motion to dismiss the claims as moot. On July 17, 1998,
plaintiff moved to amend his complaint purportedly to include an additional
plaintiff and additional claims for relief, including permanent injunctive
relief for any violations of the securities laws in the future. The amended
complaint also adds the Partnership as a nominal defendant. On September 24,
1998, the Court denied the defendants' motion to dismiss and granted plaintiff's
motion to amend the complaint. The defendants have denied any allegation of
wrongdoing.
On December 29, 1997, a purported derivative action was filed in the
Delaware Chancery Court by a limited partner of the Partnership against certain
of the Company's officers and directors with regard to certain stock options
plans adopted by the Company in 1994. Both the Partnership and the Company were
named as nominal defendants. The plaintiff alleged that the defendants breached
their fiduciary duties by adoption of the stock option plans. The plaintiff
seeks, among other things, a declaration that the stock options granted under
the plans are invalid, the establishment of a constructive trust over the stock
options, unspecified compensatory damages and reasonable attorneys' fees and
expenses. By order dated June 23, 1998, this action was consolidated with the
Delaware action described above. The defendants deny any allegation of
wrongdoing and intend to vigorously contest the lawsuit.
F-20
<PAGE>
SYNTHETIC INDUSTRIES, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT UNIT AND PER UNIT INFORMATION)
16. LITIGATION (CONTINUED)
Based on the Company's review of the allegations made in the above actions
to date, the Company does not believe that the ultimate resolution of these
actions will have a material adverse effect on the Company's results of
operations or financial condition.
The Partnership is a principal stockholder of the Company and certain
members of the Company's management control the General Partner. See "Certain
Relationships and Related Transactions."
The Company and its subsidiaries are parties to litigation arising out of
their business operations. Such litigation primarily involves claims for
personal injury, property damage, breach of contract and claims involving
employee relations and certain administrative proceedings. The Company believes
such claims are either adequately covered by insurance or do not involve a risk
of material loss to the Company.
By letter dated October 22, 1998, a demand for indemnification was received
from a customer with respect to utilization of Fibermesh-Registered Trademark-
in concrete slabs in the State of California. The demand for indemnification
pertained to any and all damages relating to their use of the
Fibermesh-Registered Trademark-product. No lawsuits have been filed against the
Company and based upon the information provided to the Company, the scope of
liability and potential damages, if any, cannot be ascertained at this time. The
Company has engaged outside counsel to investigate this claim and intends to
vigorously defend its product.
F-21
<PAGE>
SCHEDULE 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS OF SYNTHETIC INDUSTRIES L.P.
(EXTRACTED FROM THE SYNTHETIC INDUSTRIES L.P. QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1998
AND ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1998)
<PAGE>
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As previously discussed, since its organization in 1986 and subsequent
admission of Limited Partners, the Partnership has conducted no business
except owning and voting the Shares. The Company had 8,673,382 shares of
Common Stock outstanding as of December 31, 1998, of which approximately 66%
was owned by the Partnership. As the Partnership has no independent
operations or assets other than its investment in the Company, the
Partnership's financial statements are substantially identical to those of
the Company, with the exception of the minority interest, $765 due the
Company and amounts paid by the Company on behalf of the Partnership relating
to the Plan. As a result, the discussion and analysis of financial condition
and results of operations presented below relates to the operations of the
Company, except as disclosed. Accordingly, all references to fiscal year
refer to the Company's fiscal year which ends on September 30th.
The following discussion of the financial condition and results of operations
of the Company should be read in conjunction with the information contained
in the Consolidated Financial Statements, including the notes thereto. The
following discussion includes forward-looking statements that involve
certain risks and uncertainties. See "Forward Looking Statements." Dollars
are in thousands, except per share data.
Liquidity and Capital Resources
To finance its capital expenditures and fund its operational needs, the
Company has relied upon cash provided by operations, supplemented as
necessary by bank lines of credit and long-term indebtedness. Cash provided
by operating activities amounted to $15,194 and $13,727 for the three months
ended December 31, 1998 and 1997, respectively. These amounts for the periods
ending December 31, 1998 and 1997 reflect net income of $946 and $1,345,
respectively, after deducting noncash charges of $5,633 and $5,733 and net
working capital changes of $8,615 and $6,649 for each respective period.
Capital expenditures were $4,658 for the three months ended December 31, 1998
as compared to $14,379 for the same period of fiscal 1998. In addition, on
October 4, 1998, the Company entered into a 7.03% eight-year capital lease
for the acquisition of equipment of $5,300 and repaid the balance of the May
15, 1996 capital lease of $3,416. Capital expenditures planned for fiscal
1999 are approximately $25,000, primarily to expand the Company's
manufacturing capacity, subject to prevailing market conditions.
<PAGE>
Other sources of liquidity include the December 18, 1997 five-year credit
facility between the Company and its lenders, with BankBoston as agent (the
"Credit Facility") and the $170,000 aggregate principal amount of 9.25%
Senior Subordinated Notes due February 15, 2007 (the "Notes").
The Credit Facility consists of up to a $40 million asset based
securitization program (the "Securitization") and a $60 million senior
secured revolver facility (the "Revolver"), collateralized by the Company's
accounts receivable and substantially all of the Company's assets, excluding
real property, respectively. At December 31, 1998, the balances under the
Securitization and Revolver were $24,262 and $25,704 at interest rates
ranging from 6.05% to 7.75%, respectively. Availability under the Credit
Facility was approximately $34,300 at December 31, 1998.
The Notes, which represent unsecured obligations of the Company, are
redeemable at the option of the Company at any time on or after February 15,
2002, at an initial redemption price of 104.625% of their principal amount
together with accrued interest, with declining redemption prices thereafter.
Interest on the Notes is payable semi-annually on February 15 and August 15
in the amount of $7,863.
Based on current levels of operations and anticipated growth, the Company's
management expects net cash from operations and available credit facilities
to be sufficient to fund the Company's short-term and long-term debt
obligations, permit anticipated capital expenditures and fund the working
capital needs of the Company for the next twelve months.
On November 18, 1998 the Company announced its plans to combine its non-woven
manufacturing facilities. The Company estimates that $5,000 to $6,000 of
pre-tax costs will be incurred relating to the plant combination. The move is
expected to increase operating efficiencies by reducing overhead costs and
centralizing production in a modern facility resulting in expected pre-tax
savings of approximately $1,500 to $2,000 annually. In the first quarter of
fiscal 1999, the Company recorded a $1,619 pre-tax charge ($0.11 per share on
an after tax basis) associated with this combination, reflecting primarily
severance and other employee related costs. As of December 31, 1998, payments
of $274 have been made for these charges. The Company anticipates that all
remaining costs will be incurred in fiscal 1999.
Results of Operations
The following table sets forth the percentage relationships to net sales of
certain income statement items for the Company for the quarters ended December
31, 1998 and 1997.
<PAGE>
<TABLE>
<CAPTION>
Three months ended
December 31,
-------------------
1998 1997
-------- -------
<S> <C> <C>
Net sales........................... 100.0% 100.0%
Cost of sales....................... 68.6 69.5
----- -----
Gross profit...................... 31.4 30.5
Selling expenses.................... 11.2 10.9
General and administrative
expenses.......................... 9.8 9.4
Plant consolidation costs........... 1.9 --
Amortization of intangibles......... 0.8 0.8
----- -----
Operating income.................... 7.7 9.4
Interest expense.................... 5.7 6.3
Amortization of deferred
financing costs................... 0.2 0.2
----- -----
Income before provision for
taxes............................. 1.8 2.9
Provision for income taxes.......... 0.7 1.2
----- -----
Net income ......................... 1.1% 1.7%
----- -----
----- -----
</TABLE>
Results of Operations for the Three Months Ended December 31, 1998
Net sales for the first quarter of 1999 were $87,162 compared to $76,581 for
the same period in 1998, an increase of $10,581, or 13.8%. Carpet backing
sales for the first quarter of fiscal 1999 were $41,047 compared to $38,913
for the same period of fiscal 1998, an increase of $2,134, or 5.5%. This
increase was primarily the result of higher unit volume in both primary and
secondary carpet backing offset by lower average selling prices.
