<PAGE> 1
As filed with the Securities and Exchange Commission on __________, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 3
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SEDA SPECIALTY PACKAGING CORP.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 3089 95-3928988
(State or other jurisdiction (Primary Standard Industrial (IRS Employer Identification
of incorporation) Classification Code Number) Number)
</TABLE>
2501 West Rosecrans Blvd., Los Angeles, California 90059-3510 (310) 635-4444
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
____________________
Shawn Sedaghat
Chairman, President and Chief Executive Officer
SEDA Specialty Packaging Corp.
2501 West Rosecrans Blvd.
Los Angeles, California 90059-3510
(310) 635-4444
(Name, address, including zip code, and telephone number,
including area code, of agent for service) Copies to:
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Leib Orlanski, Esq. Carl S. Koerner, Esq.
Susan Kalman, Esq. Koerner Silberberg & Weiner
Freshman, Marantz, Orlanski 112 Madison Avenue, 3rd Floor
Cooper & Klein New York, NY 10016-7424
Eighth Floor, East Tower (212) 689-4400
9100 Wilshire Boulevard
Beverly Hills, California 90212-3480
Tel. (310) 273-1870
Fax (310) 274-8293
</TABLE>
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after this Registration Statement becomes
effective and all other conditions to the merger (the "Merger") of a
wholly-owned subsidiary of the Registrant with American Safety Closure Corp.
("ASC") pursuant to the Merger Agreement described in the enclosed
Prospectus/Proxy Statement have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box:
[ ]
CALCULATION OF REGISTRATION FEE
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- ----------------------------------------------------------------------------------------------------------
Proposed
Maximum Proposed Maximum
Title of each class of Offering Aggregate Amount of
securities Amount to be Price Offering Registration
to be registered registered Per Unit Price Fee
- ----------------------------------------------------------------------------------------------------------
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Common Stock $.001 par 262,243(1) Not Not Applicable $1,004.92(2)
value Applicable
- ----------------------------------------------------------------------------------------------------------
Total 262,243 Total $1,004.92
- ----------------------------------------------------------------------------------------------------------
- ---------------
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(1) The number of shares of Common Stock of the Registrant to be
registered is based upon the maximum number of such shares issuable in
the Merger upon the conversion of shares of Common Stock, par value
$.30 per share, of ASC ("ASC Common Stock") presently outstanding and
subject to outstanding stock options. The terms of the Agreement and
Plan of Merger provide that the public holders of the ASC Common Stock
will receive (subject to adjustment in certain circumstances) one
share of the Registrant's Common Stock for every eight shares of ASC
Common Stock held. ASC Managing Partners, an affiliate of ASC, has
agreed to exchange its 1,656,127 shares of ASC Common Stock for
$1,050,000 cash and 82,500 shares of Registrant's Common Stock.
(2) The registration fee, pursuant to Rule 457(f)(1) under the Securities
Act of 1933 (the "Securities Act"), was arrived at by multiplying
$1.28125, the average of the bid and asked prices of a share of ASC's
Common Stock in the Over-the-Counter Market on the Electronic Bulletin
Board on June 5, 1995, by 3,094,074, the maximum number of shares of
ASC Common Stock to be cancelled in the Merger, and deducting
therefrom pursuant to Rule 457(f)(3) under the Securities Act,
$1,050,000, the cash paid by Registrant to ASC Managing Partners as
part of the transaction. The resulting amount, $2,914,282, was then
multiplied by 1/29th of one percent to arrive at the fee.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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SEDA SPECIALTY PACKAGING CORP.
Cross-Reference Sheet to Form S-4 Registration Statement
Pursuant to Item 501(b) of Regulation S-K
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<CAPTION>
Location in Prospectus\
Form S-4 Item Proxy Statement
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A. Information About the Transaction
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus....................... Outside Front Cover Page of Prospectus/Proxy Statement
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................... Inside Front Cover Page of Prospectus/Proxy Statement;
Available Information; Table of Contents
3. Risk Factors and Ratio of Earnings to Fixed Charges
and Other Information................................ Summary; Risk Factors; SEDA Specialty Packaging Corp. -
Selected Financial Data; American Safety Closure Corp. -
Selected Consolidated Financial Data; Unaudited Pro Forma
Combined Financial Statements
4. Terms of the Transaction............................. Summary; The Transaction
5. Pro Forma Financial Information...................... Summary; Pro Forma Combined Financial Statements
6. Material Contracts with the Company Being
Acquired............................................. The Transaction - Interest of Certain Persons in the Merger
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be Underwriters..... American Safety Closure Corp. - Selling Stockholders
8. Interests of Named Experts and Counsel............... Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities....... Not Applicable
B. Information about the Registrant
10. Information with Respect to S-3 Registrants.......... Not Applicable
11. Incorporation of Certain Information by
Reference............................................ Not Applicable
12. Information with Respect to S-2 or S-3
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1
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Registrants....................................................... Not Applicable
</TABLE>
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<CAPTION>
Location in Prospectus\
Form S-4 Item Proxy Statement
- ------------- -----------------------
<S> <C> <C>
13. Incorporation of Certain Information by
Reference.......................................................... Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants......................................... Risk Factors; SEDA Specialty
Packaging Corp.; Financial Statements
of SEDA Specialty Packaging Corp.
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies............................ Not Applicable
16. Information with Respect to S-2 or S-3
Companies............................................................. Not Applicable
17. Information with Respect to Companies Other
than S-3 or S-2 Companies............................................. American Safety Closure Corp.;
Consolidated Financial Statements of
American Safety Closure Corp.
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited..................................... Cover Page; Summary; Introduction;
Information Concerning the Meeting;
The Transaction - Interests of
Certain Persons in the Merger; The
Transaction - Appraisal Rights of
Dissenting Stockholders; SEDA
Specialty Packaging Corp. - Directors
and Executive Officers, Executive
Compensation, Certain Relationships
and Certain Transactions and Security
Ownership of Certain Beneficial
Owners and Management
19. Information if Proxies, Consents or
Authorizations are not to be Solicited,
or in an Exchange Offer................................................ Not Applicable
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2
<PAGE> 4
AMERICAN SAFETY CLOSURE CORP.
Dear Fellow Stockholder:
As you may know, American Safety Closure Corp. ("ASC") and SEDA
Specialty Packaging Corp. ("SEDA") have entered into a definitive merger
agreement through which we will combine our companies to create a broadly
diversified specialty plastic packaging company (the "Merger"). If the Merger
is approved, ASC will become a wholly-owned subsidiary of SEDA. We believe
that, as a result of the Merger, ASC will have additional financial strength
and other resources to provide the enhanced quality and breadth of specialty
plastic packaging products our customers will need in the years ahead.
The following persons were directors or executive officers of ASC
during the period between April 1994 and the present: David L. Kassel, Harry
Goodman, Eugene Biernaski, Donald J. Robinson, Clarence Rohrer, Sharokh "Shawn"
Sedaghat, Edward F. Csaszar, Earl McCurdy, Kevin Kearsey, and Vince Conti.
Messrs. Kassel and Goodman, former directors of ASC are also principals of ASC
Managing Partners which sold 1,656,127 shares of ASC common stock to SEDA for
$1,050,000 and 82,500 shares of SEDA common stock. Messrs. Robinson, Rohrer,
and Biernaski own respectively 57,500, 83,750, and 55,000 shares of ASC Common
Stock. Mr. Sedaghat is also the President and Chief Executive Officer of SEDA,
Mr. Csaszar is Vice President of Sales and Marketing at SEDA, Mr. McCurdy is
Director of Sales at SEDA, and Mr. Kearsey and SEDA own equal shares of Tube
Tech, a plastics tube marketing business. Messrs. Robinson, Rohrer and
Biernaski granted SEDA irrevocable proxies (the "Employee Proxies") to vote
their shares of ASC in favor of the Merger in return for which SEDA, if it
utilizes the proxies, is required to allow Messrs. Robinson, Rohrer and
Biernaski to elect whether to exchange their ASC shares for SEDA shares on a
ratio of eight shares of ASC stock for one share of SEDA stock or to receive
$1.50 for each share of ASC stock exchanged by such persons in the Merger. As
a result of an amendment to the Merger Agreement, the public stockholders of
ASC only have the right to exchange their ASC stock for SEDA stock at the ratio
of eight shares of ASC stock for one share of SEDA stock. The public
shareholders do not, under the Merger Agreement, have the right to exchange
their ASC stock for $1.50 per share, as do Messrs. Robinson, Rohrer, and
Biernaski.
Your Board of Directors feels that the Merger is in the best interests
of ASC and its stockholders. Therefore, the Board unanimously recommends that
you vote to adopt and approve the merger agreement.
As a stockholder, you have the opportunity to voice your opinion on
the proposal. Your vote is important. Please be sure to complete, sign, and
return the proxy card in the enclosed postage-prepaid envelope as promptly as
practicable and in any event no later than ____________, 1996.
You should read the attached Prospectus/Proxy Statement carefully for
more detailed information about the Merger. SEDA controls 89.5% of the ASC
common stock and the outcome of the vote is assured. Upon approval of the
Merger you will be entitled to receive one share of SEDA common stock in
exchange for each eight shares of ASC common stock held by you immediately
prior to consummation of the Merger. Under New York law, stockholders of ASC
who deliver to ASC, within 20 days after receiving the attached
Prospectus/Proxy Statement, a written objection to the Merger, have the right
to demand payment of the "fair value" of their ASC common stock if the required
procedures under Section 623 of the New York Business Corporation Law are
followed. See "The Transaction-Appraisal Rights of Dissenting Stockholders"
and a copy of the text of Section 623 of the New York Business Corporation Law
included as Annex C to the attached Prospectus/Proxy Statement.
Thank you in advance for your participation and prompt attention.
If you have any questions regarding the proposed Merger, please call
Eugene Biernaski, ASC's Vice President Finance, Chief Financial Officer,
Treasurer and Secretary, at (518) 561-2030 ext. 15.
Sincerely,
Shawn Sedaghat
Chairman of the Board of Directors
and Chief Executive Officer
May __, 1996
<PAGE> 5
AMERICAN SAFETY CLOSURE CORP.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held _____________, 1996
To the Stockholders of American Safety Closure Corp.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Special Meeting") of American Safety Closure Corp., a New York corporation
("ASC"), will be held on ____________, 1996, at 10:00 a.m. Eastern Standard
Time, at the principal executive offices of ASC, 1 Plant Road, Plattsburgh, New
York 12901, for the following purposes:
1. To consider and approve the Restated Agreement and
Plan of Merger dated as of January 5, 1995, and Amendments to the
Restated Plan of Merger, dated August 21, 1995, December 15, 1995 and
March 19, 1996 (the "Merger Agreement"), by and among ASC, SEDA
Specialty Packaging Corp., a Delaware corporation ("SEDA") and SEDA
ASC Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of SEDA ("Subsidiary"), providing for, among other things,
the merger of Subsidiary with and into ASC (the "Merger"), as
described in the accompanying Prospectus/Proxy Statement.
2. To transact such other business as may properly come
before the Meeting and any adjournments thereof.
The foregoing items of business are more fully described in the
Prospectus/Proxy Statement accompanying this Notice.
Holders of the Common Stock, $.30 par value, of ASC (the "ASC Common
Stock") have the right to dissent from the Merger and obtain payment for their
shares by following the procedures prescribed in Section 623 of the New York
Business Corporation Law, ("NYBCL") which is attached as Annex C to, and
summarized under "The Transaction - Appraisal Rights of Dissenting
Stockholders" in the attached Prospectus/Proxy Statement. A dissenting
stockholder must deliver to ASC, within 20 days after receiving this Notice,
written objection to the Merger. A signed proxy card with no voting
instructions indicated will be voted in favor of the Merger.
Only stockholders are cordially invited to attend the meeting in
person. However, to assure your representation at the Meeting, you are urged
to mark, sign, and return the enclosed proxy card as promptly as possible in
the postage-prepaid envelope enclosed for that purpose. Any stockholder
attending the Meeting may vote in person even if he or she returned a proxy.
Sincerely,
Eugene Biernaski
Secretary
Plattsburgh, New York
______________, 1996
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. AN
ABSTENTION OR FAILURE TO VOTE HAS THE SAME EFFECT AS A VOTE FOR THE MERGER.
<PAGE> 6
PROSPECTUS/PRELIMINARY PROXY STATEMENT DATED __________________, 1996
SUBJECT TO COMPLETION
AMERICAN SAFETY CLOSURE CORP.
1 Plant Road
Plattsburgh, New York 12901
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
_________________, 1996
SEDA SPECIALTY PACKAGING CORP.
2501 W. Rosecrans Boulevard
Los Angeles, California 90059-3510
PROSPECTUS
FOR ISSUANCE OF UP TO 262,243 SHARES OF SEDA COMMON STOCK
This Prospectus/Proxy Statement is being furnished to stockholders of
American Safety Closure Corp., a New York corporation ("ASC") in connection
with the solicitation by ASC of proxies to be voted at a Special Meeting of
Stockholders of ASC and any adjournments thereof. At the Special Meeting of
Stockholders to be held at 10:00 a.m. on ________, 1996 (the "Special
Meeting"), the stockholders will consider and vote upon an Agreement and Plan
of Merger (the "Merger Agreement") whereby ASC will be acquired by SEDA
Specialty Packaging Corp., a Delaware corporation ("SEDA") through the merger
of a wholly-owned subsidiary of SEDA into ASC and holders of the outstanding
shares of common stock, $.30 par value, of ASC (the "ASC Common Stock") will be
entitled to receive one share of the common stock, $.001 par value, of SEDA
(the "SEDA Common Stock") in exchange for each eight shares of ASC Common Stock
held immediately prior to consummation of the Merger.
No fractional shares of SEDA Common Stock will be issued in the
Merger. In lieu thereof, each holder of ASC Common Stock, entitled to receive
a fractional share of SEDA Common Stock, will receive from SEDA an amount of
cash equal to the value of such fractional share determined by multiplying the
fraction by $1.50.
This Prospectus/Proxy Statement is being mailed on or about
___________, 1996, to all stockholders of ASC as of _____________, 1996, the
record date for the determination of stockholders entitled to notice of and to
vote at the Special Meeting. Prospective investors should carefully consider
the matters described under "Risk Factors".
SEDA has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 under the Securities Act of
1933, as amended (the "Registration Statement") with respect to the SEDA Common
Stock which will be issued to the holders of ASC Common Stock in the Merger,
and this Prospectus/Proxy Statement also constitutes the Prospectus of SEDA for
the public offering of such securities. SEDA has filed concurrently with the
Commission a registration statement under Form S-1 to cover the resale of
82,500 shares of SEDA Common Stock issued to ASC Managing Partners to cover the
resale of certain shares of SEDA owned by ASC stockholders. This
Prospectus/Proxy Statement does not cover any resales of SEDA Common Stock to
be received by ASC stockholders in the Merger, and no person is authorized to
make any use of this Prospectus/Proxy Statement in connection with any such
resale although such shares may be traded freely and without use of this
Prospectus/Proxy Statement by the stockholders of ASC not deemed to be
affiliates of ASC or of SEDA. All information herein with respect to ASC has
been furnished by ASC, and all information herein with respect to SEDA has been
furnished by SEDA.
SEE "RISK FACTORS" ON PAGES 8 THROUGH 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY THE STOCKHOLDERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus/Proxy Statement is ________________, 1996.