Construction and civil engineering product sales for the first quarter of
fiscal 1999 were $30,127 compared to $22,664 for the same period of fiscal
1998, an increase of $7,463, or 32.9%, including $3,681 contributed by the
Novocon steel fiber acquisition. Technical textiles sales for the first
quarter of fiscal 1999 were $15,988 compared to $15,004 for the same period
of fiscal 1998, an increase of $984, or 6.6%.
<PAGE>
Gross profit for the first quarter of fiscal 1999 was $27,368 compared to
$23,384 for the same period of fiscal 1998, an increase of $3,984, or 17.0%.
As a percentage of sales, gross profit increased to 31.4% from 30.5%. This
increase was primarily due to increased sales volume, growth of higher margin
business and lower on average polypropylene costs, offset by lower selling
prices, principally in carpet backing.
Selling, general and administrative expenses for the Company for the first
quarter of fiscal 1999 were $18,281 compared to $15,515 for the same period
of fiscal 1998, an increase of $2,766, or 17.8%. As a percentage of sales,
selling, general and administrative expenses increased from 20.3% to 21.0%.
The increase was primarily due to the increased construction and civil
engineering sales and a $400 increase in research and market development
costs. Included in general and administrative expenses for the Partnership
were $102, which is due the Company for expenses incurred on behalf of the
Partnership.
Operating Income for the Company for the first quarter of fiscal 1999 was
$6,742 compared to $7,221 for the same period of fiscal 1998, a decrease of
$479 or, 6.6%. As a percentage of sales, operating income decreased from 9.4%
to 7.7%. The decrease in operating income was primarily due to plant
consolidation costs of $1,619 (see Note 7) and increased selling, general and
administrative costs, partially offset by improved margins. Excluding the
plant consolidation costs, operating income for the first quarter of fiscal
1999 would have been $8,361, an increase of $1,140, or 15.8%, over operating
income for the same period of fiscal 1998.
Interest expense for the first quarter of fiscal 1999 was $4,948 compared to
$4,790 for the same period of fiscal 1998, an increase of $158, or 3.3%, due
to lower average interest rates on higher outstanding debt. The effective
income tax rate was 41% for the first quarter of each of fiscal 1999 and 1998.
Net income for the Company for the first quarter of fiscal 1999 was $946
compared to net income of $1,345 for the same period of fiscal 1998, a
decrease of $399, or 29.7%. Earnings before interest, taxes, depreciation
and amortization ("EBITDA")(1) for the Company for the first quarter of fiscal
1999 were $12,260 compared to $12,091 for the same period of fiscal 1998, an
increase of $169, or 1.4%. The decrease in net income was primarily due to
the factors discussed above. Excluding the plant consolidation costs, net
income would have been $1,901, an increase of $556, or 41.3%, over net income
for the same period of fiscal 1998. Net income for the first quarter of
fiscal 1999 for the Partnership was $520, which included the additional
general and administrative expenses and the minority interest in subsidiary
net income.
- -------------------
<PAGE>
(1) The Company believes that EBITDA is helpful in understanding cash flow from
operations that is available for debt service, taxes and capital
expenditures. EBITDA is not a concept in accordance with generally accepted
accounting principles and is not a substitute for operating income, net
income or cash flows from operating activities.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which must be adopted for fiscal years beginning after
December 15, 1997. SFAS 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. SFAS 130 will not have a material effect on the
Company's results of operations or financial condition.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"), which must be adopted for fiscal years beginning
after December 15, 1997. Under the new standard, companies will be required
to report certain information about operating segments in consolidated
financial statements. Operating segments will be determined based on the
method that management organizes its businesses for making operating
decisions and assessing performance. SFAS 131 also requires companies to
report certain information about their products and services, the geographic
areas in which they operate, and their major customers. SFAS 131 will not
have a material effect on the Company's results of operations or financial
condition.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which must be adopted for fiscal quarters of fiscal years beginning
after June 15, 1999. SFAS 133 requires the recognition of all derivatives as
either assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. SFAS 133 will not have a
material effect on the Company's results of operations or financial condition.
Year 2000 Readiness Disclosures
The Company is preparing its computer systems and hardware to deal with the
issues related to the year 2000. This is necessary because certain computer
programs have been written using two digits rather than four to define the
applicable year. As a result, software may recognize a date using the two
digits "00" as the year 1900 rather than the year 2000. Computer programs
that do not recognize the proper date could generate erroneous data or cause
systems to fail. In addition, many of the Company's vendors and service
providers are also
<PAGE>
faced with similar issues related to the year 2000.
In January 1998, the Company formally implemented a plan to become year 2000
compliant. The Company is evaluating and testing business and technical
information system hardware and software as to year 2000 compliance and
functionality. Planned application testing is 70% complete. The Company's
basic integrated software applications, Infinium and CAMS, are represented to
be year 2000 compliant by their respective vendors and testing to date has
verified vendor representations. Minimal code renovations were necessary in
CAMS and have been completed. The last phase of testing is scheduled to be
completed on or before March 1999, although test validation processes will be
ongoing, thereby providing sufficient time to handle unforeseen contingencies
and respond to external year 2000 issues that affect the Company and the
Company's business partners. The inventory process and assigning priorities
are complete for manufacturing process control, instrumentation and
embedded systems. Documentation from respective equipment manufacturers
and resources is approximately 92% complete. The Company believes that the
repair of this equipment is approximately 95% complete, with all testing of
this equipment to be scheduled and completed by mid 1999. Contingency
planning for this equipment is in process and scheduled for completion by
fiscal year-end 1999. The Company has also been proactive in contact with
external business partners to communicate and exchange status information.
Additional costs for the first quarter of 1999 for addressing year 2000
issues were approximately $25 and have been expensed as incurred. The Company
does not believe that future costs will have a material adverse effect on the
Company's results of operations or financial condition.
In the event that the efforts of this program do not address all potential
system problems, the Company is developing contingency plans to ensure that
it will be able to operate the critical areas of its business. This process
includes developing alternative plans to engage in business activities with
customers and suppliers who may not be year 2000 compliant. These plans will
be monitored for completion as we approach the year 2000. There can be no
assurance that the efforts or the contingency plans related to the Company's
systems or those of third parties relied upon will be successful or that any
failure to convert, upgrade, or appropriately plan for contingencies would
not have a material adverse effect on the Company's results of operations or
financial condition.
Forward Looking Statements
The discussion of the Company's business and operations in this report
includes several instances of forward-looking statements within the meaning
of Section
<PAGE>
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934, as amended, which are based upon management's good
faith assumptions relating to the financial, market, operating, and other
relevant environments that will exist and affect the Company's business and
operations in the future. No assurance can be made that the assumptions upon
which management based its forward-looking statements will prove to be
correct, or that the Company's business and operations will not be affected
in any substantial manner by other factors not currently foreseeable by
management or beyond the Company's control. All forward-looking statements
involve risk and uncertainty, including those described in this report, and
such statements shall be deemed in the future to be modified in their
entirety by the Company's public pronouncements, including those contained in
all future reports and other documents filed by the Company with the
Securities and Exchange Commission.
<PAGE>
FORM 10-K
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As previously discussed, since its organization in 1986 and subsequent
admission of Limited Partners, the Partnership has conducted no business
except owning and voting the Shares. As a result of its public offering of
Common Stock in November 1996, the Company had 8,668,750 shares of Common
Stock outstanding as of September 30, 1998, of which approximately 66% was
owned by the Partnership. As the Partnership has no independent operations or
assets other than its investment in the Company, the Partnership's financial
statements are substantially identical to those of the Company, with the
exception of the minority interest, $663 due the Company and amounts paid by
the Company on behalf of the Partnership relating to the Plan. As a result,
the discussion and analysis of financial condition and results of operations
presented below relates to the operations of the Company, except as
disclosed. Accordingly, all references to fiscal year refer to the Company's
fiscal year which ends on September 30(th).
<PAGE>
5
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the information
contained in the Consolidated Financial Statements, including the notes
thereto. The following discussion includes forward-looking statements that
involve certain risks and uncertainties. See "Forward-Looking Statements."
Dollars are in thousands, except per share data.
OVERVIEW
The Company's net sales in recent years have increased due to a variety
of factors, including generally increasing sales volumes as a result of
growing demand for the Company's products, the Company's ability to expand
its markets through development of new products and acquisitions.
The Company's gross profit has increased due primarily to increasing
sales volumes, continued diversification of its product line in higher margin
business and lower on average polypropylene costs, partially offset by lower
average selling prices due to decreases in the price of polypropylene.
Polypropylene is the basic raw material used in the manufacture of
substantially all of the Company's products today, accounting for
approximately 50% of the Company's cost of sales. The Company believes that
the selling prices of many of its products have adjusted over time to reflect
changes in polypropylene prices.
The following table sets forth the Partnership's percentage relationships to
net sales of certain statements of operations items:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales ................... 100.0% 100.0% 100.0%
Cost of sales................ 66.9 67.5 69.5
--------- --------- ----------
Gross profit................. 33.1 32.5 30.5
Selling expenses............. 10.6 9.2 9.2
General and administrative
expenses................... 8.5 8.0 7.8
Amortization of
intangibles................. 0.8 0.7 0.9
--------- --------- ----------
Operating income............. 13.2 14.6 12.6
Interest expense............. 5.0 5.8 7.6
Amortization of deferred
financing costs............ 0.2 0.2 0.2
--------- --------- ----------
Income before provision for
income taxes, minority interest
in subsidiary net income and
extraordinary item......... 8.0 8.6 4.8
Provision for income
taxes...................... 3.2 3.6 2.3
--------- --------- ----------
Income before minority interest
in subsidiary net income and
extraordinary Item......... 4.8% 5.0% 2.5%
--------- --------- ----------
--------- --------- ----------
</TABLE>
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal 1998 were $368,996 compared to $345,572 for fiscal
1997, an increase of $23,424, or 6.8%. Carpet backing sales for fiscal 1998
were $168,998 compared to $166,219 for fiscal 1997, an increase of $2,779, or
1.7%, reflecting higher unit volume, partially offset by lower average
selling prices. Construction and civil engineering product sales for fiscal
1998 were $128,318 compared to $114,611 for fiscal 1997, an increase of
$13,707, or 12.0%, reflecting increased unit volume in fiber reinforced
concrete and geosynthetic product sales. The Novocon Acquisition contributed
approximately $7,000 of this revenue. Technical textiles sales for fiscal
1998 were $71,680 compared to $64,742 for fiscal 1997, an increase of $6,938,
or 10.7%.
<PAGE>
6
Gross profit for fiscal 1998 was $122,319, compared to $112,385 for
fiscal 1997, an increase of $9,934, or 8.8%. As a percentage of sales, gross
profit increased to 33.1% in fiscal 1998 from 32.5% in fiscal 1997. This
increase was primarily due to lower on average polypropylene costs and higher
sales volume, partially offset by lower average selling prices.
The Company's improvement in gross profit performance also reflects its
diversification strategy for its products as well as its primary raw
material. The Company expects that sales of construction and civil
engineering products will continue to be of increasing importance to the
Company's overall sales. Reflecting the success of this strategy, sales of
carpet backing, although growing, continue to decrease as a percentage of
total sales and now represent 45.8% of fiscal 1998 total net sales. In
addition, the Company continues to expand its polyester-based product
offerings and, with the Novocon Acquisition, now includes steel fibers in its
line of concrete reinforcing fibers.
Selling expenses for fiscal 1998 were $39,358 compared to $31,801 for
fiscal 1997, an increase of $7,557, or 23.8%. As a percentage of sales,
selling expenses increased from 9.2% in fiscal 1997 to 10.6% in fiscal 1998.
General and administrative expenses for the Company for fiscal 1998 were
$30,857 compared to $26,562 for fiscal 1997, an increase of $4,295, or 16.2%.
As a percentage of sales, general and administrative expenses increased from
7.7% in fiscal 1997 to 8.3% in fiscal 1998. The increase in selling, general
and administrative expenses was primarily due to an increase in research and
market development costs from approximately $4,200 in fiscal 1997 to
approximately $8,100 in fiscal 1998, a $2,000 increase in engineering support
staff to continue to educate the marketplace about the benefits of the
Company's products, and a $1,500 increase in advisory and consulting fees to
improve operating efficiencies. Included in general and administrative
expenses for the Partnership is $622, which is due the Company, for expenses
incurred on behalf of the Partnership.
Operating income for fiscal 1998 was $49,317 as compared to $51,430 for
fiscal 1997, a decrease of $2,113, or 4.1%. As a percentage of sales,
operating income decreased to 13.4% in fiscal 1998 from 14.9% in fiscal 1997.
This decrease was primarily due to higher selling, general and administrative
costs which offset improved gross margins.
Interest expense for fiscal 1998 was $18,515 compared to $20,085 for
fiscal 1997, a decrease of $1,570, or 7.8%, due to lower average interest
rates on an increased level of outstanding debt and the capitalization of
interest related to machinery and equipment installation. The effective
income tax rate was 39% in fiscal year 1998 and 41% in fiscal 1997 before the
effect of the extraordinary item. The provision for income taxes includes the
recognition of additional state income tax credits of approximately $600
during fiscal 1998.
Income from continuing operations for the Company in fiscal 1998 was
$18,218 compared to $18,150 for fiscal 1997, an increase of $68. Earnings
before interest, taxes, depreciation and amortization ("EBITDA") for fiscal
1998 was $69,849 compared to $69,011 for fiscal 1997, an increase of $838, or
1.2%. The increase in the Company's income before extraordinary item, as well
as EBITDA, was primarily due to the factors discussed above. Income per share
on a diluted basis for fiscal 1998 was $2.03 compared to $2.08 before
extraordinary item for fiscal 1997 on increased weighted average shares
outstanding of 275,856 or 3.2%.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997 were $345,572 compared to $299,532 for fiscal
1996, an increase of $46,040, or 15.4%. Carpet backing sales for fiscal 1997
were $166,219 compared to $146,491 for fiscal 1996, an increase of $19,728,
or 13.5%. This increase was primarily due to higher unit volume in both
primary and secondary carpet backing. Construction and civil engineering
product sales for fiscal 1997 were $114,611 compared to $97,043 for fiscal
1996, an increase of $17,568, or 18.1%. This increase was primarily due to a
10.5% increase in Fibermesh-Registered Trademark- sales and a 22.3% increase
in geosynthetic sales. Technical textiles sales for fiscal
<PAGE>
7
1997 were $64,742 compared to $55,998 for fiscal 1996, an increase of $8,744,
or 15.6%, of which the Spartan Acquisition added approximately $8,600.