<PAGE> 7
AVAILABLE INFORMATION
SEDA has filed a Registration Statement (the "Registration Statement")
on Form S-4 under the Securities Act, with the Securities and Exchange
Commission (the "Commission") with respect to the SEDA Common Stock being
offered hereby. As permitted by the rules and regulations of the Commission,
the Prospectus/Proxy Statement omits certain information contained in the
Registration Statement. Statements made in this Prospectus/Proxy Statement as
to any contract, agreement or other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
Each of SEDA and ASC is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). SEDA's
Exchange Act filing number is 0-22508. ASC's Exchange Act filing number is
0-14832. In accordance with the Exchange Act, SEDA and ASC file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and any other information filed by either SEDA or ASC with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, NW,
Washington, DC 20549, and at the following Regional Offices of the Commission:
New York Regional Office, 7 World Trade Center, New York, New York 10048; and
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661.
____________________
SEDA furnishes to its stockholders annual reports containing financial
statements audited by its independent accountants. In addition, SEDA furnishes
unaudited quarterly or other interim reports to its stockholders as required.
____________________
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROSPECTUS/PROXY
STATEMENT OTHER THAN THOSE CONTAINED HEREIN. ANY INFORMATION OR
REPRESENTATIONS WITH RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY SEDA OR ASC. THIS PROSPECTUS/PROXY
STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THE PROSPECTUS/PROXY STATEMENT NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF SEDA OR ASC SINCE THE DATE HEREOF OR THAT THE
INFORMATION IN THIS PROSPECTUS/PROXY STATEMENT OR IN THE DOCUMENTS INCORPORATED
BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
<PAGE> 8
PROSPECTUS/PROXY STATEMENT
AMERICAN SAFETY CLOSURE CORP.
1 Plant Road
Plattsburgh, New York, 12901
SEDA SPECIALTY PACKAGING CORP.
2501 West Rosecrans Boulevard
Los Angeles, California 90059-3510
____________________
This Prospectus/Proxy Statement is first being mailed to ASC stockholders on or
about _________, 1996 in connection with the solicitation of proxies for the
Special Meeting.
<PAGE> 9
TABLE OF CONTENTS
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PAGE
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SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
INFORMATION CONCERNING THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
THE TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Background and Reasons for Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Description of Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Appraisal Rights of Dissenting Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Federal Income Tax Consequences of The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ASC Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PRO FORMA COMBINED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SEDA SPECIALTY PACKAGING CORP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Business and Properties of SEDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Market for SEDA's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Certain Relationships and Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . 57
AMERICAN SAFETY CLOSURE CORP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Certain Information Regarding Vote on Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Business and Properties of ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Market for ASC's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . 69
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
LEGAL OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
INDEX TO SEDA FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
INDEX TO ASC FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
Annex A -- Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Annex B -- ASC Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Annex C -- Section 623 of the New York Business Corporation Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
Annex D -- Opinion of Price Waterhouse LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
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<PAGE> 10
SUMMARY
Certain significant matters discussed in this Prospectus/Proxy
Statement are summarized below. This summary is not intended to be complete
and is qualified in all respects by the detailed information appearing
elsewhere in the Prospectus/Proxy Statement and its Annexes. Stockholders are
urged to review carefully the entire Prospectus/Proxy Statement, the Merger
Agreement which is attached hereto as Annex A and the financial statements
included elsewhere herein. Cross-references in this summary are to captions in
this Prospectus/Proxy Statement.
PARTIES TO THE MERGER
SEDA SPECIALTY PACKAGING CORP.
SEDA Specialty Packaging Corp. ("SEDA") develops, manufactures and
sells specialty plastic packaging products to the personal care, food and
beverage, household and industrial chemical and pharmaceutical industries.
SEDA's products consist of lined and linerless plastic caps and closures,
flexible plastic tubes and custom plastic products offered in a broad variety
of sizes with diverse choices of color and printing. SEDA focuses on customers
who require shorter lead times, superior product quality, uniform appearance,
customized service and flexible delivery schedules. SEDA's strategy is
designed to respond to these key factors in order to position SEDA as a
preferred supplier in the highly competitive industries in which it operates.
On July 19, 1994, SEDA's stockholders approved the reincorporation of
SEDA in the State of Delaware. Such reincorporation was effected on August 1,
1994. As a result of the reincorporation, each outstanding share of the
Company's no par value common stock was exchanged for 1 share of $0.001 par
value common stock of the Delaware corporation. The total number of common
shares outstanding at the date of the reincorporation was 5,015,000.
SEDA's executive offices are located at 2501 West Rosecrans Boulevard,
Los Angeles, California 90059-3510 and its telephone number is (310) 635-4444.
AMERICAN SAFETY CLOSURE CORP.
American Safety Closure Corp. ("ASC") develops, manufactures and sells
specialty plastic closures to the personal care, food and beverage and vitamin
industries. ASC produces two types of tamper-evident caps, a drop-ring cap (in
which the lower portion of the cap breaks away, drops down and remains on the
bottle neck) and a proprietary tear-band cap (in which a narrow plastic band
must be removed before the bottle can be opened). ASC also has made
significant progress in developing a tamper-evident and child-resistant cap
which it believes will be well received by the pharmaceutical, vitamin and food
producers. ASC has four U.S. patents issued and two patent applications
relating to the design of its caps, the molds and process and manufacture of
the caps.
Through its wholly-owned subsidiary, Arpak Plastics, Inc. ("Arpak"),
ASC has made sizable inroads into the vitamin and food business with its
tamper-evident closures. Additionally, ASC plans to add a child-resistant
feature to certain caps in the near future, which is expected to increase ASC's
access to the pharmaceutical packaging and prescription ware market. With the
leasing, commencing in 1993, of certain assets formerly owned by Tredegar
Molded Products ("Tredegar"), Arpak has maintained and further developed
business of customers previously supplied by Tredegar, primarily in the
cosmetic sector. In January 1995, these assets were purchased by SEDA from KGE
Leasing Associates, Inc. ("KGE"), a corporation controlled by certain principal
stockholders of ASC. See "Transaction - Interests of Certain Persons in the
Merger." In addition to allowing Arpak to move into the cosmetic sector as a
major source, the extra mold capacity and the wide range of decorating
abilities that Arpak now possesses should enable it to become even more
competitive in its traditional market sectors.
ASC's executive offices are located at 1 Plant Road, Plattsburgh, New
York 12901 and its telephone number is (518) 561-2030.
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<PAGE> 11
SEDA ASC ACQUISITION CORP. ("SUBSIDIARY")
Subsidiary is a corporation recently organized by SEDA in the state of Delaware
for the purpose of effecting the Merger. It has no material assets and has not
engaged in any activities except in connection with such proposed transaction.
The mailing address of Subsidiary's executive offices is 2501 West Rosecrans
Boulevard, Los Angeles, California 90059-3510, and its telephone number is
(310) 635-4444.
SPECIAL MEETING
DATE, TIME AND PLACE OF SPECIAL MEETING OF STOCKHOLDERS
The Special Meeting will be held on ________________, 1996 at 10:00
a.m., Eastern Standard Time, at the principal executive offices of ASC, 1 Plant
Road, Plattsburgh, New York 12901.
PURPOSE OF SPECIAL MEETING OF STOCKHOLDERS
At the Special Meeting, including any adjournments thereof, the ASC
stockholders will consider and vote on a proposal to approve the Merger
Agreement whereby ASC will become a wholly owned subsidiary of SEDA. Under the
terms of the Merger Agreement, holders of the outstanding shares of ASC Common
Stock will be entitled to receive one share of SEDA Common Stock in exchange
for eight shares of ASC Common Stock. See "The Transaction".
RECORD DATE
Only stockholders of record of ASC at the close of business on
___________, 1996 will be entitled to receive notice of and to vote at the
Special Meeting.
REQUIRED VOTE
The affirmative vote of the holders of two-thirds of the outstanding
shares of ASC Common Stock is necessary to adopt the Merger Agreement. As set
forth below, SEDA currently holds Employee Proxies to vote an aggregate of
339,250 shares of ASC Common Stock and, an aggregate of 7,950,127 shares of ASC
Common Stock comprised of 1,656,127 shares of ASC Common Stock purchased from
ASC Managing Partners, 6,192,000 shares of ASC Common Stock received in
exchange for a contribution of equipment and a reduction of indebtedness and an
aggregate of 102,000 shares of ASC Common Stock purchased in the open market.
SEDA will thus have the ability to vote 8,289,377 shares of ASC Common Stock at
the Special Meeting or approximately 89.5% of the 9,256,000 outstanding shares
of ASC Common Stock (including 30,000 warrants exercisable at $0.10 per share)
on the Record Date, and will vote all of said shares of ASC Common Stock in
favor of the Merger.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is exercised at the Special Meeting by
delivering to the Secretary of ASC at its principal executive offices, a
written notice of revocation or a duly executed proxy bearing a later date or
by attending the Special Meeting and voting in person.
THE MERGER
BACKGROUND OF THE MERGER
During 1994, ASC experienced severe financial problems. After
comparing its potential financing alternatives to the potential value that
could be obtained through the sale to or combination with a potential strategic
acquiror, management contacted certain financial advisors. After careful
consideration, ASC's Board of Directors determined that ASC should pursue a
possible sale to or business combination with a strategic acquiror. For a
further description of events leading up to the proposed Merger, see "The
Transaction--Background and Reasons for the Transaction."
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<PAGE> 12
RECOMMENDATION AND REASONS FOR THE MERGER
The Board of Directors of ASC believes that the Merger is in the best
interest of ASC stockholders and unanimously recommends that the ASC
stockholders vote for approval of the Merger Agreement and the Merger. H.J.
Meyers & Co., Inc. ("Meyers") has rendered an opinion, directed to all ASC
stockholders, stating that, as of the date of such opinion and based upon the
considerations described therein, the consideration to be received by the ASC
stockholders in the Merger is fair from a financial point of view to such
stockholders. The Meyers' opinion is dated March 30, 1995 and has not been
revised in light of any changes in the circumstances of the Merger, including,
but not limited to, the elimination of the cash election option since that
date. See "The Transaction--Background and Reasons for the Transaction." The
Board of Directors is unable to conclude that the reasoning and analyses
employed in the Meyers Opinion supports its conclusion.
The following persons comprise the ASC Board of Directors: Sharokh
"Shawn" Sedaghat, Edward F. Csaszar, Eugene Biernaski, Donald J. Robinson,
Clarence Rohrer, Earl McCurdy, and Kevin Kearsey. Messrs. Sedaghat, Csaszar,
McCurdy and Kearsey were appointed to the Board by SEDA and accordingly have a
substantial conflict of interest in recommending that the ASC stockholders vote
for approval of the Merger.
ASC believes that the Merger will benefit ASC in that it will provide
financial stability and thereby permit fulfillment of ASC's business plan as
customers become convinced of ASC's future financial viability and avert
potential loss of any return by ASC's existing stockholders if alternative
sources of equity capital cannot be found. See "The Transaction - Background
and Reasons for the Merger".
SEDA believes the acquisition of ASC will benefit both companies by
combining their respective expertise in specialty plastics packaging, and by
allowing the combined companies to offer a wider array of specialty plastic
packaging products to their customers. SEDA believes that, in general, end
users of specialty packaging products evaluate the potential vendors according
to factors such as product quality, responsiveness, customer service and price.
SEDA's strategy is designed to respond to these factors, thus positioning SEDA
as a preferred supplier in the highly competitive industries in which it
operates. SEDA believes the Merger with ASC will further this strategy.
Given that the Merger is not conditioned upon the separate affirmative
vote of a majority of the unaffiliated stockholders of ASC, there is a lack of
procedural fairness in the adoption of the Merger Agreement by the stockholders
of ASC.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of ASC's Board of Directors with
respect to the Merger, ASC stockholders should be aware that members of ASC's
management and Board of Directors have certain interests which may present them
with possible conflicts of interest in connection with the Merger. See "The
Transaction - Interests of Certain Persons in the Merger".
ASC's current management has been appointed by SEDA and four of the
seven directors on the ASC Board of Directors have been appointed by SEDA,
accordingly their actions could be viewed as subject to actual conflicts of
interest.
The Merger Agreement provides that SEDA agrees that all rights to
indemnification or limitations on liability in existence prior to the entering
into of the Merger Agreement in favor of the then present or former employees,
agents, directors or officers of ASC and any of its subsidiaries as provided in
their respective charters, by-laws, agreements or pursuant to applicable law in
effect on the date the Merger Agreement was entered into shall survive the
Merger and shall continue in full force and effect for a period of not less
than the applicable statutes of limitation; provided that in the event any
claim or claims are asserted or made within such applicable period, all rights
to indemnification in respect of any claim or claims shall continue until
disposition of any and all such claims.
In connection with the Merger, on January 3, 1995, SEDA entered into a
letter of intent with KGE and ASC Managing Partners, a general partnership
composed of David L. Kassel, Harry Goodman and Vincent Conti, the three of whom
are former officers and directors of ASC, and Catherine Kassel, Tina Conti,
Robert Gillings, Dorothy Goodman and Damon Testaverde. Pursuant to the letter
of intent described below, ASC Managing Partners agreed to exchange in the
Merger an aggregate of 1,656,127 shares of ASC Common Stock for $1,050,000 in
cash and 82,500 shares of SEDA Common Stock. KGE, a corporation affiliated
with ASC Managing Partners, also agreed to sell to SEDA all machinery and
equipment then being leased to Arpak Plastics, Inc., a subsidiary of ASC, for
$1,525,000 in cash, and the payment of $13,000 in accrued and unpaid lease
payments. Furthermore, and without any additional consideration on January 5,
1995, ASC Managing Partners agreed
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<PAGE> 13
to execute irrevocable proxies (the "Management Proxy") in favor of SEDA with
regard to the 1,656,127 shares of ASC Common Stock referred to above. On
January 3, 1995, the closing bid price for ASC Stock was $2 per share, and the
closing bid price for SEDA Stock was $10 1/4 per share.
The Management Proxy covered 54% of ASC's then-outstanding Common
Stock. The Management Proxy was placed into escrow pursuant to the terms of an
escrow agreement, which provides in part that the Management Proxy will not be
released until the date of the vote on the Merger. Also on January 5, 1995,
SEDA acquired irrevocable proxies with respect to an aggregate of 339,250
additional shares of ASC Common Stock (the "Employee Proxies") from certain
employees of ASC and others. The Employee Proxies were placed into a
documentary escrow, together with the Merger Agreement and other ancillary
merger documents. All of the merger documents and the Employee Proxies were
released from the documentary escrow on January 18, 1995.
Effective January 5, 1995, ASC also entered into a Management
Agreement (the "Management Agreement") with SEDA. The Management Agreement
gave SEDA the authority to manage ASC and Arpak, including but not limited to
the authority to move machinery and equipment into or out of ASC's/Arpak's
facilities, take product orders for ASC/Arpak, and utilize the personnel of
ASC, Arpak and SEDA, all with the objective of using SEDA's good faith best
efforts to maximize the profits of ASC and Arpak. The Management Agreement
provides that in consideration for said management services, SEDA shall be
entitled to receive the profits of ASC/Arpak generated during the term of the
Management Agreement. The Management Agreement continues in effect until the
closing of the Merger. Through January 31, 1996, SEDA has earned $754,000
pursuant to the Management Agreement and has advanced $1,648,000 to ASC for
working capital.
On January 5, 1995, Shawn Sedaghat, the Chairman/Chief Executive
Officer, President and a member of the Board of Directors and a principal
stockholder of SEDA, was elected to ASC's Board of Directors. All other
existing members of ASC's Board of Directors then resigned. Mr. Sedaghat, as
the sole remaining Director, elected Messrs. Edward Csaszar, Earl McCurdy,
Kevin Kearsey, Donald Robinson, Eugene Biernaski and Clarence Rohrer to serve
on ASC's Board of Directors.