Gross profit for fiscal 1997 was $112,385, compared to $91,211 for fiscal
1996, an increase of $21,174, or 23.2%. As a percentage of sales, gross
profit increased to 32.5% from 30.5%. This increase was due to increased
sales volume and growth of higher margin business, coupled with slightly
lower average polypropylene costs as compared to the prior year.
Selling expenses for fiscal 1997 were $31,801 compared to $27,488 for
fiscal 1996, an increase of $4,313, or 15.7%. As a percentage of sales,
selling expenses remained at 9.2%. General and administrative expenses for
fiscal 1997 for the Company were $26,562 compared to $22,657 for fiscal 1996,
an increase of $3,905, or 17.2%. As a percentage of sales, general and
administrative expenses increased from 7.6% to 7.7%. The increase in selling,
general and administrative expenses was primarily due to infrastructure
expenditures, to support anticipated Company growth, coupled with an increase
in research and market development costs from $2,940 in fiscal 1996 to $4,200
in fiscal 1997. Included in general and administrative expenses for the
Partnership is $1,139, which is due the Company, for expenses incurred on
behalf of the Partnership relating to the Plan.
Operating income for fiscal 1997 was $51,430 as compared to $38,474 for
fiscal 1996, an increase of $12,956, or 33.7%. As a percentage of sales,
operating income increased to 14.9% in fiscal 1997 from 12.8% in fiscal 1996.
This increase was primarily due to improved gross profits, partially offset
by slightly higher selling, general and administrative costs.
Interest expense for fiscal 1997 was $20,084 compared to $22,773 for
fiscal 1996, a decrease of $2,689, or 11.8%, due to lower average interest
rates on the outstanding debt.
The effective income tax rate before the effect of the extraordinary item
was 41% and 46% in fiscal 1997 and 1996, respectively. The higher rate for
1996 was due primarily to the effect of nondeductible expenses, including the
amortization of goodwill, on lower income in fiscal 1996.
Income before extraordinary item for the Company in fiscal 1997 was
$18,150 compared to $8,102 for fiscal 1996, an increase of $10,048. Earnings
before interest, taxes, depreciation and amortization ("EBITDA") for fiscal
1997 was $69,011 compared to $54,074 for fiscal 1996, an increase of $14,937,
or 27.6%. The increase in the Company's income before extraordinary item, as
well as EBITDA, was primarily due to the factors discussed above.
Income per share on a diluted basis before extraordinary item for fiscal
1997 was $2.08 compared to $1.37 for fiscal 1996 on increased weighted
average shares outstanding of 2,788,956 or 47.0%, resulting from the
Offering. Pro forma income per share before extraordinary item, assuming the
net proceeds from the Offering and the issuance of the Notes (as defined
hereunder) were used to reduce outstanding indebtedness and the shares issued
in the Offering were outstanding as of the beginning of each respective
period, would have been $2.10 and $1.28 for fiscal 1997 and 1996,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
To finance its capital expenditures program and fund its operational
needs, the Company has relied upon cash provided by operations, supplemented
as necessary by bank lines of credit and long-term indebtedness. Net cash
provided by operating activities was $42,344, $25,129, and $31,421 for the
fiscal years ended September 30, 1998, 1997 and 1996, respectively.
Net cash provided by operating activities for the Company in fiscal 1998
consisted primarily of net income of $18,218 and noncash charges of $26,225.
Net cash provided by operating activities for the Company in fiscal 1997 and
1996 resulted primarily from net income of $6,200 and $8,102, respectively,
after deducting $19,431 for the extraordinary loss on early extinguishment of
debt for fiscal 1997 and deducting non-cash charges of $21,026, and $20,723
and net working capital changes of approximately
<PAGE>
8
($21,528) and $2,596 for each respective period. In fiscal 1997 the changes
included increased inventory and accounts payable balances resulting
primarily from higher inventory quantities and slightly higher on average
polypropylene costs.
The net proceeds from financing and operating activities in fiscal 1998
were utilized to fund capital expenditures and an acquisition of
approximately $46,100 and $6,000, respectively. The remaining balance due for
the Novocon Acquisition of $1,302 was paid on December 11, 1998. Capital
expenditures planned for fiscal 1999 are approximately $25,000, primarily to
expand the capacity of the Company's manufacturing facilities, subject to
prevailing market conditions. Capital expenditures in fiscal 1997, including
an acquisition, and 1996 were approximately $63,000 and $29,000, respectively.
On April 7, 1998, the Company entered into an eight-year capital lease
agreement to finance additional equipment of approximately $7,500 with an
interest rate of 7.25%. On October 4, 1998, the Company entered into an
eight-year capital lease for the acquisition of equipment of $5,300 at an
interest rate of 7.03%. The proceeds were primarily used to repay the balance
of the May 15, 1996 capital lease of $3,416.
On February 11, 1997, the Company issued $170,000 aggregate principal
amount of 9 1/4% Senior Subordinated Notes due February 15, 2007 (the
"Notes"), which represent unsecured obligations of the Company. The Notes are
redeemable at the option of the Company at any time on or after February 15,
2002, at an initial redemption price of 104.625% of their principal amount
together with accrued interest, with declining redemption prices thereafter.
Interest on the Notes are payable semi-annually on February 15 and August 15
in the amount of $7,863.
On November 1, 1996, the Company received net proceeds of approximately
$34,000 (after payment of underwriting discounts and commissions and
expenses) from the sale of 2,875,000 shares of Common Stock in an
underwritten public offering. These proceeds, together with the proceeds
received from the issuance of the Notes, were utilized primarily to retire
approximately $133,000 of the Company's 12 3/4% Senior Subordinated
Debentures due 2002 (the "Debentures"), pay the related call premium and
prepayment costs and fees associated with the refinancing of $15,920, pay
debt issuance costs of $5,525 and to repay approximately $21,900 of certain
outstanding indebtedness under the Company's Fourth Amended and Restated
Revolving Credit and Security Agreement, dated as of October 20, 1995, as
subsequently amended, among the Company, the lenders party thereto and
BankBoston, as agent. In connection therewith, the Company recorded an
extraordinary loss of $11,950 during the second quarter of fiscal 1997.
On December 1, 1997, the Company redeemed the remaining $7,403 aggregate
principal amount of the Debentures at a redemption price of 106.375% of the
principal amount thereof, together with accrued interest as of the redemption
date.
On December 18, 1997, the Company and its lenders, with BankBoston as
agent, entered into a new five year credit facility (the "Credit Facility").
The Credit Facility consists of up to a $40 million asset based
securitization program, with amounts borrowed through a newly formed
subsidiary, Synthetic Industries Funding Corporation, (the "Securitization"),
and a $60 million senior secured revolver facility (the "Revolver").
Securitization and Revolver borrowings are collateralized by the Company's
accounts receivables and substantially all of the assets of the Company,
excluding real property, respectively.
Interest on the Securitization is based on the applicable commercial
paper rate in effect plus a spread. The Revolver permits borrowings which
bear interest, at the Company's option, (i) for domestic borrowings based on
the lender's base rate or (ii) for Eurodollar borrowings based on a spread
over the Interbank Eurodollar rate at the time of conversion. Spreads for the
Securitization and the Revolver borrowings are determined by the operational
performance of the Company. At September 30, 1998, the balances under the
Securitization and Revolver were $29,162 and $30,022, respectively, at
interest rates ranging from 6.27% to 8.5%.
<PAGE>
9
The Revolver provides for borrowings under letters of credit of up to
$10,000, which borrowings reduce amounts available under the Revolver. At
September 30, 1998, letters of credit of $402 were outstanding.
The Credit Facility contains covenants related to the maintenance of
certain operating ratios and limitations as to the amount of capital
expenditures. The Company's ability to pay dividends on its Common Stock is
restricted by both the New Credit Facility and the Notes. At September 30,
1998, the availability under the Credit Facility was approximately $30,800.
At September 30, 1998, the Company's total outstanding indebtedness
amounted to $242,343. Such indebtedness consists of borrowings under the
Credit Facility of $59,184, $170,000 aggregate principal amount of the Notes,
outstanding capital lease obligations, mortgage, and a short-term note of
$13,159. Cash interest paid during fiscal 1998, 1997 and 1996 was $21,232,
$23,642, and $23,176, respectively.
On November 18, 1998, the Company announced its plans to combine its non-
woven manufacturing facilities in the first half of fiscal 1999. The move is
expected to increase operating efficiencies by reducing overhead costs and
centralizing production in a modern facility. The Company estimates that
$5,000 to $6,000 of pre-tax costs will be incurred relating to the plant
combination. The combination is expected to be completed in June 1999, and
the Company expects pre-tax savings will be approximately $1,500 to $2,000
annually.
Based on current levels of operations and anticipated growth, the
Company's management expects net cash from operations to provide sufficient
cash flow to satisfy the debt service requirements of the Company's long-term
debt obligations, including the New Credit Facility and lease agreements,
permit anticipated capital expenditures and fund the Company's working
capital requirements for the next twelve months.
INFLATION AND SEASONALITY
The Company does not believe that its operations have been materially
affected by inflation during the three most recent fiscal years. While the
Company does not expect that inflation will have a material impact upon
operating results, there is no assurance that its business will not be
affected by inflation in the future.
The Company's sales and income have historically been higher in the third
and fourth quarters of its fiscal year. While sales and income in the carpet
backing and technical textile product lines are not greatly affected by
seasonal trends, sales of construction and civil engineering products are
lower in the first and second quarters of any given fiscal year due to the
impact of adverse weather conditions on the construction and civil
engineering markets. Consequently, as sales from construction and civil
engineering products continue to increase as a percentage of the Company's
total sales, the seasonality of these products' sales will affect total sales
and income of the Company to a greater degree.
<PAGE>
10
Presented below is a summary of the Partnership's unaudited consolidated
quarterly financial information for the years ended September 30, 1998 and
1997: (Amounts are in thousands of dollars except limited partnership units
outstanding)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
FISCAL 1998 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
- -------------------------------------------------------------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
Net sales.................................................... $ 76,581 $ 79,271 $ 104,531 $ 108,613
Operating income............................................. 7,034 6,788 17,730 17,143
Net income................................................... 710 647 5,122 4,950
Income per limited partnership unit.......................... 881 801 6,339 6,124
Weighted average units outstanding........................... 800 800 800 800
FISCAL 1997
- -------------------------------------------------------------
Net sales.................................................... $ 70,857 $ 75,358 $ 99,112 $ 100,245
Operating income............................................. 7,332 9,391 17,711 15,857
Income before extraordinary item............................. 589 5,650 5,015 3,893
Net income (loss)............................................ 589 (6,300)(a) 5,015 3,893
Income(loss) per limited partnership unit.................... 729 (7,796)(a) 6,206 4,817
Weighted average units outstanding........................... 800 800 800 800
</TABLE>
- ------------------
(a) Includes an extraordinary loss of $11,950 from the early extinguishment
of debt. See Note 9.
YEAR 2000 READINESS DISCLOSURES
The Company is preparing its computer systems and hardware to deal with
the issues related to the year 2000. This is necessary because certain
computer programs have been written using two digits rather than four to
define the applicable year. As a result, software may recognize a date using
the two digits "00" as the year 1900 rather than the year 2000. Computer
programs that do not recognize the proper date could generate erroneous data
or cause systems to fail. In addition, many of the Company's vendors and
service providers are also faced with similar issues related to the year 2000.
In January 1998, the Company formally implemented a plan to become year
2000 compliant. The Company is evaluating and testing business and technical
information system hardware and software as to year 2000 compliance and
functionality. Planned application testing is 66% complete. The Company's
basic integrated software applications, Infinium and CAMS, are represented to
be year 2000 compliant by their respective vendors and testing to date has
verified vendor representations. Minimal code renovations were necessary in
CAMS and have been completed. The last phase of testing is scheduled to be
completed on or before March 1999, although test validation processes will be
ongoing, thereby providing sufficient time to handle unforeseen contingencies
and respond to external year 2000 issues that affect the Company and the
Company's business partners. The inventory process and assigning priorities
are complete for manufacturing process control, instrumentation and embedded
systems. Documentation from respective equipment manufacturers and resources
is approximately 85% complete. The Company believes that the repair of this
equipment is approximately 95% complete, with all testing of this equipment
to be scheduled and completed by mid 1999. Contingency planning for this
equipment is in process and scheduled for completion by fiscal year-end 1999.
The Company has also been proactive in contact with external business
partners to communicate and exchange status information.
In fiscal 1998 the costs for addressing year 2000 issues were
approximately $225 and have been expensed as incurred. The Company does not
believe that future costs will have a material adverse effect on the
Company's results of operations or financial condition.
In the event that the efforts of this program do not address all
potential system problems, the Company is developing contingency plans to
ensure that it will be able to operate the critical areas of its
<PAGE>
11
business. This process includes developing alternative plans to engage in
business activities with customers and suppliers who may not be year 2000
compliant. These plans will be monitored for completion as we approach the
year 2000. There can be no assurance that the efforts or the contingency
plans related to the Company's systems or those of third parties relied upon
will be successful or that any failure to convert, upgrade, or appropriately
plan for contingencies would not have a material adverse effect on the
Company's results of operations or financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which must be adopted for fiscal years beginning after
December 15, 1997. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS 130 will not have a material effect on the Company's
results of operations or financial condition.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"), which must be adopted for fiscal years beginning
after December 15, 1997. Under the new standard, companies will be required to
report certain information about operating segments in consolidated financial
statements. Operating segments will be determined based on the method that
management organizes its businesses for making operating decisions and assessing
performance. SFAS 131 also requires companies to report certain information
about their products and services, the geographic areas in which they operate,
and their major customers. The Company is currently evaluating the effect SFAS
131 will have on its financial statement presentation.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which must be adopted for fiscal quarters of fiscal years beginning after
June 15,1999. SFAS 133 requires the recognition of all derivatives as either
assets or liabilities in the statement of financial position and measurement of
those instruments at fair value. SFAS 133 will not have a material effect on the
Company's results of operations or financial condition
FORWARD LOOKING STATEMENTS
The discussion of the Company's business and operations in this report
includes in several instances forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are based upon management's
good faith assumptions relating to the financial, market, operating, and other
relevant environments that will exist and affect the Company's business and
operations in the future. No assurance can be made that the assumptions upon
which management based its forward-looking statements will prove to be correct,
or that the Company's business and operations will not be affected in any
substantial manner by other factors not currently foreseeable by management or
beyond the Company's control. All forward-looking statements involve risks and
uncertainties, including those described in this report, and such statements
shall be deemed in the future to be modified in their entirety by the Company's
public pronouncements, including those contained in all future reports and other
documents filed by the Company with the Securities and Exchange Commission.
<PAGE>
AGREEMENT OF SALE
The undersigned Limited Partner, and/or Assignee Holder or Unit Holder
(the "Seller") does hereby sell, assign, transfer, convey and deliver (the
"Sale") to Mercer Acquisition LLC, a Washington limited liability company
("Mercer" or the "Purchaser"), all of the Seller's right, title and interest
in units of limited partnership interests including any rights attributable
to claims, damages, recoveries, including recoveries from class action
lawsuits, and causes of action accruing to the ownership of such units of
limited partnership interests ("Units") in Synthetic Industries, L.P. (the
"Partnership") being sold pursuant to this Agreement of Sale, including all
exhibits attached hereto ("Agreement") and the Offer to Purchase dated May 4,
1999, (which together with this Agreement constitute the "Offer") for a
purchase price of $50,000 per Unit, less (i) transfer fees in the amount of
$3,750 per Unit, and (ii) the amount of any cash distributions declared or
paid from any source by the Partnership with respect to the Units after May
4, 1999, without regard to the record date or whether such distributions are
classified as a return on, or a return of, capital.