Effective the same date, SEDA also acquired certain equipment formerly
leased to ASC by KGE, a corporation controlled by David Kassel and Harry
Goodman, formerly principal shareholders and officers and directors of ASC.
The equipment was acquired for an aggregate purchase price of $1,525,000, paid
in cash derived from SEDA's working capital. On June 22, 1995, SEDA
contributed the equipment valued at $1,525,000 to ASC and canceled an aggregate
of $497,000 in indebtedness owed to SEDA in return for 6,192,000 newly issued
shares of ASC. The price paid by SEDA for the equipment purchased was based on
an appraisal dated December 27, 1994 by Appraisal Affiliates, Inc. On June 22,
1995 the closing bid price for ASC stock was $1 3/8 per share.
On June 23, 1995, SEDA filed a complaint in the United States District
Court for the Southern District of New York against ASC and other defendants in
case no. 95-CIV. 4745(LMM) seeking a declaration by the Court that the Merger
Agreement be amended, with the consent of both SEDA's and ASC's Boards of
Directors and without the consent of any other parties, to change the exchange
ratio from 8 shares of ASC Common Stock for each SEDA share to 24.5120 ASC
shares of Common Stock for each SEDA share, to eliminate the cash election
option of $1.50 per share of ASC Common Stock, to return the $1,050,000 in cash
and 82,500 shares of SEDA Common Stock being held in escrow to SEDA, and to
extend the termination date of the Merger Agreement to June 22, 2002. The
basis for SEDA's complaint was that ASC Managing Partners misrepresented what
amount SEDA could expect ASC to achieve in sales for the month of January 1995
by approximately $340,000 to $440,000, that ASC sales personnel had given
certain customers extraordinarily long terms for payment of shipments in return
for large advance pre-sales, which had the effect of artificially boosting
ASC's revenues prior to the date the Merger Agreement was signed, that ASC
Managing Partners had misstated or misled SEDA with respect to the amount of
sales backlog and that ASC Managing Partners had overstated the true amount of
the sales backlog due to the fact that many of the orders comprising the
backlog, which consist of purchase orders which had not yet been filled and
shipped were outdated and either no longer valid or had been cancelled by the
customers, but were never removed from the backlog figures, resulting in a
discrepancy of the sales backlog. While this action was pending, the Court
entered a temporary restraining order prohibiting the distribution of the
shares and amounts held in escrow. SEDA also sought a preliminary injunction
and a recision of the Merger Agreement. The Court subsequently denied SEDA's
motion for an injunction prohibiting the release of the shares and amounts held
in the escrow on the ground that SEDA had an adequate remedy at law in damages,
and on July 5, 1995, the escrowed shares and amounts in escrow were distributed
without SEDA's consent or approval and contrary to SEDA's declared and
continuing opposition to such disbursement. SEDA took the position that the
release was invalid and illegal because the Merger Agreement had been amended
on June 22, 1995 to eliminate the provision in the Merger Agreement which
called for an involuntary transfer of the 1,656,127 ASC shares to SEDA if the
Merger Agreement were not consummated by July 5, 1995.
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<PAGE> 14
Effective August 21, 1995, the Merger Agreement was further amended by
agreement of ASC and SEDA's Boards of Directors, cancelling the June 22nd
amendment and eliminating the Cash Election Option from the Merger Agreement.
Under the original Merger Agreement there was a provision for ASC public
shareholders to receive $1.50 per share in lieu of SEDA stock. This provision
was eliminated in the August 21, 1995 amendment.
On October 24, 1995, a stipulation was filed with the Court, thereby
settling the case and effectuating the consensual purchase of the 1,656,127 ASC
shares by SEDA. Case No. 95-CIV 5209 brought in the United States District
Court for the Southern District of New York, and Supreme Court for the State of
New York, Index No. 120139/95 was also settled by stipulation on this date.
The material terms and conditions of the stipulation included that SEDA would
use its best efforts to have a registration statement for the registration of
82,500 shares of SEDA (issued to ASC Managing Partners) filed with the
Commission and declared effective by December 31, 1995, that the cash election
option would be eliminated from the Merger Agreement, that SEDA would use its
best efforts to have a registration statement for the registration of the
public shareholder's exchange shares filed with the Commission and declared
effective by December 31, 1995, and that each party would bear the costs,
expenses and attorneys fees of the litigation. The Merger Agreement was
amended on March 19, 1996 to extend the date by which SEDA would have the
registration statement declared effective to May 31, 1996.
SEDA currently holds Employee Proxies to vote an aggregate of 339,250
shares of ASC Common Stock and, on the date of the Special Meeting, will hold
an aggregate of 7,950,127 shares of ASC Common Stock comprised of 1,656,127
shares of ASC Common Stock purchased from ASC Managing Partners, 6,192,000
shares of ASC Common Stock received in exchange for a contribution of equipment
and a reduction of indebtedness and an aggregate of 102,000 shares of ASC
Common Stock purchased in the open market. SEDA will thus have the ability to
vote 8,289,377 shares of ASC Common Stock at the Special Meeting or
approximately 89.5% of the 9,256,000 outstanding shares of ASC Common Stock
(including 30,000 warrants exercisable at $0.10 per share) on the Record Date,
and will vote all of said shares of ASC Common Stock in favor of the Merger.
See "The Transaction - Interest of Certain Persons in the Merger".
CERTAIN OTHER EFFECTS OF THE MERGER
If the Merger is consummated, ASC's stockholders will not have the
opportunity to continue their equity interest in ASC as an ongoing corporation
and therefore will not share in any future earnings and growth of ASC.
Moreover, if the Merger is consummated, public trading of the ASC Common Stock
will cease, the ASC Common Stock will cease to be quoted on the Nasdaq SmallCap
Market and the registration of the ASC Common Stock under the Exchange Act will
be terminated.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of SEDA and Subsidiary to consummate the Merger are
subject to the satisfaction, at or before the Effective Time of the following
conditions: none of the parties to the Merger Agreement may be subject to any
order, decree or injunction of a court of competent jurisdiction or any other
governmental agency of competent jurisdiction which prevents the consummation
of the Merger; the Merger and the Merger Agreement will be validly approved and
adopted by the affirmative vote of the holders of at least that number of
outstanding shares of stock required under Delaware and New York law and ASC's
certificate of incorporation; and each of the parties required in connection
with the Merger to file a Notification and Report Form for Certain Mergers and
Acquisitions with the Department of Justice and the Federal Trade Commission
pursuant to Title II of the Hart-Scott-Rodino Act shall have made such filing
and the applicable filing period with respect to each such filing shall have
expired or been terminated. See "The Transaction - Description of Merger
Agreement."
TERMINATION OF THE MERGER AGREEMENT; FEES AND EXPENSES
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time, before or after the approval by the ASC
stockholders (a) by mutual consent of the Boards of Directors of SEDA and ASC;
(b) by either SEDA or ASC if the Merger shall not have been consummated on or
before May 31, 1996; provided that the right to terminate the Merger Agreement
shall not be available to any party whose failure to fulfill any obligation of
the Merger Agreement has been the cause of, or result of, the failure of the
Merger to have occurred on or before said date; or (c) by either SEDA,
Subsidiary or ASC, if any court of competent jurisdiction or other governmental
agency of competent jurisdiction shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise prohibiting the
Merger, and such order, decree, ruling or other action shall have become final
and non-appealable. In the event of termination of the Merger Agreement,
neither SEDA, Subsidiary or ASC shall have any liability or further obligation
to any other party, except
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<PAGE> 15
that any such termination shall be without prejudice to the rights of any party
arising out of a willful breach by any other party of any covenant or agreement
contained in the Merger Agreement.
DISSENTERS' RIGHTS
Under New York law, stockholders of ASC who deliver to ASC, within 20
days after receiving this Prospectus/Proxy Statement, a written objection to
the Merger, have the right to demand payment of the "fair value" of their ASC
Common Stock if the required procedures under Section 623 of the New York
Business Corporation Law (the "NYBCL") are followed. See "The Transaction -
Appraisal Rights of Dissenting Stockholders" and a copy of the text of Section
623 of the NYBCL included in this Prospectus/Proxy Statement as Annex C.
FEDERAL INCOME TAX CONSEQUENCES
For Federal income tax purposes, the acquisition of ASC will be
treated as if SEDA had acquired the ASC Common Stock directly from the ASC
stockholders in a taxable stock purchase and will not be treated as a tax-free
reorganization or a tax-free exchange. See "The Transaction - Federal Income
Tax Consequences of the Merger."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER, IT IS RECOMMENDED THAT ASC
STOCKHOLDERS CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY STATE,
LOCAL AND FOREIGN) TAX CONSEQUENCES OF THE MERGER TO THEM IN THEIR PARTICULAR
CIRCUMSTANCES.
REGULATORY APPROVALS
No federal or state regulatory approvals are required and no federal
or state regulatory requirements must be complied with in order to effect the
Merger, other than (i) compliance with certain state securities laws in order
to offer and/or sell SEDA Common Stock in such states and (ii) the filing of a
Certificate of Merger with the Secretary of State of Delaware and the
Department of State of New York.
ACCOUNTING TREATMENT
The Merger will be accounted for by SEDA as a "purchase" for accounting
and financial reporting purposes.
COMPARATIVE MARKET PRICES
The public announcement of the proposed Merger was made after the
close of the market on January 5, 1995. The closing sales price for SEDA
Common Stock and the closing price for ASC Common Stock on that day were $11.25
and $1.50, respectively. On March 15, 1996, the closing bid price for SEDA
Common Stock was $17 3/8 and the closing bid price of ASC Common Stock was $1
7/16. The stockholders are urged to obtain current market quotations for
shares of SEDA Common Stock and ASC Common Stock. See "SEDA Specialty
Packaging Corp. - Market for SEDA's Common Equity and Related Stockholder
Matters" and "American Safety Closure Corp. - Market for ASC's Common Equity
and Related Stockholder Matters".
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<PAGE> 16
COMPARATIVE PER SHARE DATA (3)
Set forth below are income (loss) per common and common equivalent
share and unaudited book value per common and common equivalent share of SEDA
and ASC on both historical and unaudited pro forma combined bases. In
addition, the following information sets forth the earnings (loss) and book
value for SEDA / ASC on an unaudited per share equivalent pro forma basis. Pro
forma combined earnings per share is derived from the pro forma combined
information presented elsewhere herein, which gives effect to the merger under
the purchase method of accounting as if the merger had occurred on January 1,
1995. Pro forma combined book value per share is derived from the pro forma
combined information presented elsewhere herein, which gives effect to the
merger under the purchase method of accounting as if the merger had occurred on
December 31, 1995. The per share equivalent combined data for SEDA / ASC is
calculated by dividing the pro forma per share amounts by the exchange ratio of
eight shares of ASC common stock for one share of SEDA common stock for the
remaining 14% to be acquired and using the historical exchange ratios for the
86% acquired in 1995. See "The Transaction--Description of Merger Agreement".
Book value per share for the pro forma combined presentation is based upon the
outstanding common shares, adjusted to include the shares of SEDA common stock
assumed to be issued in the merger. The information set forth below should be
read in conjunction with the respective audited financial statements of SEDA
and ASC included elsewhere in this Proxy Statement/Prospectus and the
"Unaudited Pro Forma Combined Financial Statements", in each case including the
notes thereto. The pro forma information herein is presented for illustrative
purposes only.
<TABLE>
<CAPTION>
Year Ended
December 31,
1995 (1)
--------
<S> <C>
SEDA - Historical:
Earnings $0.82
Book value $7.23
SEDA - Pro Forma:
Net income $0.70
Book value $7.37
ASC - Historical:
Net loss $(0.10)
Book value $0.23
ASC-Pro Forma adjusted for ratio of
exchange (2)
Net income $0.09
Book value $0.92
</TABLE>
______________________
Note 1 - The per share amounts for ASC are as of June 22, 1995 and for the
period January 1, 1995 to June 22, 1995. The per share amounts for SEDA for
the year ended December 31, 1995 include the results of ASC for the period June
22, 1995 to December 31, 1995.
Note 2 - The per share equivalent combined data for SEDA / ASC is calculated by
dividing the pro forma per share amounts by the exchange ratio of eight shares
of ASC common stock for one share of SEDA common stock for the remaining 14% to
be acquired and using the historical exchange ratios for the 86% acquired in
1995.
Note 3 - The dividend policy of both SEDA and ASC has been to retain earnings
for use in their respective businesses. Accordingly, neither company (except
for S Corporation dividends paid by SEDA prior to its initial public offering
in 1993) has previously paid any cash dividends.
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<PAGE> 17
RISK FACTORS
The Common Stock offered herein involves significant risk to the
investors. In evaluating the Merger, holders of ASC Common Stock who will
receive SEDA Common Stock if the Merger is consummated should carefully
consider all the information contained in this Prospectus/Proxy Statement and,
in particular, the following factors.
RISK TO INVESTORS THAT SEDA WILL NOT BE ABLE TO MANAGE ASC. If the
Merger is successfully consummated, ASC will become a wholly-owned subsidiary
of SEDA. Since January 5, 1995, pursuant to the Management Agreement, SEDA has
had the authority to move machinery and equipment into or out of ASC's/Arpak's
facilities, take product orders for ASC/Arpak, and utilize the personnel of
ASC, Arpak and SEDA, all with the objective of using SEDA's good faith best
efforts to maximize the profits of ASC and Arpak. The Management Agreement
further provides that in consideration for said management services, SEDA is
entitled to receive the profits of ASC/Arpak generated during the term of the
Management Agreement. There can be no assurance that SEDA will be able to
successfully manage the combined operations or successfully integrate SEDA and
ASC.
RISKS TO INVESTORS FROM ACCEPTING RECOMMENDATION OF BOARD WITH
CONFLICTS OF INTEREST. Members of ASC's management and Board of Directors have
certain interests which may present them with possible conflicts of interest in
connection with the Merger. ASC management and four of the seven members of
the ASC Board of Directors were appointed by SEDA and accordingly their
recommendation to vote in favor of the Merger could be viewed as being
motivated by a desire to benefit SEDA. See "The Transaction - Interests of
Certain Persons in the Merger".
RISK TO INVESTORS AS A RESULT OF INDEMNIFICATION TO ASC'S FORMER
EMPLOYEES, AGENTS AND DIRECTORS. The Merger Agreement provides that SEDA will
provide certain indemnification for ASC's present or former employees, agents,
directors or officers and will maintain such indemnification for a period of
not less than the applicable statute of limitation. Eugene Biernaski, Donald
J. Robinson, Clarence Rohrer, former directors or executive officers of ASC and
currently directors or executive officers of ASC may have a conflict of
interest as board members in approving and recommending the Merger due to the
fact that they have been indemnified under the Merger Agreement against certain
liabilities. See "The Transaction - Interests of Certain Persons in the
Merger"
RISK TO INVESTORS AS A RESULT OF CONFLICT OF INTEREST REGARDING
DIFFERENT CONSIDERATION FOR BOARD MEMBERS. Messrs. Robinson, Rohrer &
Biernaski granted SEDA irrevocable proxies (the Employee Proxies) to vote their
shares of ASC in favor of the Merger in return for which SEDA, if it utilizes
the proxies, is required to allow Messrs. Robinson, Rohrer & Biernaski to elect
whether to exchange their ASC shares for SEDA shares on a ratio of eight shares
of ASC stock for one share of SEDA stock or to receive $1.50 for each share of
ASC stock exchanged by such person in the Merger. As a result of an amendment
to the Merger Agreement the public stockholders of ASC only have the right to
exchange their ASC stock for SEDA stock at the ratio of eight shares of ASC
stock for one share of SEDA stock. The public shareholders do not under the
Merger Agreement have the right to exchange their ASC stock for $1.50 per
share, as do Messrs. Robinson, Rohrer & Biernaski and accordingly Messrs.