The Offer applies to whole and fractional Units. The purchase price and
transfer fees for fractional Units will be adjusted according to the
percentage of a full Unit represented by the fractional Unit. For example
the purchase price of a 1/2 Unit will be $25,000 (1/2 X $50,000), less
transfer fees of $1,875 (1/2 X 3,750) and less the amount of any cash
distributions declared or paid with respect to the 1/2 Unit after May 4, 1999.
The Seller hereby represents and warrants to the Purchaser that the
Seller owns such Units and, subject only to the approval rights of the
Partnership's general partner (the "General Partner") pursuant to the Amended
and Restated Limited Partnership Agreement dated November 11, 1986, as
amended (the "Partnership Agreement"), has full power and authority to
validly sell, assign, transfer, convey, and deliver to the Purchaser such
Units. The Seller further represents and warrants that upon acceptance for
payment by the Purchaser and the Purchaser's receipt of the General Partner's
written approval of the Sale, the Purchaser will acquire good, marketable and
unencumbered title thereto, free and clear of all options, liens,
restrictions, charges, encumbrances, conditional sales agreements, or other
obligations relating to the sale or transfer thereof, and such Units will not
be subject to any adverse claim. Notwithstanding anything in this Agreement
to the contrary, the Sale is subject to the conditions set forth in the Offer
to Purchase, see "Section 12 Certain Conditions of the Offer," and Purchaser
will not be required to accept for payment or pay for any Units not
theretofore accepted for payment or paid for and may terminate or amend the
Offer if such conditions, including receipt of the General Partner's written
approval of the Sale, are not satisfied.
The Seller further represents and warrants that the Seller is a "United
States person" as defined in Section 7701(a)(30) of the Internal Revenue Code of
1986, as amended, or if the Seller is not a United States person, the Seller
does not own beneficially or of record more than 5 percent of the outstanding
Units.
Such Sale shall include, without limitation, all rights in, and claims to,
any Partnership profits and losses, cash distributions, voting rights and other
benefits of any nature whatsoever, distributable or allocable to such Units
under the Partnership Agreement. Upon the execution of this Agreement by the
Seller and the Purchaser's receipt of the General Partner's written approval
<PAGE>
of the Sale, Purchaser shall have the right to receive all benefits and cash
distributions and otherwise exercise all rights of beneficial ownership of
such Units.
Seller, by executing this Agreement, hereby irrevocably constitutes and
appoints Purchaser as its true and lawful agent and attorney-in-fact with
respect to the Units with full power of substitution. This power of attorney is
an irrevocable power, coupled with an interest of the Seller to Purchaser, to
(i) execute, swear to, acknowledge, and file any document relating to the
transfer of the ownership of the Units on the books of the Partnership that are
maintained with respect to the Units and on the Partnership's books maintained
by the General Partner of the Partnership, or amend the books and records of the
Partnership as necessary or appropriate for the withdrawal of the Seller as a
Unit Holder and/or Limited Partner of the Partnership, (ii) vote or act in such
manner as any such attorney-in-fact shall, in its sole discretion, deem proper
with respect to the Units, (iii) deliver the Units and transfer ownership of the
Units on the books of the Partnership that are maintained with respect to the
Units and on the Partnership's books, maintained by the Partnership's General
Partner, (iv) endorse on the Seller's behalf any and all payments received by
Purchaser from the Partnership for any period on or after May 4, 1999, which are
made payable to the Seller, in favor of Purchaser, and (v) receive all benefits
and distributions and amend the books and records of the Partnership, including
Seller's address and record, to direct distributions to Purchaser as of the
effective date of this Agreement and otherwise exercise all rights of beneficial
ownership of the Units. Purchaser shall not be required to post bond of any
nature in connection with this power of attorney.
SELLER DOES HEREBY DIRECT AND INSTRUCT THE PARTNERSHIP AND THE GENERAL
PARTNER IMMEDIATELY UPON THEIR RECEIPT OF THIS AGREEMENT OF SALE (i) TO AMEND
THE BOOKS AND RECORDS OF THE PARTNERSHIP TO CHANGE THE SELLER'S ADDRESS OF
RECORD TO MERCER ACQUISITION LLC, C/O MANAGER, 425 PIKE STREET, SUITE 600,
SEATTLE, WA 98101, AND (ii) TO FORWARD ALL DISTRIBUTIONS AND ALL OTHER
INFORMATION TO BE RECEIVED BY SELLER TO MERCER ACQUISTION LLC TO THE ADDRESS
SET FORTH IN (i) ABOVE.
Seller and Purchaser do hereby release and discharge the General Partner
and its affiliates and each of their respective officers, directors,
shareholders, employees, and agents from all actions, causes of actions, claims
or demands Seller or Purchaser have, or may have, against any such person that
result from such party's reliance on this Agreement or any of the terms and
conditions contained herein. Seller and Purchaser do hereby indemnify and hold
harmless the Partnership and the General Partner and its affiliates and each of
their respective officers, directors, shareholders, employees, and agents from
and against all claims, demands, damages, losses, obligations, and
responsibilities arising, directly or indirectly, out of a breach of any one or
more of their respective representations and warranties set forth herein.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the Seller and any obligations of the Seller shall be
binding upon the heirs, personal representatives, successors and assigns of the
undersigned. Upon request, the Seller will execute and deliver any additional
documents deemed by the Purchaser or the Partnership to be necessary
<PAGE>
or desirable to complete the assignment, transfer and purchase of such Units.
Mercer reserves the right to amend or extend the Offer at any time.
The Seller hereby certifies, under penalties of perjury, that (i) the tax
identification number shown on this form is the Seller's correct Taxpayer
Identification Number; and (ii) Seller is not subject to backup withholding
either because Seller has not been notified by the Internal Revenue Service (the
"IRS") that Seller is subject to backup withholding as a result of failure to
report all interest or dividends, or the IRS has notified Seller that Seller is
no longer subject to backup withholding. The Seller agrees to complete the
Substitute Form W-9 attached hereto as Exhibit A and return it to Chase
Manhattan Trust Company, National Association (the "Depositary") with the
executed Agreement.
The Seller hereby also certifies, under penalties of perjury, that the
Seller, if an individual, is not a nonresident alien for purposes of U.S. income
taxation, and if not an individual, is not a foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms are defined in the
Internal Revenue Code of 1986, as amended, and Income Tax Regulations). The
Seller understands that this certification may be disclosed to the IRS by the
Purchaser and that any false statements contained herein could be punished by
fine, imprisonment, or both. The Seller agrees to complete either the
Individual's Certificate of Non-Foreign Status or Entity's Certificate of Non-
Foreign Status, depending upon which is applicable, attached hereto as Exhibits
B and C, respectively, and return it to the Depositary with the executed
Agreement.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Washington. Seller waives any claim that Washington or the
Western District of Washington is an inconvenient forum, and waives any right to
trial by jury.
The undersigned Seller (including any joint owner(s)) owns and wishes to
assign the number of Units set forth below. By its own or its Authorized
Signatory's signature below, the Seller hereby assigns its entire right, title
and interest to the Units to the Purchaser.