Robinson, Rohrer & Biernaski could be deemed to have a conflict of interest in
voting in favor of and recommending the Merger.
RISK TO INVESTORS AS A RESULT OF CONFLICT OF INTEREST OF CERTAIN BOARD
MEMBERS REGARDING SALE OF CERTAIN ASSETS. In connection with the Merger, on
January 3, 1995 SEDA entered into a Letter of Intent with KGE and ASC Managing
Partners, a general partnership composed of David L. Kassel, Harry Goodman and
Vincent Conti, the three of whom are former officers and directors of ASC and
Catherine Kassel, Tina Conti, Robert Gillings, Dorothy Goodman and Damon
Testaverde. Pursuant to the aforementioned Letter of Intent, ASC agreed to
exchange in the Merger an aggregate of 1,656,127 shares of ASC common stock for
$1,050,000 in cash and 82,500 shares of SEDA common stock. KGE, a corporation
affiliated with ASC Managing Partners, also agreed to sell to SEDA all
machinery and equipment then being leased to ARPAK Plastics Inc., a subsidiary
of ASC for $1,525,000 in cash and the payment of $13,000 in accrued and unpaid
lease payments. Furthermore, and without any additional consideration, ASC
Managing Partners agreed to execute irrevocable proxies in favor of SEDA with
regard to the 1,656,127 shares of ASC common stock referred to above. The
Merger Agreement of January 3, 1995 was signed on behalf of ASC by its then
directors, David L. Kassel and Harry Goodman who because of the above described
arrangements may have had a conflict of interest with the stockholders of ASC
in entering into the Merger Agreement since they're receiving consideration for
the sale of certain assets which consideration was not being received by the
stockholders of ASC. See the "The Transaction - Interests of Certain Persons
in the Merger"
RISK TO INVESTORS THAT SEDA WILL NOT HAVE RAW MATERIALS TO MANUFACTURE
ITS PRODUCTS. The primary materials used by SEDA in the manufacture of its
products are various plastic resins, primarily polyethylene and polypropylene,
and liners.
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The primary plastic resins used by SEDA are produced from petrochemical
intermediates derived from products of the natural gas and crude oil refining
processes. Natural gas and crude oil markets have in the past experienced
substantial cyclical price fluctuations as well as other market disturbances
including shortages of supply, changes in OPEC policy and crises in oil
producing regions of the world. The capacity, supply and demand for plastic
resins and the petrochemical intermediates from which they are produced are
also subject to cyclical and other market factors. Consequently, plastic resin
prices may fluctuate as a result of changes in natural gas and crude oil prices
and the capacity, supply and demand for resin and petrochemical intermediates
from which they are produced. Although SEDA is not generally bound by fixed
price contracts with its customers, it may not always be able to pass through
increases in the cost of its raw materials to its customers in the form of
price increases. To the extent that increases in the cost of plastic resin
cannot be passed on to its customers, such increases may have a material
adverse impact on the profitability of SEDA due to decreases in its profit
margins. See "SEDA Specialty Packaging Corp.--Business and Properties of
SEDA--Raw Materials."
SEDA currently purchases the polyethylene used by it in the
manufacture of its flexible plastic tubes and PET for its plastic bottles from
a limited number of sources. Although SEDA has been able to obtain this
material in the ordinary course of its business and while it believes that it
can access alternative sources on reasonable notice, any interruption in
deliveries of such materials would have a material adverse effect on SEDA's
level of sales and its near-term results of operations. Although SEDA
currently purchases the majority of the polypropylene used in the manufacture
of its closures from a single supplier, it believes it can obtain the material
from a large number of alternative suppliers. Any delay in shipments of such
material would have an adverse effect on SEDA's ability to deliver products
until alternative sources are located.
RISK TO INVESTORS FROM COMPETITION FACED BY SEDA. Competition in the
markets for the products manufactured by SEDA is largely based upon lead times,
responsiveness, quality, customer service and price. Many of SEDA's
competitors have greater financial resources than those available to SEDA and
certain competitors spend substantially greater amounts for advertising and
promotion. Furthermore, the standard screw top closure market tends to be more
price sensitive than the other markets in which SEDA competes. At times in the
past SEDA has had to lower prices on these products to retain market share
which has had an adverse effect on profit margins for these products. There
can be no assurance that such price competition will not recur in the future.
See "SEDA's Business and Properties of SEDA--Competition."
RISK TO INVESTORS IF SEDA CANNOT INTRODUCE NEW PRODUCTS. The
specialty plastics packaging industry is characterized by frequent new product
introductions. SEDA's success will depend in part upon its ability to
introduce new products which achieve market acceptance. To meet these
challenges, SEDA invests and expects to continue to invest in the development
of new products. There can be no assurance that SEDA will be able to respond
effectively to the needs of emerging markets or that markets will develop for
any products introduced or under development by SEDA.
RISK TO INVESTORS IF SEDA SUBJECTED TO PATENT INFRINGEMENT CHALLENGES.
Many products in the specialty plastics packaging industry are patented.
Consequently, certain of the products manufactured and sold by SEDA may be
susceptible to patent infringement challenges. If future assertions were made
that SEDA's products infringe upon the patent rights of others, SEDA could be
prohibited from marketing such products and could also incur substantial costs
to redesign its products. If legal action were to arise in connection with any
future patent infringement assertion, SEDA could also incur substantial costs
to defend such action. Furthermore, if in connection with any such legal
action SEDA's products were to be found to infringe upon the patent rights of
others, SEDA could be enjoined from further infringement and/or be required to
pay substantial damages. Although other patent infringement challenges may be
brought against SEDA in the future, it is not aware of any such challenges.
See "Business and Properties of SEDA--Legal Proceedings."
RISK TO INVESTORS IF SEDA SUBJECTED TO ENVIRONMENTAL LIABILITIES.
Actions by Federal, state and local governments concerning environmental
matters could result in environmental laws or regulations that could increase
the cost of producing the products manufactured by SEDA or otherwise adversely
affect the demand for its products. At present, environmental laws and
regulations do not have a material adverse effect upon the demand for SEDA's
products. SEDA is aware that certain local governments have adopted ordinances
prohibiting or restricting the use or disposal of certain plastic products that
are among the types of products produced by SEDA. If such prohibitions or
restrictions were widely adopted, such regulatory considerations could have a
material adverse effect upon SEDA. In addition, certain of SEDA's operations
are subject to Federal, state and local environmental laws and regulations that
impose limitations on the discharge of pollutants into the air and water and
establish standards for the treatment, storage and disposal of solid and
hazardous wastes. While SEDA has not had to make significant capital
expenditures for environmental compliance, SEDA cannot predict with any
certainty its future capital expenditure requirements relating to environmental
compliance because of continually changing compliance standards and technology.
SEDA does not have insurance coverage for environmental liabilities and does
not anticipate obtaining such
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coverage in the future. See "SEDA Specialty Packaging Corp.--Business and
Properties of SEDA--Regulation; Environmental Considerations."
RISK TO INVESTORS IF SEDA SUBJECTED TO PRODUCT LIABILITY CLAIMS. The
manufacture of closures and flexible tubes could expose SEDA to the risk of
product liability claims. While SEDA has had no material liability with
respect to product liability claims to date, product liability claims could
have a material adverse effect on the business or financial condition of SEDA.
While SEDA maintains product liability insurance against the possibility of
defective product claims, there can be no assurance that such insurance would
be sufficient to protect SEDA against liability from such claims.
RISK TO INVESTORS IF SEDA'S OPERATING RESULTS ARE ADVERSELY AFFECTED
BY BUSINESS FACTORS. SEDA's results of operations for any particular period may
be adversely affected by numerous factors, such as the loss of key suppliers or
customers, price competition, problems incurred in managing inventories or
receivables, the timing of cancellation of purchase orders from customers, and
the timing of expenditures in anticipation of increased sales and customer
product delivery requirements. SEDA does not typically enter into long-term
fixed price contracts with customers. Although SEDA has recently experienced
sales growth, there can be no assurance that such sales growth will continue or
that SEDA's sales and profit levels will be maintained. See "SEDA Specialty
Packaging Corp.--Management's Discussion and Analysis of Financial Condition
and Results of Operations".
RISK TO INVESTORS FROM SEDA'S DEPENDENCE ON KEY PERSONNEL. SEDA's
success depends to a significant extent upon the continued contributions of its
key employees, particularly Shawn Sedaghat. SEDA does not currently have "key
person" life insurance on the life of Mr. Sedaghat or any other key employee.
The loss of Mr. Sedaghat or any other key employee could have a material
adverse effect on SEDA. SEDA's future success will depend in part upon its
continuing ability to attract, integrate and retain highly qualified personnel.
Competition for such employees is intense and there can be no assurance that
SEDA will be successful in attracting and retaining such personnel.
RISK TO INVESTORS AS A RESULT OF CONTROL BY PRINCIPAL STOCKHOLDER
SEDA. SEDA owns and controls approximately 89.5% of the outstanding shares of
Common Stock of ASC. Shapour Sedaghat and Shawn Sedaghat own and control 69.1%
of SEDA. Consequently, Shapour and Shawn Sedaghat have the power indirectly to
approve the Merger, and to elect all of ASC's directors and to effectively
control ASC. See "SEDA Specialty Packaging Corp.-- Security Ownership of
Certain Beneficial Owners and Management" and "American Safety Closure
Corp.--Security Ownership of Certain Beneficial Owners and Management."
RISK TO INVESTORS IN RELYING ON OUTDATED FAIRNESS OPINION. The
fairness opinion provided by H.J. Meyers in connection with the Merger is dated
March 30, 1995. This opinion has not been updated, moreover, the Meyers
Opinion does not address the fairness of the transaction as it is currently
structured, i.e., the elimination of the Cash Election Option. See "The
Transaction--ASC Fairness Opinion."
RISK TO INVESTORS THAT SEDA MIGHT BE INVOLVED IN LEGAL PROCEEDINGS
WITH ASC MANAGING PARTNERS. Counsel for ASC has written counsel for SEDA
expressing ASC Managing Partners' concerns about the length of time required
for registration of ASC Managing Partners' 82,500 shares. Although no action
has been filed as to this claim, ASC Managing Partners may choose to sue SEDA.
See "SEDA Specialty Packaging Corp.--Legal Proceedings."
RISK TO INVESTORS AS A RESULT OF POSSIBLE VOLATILITY OF SEDA STOCK
PRICE. The trading price of SEDA's Common Stock could be subject to wide
fluctuations in response to such factors as, among others, variations in SEDA's
anticipated or actual results of operations and market conditions in the
plastics industry.
RISK TO INVESTORS AS A RESULT OF SEDA SHARES ELIGIBLE FOR FUTURE SALE.
Sales of substantial amounts of Common Stock in the public market after the
Merger could adversely affect, and even the potential for such sales may
adversely affect, the market price of SEDA's Common Stock. As of December 31,
1995, 3,160,000 shares of Common Stock were eligible for sale in the public
market, subject to compliance with Rule 144. Concurrently herewith, the 82,500
shares of SEDA belonging to ASC Managing Partners are being registered and will
be available for sale when such registration statement becomes effective.
RISK TO INVESTORS REGARDING PRIOR RELATIONSHIP BETWEEN ASC AND MEYERS.
There is a risk to the investors in relying on the Meyers Opinion and a
possible conflict of interest in the rendition of the Opinion as a result of a
longstanding relationship between a firm that acquired Meyers, and ASC. See
"ASC Fairness Opinion" for description of the relationship.
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RISK TO INVESTORS AS A RESULT OF INABILITY OF THE BOARD TO CONCLUDE
THAT THE MEYERS OPINION IS JUSTIFIED BY ITS ANALYSIS. The Meyers Opinion
included three methods of analysis: balance sheet, discounted cash flow and
price/earnings multiple for market value. Two of the three methods in the
analysis i.e. the balance sheet and discounted cash flow methods concluded that
ASC was worth more than the Merger consideration. The third method the
price/earnings multiple for market value concluded with a range of values for
ASC which were approximately similar to the value for the Merger consideration.
However, the Board is unable to conclude that the analysis employed by Meyers
in the price/earnings multiple for market value supports its conclusion.
Accordingly there is a risk to the investors that the Meyers Opinion cannot be
relied upon in assessing the financial fairness of the Merger consideration.
See "The Transaction - ASC Fairness Opinion.
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<PAGE> 21
INFORMATION CONCERNING THE SPECIAL MEETING
The Board of Directors of ASC is furnishing this Prospectus/Proxy
Statement to all holders of ASC Common Stock in connection with the
solicitation of proxies on behalf of ASC for use at the Special Meeting and any
adjournment thereof.
Only stockholders of record as of the close of business on
___________, 1996 (the "Record Date") will be entitled to notice of and to vote
at the Special Meeting. As of the Record Date, there were outstanding _____
shares of ASC Common Stock held by approximately ____ stockholders of record.
Holders of a majority of the outstanding shares of ASC Common Stock entitled to
vote will be required to be present at the Meeting either in person or by proxy
in order to constitute a quorum. Holders of ASC Common Stock are entitled to
one vote per share of ASC Common Stock held of record at the Record Date.
All proxies duly executed and received will be voted on all matters
presented to the Special Meeting in accordance with the instructions given by
such proxies. The Board of Directors does not know of any other matters that
may be brought before the Special Meeting. In the event that any other matter
should properly come before the Special Meeting, the persons named in the
enclosed proxy will have discretionary authority to vote all proxies not marked
to the contrary with respect to such matter in accordance with their best
judgment. The proxy may be revoked at any time before being voted by delivery
of written notice of revocation to ASC prior to its effective exercise at ASC's
offices 1 Plant Road, Plattsburgh, New York, 12901, or by voting in person at
the meeting. Proxies are expected to be mailed to stockholders on or about
____________________, 1996.
The cost of soliciting proxies from holders of ASC Common Stock will
be borne by ASC. Such solicitation will be made by mail but also may be made
by telephone or in person by the directors, officers or employees of ASC. In
addition, ASC will make arrangements with brokerage firms and other custodians,
nominees and fiduciaries to send proxy materials to their principals.
The affirmative votes of the holders of two-thirds of the outstanding
shares of ASC Common Stock as of the Record Date is necessary to adopt the
Merger Agreement and approve the Merger.
STOCKHOLDERS HAVE DISSENTERS' RIGHTS PURSUANT TO THE NYBCL. THE
PROCEDURES STOCKHOLDERS MUST FOLLOW IN ORDER TO ASSERT SUCH DISSENTERS' RIGHTS
ARE DESCRIBED IN THIS PROSPECTUS/PROXY STATEMENT UNDER "APPRAISAL RIGHTS OF
DISSENTING STOCKHOLDERS".
SEDA currently holds Employee Proxies to vote an aggregate of 339,250
shares of ASC Common Stock and, holds an aggregate of 7,950,127 shares of ASC
Common Stock comprised of 1,656,127 shares of ASC Common Stock purchased from
ASC Managing Partners, 6,192,000 shares of ASC Common Stock received in
exchange for equipment and a reduction of indebtedness and an aggregate of
102,000 shares of ASC Common Stock purchased on the open market. SEDA will
thus have the ability to vote 8,289,377 shares of ASC Common Stock at the
Special Meeting, or approximately 89.5% of the outstanding ASC Common Stock on
the Record Date, and will vote all of said shares of ASC Common Stock in favor
of the Merger.
The Board of Directors of ASC believes that the Merger is in the best
interests of the stockholders of ASC, and the Board recommends that
stockholders vote FOR approval and adoption of the Merger Agreement and the
actions required to effect the Merger.
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THE TRANSACTION
INTRODUCTION
The following information with respect to the Merger is qualified in
its entirety by reference to the complete text of the Merger Agreement, a copy
of which is included in this Prospectus/Proxy Statement as Annex A. The Merger
Agreement sets forth the terms and conditions upon which the Merger is to be
effected. If the Merger is approved by two-thirds of the outstanding shares of
ASC Common Stock at the Special Meeting at which a quorum is present and all
other conditions to the obligations of the parties thereto are satisfied or
waived, the Merger will be consummated. At the Effective Time (as herein
defined), Subsidiary will merge with and into ASC. ASC will be the Surviving
Corporation in the Merger and will thereby become a wholly-owned subsidiary of
SEDA. Pursuant to the Merger, each share of ASC Common Stock that is issued
and outstanding at the Effective Time, other than the ASC Common Stock held by
SEDA or Subsidiary or by stockholders who perfect their statutory dissenters'
rights, will be cancelled and extinguished and converted automatically into the
right to receive shares of SEDA Common Stock. Upon consummation of the Merger,
holders of ASC Common Stock will possess no further interest, or rights as
shareholders of, ASC.
BACKGROUND AND REASONS FOR TRANSACTION
During 1994, ASC experienced financial problems. It was in danger of
losing its bank line and was trying to raise much needed financing through a
private placement consisting of units of common stock and notes. A Board
Meeting on July 15, 1994 authorized the issuance of such units to raise an
aggregate of $250,000 as interim financing to pay-off certain notes. In
addition ASC attempted to raise $600,000 in a Regulation S offering outside of
the U.S. Ultimately, ASC was unsuccessful in either of these efforts.
After comparing its potential financing alternatives to the potential
value that could be obtained through the sale to or combination with a
potential strategic acquiror, management decided to consult with certain
financial advisors.
During the summer and fall of 1994, David L. Kassel, the Chairman of
ASC, contacted various advisors to seek an acquisition candidate. Mr. Kassel
retained the firm of Thomas James & Co. and Damon Testaverde, an individual, to
seek and screen candidates. Mr. Testaverde is one of the partners of ASC
Managing Partners. Mr. Kassel retained Thomas James & Co. and Mr. Testaverde
based on his prior business experience with both parties. Neither Mr.
Testaverde nor Thomas James & Co. were able to find any suitable candidates.
SEDA and ASC had, however, had previous contact with each other as a
result of a patent dispute. In September 1993, ASC contacted SEDA regarding a
possible infringement by SEDA of a patent licensed by ASC from Robert
Linkletter Associates, Inc. ("Linkletter"). After numerous discussions, SEDA,
in November 1993, brought a lawsuit in the Federal District Court of the
Central District of California against ASC seeking a declaration of the
invalidity of the licensed patent. The SEDA lawsuit was dismissed for lack of
jurisdiction in California. Subsequently, Linkletter's attorney, Robert T.
Anker, suggested to ASC and to SEDA that perhaps they should consider an
acquisition or merger whereby SEDA would acquire ASC. As a result of this
suggestion, discussions commenced in the fall of 1994 between the then Chairman
of the Board of ASC, David L. Kassel, and the then Chairman of the Board of
SEDA, Shapour Sedaghat, and the then President of SEDA, Shawn Sedaghat,
regarding the potential acquisition of ASC by SEDA. Mr. Anker received a
finders fee of approximately $10,000 from SEDA.
Discussions progressed and Mr. Kassel, with the consultation of Mr.
Testaverde, orally concluded terms with Mr. Shawn Sedaghat of SEDA on or about
November 2, 1994 at which time the price of a share of ASC Common Stock was
$1.50 per share and the price of a share of SEDA Common Stock was $12.00 per
share. Based on the 8:1 differential in the price of the respective shares,
Messrs. Kassel, Testaverde and Sedaghat orally agreed to a merger in which
eight shares of ASC would be exchanged for one share of SEDA. The oral terms
of the merger, at that time, called for a $1,525,000 payment in cash to
National Equipment Rental Corporation ("NE") (the predecessor of KGE Leasing
and an affiliate of ASC Managing Partners), including the acquisition of
employment contracts, (the identify of the persons with such contracts were not
known to SEDA at that time) and cancellation of all debt owed to NE (the amount
of the debt was not known to SEDA at that time); $1,050,000 payment in cash to
David Kassel and other inside stockholders (which at the time were not known to
SEDA) of ASC for 700,000 shares of ASC; payment of 87,500 registrable shares of
SEDA for 700,000 shares of ASC; and payment of 162,500 shares of registrable
SEDA stock for 1,300,000 shares of ASC owned by the public. Additionally, per
the oral agreement there were to be no shares outstanding of any class
including warrants, options or convertible securities except for
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those shares issued to creditors in a prior ASC bankruptcy which are
convertible into a maximum of 50,000 shares of ASC. ASC would provide SEDA
with appraisals for real estate, machinery and equipment.
On November 11, 1994, the SEDA Board of Directors met and discussed,
among other things, the potential acquisition of ASC. This discussion included
an analysis of the business, the segments, the products, the customers, the
revenues, the financials, the historical and current business opportunities,
the similarity of product lines along the Series 400 and in the Tamper-Evident
product line, the proposed purchase price, the profit margins on the product
lines, the potential for SEDA to enter in to the jar business, the opportunity
to obtain new customers and to provide accelerated vender qualification, the
advantages of an East coast outlet and the capacity to decorate jars.
On December 13, 1994, counsel for SEDA sent counsel for ASC a letter
of intent proposal on behalf of SEDA. The terms of the letter of intent called
for a $1,525,000 payment in cash to NE, including the acquisition of employment
contracts, and cancellation of all debt owed to NE; a $1,050,000 payment in
cash to David Kassel and other inside stockholders of ASC for 700,000 shares of
ASC common stock plus payment of 87,500 registrable shares of SEDA stock; and
payment of 162,500 shares of registrable shares of SEDA stock for 1,300,000
shares of ASC owned by the public. Additionally, there were to be no shares
outstanding of any class including warrants, options or convertible securities
except for those shares issued to creditors in a prior ASC bankruptcy. ASC
would provide SEDA with appraisals for real estate, machinery and equipment.
The letter of intent further provided that SEDA would enter in to a
Merger Agreement approved by both Boards of Directors. Both SEDA and ASC would
thereafter work together to file merger proxy statements with the SEC and
effectuate the registration of the SEDA shares issued to ASC stockholders.
During this time, SEDA would also continue with its due diligence. In
consideration of SEDA's due diligence expense, ASC would not consider or
discuss other proposals until the final closing of the merger (a "no-shop"
provision), and there would be a break up fee of $250,000 if either party were
to breach the agreement.
On December 15, 1994 the SEDA Board met and reviewed the potential of
new business that SEDA could bring to American Safety Closure Corp. and the
potential of new business that American Safety Closure Corp. could bring to
SEDA. The Board discussed the possible purchase price of the acquisition and
the impact on the earnings per share of SEDA under various economic
assumptions. The Board also reviewed a proposed Letter of Intent for the
acquisition which was presented to the Board. The Board also discussed a
prospective press release regarding the acquisition and the proposed Form 8-K
filing. The Board authorized the president, Shawn Sedaghat, to negotiate a
letter of intent for the acquisition.
On December 16, 1994, counsel for SEDA revised the letter of intent to
include new terms whereby SEDA would form a Delaware acquisition subsidiary of
SEDA to effectuate the Merger with ASC, at the closing, the entire ASC and
Arpak Board of Directors would resign and SEDA would appoint new directors.
SEDA would require that there be no ongoing employment or consulting
commitments to any ASC or Arpak directors, shareholders, employees or agents.
Additionally, the break up fee was reduced to $150,000, and a provision
entitling SEDA to 50% of any consideration received by ASC in violation of the
no-shop provision was added.
On December 18, 1994, the letter of intent was further amended by
counsel for ASC to effectuate the sale of equipment through KGE, the successor
to NE, instead of NE, which would cancel all debt owed by ASC to KGE and
insiders; this covered the machinery and equipment leased to Arpak by KGE. The
total number of publicly owned ASC shares to be acquired by SEDA was changed to
1,399,000 and the employment agreements of Eugene Biernaski, Clarence Rohrer
and Donald Robinson would remain in force after the Merger. Additionally, a
provision was inserted allowing for recision if inaccuracies in the following
documents were discovered by SEDA: ASC annual and quarterly reports filed with
the SEC; the total dollar sum of customer orders in backlog as of the effective
date of the agreement; the customer sales history report for the year to date
sales for the current fiscal year and twelve months rolling average sales;
accounts receivable; inventory; accounts payable; and debt service. The
provision concerning ASC's agreement not to consider any other proposals was
amended to require SEDA to deposit $150,000 in escrow.
On December 19, 1994, the letter of intent was further revised by
counsel for ASC to change the following provisions: the total amount of
publicly owned ASC shares to be acquired by SEDA was increased to 1,400,000;
the provision concerning recision was changed to include any inaccuracies or
deficiencies revealed in the legal due diligence review; and the requirement
that SEDA deposit $150,000 in escrow was eliminated.
On December 23, 1994, counsel for SEDA further amended the following
material terms of the letter of intent: the $1,525,000 cash payment to KGE was
amended to include the cancellation of $20,000 of debt owed to Kassel; and to
reduce
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the number of shares purchased from Mr. Kassel, and whomever else was
determined to be an insider, to 295,609 shares of ASC.
On December 27, 1994, counsel for the parties further revised the
terms of the merger to merge ASC, in lieu of Arpak, with SEDA's acquisition
subsidiary and to effectuate the sale by ASC insiders, including David Kassel,
of ASC shares through ASC Managing Partners, a general partnership.
Additionally, a cash election option was added to the terms, whereunder, ASC
public shareholders could elect to receive $1.50 per ASC share in lieu of one
SEDA share. The total number of ASC shares, outstanding at the time of the
merger would be approximately 3,045,000, consisting of ASC Managing Partners'
approximately 1,656,000 ASC shares and the public's approximately 1,389,000 ASC
shares. A provision was also added whereunder ASC Managing Partners would
exchange an aggregate of 1,656,000 shares of ASC for a combination of $1.50 in
cash per ASC share up to a maximum amount of $1,050,000 and one registered
share of SEDA stock per eight shares of ASC stock up to a maximum of 87,500
shares of registered SEDA stock. In the event the merger did not close within
six months, the transaction would be treated as a purchase of the KGE assets
and ASC Managing Partners stock for the aforementioned consideration.
The December 27, 1994 letter of intent also provided for an escrow to
be established for the $1,050,000 and the shares of ASC stock held by ASC
Managing Partners. SEDA and ASC would execute a Management Agreement
whereunder SEDA would have the authority to manage ASC and Arpak in return for
the profits generated by ASC and Arpak during the period of the Management
Agreement. The Management Agreement would stay in effect until the closing of
the merger. After the initial closing of the merger, the ASC and Arpak Boards
of Directors and executive officers would resign and SEDA would appoint new
officers and directors for ASC and Arpak. Amounts reflected on the ASC balance
sheet of $20,000 owing from ASC to David Kassel would be paid in full by SEDA,
and $20,000 receivable from Donald Robinson would be paid off by SEDA. Harry
Goodman and David Kassel would be entitled to their respective salaries in the
amounts of $5,000 and $2,500 per month up until the initial closing of the
merger, and David Kassel would be reimbursed for his miscellaneous business
expenses in the ordinary course of business. SEDA would be able to vote ASC
Managing Partners shares in favor of the merger. In addition, ASC would seek a
fairness opinion from its investment banker, the cost of which would be borne
by the surviving entity, but would not exceed $15,000.
On December 29, 1994 the SEDA Board reviewed an informational package
prepared by management consisting of an overview of the transaction, a proposed
Letter of Intent for the acquisition and draft of the Merger Agreement, the
description of American Safety Closure's business, strategy, products and
markets, manufacturing facility and equipment, raw material needs, competition,
current product offerings and price list. The informational package prepared
for the Board also included a description of American Safety Closure as a part
of SEDA, discussing management, manufacturing operations, sales and marketing,
finance and administration and risks and key issues and included financial
history and projections for American Safety Closure and as part of SEDA,
information on the income and balance sheets and cash flow of both companies,
and a due diligence report. The Board also reviewed the potential expenses of
the acquisition and the potential that additional working capital of
approximately $500,000 would be needed during the first year of the acquisition
of ASC. It was also noted that under the agreement with ASC, SEDA would be in
charge of management pursuant to a management agreement the terms which were
reviewed and discussed by the Board. The Board approved the merger. All
subsequent amendments to the Merger Agreement were approved by the SEDA
directors by unanimous written consent to action taken without a meeting on or
about the dates of the amendments.
On December 29, 1994 the terms of the merger were further amended. The
$1,525,000 cash payment to KGE would be based upon an appraisal of replacement
value in excess of $1,525,000 for the assets leased by ASC and Arpak. The
maximum amount of SEDA shares to be received by ASC Managing Partners and to be
deposited into escrow was reduced to 82,500. At the initial closing, SEDA
would deposit $1,050,000 and the 82,500 SEDA shares into escrow as
consideration for the merger payable to ASC Managing Partners. ASC Managing
Partners would execute irrevocable proxies in favor of SEDA with regard to all
of the shares owned by ASC Managing Partners. SEDA would agree to vote all of
the proxies in favor of the merger. The terms of the escrow provisions were
revised to establish an escrow with counsel for SEDA for the 1,656,000 shares
of ASC to be deposited by ASC Managing Partners, and to establish an escrow
with counsel for ASC for the $1,050,000 and the 82,500 shares of SEDA.
On December 30, 1994 the terms of the merger were further revised by
counsel for SEDA and ASC to place the irrevocable proxy into escrow, to provide
for interest on the funds in escrow to be paid to the recipient of the
principal, to pay the accrued salary and expenses due to David Kassel and Harry
Goodman at the initial closing of the merger. Additionally, the due diligence
section was replaced with a provision allowing SEDA access to the records of
ASC upon reasonable notice, and the contingency provisions concerning material
inaccuracies in the aforementioned due diligence items were deleted. The terms
were also revised to establish that there would be no more than 5,000,000
shares of SEDA stock outstanding prior to
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the initial closing. Four months' of equipment lease payments amounting to
$13,000 would also be paid to KGE at the initial closing.
On January 3, 1995 the terms of the merger were further revised by
counsel for SEDA and ASC in the form of a revised letter of intent to increase
the number of shares purchased from ASC Managing Partners to 1,656,127 and to
allow SEDA to rescind the merger agreement if legal due diligence were to
reveal any material inaccuracies or deficiencies in the operations of the
business of ASC and if SEDA gave written notice of its intention to do so on or
before January 5, 1995. The terms of the January 3, 1995 letter of intent also
provided for SEDA and ASC to enter into a merger agreement, wherein ASC
shareholders would receive one share of SEDA Common Stock for every eight
shares of ASC common stock. Each shareholder would have the option to receive
$1.50 for each share of ASC in lieu of SEDA stock. ASC Managing Partners would
exchange approximately 1,656,127 shares of ASC for a combination of up to
$1,050,000 in cash and up to 82,500 shares of SEDA. Additionally, KGE would
sell all machinery and equipment leased at that time by Arpak, to SEDA for
$1,525,000 in cash, and all amounts due to KGE from Arpak for late lease
payments would be paid. ASC Managing Partners would execute irrevocable proxies
in favor of SEDA for the 1,656,127 shares and deposit the proxy in escrow.