<PAGE>
AGREEMENT OF SALE --
EXECUTION PAGE
By executing this Agreement the Seller hereby acknowledges to the General
Partner that the Seller desires to withdraw as a Limited Partner as to the Units
referenced herein and hereby directs the General Partner to take all such
actions as are necessary to accomplish such withdrawal, and appoints the General
Partner the agent and attorney-in-fact of the Limited Partner, to execute, swear
to, acknowledge and file any document or amend the books and records of the
Partnership as necessary or appropriate for the withdrawal of the Limited
Partner.
IN WITNESS WHEREOF, the Limited Partner has executed, or caused its
Authorized Signatory to execute, this Agreement.
_______________________________________________
Print Name of Limited Partner (as it appears on
the Unit)
_______________________________________________
Print Name and Capacity of Authorized Signatory
(if other than above)
_____________________________________ ____________________________________
Seller's Signature Joint Seller's Signature
MEDALLION GUARANTEE MEDALLION GUARANTEE
(Medallion Guarantee for EACH (Medallion Guarantee for EACH Seller's
Seller's signature signature)
__________________ Investor I.D. Number
__________________ Home Telephone Number
__________________ Social Security/Tax ID No.
__________________ Date
__________________ Number of Units to be sold (Please indicate whether you are
tendering fractional Units, e.g. 1/2 Unit, 1/4 unit.)
OR
/ / Check here if you wish to sell ALL of your Units
YOU MUST MAIL EXECUTED ORIGINAL TO THE DEPOSITARY:
(A self-addressed stamped envelope is enclosed for your convenience)
Chase Manhattan Trust Company, National Association
1301 5th Avenue, Suite 3410
Seattle, WA 98101
IF YOU NEED ANY HELP IN COMPLETING THE AGREEMENT OF SALE, PLEASE CALL CHASE
MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION AT (206) 903-4906.
<PAGE>
EXHIBIT A
SUBSTITUTE FORM W-9: Under the Federal Income Tax Law, a non-exempt Unit
Holder is required to provide the Depositary with such Unit Holder's correct
Taxpayer Identification Number ("TIN") on the Substitute Form W-9 below. If the
certificate(s) are in more than one name or are not in the name of the actual
owner, consult the enclosed Substitute Form W-9 instructions for additional
guidance on which number to report. FAILURE TO PROVIDE THE INFORMATION ON THE
FORM MAY SUBJECT THE SURRENDERING UNIT HOLDER TO 31% FEDERAL INCOME TAX
WITHHOLDING ON THE PAYMENT OF ANY CASH.
The surrendering Unit Holder must check the box in Part III if a TIN has
not been issued and the Unit Holder has applied for a number or intends to apply
for a number in the near future. If a TIN has been applied for and the
Depositary is not provided with a TIN before payment is made, the Depositary
will withhold 31% on all payments to such surrendering Unit Holders of any Cash
consideration due for their former Units. Please review the enclosed Specific
Instructions for additional details on what Taxpayer Identification Number to
give the Depositary.
PAYER: CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
PART I - PLEASE PROVIDE YOUR Social Security No.
SUBSTITUTE FORM W-9 TIN IN THE SPACE AT THE RIGHT or Employer
DEPARTMENT OF THE AND CERTIFY BY SIGNING AND Identification No.
TREASURY DATING BELOW ___________________
INTERNAL REVENUE
SERVICE
PAYER'S REQUEST FOR PART II - For Payees exempt from backup PART III
TAXPAYER withholding, see the enclosed Specific AWAITING
IDENTIFICATION NUMBER Instructions. TIN : / /
(TIN)
- --------------------------------------------------------------------------------
CERTIFICATION - Under penalties of perjury, I certify that: (1) The Number
shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me), AND (2) I am not subject to backup
withholding either because I have not been notified by the Internal Revenue
Service (IRS) that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or the IRS has notified me that I am no
longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS - You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding, you
received another notification from the IRS that you were no longer subject to
backup withholding, do not cross out item (2).
ALSO SEE INSTRUCTIONS IN THE ENCLOSED SPECIFIC INSTRUCTIONS.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE > SIGNATURE ________________________ DATE ________
- --------------------------------------------------------------------------------
<PAGE>
Form W-9 (Rev. 12-96)
- -------------------------------------------------------------------------------
SPECIFIC INSTRUCTIONS
NAME.--If you are an individual, you must generally enter the name shown on
your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security
Administration of the name change, enter your first name, the last name shown
on your social security card, and your new last name.
If the account is in joint names, list first and then circle the name of
the person or entity whose number you enter in Part I of the form.
SOLE PROPRIETOR.--You must enter your INDIVIDUAL name as shown on your
social security card. You may enter your business, trade, or "doing business
as" name on the BUSINESS NAME line.
OTHER ENTITIES.--Enter the business name as shown on required Federal
tax documents. This name should match the name shown on the charter or other
legal document creating the entity. You may enter any business, trade, or
"doing business as" name on the business name line.
PART I--TAXPAYER IDENTIFICATION NUMBER (TIN)
You must enter your TIN in the appropriate box. If you are a resident alien
and you do not have and are not eligible to get an SSN, your TIN is your IRS
individual taxpayer identification number (ITIN). Enter it in the social
security number box. If you do not have an ITIN, see HOW TO GET A TIN below.
If you are a sole proprietor and you have an EIN, you may enter either
your SSN or EIN. However, using your EIN may result in unnecessary notices to
the requester.
NOTE: SEE THE CHART ON THIS PAGE FOR FURTHER CLARIFICATION OF NAME AND TIN
COMBINATIONS.
HOW TO GET A TIN.--If you do not have a TIN, apply for one immediately. To
apply for an SSN, get FORM SS-5 from your local Social Security
Administration office. Get FORM W-7 to apply for an ITIN or FORM SS-4 to
apply for an EIN. You can get Forms W-7 and SS-4 from the IRS by calling
1-800-TAX-FORM (1-800-829-3676).
If you do not have a TIN, write "Applied For" in the space for the TIN,
sign and date the form, and give it to the requester. For interest and
dividend payments, and certain payments made with respect to readily tradable
instruments, you will generally have 60 days to get a TIN and give it to the
requester. Other payments are subject to backup withholding.
NOTE: WRITING "APPLIED FOR" MEANS THAT YOU HAVE ALREADY APPLIED FOR A TIN OR
THAT YOU INTEND TO APPLY FOR ONE SOON.
PART II--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
Individuals (including sole proprietors) are NOT exempt from backup
withholding. Corporations are exempt from backup withholding for certain
payments, such as interest and dividends. For more information on exempt
payees, see the separate Instructions for the Requester of Form W-9.
If you are exempt from backup withholding, you should still complete
this form to avoid possible erroneous backup withholding. Enter your correct
TIN in Part I, write "Exempt" in Part II, and sign and date the form.
If you are a nonresident alien or a foreign entity not subject to backup
withholding, give the requester a completed FORM W-8, Certificate of Foreign
Status.
PART III--CERTIFICATION
For a joint account, only the person whose TIN is shown in Part I should sign
(when required).
1. INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984
AND BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You must give your correct
TIN, but you do not have to sign the certification.
2. INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED
AFTER 1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign
the certification or backup withholding will apply. If you are subject to
backup withholding and you are merely providing your correct TIN to the
requester, you must cross out item 2 in the certification before signing the
form.
3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may
cross out item 2 of the certification.
4. OTHER PAYMENTS. You must give your correct TIN, but you do not have
to sign the certification unless you have been notified that you have
previously given an incorrect TIN. "Other payments" include payments made in
the course of the requester's trade or business for rents, royalties, goods
(other than bills for merchandise), medical and health care services
(including payments to corporations), payments to a nonemployee for services
(including attorney and accounting fees), and payments to certain fishing
boat crew members.