SEDA would agree to vote the proxy in favor of the merger. The letter also
provided for an escrow to be established for the $1,050,000 and 82,500 shares
of SEDA to be paid to ASC Managing Partners. Additionally, a management
agreement would be executed whereunder SEDA would be authorized to manage
ASC/Arpak, such agreement continuing in effect until the closing of the merger.
During the period of time between November 2, 1994 through January 3, 1995,
David Kassell and Shawn Sedaghat telephonically discussed modifications to the
letter of intent. The content of such discussions is disclosed above as set
forth in the chronological revisions to the letter of intent. Finally, on
January 5, 1995, ASC's Board of Directors authorized the execution of an
Agreement and Plan of Merger, escrow agreement and related documents with SEDA.
The parties executed the Agreement and Plan of Merger on said date.
In connection with the Merger, on January 5, 1995, SEDA acquired an
irrevocable proxy (the "Management Proxy"), with respect to an aggregate of
1,656,127 shares of ASC Common Stock, or approximately 54% of ASC's
then-outstanding Common Stock, from ASC Managing Partners, a general
partnership composed of certain former officers and directors of ASC. The
Management Proxy was placed into escrow pursuant to the terms of an escrow
agreement, which provides in part that the Management Proxy will not be
released until the date of the vote on the Merger. SEDA acquired irrevocable
proxies with respect to an aggregate of 339,250 additional shares of ASC Common
Stock (the "Employee Proxies") from certain employees of ASC. The Employee
Proxies were placed into a documentary escrow, together with the Merger
Agreement and other ancillary merger documents. All of the merger documents
and the Employee Proxies were released from the documentary escrow on January
18, 1995.
Effective January 5, 1995, ASC also entered into a Management
Agreement (the "Management Agreement") with SEDA. The Management Agreement
gave SEDA the authority to manage ASC and Arpak, including but not limited to
the authority to move machinery and equipment into or out of ASC's/Arpak's
facilities, take product orders for ASC/Arpak, and utilize the personnel of
ASC, Arpak and SEDA, all with the objective of using SEDA's good faith, best
efforts to maximize the profits of ASC and Arpak. The Management Agreement
provides that in consideration for said management services, SEDA shall be
entitled to receive the profits of ASC/Arpak generated during the term of the
Management Agreement. The Management Agreement continues in effect until the
closing of the Merger.
Also on January 5, 1995, Shawn Sedaghat, the Chairman/Chief Executive
Officer, President and a member of the Board of Directors and a principal
stockholder of SEDA, was elected to ASC's Board of Directors. All other
existing members of ASC's Board of Directors then resigned. Mr. Sedaghat, as
the sole remaining Director, elected Messrs. Edward Csaszar, Earl McCurdy,
Kevin Kearsey, Donald Robinson, Eugene Biernaski and Clarence Rohrer to serve
on ASC's Board of Directors.
Also on January 5, 1995, SEDA acquired certain equipment formerly
leased to ASC by KGE, a corporation controlled by David Kassel and Harry
Goodman, formerly principal shareholders of ASC. The equipment was acquired
for an aggregate purchase price of $1,525,000, paid in cash derived from SEDA's
working capital. On June 22, 1995, SEDA contributed the equipment valued at
$1,525,000 to ASC and canceled an aggregate of $497,000 in indebtedness owed to
SEDA in return for 6,192,000 newly issued shares of ASC. The price paid by
SEDA for the equipment purchased was based on an appraisal dated December 27,
1994 by Appraisal Affiliates, Inc. On June 22, 1995, the closing bid price of
ASC stock was $1 3/8 per share.
On June 23, 1995, SEDA filed a complaint in the United States District
Court for the Southern District of New York against ASC and other defendants in
case no. 95-CIV. 4745(LMM) seeking a declaration by the Court that the Merger
Agreement be amended (the "June 22 Amendment") with the consent of both
Registrant's and ASC's Board of Directors and without the consent of any other
parties, to change the exchange ratio from 8 shares of ASC Common Stock for
each SEDA
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share to 24.5120 ASC shares of Common Stock for each SEDA share, to eliminate
the cash election option of $1.50 per share of ASC Common Stock, to return the
$1,050,000 in cash and 82,500 shares of SEDA Common Stock being held in escrow
to SEDA, and to extend the termination date of the Merger Agreement to June 22,
2002. The basis for SEDA's complaint was that ASC Managing Partners
misrepresented what amount SEDA could expect ASC to achieve in sales for the
month of January 1995 by approximately $340,000 to $440,000, that ASC sales
personnel had given certain customers extraordinarily long terms for payment of
shipments in return for large advance pre-sales, which had the effect of
artificially boosting ASC's revenues prior to the date the Merger Agreement was
signed, that ASC Managing Partners had misstated or misled SEDA with respect to
the amount of sales backlog and that ASC Managing Partners had overstated the
true amount of the sales backlog due to the fact that many of the orders
comprising the backlog, which consist of purchase orders which had not yet been
filled and shipped were outdated and either no longer valid or had been
cancelled by the customers, but were never removed from the backlog figures,
resulting in a discrepancy of the sales backlog. While this action was
pending, the Court entered a temporary restraining order prohibiting the
distribution of the shares and amounts held in escrow. SEDA also sought a
preliminary injunction and a recision of the Merger Agreement. The Court
subsequently denied SEDA's motion for an injunction prohibiting the release of
the shares and amounts held in the escrow on the ground that SEDA had an
adequate remedy at law in damages, and on July 5, 1995, the escrowed shares and
amounts in escrow were distributed without SEDA's consent or approval and
contrary to SEDA's declared and continuing opposition to such disbursement.
SEDA takes the position that the release was invalid and illegal because the
Merger Agreement had been amended on June 22, 1995 to eliminate the provision
in the Merger Agreement which called for an involuntary transfer of the
1,656,127 ASC shares to SEDA if the Merger Agreement were not consummated by
July 5, 1995.
Effective August 21, 1995, the Merger Agreement was further amended by
agreement of the Company's and SEDA's Boards of Directors, cancelling the June
22nd amendment and eliminating the Cash Election Option from the Merger
Agreement. Under the original Merger Agreement there was a provision for ASC
public shareholders to receive $1.50 per share in lieu of SEDA stock. This
provision was eliminated in the August 21, 1995 amendment.
On October 24, 1995, a stipulation was filed with the Court, thereby
settling the case and effectuating the consensual purchase of the 1,656,127 ASC
shares by SEDA. Case No. 95-CIV 5209 brought in the United States District
Court for the Southern District of New York, and Supreme Court for the State of
New York, Index No. 120139/95 were also settled by stipulation on this date.
The material terms and conditions of the stipulation included that SEDA would
use its best efforts to have a registration statement for the registration of
82,500 shares of SEDA (issued to ASC Managing Partners) filed with the
Commission and declared effective by December 31, 1995, that the cash election
option would be eliminated from the Merger Agreement, that SEDA would use its
best efforts to have a registration statement for the registration of the
public shareholder's exchange shares filed with the Commission and declared
effective by December 31, 1995, and that each party would bear the costs,
expenses and attorneys fees of the litigation. The Merger Agreement was
amended on March 19, 1996 to extend the date by which SEDA would have the
registration statement declared effective to May 31, 1996.
From December 21, 1994 through January 24, 1995, American Safety
Closure Corporation's Board of Directors approved the following transactions:
The issuance on December 28, 1994 of 100,000 shares to Mr. Kassel
and the issuance of 50,000 shares to each of Messrs. Goodman,
Robinson, Biernaski and Rohrer on January 6, 1995 in connection
with their September 1, 1994 Executive Agreement. In accordance
with said contact, the shares were to be issued prior to
December 31, 1994. The 100,000 shares were issued to Mr. Kassel
on December 28, 1994;
Granting Messrs. Kassel and Conti on December 28, 1994 100,000
shares each of ASC's Common Stock pursuant to ASC's 1990
Incentive Stock Program (the "Program"), which provided for bonus
shares for these executives in the event of entering into merger
or acquisition of ASC prior to April 30, 1995;
Entering into the merger with SEDA, the issuance on December 28,
1994 of 350,000 shares to Mr. Kassel and 175,000 shares to
Mr. Goodman in consideration of the termination of their
Executive Agreements, the issuance on December 28, 1994 of
77,000 shares to Vincent Conti in consideration of the termination
of employment agreement, the issuance of 100,000 shares on
December 27, 1994 to Mr. Testaverde for his efforts with respect
to the SEDA merger, and the issuance of 100,000 shares to
Mr. Kassel on January 6, 1995 and 50,000 shares to Mr. Goodman
on December 28, 1994 in consideration for executing non-competition
agreements for the merger;
The issuance of an additional 75,000 shares of ASC's Common Stock
to Mr. Testaverde on December 28, 1994 for further consulting
services to the Board during the SEDA negotiations, in the form
of financial advice,
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consultations with plant managers and sales persons, budget
preparation, and advice regarding potential acquisition companies.
On the date the original merger terms were negotiated between the
parties (i.e. November 2, 1994), the price of a share of ASC Common Stock was
$1.50 per share and the price of a share of SEDA Common Stock was $12.00 per
share. Based on the 8:1 differential in the price of the respective shares,
the parties agreed to a merger in which eight shares of ASC would be exchanged
for one share of SEDA. Since that time, the price of SEDA stock has risen to
$17 3/8 per share, as of March 15, 1996, and accordingly, at present, it is
more favorable to the ASC shareholders by $5 3/8 per SEDA share. The Board
considers the terms of the merger fair to the shareholders of ASC and does not
believe there are any factors against the fairness of the Merger, other than
the following:
(i) there is a lack of procedural fairness in that there is no
independent representation for the unaffiliated
stockholders of ASC;
(ii) there is no requirement for a majority vote of unaffiliated
stockholders to approve the Merger;
(iii) the Board of Directors of ASC is controlled by SEDA;
(iv) the Board arrived at the terms of the Merger before the
Meyers Opinion, and accordingly, did not need to adopt the
Opinion regarding financial fairness; and
(v) the Cash Election option was dropped from the Merger
Agreement for the public stockholders of ASC.
Material developments since the date of the Meyers' opinion, i.e.
March 30, 1995 are as follows: SEDA initiated cost reduction activities at ASC
pursuant to its Management Agreement which resulted in a reduction in selling,
general and administrative expenses for the nine months ended January 31, 1996
of $685,000 or 46% compared to the same period of 1995, excluding the effect of
a $2.2 million charge included in such expenses in the 1995 period due
primarily to a charge against earnings of ASC in connection with the Change of
Control provisions of the Executive Agreements, Non-Compete Agreements and
advisory services, outlined above. See "American Safety Closure Corp. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" below under heading "Results of Operations - Year Ended April 30,
1995 as Compared to Year Ended April 30, 1994" and "Nine Months Ended January
31, 1996 as Compared to Nine Months Ended January 31, 1995" below. In
addition, for the nine months ended January 31, 1996, compared to the same
period of 1995, the net sales for the nine months increased from $6,150,000 to
$7,413,000 and operating income changed from ($3,000,000) to $1,045,000 for the
same period. See "American Safety Closure Corp. - Selected Consolidated
Financial Data" below. As of April 30, 1995, ASC was in violation of certain
covenants on its line of credit agreements and certain of its other debt
agreements. In September 1995, ASC's bank line of credit was repaid in total
and was replaced with a $2 million line of credit with SEDA. Approximately
$1.5 million was borrowed by ASC under this Agreement with SEDA and used the
proceeds to repay its bank line of credit. The Company's outstanding borrowing
from SEDA at January 31, 1996, was $1,648,000. As of January 31, 1996, ASC was
no longer in violation of covenants under its debt agreements. The aggregate
amount of management fees earned by SEDA under the Management Agreement from
January 5, 1995 (its inception) through January 31, 1996, was $754,000.
Although there is a lack of procedural fairness in that there is no
independent representation for the unaffiliated stockholders of ASC and no
requirement for a majority vote of unaffiliated stockholders to approve the
merger and ASC Board of Directors is controlled by SEDA, and although the Cash
Election Option has been dropped and the financial condition and performance of
ASC has improved, as discussed above, the Board of Directors is in favor of the
merger for the following reasons: ASC required additional capital to function
and could not obtain such capital from any other source; ASC and SEDA are
synergistic businesses and will together be able to approach their customers
with a broader product line; SEDA has significant resources which it can
provide to ASC and has in fact already provided by advancing funds to ASC. The
Board of ASC did not consider any other alternatives to the merger because
during 1994 ASC experienced financial problems and was in danger of losing its
bank line and was unable to raise any financing through a private placement, a
Regulation S offering, or through a merger or combination with any other
entity. The reason that the Board concluded that there was no alternative to
the Merger with SEDA, in addition to the factors described in the immediately
preceding sentence was because during the summer and fall of 1994, David L
Kassel, the chairman of ASC contacted various advisors to seek an acquisition
candidate. Mr. Kassel retained the firm of Thomas James & Co. and Damon
Testaverde, an individual, to seek and screen candidates. Mr. Testaverde is
one of the partners of ASC Managing Partners. Mr. Kassel retained Thomas James
& Co. and Mr.
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Testaverde based on his prior business experience with both parties. Neither
Mr. Testaverde nor Thomas James & Co. were able to find any suitable
candidates. See "The Transaction - Background and Reasons for Transaction"
above.
THE BOARD OF DIRECTORS OF ASC BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF ASC. ACCORDINGLY, THE BOARD OF DIRECTORS
RECOMMENDS THAT THE ASC STOCKHOLDERS VOTE TO APPROVE THE TRANSACTION.
DESCRIPTION OF MERGER AGREEMENT
A summary of the principal terms of the Merger Agreement is set forth
below. The summary is subject in all respects to the express provisions
contained in the Merger Agreement, a copy of which is attached as Annex A to
this Prospectus/Proxy Statement and incorporated into this Prospectus/Proxy
Statement by reference.
Principal Terms. SEDA will acquire ASC through the merger of
Subsidiary with and into ASC. ASC will survive the Merger and carry on its
business as a wholly-owned subsidiary of SEDA. The Merger will be effective by
the filing of a Certificate of Merger on the Effective Date with the New York
Department of State and the Delaware Secretary of State.
On the Effective Date, upon the consummation of the Merger, holders of
the outstanding shares of ASC Common Stock will be entitled to receive one
share of SEDA Common Stock in exchange for eight shares of ASC Common Stock
held immediately prior to consummation of the Merger. With respect to 30,000
outstanding warrants of ASC, exercisable at $0.01 each, the warrant holders
need to exercise their warrants first, then they will be treated as holders of
ASC Common Stock in the Merger.
No fractional shares of SEDA Common Stock will be issued in the
Merger. In lieu thereof, each holder of ASC Common Stock entitled to receive a
fractional share of SEDA Common Stock will receive from SEDA an amount of cash
equal to the value of such fractional share determined by multiplying the
fraction by $1.50.
Exchange of Stock Certificates. As soon as practicable after the
Effective Date, SEDA will send a letter of transmittal and instructions to each
ASC stockholder of record on the Effective Date, advising the stockholder of
the procedure for surrendering certificates representing former shares of ASC
Common Stock in exchange for SEDA Common Stock. Upon surrender of stock
certificates, together with a letter of transmittal duly executed and
completed, persons who were ASC stockholders of record on the Effective Date
will be entitled to receive, in exchange for the shares represented by their
surrendered certificates SEDA Common Stock (and cash in lieu of fractional
shares). Certificates representing ASC Common Stock should not be surrendered
until the transmittal form is received.
____________________________________ will serve as the Exchange/Paying
Agent. SEDA shall deposit with the Exchange/Paying Agent, on the Effective
Date, SEDA Common Stock and cash required to be distributed to the holders of
ASC Common Stock in the Merger. Until ASC Common Stock certificates are
surrendered, no SEDA Common Stock nor cash will be delivered and paid to the
holder of any such certificate. No interest on cash payable to any former
holder of ASC Common Stock will accrue or be paid. Following the Merger, there
will be no further registration of transfers of shares of ASC Common Stock on
the records of ASC.
Representations and Warranties and Conditions to Consummation of the
Merger. The Merger Agreement contains customary representations and warranties
of the parties.
The following is a summary of the representations and warranties made
by ASC in the Merger Agreement:
(1) ASC is in good standing under the laws of its jurisdiction of
incorporation, has corporate power to own its properties and carry on its
business, is duly qualified as a foreign corporation in each jurisdiction in
which such qualification is necessary; ASC does not own capital stock or an
equity interest in other corporations or entities except as disclosed and has
delivered accurate copies of its corporate charter documents to SEDA;
(2) Representations as to the authorized and outstanding capital stock
and warrants of ASC and that all issued and outstanding shares of ASC are
validly issued and free of preemptive rights, liens or encumbrances; there are
no undisclosed options or warrants or voting trusts or similar agreements with
respect to the voting capital stock of ASC;
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(3) ASC has all requisite corporate power and authority to execute and
perform the Merger Agreement subject to the approval of a majority of the
outstanding shares of ASC; the Merger Agreement is valid and binding upon ASC;
(4) Representation to the effect that no governmental permit or
authorization is required to consummate the merger; that the merger does not
conflict with the Certificate of Incorporation or By-laws of ASC, violate any
statute or law or contract to which ASC is a party;
(5) Representations to the effect that the information supplied on
behalf of ASC for inclusion in the proxy statement to be mailed to the ASC
stockholders in connection with the Merger and any other documents to be filed
with the SEC do not contain any untrue statement of a material fact or omit to
state any material fact; that the proxy statement will comply with the
requirements of the Securities Exchange Act of 1934;
(6) Representation to the effect that ASC is not a party to any
undisclosed litigation;
(7) Representation to the effect that ASC is not bound by any
undisclosed finder's agreements;
(8) Representations that the financial statements of ASC were prepared
in accordance with generally accepted accounting principles and present fairly
the financial position, results of operations and changes in financial position
of ASC.
The following is a summary of the representations made by SEDA in the
Merger Agreement:
(1) Representations to the effect that SEDA is duly organized, validly
existing in a good standing under the laws of the State of Delaware and has all
requisite corporate power to own and operate its properties and carry on its
business.
(2) Representations that SEDA has all requisite corporate power and
authority and has taken all corporate action to execute and deliver the merger
agreement and perform its obligations under the merger agreement; that the
merger agreement has been validly executed by SEDA and constitutes a valid and
binding agreement of SEDA;
(3) That SEDA does not require any governmental approvals or permits
to enter into or consummate the Merger; that the merger agreement does not
conflict with any provision of the Certificate of Incorporation or By-laws of
SEDA; does not violate any statute or law to which SEDA is bound; does not
result in a breach of any contract to which SEDA is bound;
(4) That the information supplied by SEDA for inclusion in the proxy
statement or any other document to be filed with the SEC or any other
regulatory agency in connection with the Merger will not contain any untrue
statement of a material fact or omit to state any material fact;
(5) Representations to the effect that SEDA is not bound by any
finders agreement which are undisclosed;
(6) Representations to the effect that SEDA is not a party to any
undisclosed litigation.
Consummation of the Merger is subject to satisfaction of certain
customary conditions such as the continued accuracy of representations and
warranties and performance of or compliance with the covenants of the parties
to the Merger Agreement. Both SEDA and ASC have agreed to use their efforts to
satisfy or cause to be satisfied all of the conditions to their respective
obligations to consummate the Merger to the extent that their action or
inaction can control or influence the satisfaction of such conditions.
Consummation of Merger and Termination. The Merger will occur
immediately following receipt of the necessary approvals of the ASC
stockholders and the satisfaction or waiver of all other conditions precedent
to the Merger. The Merger Agreement may be terminated by any party prior to
the Effective Time, before or after the approval by the ASC stockholders (i)
by mutual consent of the Boards of Directors of SEDA and ASC; (ii) by either
SEDA or ASC if the Merger shall not have been consummated on or before May 1,
1996; provided, however, that the right to terminate the Merger Agreement shall
not be available to any party whose failure to fulfill any obligation of the
Merger Agreement has been the cause of, or result of, the failure of the Merger
to have occurred on or before said date; or (iii) by either SEDA, Subsidiary or
ASC if any court of competent jurisdiction or other governmental agency of
competent jurisdiction shall have issued an order, decree or ruling or taken
any other action restraining, enjoining, or otherwise prohibiting the Merger
and such order, decree, ruling or other action shall have become final and
non-appealable.
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Accounting Treatment. The Merger will be accounted for as a
"purchase" under generally accepted accounting principles.
Comparison of Rights of Securities Holders. Following the Merger,
holders of ASC Common Stock will receive one share of SEDA Common Stock (and
cash in lieu of fractional shares) in exchange for eight shares of ASC Common
Stock held immediately prior to the consummation of the Merger.
The provisions of the NYBCL and Delaware General Corporation Law ("GCL") differ
in many regards. Summarized below are certain of the principal differences
affecting the rights of stockholders. This summary does not purport to be a
complete statement of differences affecting shareholders' rights under the
NYBCL and the Delaware GCL and is qualified in its entirety by reference to the
provisions thereof.
Dissenters' Rights of Appraisal. Under the NYBCL, dissenting stockholders who
follow prescribed statutory procedures are entitled to appraisal rights in
connection with certain mergers and consolidations and sale of substantially
all the assets of a corporation. The Delaware GCL provides similar rights and
procedures for mergers and consolidations only. Furthermore, even in those
cases, such rights are not provided in certain circumstances, including
transactions in which shares of the corporation being voted in a merger or
consolidation are listed on a national securities exchange or are held of
record by more than 2,000 stockholders and in which the shares to be received
in such merger or consolidation are shares of the surviving corporation or are
listed on a national securities exchange or are held of record by more than
2,000 stockholders.
The availability of appraisal rights to stockholders of the Company who dissent
from the Merger is discussed under "Appraisal Rights of Dissenting
Stockholders" below.
Issuance of Rights or Options to Purchase Shares to Officers, Directors and
Employees. The NYBCL requires the affirmative vote of a majority of the shares
entitled to vote in order to issue options or rights to purchase stock to
officers, directors or employees. The Delaware GCL does not require
stockholder approval of such transactions. However, SEDA will remain subject
to the rules of the NASDAQ National Market System ("NMS") which requires
stockholder approval of the option plans in certain instances. Except where
the establishment of a stock option plan involves the issuance of the lesser of
1% of the number of shares of common stock outstanding or 25,000 shares, the
NMS requires that adoption of a stock option plan be approved by the
shareholders. The NMS does not require shareholder approval of a plan to issue
warrants or rights generally to security holders of a company or broadly based
plans or arrangements including employees who are not officers or directors or
in a case where the stock options are to be issued as an inducement essential
to an individual's entering into an employment contract with the company. See
NASD Manual, Paragraph 1812, Schedule D at page 1592.
Vote Required. The NYBCL requires that certain mergers and consolidation and
sales of all or substantially all of the assets not in the ordinary course of
business be approved by the holders of two-thirds of the outstanding stock
entitled to vote thereon. Under the Delaware GCL, such transactions require
approval by the holders of a majority of the outstanding stock entitled to vote
thereon, and a vote of the stockholders of the surviving corporation is not
necessary where, in the case of a merger, no amendment of its certificate of
incorporation or change in its outstanding stock is involved and the merger
results in no more than a 20% increase in its outstanding common stock.
Loans to Directors. Under the Delaware GCL loans may be made to directors if
the Board of Directors finds that the loan may benefit the corporation. The
NYBCL requires that such loans be authorized by an affirmative vote of
shareholders.
Dividends. The Delaware GCL provides that a corporation may, unless otherwise
restricted by its certificate of incorporation, declare and pay dividends out
of surplus, or if no surplus exists, out of net profits for the current or
preceding fiscal year (provided that the amount of capital of the corporation
is not less than the aggregate amount of the capital represented by the issued
and outstanding stock of all classes having a preference upon the distribution
of assets). Under the NYBCL, dividends may be paid only out of surplus.
Redeemable Shares. The Delaware GCL permits redeemable shares to be redeemed
at the option of the corporation or the stockholder, while the NYBCL generally
permits redemption only at the option of the corporation.
Significant Differences Between Charter of SEDA and Charter of ASC.
The Charter of SEDA authorizes a total number of 40 million shares consisting
of 10 million shares of preferred stock, par value 1 mil ($0.001) per share and
30 million shares of common stock, par value 1 mil ($0.001) per share. The
Charter of ASC authorizes 15 million shares of common stock, par value $.30 per
share. The Charter of ASC does not authorize preferred stock. The Charter of
SEDA authorizes the Board,
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subject to limitations prescribed by law and the provision of the charter, to
provide for the issuance of shares of preferred stock in series, to establish
from time to time the number of shares to be included in each such series, and
to fix the designation, powers, preferences and rights of shares of each such
series and the qualifications, limitations or restrictions thereof. By issuing
preferred stock with particular rights, SEDA may be able to deter a hostile
acquisition. For example, SEDA may issue shares of preferred stock with
extraordinary voting rights or liquidation preferences to make it more
difficult for a hostile acquiror to gain control of SEDA. SEDA currently has
no present plans to issue such shares of preferred stock.
The SEDA Articles confer upon the Board of Directors the authority to
adopt, amend and repeal from time to time any or all of the Bylaws of the
corporation including bylaw amendments increasing or reducing the authorized
number of directors. No such similar provision is contained in the Charter of
ASC. The Bylaws of ASC do provide that the Board of Directors has the power to
make, adopt, alter, amend and repeal, from time to time, the Bylaws of the
corporation provided, however, that the Board of Directors has no power to
change the quorum for meetings of shareholders or of the Board of Directors or
to change any provisions of the Bylaws with respect to the removal of directors
or the filling of vacancies in the Board resulting from the removal by the
shareholders.
Both the SEDA Articles and the ASC Articles provide for
indemnification of directors and officers for monetary damages with certain
exceptions which are comparable to each other.
Differences Between the Bylaws of SEDA and the Bylaws of ASC. The
Bylaws of SEDA provide that special meetings of the stockholders may be called
at any time by the Board of Directors, or by the Chairman of the Board or by
the President or by one or more stockholders holding shares in the aggregate
entitled to cast not less than 10% of the votes at that meeting. The Bylaws of
ASC provide that special meetings of the shareholders may be called at any time
by the Board of Directors or by the President or the Secretary at the written
request of the holders of 50% of the shares then outstanding and entitled to
vote thereat, or as otherwise required under the provisions of the NYBCL. The
Bylaws of SEDA provide that all notices of meetings with stockholders shall be
in writing and shall be sent or otherwise given in accordance with the Bylaws
not less than ten (10) nor more than sixty (60) days before that date of the
meeting. The Bylaws of ASC provide that the written notice must be given not
less than ten (10) nor more than fifty (50) days before the meeting. The
Bylaws of SEDA provide that only persons who are nominated in accordance with
the procedures set forth in the Bylaws shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
SEDA may be made at a meeting of the stockholders by or at the direction of the
Board of Directors or by any stockholder of SEDA entitled to vote for the
election of directors at the meeting who complies with the notice procedures
set forth in the Bylaws. Such nominations, other than those made by or at the
direction of the directors, shall be made pursuant to timely notice in writing
to the Secretary of SEDA. To be timely, a stockholders notice shall be
delivered to or mailed and received at the principal executive offices of SEDA
not less than sixty (60) days nor more than ninety (90) days prior to the
meeting. No such similar provision is contained in the Bylaws of ASC.
The Bylaws of SEDA provide that unless otherwise provided in the
Certificate of Incorporation, any action that may be taken at any annual or
special meeting of stockholders of the Corporation may be taken without a
meeting, without prior notice and without a vote if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent must
be given to those stockholders who have not consented in writing. The Bylaws
of ASC require that any consent of shareholders for action taken without a
meeting must be signed by all shareholders. The effect of this provision is to
make it as a practical matter impossible to obtain shareholder consents to
action without a meeting.
The ASC Bylaws provide that vacancies occurring on the Board of
Directors due to removal without cause may be filled only by vote of the
shareholders. No such similar provision is contained in the SEDA Bylaws. The
Bylaws of ASC provide for indemnification of directors including attorneys fees
and costs except in relation to matters at to which such person is adjudged to
have breached his duty to the corporation. Furthermore, the Corporation is
required to indemnify any director against fines, judgements and amounts paid
in settlement and reasonable expenses including attorneys fees actually and
necessarily incurred as a result of such action if such person acted in good
faith for a purpose which he reasonably believed to be in the best interests of
the corporation and in criminal actions had no reasonable cause to believe that
his conduct was unlawful. Similar provisions are contained in the SEDA Bylaws.
These provisions apply both to Directors and Officers. The SEDA Bylaws require
that the Corporation maintain Officers and Directors Liability Insurance to the
extent reasonably available at its expense to protect itself and any such
director or officer, employee or agent of the corporation against
indemnification liability.
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Description of SEDA Common Stock. SEDA is authorized to issue
30,000,000 shares of Common Stock, $.001 par value, and 10,000,000 shares of
Preferred Stock, $.001 par value. As of December 31, 1995, SEDA had
outstanding 5,097,500 shares of Common Stock and no shares of Preferred Stock.
Holders of SEDA Common Stock are entitled to one vote per share on all matters
to be voted on by the stockholders, including the election of directors.
Stockholders are entitled to receive such dividends as may be declared from
time to time by the Board of Directors out of funds legally available therefor,
and in the event of liquidation, dissolution or winding up of SEDA, to share
ratably in all assets remaining after payment of liabilities. The outstanding
shares of SEDA Common Stock, including the shares to be issued to holders of
ASC Common Stock upon consummation of the Merger, are duly authorized, validly
issued, fully paid and non-assessable.
Resale of SEDA Common Stock. All shares of SEDA Common Stock received
by ASC stockholders in the Merger, will be freely transferrable, except that
shares of SEDA Common Stock received by ASC stockholders who are deemed to be
"affiliates" of ASC prior to the Merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 under the
Securities Act (or Rule 144, in the case of such persons who become affiliates
of SEDA) or as otherwise permitted under the Securities Act. SEDA is committed
to register the shares of SEDA issued to ASC Managing Partners and is
concurrently registering such shares in a separate registration statement filed
with the Securities and Exchange Commission.
Expenses. Each party shall pay its own fees and expenses incurred in
connection with the Merger and the transactions contemplated thereby, except
that SEDA is required to pay certain of the legal fees associated with the
Merger, incurred by ASC.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS.
For purposes of this section, the term "ASC" will be deemed to also
refer to the Surviving Corporation with respect to actions taken after the
Effective Time.
Pursuant to the Merger Agreement and the NYBCL, the owners of ASC
Common Stock will have dissenters' rights in connection with the Merger, and
may dissent from the Merger and demand in writing that ASC pay the "fair value"
of their Common Stock.