5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, CANCELLATION OF DEBT, OR IRA CONTRIBUTIONS. You must give your
correct TIN, but you do not have to sign the certification.
PRIVACY ACT NOTICE
Section 6109 of the Internal Revenue Code requires you to give your correct
TIN to persons who must file information returns with the IRS to report
interests, dividends, and certain other income paid to you, mortgage interest
you paid, the acquisition or abandonment of secured property, cancellation of
debt, or contributions you made to an IRA. The IRS uses the numbers for
identification purposes and to help verify the accuracy of your tax return.
The IRS may also provide this information to the Department of Justice for
civil and criminal litigation and to cities, states, and the District of
Columbia to carry out their tax laws.
You must provide your TIN whether or not you are required to file a tax
return. Payers must generally withhold 31% of taxable interest, dividend, and
certain other payments to a payee who does not give a TIN to a payer. Certain
penalties may also apply.
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
- -------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND SSN OF:
- -------------------------------------------------------------------------------
1. Individual The individual
2. Two or more The actual owner of the
individuals (joint account or, if combined
account) funds, the first individual
on the account(1)
3. Custodian account of The minor(2)
a minor (Uniform Gift
to Minors Act)
4. a. The usual The grantor-trustee(1)
revocable savings
trust (grantor is
also trustee)
b. So-called trust The actual owner(1)
account that is not
a legal or valid trust
under state law
5. Sole proprietorship The owner(2)
- -------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND EIN OF:
- -------------------------------------------------------------------------------
6. Sole proprietorship The owner(3)
7. A valid trust, estate or Legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational, or other
tax-exempt
organization
10. Partnership The partnership
11. A broker or registered The broker or nominee
nominee
12. Account with the The public entity
Department of
Agriculture in the name
of a public entity (such
as a state or local
government, school
district, or prison) that
receives agricultural
program payments
- -------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
If only one person on a joint account has an SSN, that person's number
must be furnished.
(2) Circle the minor's name and furnish the minor's SSN.
(3) You must show your individual name, but you may also enter your business
or "doing business as" name. You may use either your SSN or EIN (if you
have one).
(4) List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the TIN of the personal representative or trustee
unless the legal entity itself is not designated in the account title.)
NOTE: IF NO NAME IS CIRCLED WHEN MORE THAN ONE NAME IS LISTED, THE NUMBER
WILL BE CONSIDERED TO BE THAT OF THE FIRST NAME LISTED.
<PAGE>
EXHIBIT B
INDIVIDUAL'S CERTIFICATE OF NON-FOREIGN STATUS
1. Section 1445 of the Internal Revenue Code provides that a transferee of
a U.S. real property interest must withhold tax if the transferor is a foreign
person. To inform the transferee that withholding of tax is not required on my
disposition of a U.S. real property interest, I,_______________________________,
hereby certify the following:
a. I am not a nonresident alien for purposes of U.S. income taxation.
b. My U.S. taxpayer identifying number or social security number is
___________, and;
c. My home address is _________________________________________
_________________________________________
2. I understand that this Certification may be disclosed to the Internal
Revenue Service by the transferee and that any false statement I have made here
could be punished by fine, imprisonment, or both.
3. Under penalties of perjury I declare that I have examined this
Certification and to the best of my knowledge and belief it is true, correct,
and complete.
Date: _______________ _______________________
Transferor
STATE OF _____________ )
) SS
COUNTY OF _____________ )
I HEREBY CERTIFY that on this day before me, an officer duly authorized in
the State of ___________ and County of ______________ to take acknowledgments,
personally appeared ________________, to me known to be the person described in
and who executed the foregoing instrument and he or she acknowledged the
execution thereof to be his or her free act and deed, for the uses and persons
therein mentioned.
WITNESS my hand and notarial seal, at the State and County aforesaid, this
day of __________________.
________________________
NOTARY PUBLIC
My commission expires on: _______________
<PAGE>
EXHIBIT C
ENTITY'S CERTIFICATE OF NON-FOREIGN STATUS
1. Section 1445 of the Internal Revenue Code provides that a transferee of
a U.S. real property interest must withhold tax if the transferor is a foreign
person. To inform the transferee that withholding of tax is not required upon
the disposition of a U.S. real property interest by ___________________, the
undersigned hereby certifies under penalties of perjury the following on behalf
of _____________________:
a. ______________ is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as those terms are defined in the Internal
Revenue Code of 1986, as amended and Income Tax Regulations) nor a nonresident
alien for U.S. income tax purposes;
b. ________________'s U.S. employer identification number is _____________;
and
c. ________________'s office address is _______________________________.
2. _________________ understands that this Certification may be disclosed
to the Internal Revenue Service by the transferee and that any false statement
contained herein could be punished by fine, imprisonment, or both.
3. Under penalties of perjury I declare that I have examined this
Certification and to the best of my knowledge and belief it is true, correct,
and complete, and I further declare that I have authority to sign this Document
on behalf of __________________.
Date: _______________ _________________________
(name of transferor)
By: ______________________
Title: _____________________
STATE OF _____________________ )
) SS
COUNTY OF _____________________ )
I HEREBY CERTIFY that on this day before me, an officer duly authorized in
the State of _______________ and County of ____________ to take acknowledgments,
personally appeared ___________________on behalf of ___________________, to me
known to be the person described in and who executed the foregoing instrument
and he or she acknowledged the execution thereof to be his or her free act and
deed, for the uses and persons therein mentioned.
WITNESS my hand and notarial seal, at the State and County aforesaid, this
day of ___________.
______________________
NOTARY PUBLIC
My commission expires on: _______________
<PAGE>
INSTRUCTIONS TO COMPLETE AGREEMENT OF SALE
ALL SIGNATURES MUST BE MEDALLION GUARANTEED
BENEFICIAL OWNER OF RECORD MUST:
1. COMPLETE and SIGN the Execution Page of the Agreement of Sale.
a. Have your signature Medallion Guaranteed by your bank or broker.
b. Indicate number of Units owned and/or to be sold.
2. COMPLETE and SIGN the Substitute Form W-9 in the form attached as Exhibit A.
3. COMPLETE and SIGN the Certificate of Non-Foreign Status in the form attached
as either Exhibit B or Exhibit C, as appropriate. You must have the Certificate
of Non-Foreign Status notarized.
4. Return the Agreement (including the Execution Page), the Substitute Form W-9
and the Certificate of Non-Foreign Status to the Depositary in the envelope
provided and send it to:
Chase Manhattan Trust Company, National Association
1301 5th Avenue, Suite 3410
Seattle, WA 98101
JOINT OWNERSHIP
Please have ALL owners of record sign the Execution Page and SEPARATELY
Medallion Guarantee each signature. In addition, have ALL owners of record
complete a Substitute Form W-9 and Certificate of Non-Foreign Status.
IRA/KEOGH
1. Beneficial owner must sign the Execution Page, Substitute Form W-9 and
Certificate of Non-Foreign Status.
2. Provide Custodian information (i.e. Name, Company Name, Address, Phone No.
and Account No.).
3. Obtain the Medallion Guarantee of Custodian Signature.
DEATH
If any owner is deceased, please enclose a certified copy of Death Certificate.
If Ownership is OTHER than Joint Tenants With Right of Survivorship, please
provide Letter of Testamentary or Administration current within 60 days showing
your beneficial ownership or executor capacity (in addition to copy of Death
Certificate).
<PAGE>
CORPORATION
Provide corporate resolution required showing authorized signatory.
TRUST, PROFIT SHARING OR PENSION PLAN
Provide title, signature, and other applicable pages of Trust Agreement
showing authorized signatory.