The following is a brief summary of the rights under Section 623 of
the NYBCL of any holder of ASC Common Stock who dissents from the Merger. The
discussion in this Prospectus/Proxy Statement of dissenters' rights under the
NYBCL is subject to and qualified in its entirety by reference to the
applicable statutory provisions of Section 623 of the NYBCL, the text of which
is attached to this Prospectus/Proxy Statement as Annex C.
A beneficial or record holder of ASC Common Stock will have the right
to dissent with respect to the Merger and, subject to certain conditions, will
be entitled to receive a cash payment equal to the "fair value" of such
stockholder's ASC Common Stock. Each beneficial owner asserting dissenters'
rights must assert such rights with respect to all of the shares of which such
stockholder is the beneficial owner or over which it has the power to direct
the vote, and such stockholder must submit to ASC, with or prior to such
stockholder's assertion of dissenters' rights, the record stockholder's written
consent to such dissent. A record stockholder may assert dissenters' rights as
to fewer than all of the ASC Common Stock registered in such record
stockholder's name only if such record stockholder dissents with respect to all
of the ASC Common Stock beneficially owned by any one person and notifies ASC
in writing of the name and address of each person on whose behalf such record
stockholder asserts dissenters' rights. Any stockholder of record who is
otherwise entitled to exercise dissenter's rights may exercise such rights
notwithstanding the fact that such stockholder purchased shares of ASC on or
after January 5, 1995.
A dissenting stockholder must deliver to ASC, within 20 days after
receipt of this Prospectus/Proxy Statement, a written objection to the Merger.
A stockholder who does not satisfy this requirement will not be entitled to
dissenters' rights. A vote against the Merger will not in itself satisfy the
written objection requirement, and failure to vote against the Merger will not
in itself constitute a waiver of dissenters' rights with respect to such
stockholder's ASC Common Stock. The written objection should be delivered to
ASC's principal executive offices at 1 Plant Road, Plattsburgh, New York 12901.
If ASC's stockholders approve the Merger, ASC must, not later than ten
days after the Effective Time, send written notice (accompanied by a copy of
Section 623 of the NYBCL) to each dissenting stockholder (i) stating where such
dissenting stockholder must send its written payment demand, (ii) stating where
and when certificates representing ASC Common Stock must be deposited, (iii)
containing a form for demanding payment, and (iv) setting a date by which such
written payment
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demand must be received, which may not be fewer than 30 nor more than 60 days
after the date of the notice. A dissenting stockholder who does not demand
payment and deposit its Common Stock within the time provided by such notice
will not be entitled to dissenters' rights.
ASC is required to pay to each dissenting stockholder who complies
with the procedures described above, within 30 days after the later of the
Effective Time and the date the payment demand is received, the amount that ASC
estimates to be the fair value of such dissenting stockholder's ASC Common
Stock, plus accrued interest from the Effective Time to the date of payment at
the average rate then currently paid by ASC, on its principal bank loans, or,
if none, at a rate which is fair and equitable under all of the circumstances.
ASC will provide, along with such payment, certain financial information,
including ASC's balance sheet, income statement and statement of changes in
stockholders' equity for the last fiscal year and the latest available interim
financial statements, an explanation of how the ASC estimated the fair value of
the shares, an explanation of how the accrued interest was calculated and
certain other information. ASC may send a statement to such dissenting
stockholder setting forth its estimate of the fair value of such dissenting
stockholder's ASC Common Stock and offering to pay such amount, with interest,
as a final settlement of such dissenting stockholder's demand for payment. Any
dissenting stockholder who is dissatisfied with such payment or such offer may,
within 30 days of such payment or offer for payment, notify ASC in writing of
such dissenting stockholder's estimate of the fair value of its ASC Common
Stock and the amount of interest due and demand payment thereof.
If any dissenting stockholder's demand for payment is not settled
within 60 days after receipt by ASC of such dissenting stockholder's payment
demand, the NYBCL requires that ASC commence a proceeding and petition the
court to determine the fair value of the ASC Common Stock and accrued interest,
naming all dissenting stockholders whose demands remain unsettled as parties to
the proceeding. The court may appoint one or more persons as appraisers to
receive evidence and recommend the fair value of the ASC Common Stock. The
dissenting stockholders will be entitled to the same discovery rights as
parties in other civil actions. Each dissenting stockholder made a party to
the proceeding will be entitled to judgment for the amount, if any, by which
the court finds the fair value of its ASC Common Stock, plus interest, exceeds
the amount paid to such stockholder by ASC. If such a proceeding is not
commenced within the 60-day period, ASC must pay such dissenter whose demand
remains unsettled the amount demanded.
Stockholders should recognize that such a determination of fair value
by the court could result in a price higher than, lower than or equal to the
price available to such stockholders pursuant to the Merger. The fair value of
a dissenting stockholder's shares is defined under the NYBCL as the value
immediately before the effective date of the Merger, excluding any appreciation
or depreciation in anticipation of the Merger unless such exclusion would be
inequitable.
Court costs and appraisal fees in such a valuation proceeding would be
assessed against ASC, except that the court may assess such costs against some
or all of the dissenting stockholders to the extent that the court finds that
the dissenting stockholders acting arbitrarily, vexatiously or not in good
faith in demanding payment. The court may also assess the fees and expenses of
counsel and experts of the respective parties in amounts that the court finds
equitable: (i) against ASC, if the court finds that it did not substantially
comply with certain provisions of the NYBCL concerning dissenters' rights, and
(ii) against the dissenting stockholders or against ASC, if the court finds
that the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously or not in good faith. If the court finds that
services of counsel for any dissenting stockholders were of substantial benefit
to other dissenting stockholders similarly situated, the court may award to
such counsel reasonable fees to be paid out of the amounts awarded to
dissenting stockholders who benefited from the proceedings.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of ASC's Board of Directors with
respect to the Merger, stockholders should be aware that members of ASC's
management and Board of Directors have certain interests which may present them
with possible conflicts of interest in connection with the Merger.
The following persons comprise the ASC Board of Directors: Sharokh
"Shawn" Sedaghat, Edward F. Csaszar, Eugene Biernaski, Donald J. Robinson,
Clarence Rohrer, Earl McCurdy, and Kevin Kearsey. Messrs. Sedaghat, Csaszar,
McCurdy and Kearsey were appointed to the Board by SEDA and accordingly have a
substantial conflict of interest in recommending that the ASC stockholders vote
for approval of the Merger.
In connection with the Merger, on January 3, 1995, SEDA entered into a
letter of intent with KGE and ASC Managing Partners, a general partnership
composed of David L. Kassel, Harry Goodman and Vincent Conti, the three of whom
are former officers and directors of ASC, and Catherine Kassel, Tina Conti,
Robert Gillings, Dorothy Goodman and Damon
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Testaverde. Pursuant to the aforementioned letter of intent, ASC agreed to
exchange in the Merger an aggregate of 1,656,127 shares of ASC Common Stock for
$1,050,000 in cash and 82,500 shares of SEDA Common Stock. KGE, a corporation
affiliated with ASC Managing Partners, also agreed to sell to SEDA all
machinery and equipment then being leased to Arpak Plastics, Inc., a subsidiary
of ASC, for $1,525,000 in cash, and the payment of $13,000 in accrued and
unpaid lease payments. Furthermore, and without any additional consideration,
ASC Managing Partners agreed to execute irrevocable proxies in favor of SEDA
with regard to the 1,656,127 shares of ASC Common Stock referred to above. On
January 3, 1995, the closing bid price for ASC Stock was $2 per share, and the
closing bid price for SEDA Stock was $10 1/4 per share.
The following persons were directors or executive officers of ASC
during the period between April 1994 and the present: David L. Kassel, Harry
Goodman, Eugene Biernaski, Donald J. Robinson, Clarence Rohrer, Sharokh "Shawn"
Sedaghat, Edward F. Csaszar, Earl McCurdy, Kevin Kearsey, and Vince Conti.
Messrs. Kassel and Goodman, former directors of ASC are also principals of ASC
Managing Partners which sold 1,656,127 shares of ASC common stock to SEDA for
$1,050,000 and 82,500 shares of SEDA common stock. Messrs. Robinson, Rohrer,
and Biernaski own respectively 57,500, 83,750, and 55,000 shares of ASC. Mr.
Sedaghat is also the President and Chief Executive Officer of SEDA, Mr. Csaszar
is Vice President of Sales and Marketing at SEDA, Mr. McCurdy is Director of
Sales at SEDA and Mr. Kearsey and SEDA own equal shares of Tube Tech, a
plastics tube marketing business. See "SEDA Specialty Packaging
Corp.-Directors and Executive Officers" below. Messrs. Robinson, Rohrer and
Biernaski granted SEDA irrevocable proxies (the "Employee Proxies") to vote
their shares of ASC in favor of the Merger in return for which SEDA, if it
utilizes the proxies, is required to allow Messrs. Robinson, Rohrer and
Biernaski to elect whether to exchange their ASC shares for SEDA shares on a
ratio of eight shares of ASC stock for one share of SEDA stock or to receive
$1.50 for each share of ASC stock exchanged by such persons in the Merger. As
a result of an amendment to the Merger Agreement the public stockholders of ASC
only have the right to exchange their ASC stock for SEDA stock at the ratio of
eight shares of ASC stock for one share of SEDA stock. The public shareholders
do not, under the Merger Agreement, have the right to exchange their ASC stock
for $1.50 per share, as do Messrs. Robinson, Rohrer, and Biernaski.
The Merger Agreement provides that SEDA agrees that all rights to
indemnification or limitations on liability in existence prior to the entering
into of the Merger Agreement in favor of the then present or former employees,
agents, directors or officers of ASC and any of its subsidiaries as provided in
their respective charters, by-laws, agreements or pursuant to applicable law in
effect on the date the Merger Agreement was entered into shall survive the
Merger and shall continue in full force and effect for a period of not less
than the applicable statutes of limitation; provided that in the event any
claim or claims are asserted or made within such applicable period, all rights
to indemnification in respect of any claim or claims shall continue until
disposition of any and all such claims.
In connection with the Merger, on January 5, 1995, SEDA acquired an
irrevocable proxy (the "Management Proxy"), with respect to an aggregate of
1,656,127 shares of ASC Common Stock, or approximately 54% of ASC's
then-outstanding Common Stock, from ASC Managing Partners, a general
partnership composed of certain former officers and directors of ASC. The
Management Proxy was placed into escrow pursuant to the terms of an escrow
agreement, which provides in part that the Management Proxy will not be
released until the date of the vote on the Merger. SEDA acquired irrevocable
proxies with respect to an aggregate of 339,250 additional shares of ASC Common
Stock (the "Employee Proxies") from certain employees of ASC. The Employee
Proxies were placed into a documentary escrow, together with the Merger
Agreement and other ancillary merger documents. All of the merger documents
and the Employee Proxies were released from the documentary escrow on January
18, 1995.
Effective January 5, 1995, ASC also entered into a Management
Agreement (the "Management Agreement") with SEDA. The Management Agreement
gave SEDA the authority to manage ASC and Arpak, including but not limited to
the authority to move machinery and equipment into or out of ASC's/Arpak's
facilities, take product orders for ASC/Arpak, and utilize the personnel of
ASC, Arpak and SEDA, all with the objective of using SEDA's good faith, best
efforts to maximize the profits of ASC and Arpak. The Management Agreement
provides that in consideration for said management services, SEDA shall be
entitled to receive the profits of ASC/Arpak generated during the term of the
Management Agreement. The Management Agreement continues in effect until the
closing of the Merger.
Also on January 5, 1995, Shawn Sedaghat, the Chairman/Chief Executive
Officer, President and a member of the Board of Directors and a principal
stockholder of SEDA, was elected to ASC's Board of Directors. All other
existing members of ASC's Board of Directors then resigned. Mr. Sedaghat, as
the sole remaining Director, elected Messrs. Edward Csaszar, Earl McCurdy,
Kevin Kearsey, Donald Robinson, Eugene Biernaski and Clarence Rohrer to serve
on ASC's Board of Directors.
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Also on January 5, 1995, SEDA acquired certain equipment formerly
leased to ASC by KGE, a corporation controlled by David Kassel and Harry
Goodman, formerly principal shareholders of ASC. The equipment was acquired
for an aggregate purchase price of $1,525,000, paid in cash derived from SEDA's
working capital. On June 22, 1995, SEDA contributed the equipment valued at
$1,525,000 to ASC and canceled an aggregate of $497,000 in indebtedness owed to
SEDA in return for 6,192,000 newly issued shares of ASC. The price paid by
SEDA for the equipment purchased was based on an appraisal dated December 27,
1994 by Appraisal Affiliates, Inc. On June 22, 1995, the closing bid price of
ASC stock was $1 3/8 per share.
On June 23, 1995, SEDA filed a complaint in the United States District
Court for the Southern District of New York against ASC and other defendants in
case no. 95-CIV. 4745(LMM) seeking a declaration by the Court that the Merger
Agreement be amended (the "June 22 Amendment") with the consent of both
Registrant's and ASC's Board of Directors and without the consent of any other
parties, to change the exchange ratio from 8 shares of ASC Common Stock for
each SEDA share to 24.5120 ASC shares of Common Stock for each SEDA share, to
eliminate the cash election option of $1.50 per share of ASC Common Stock, to
return the $1,050,000 in cash and 82,500 shares of SEDA Common Stock being held
in escrow to SEDA, and to extend the termination date of the Merger Agreement
to June 22, 2002. The basis for SEDA's complaint was that ASC Managing
Partners misrepresented what amount SEDA could expect ASC to achieve in sales
for the month of January 1995 by approximately $340,000 to $440,000, that ASC
sales personnel had given certain customers extraordinarily long terms for
payment of shipments in return for large advance pre-sales, which had the
effect of artificially boosting ASC's revenues prior to the date the Merger
Agreement was signed, that ASC Managing Partners had misstated or misled SEDA
with respect to the amount of sales backlog and that ASC Managing Partners had
overstated the true amount of the sales backlog due to the fact that many of
the orders comprising the backlog, which consist of purchase orders which had
not yet been filled and shipped were outdated and either no longer valid or had
been cancelled by the customers, but were never removed from the backlog
figures, resulting in a discrepancy of the sales backlog. While this action
was pending, the Court entered a temporary restraining order prohibiting the
distribution of the shares and amounts held in escrow. SEDA also sought a
preliminary injunction and a recision of the Merger Agreement. The Court
subsequently denied SEDA's motion for an injunction prohibiting the release of
the shares and amounts held in the escrow on the ground that SEDA had an
adequate remedy at law in damages, and on July 5, 1995, the escrowed shares and
amounts in escrow were distributed without SEDA's consent or approval and
contrary to SEDA's declared and continuing opposition to such disbursement.
SEDA takes the position that the release was invalid and illegal because the
Merger Agreement had been amended on June 22, 1995 to eliminate the provision
in the Merger Agreement which called for an involuntary transfer of the
1,656,127 ASC shares to SEDA if the Merger Agreement were not consummated by
July 5, 1995.
Effective August 21, 1995, the Merger Agreement was further amended by
agreement of the Company's and SEDA's Boards of Directors, cancelling the June
22nd amendment and eliminating the Cash Election Option from the Merger
Agreement. Under the original Merger Agreement there was a provision for ASC
public shareholders to receive $1.50 per share in lieu of SEDA stock. This
provision was eliminated in the August 21, 1995 amendment.
On October 24, 1995, a stipulation was filed with the Court, thereby
settling the case and effectuating the consensual purchase of the 1,656,127 ASC
shares by SEDA. Case No. 95-CIV 5209 brought in the United States District
Court for the Southern District of New York, and Supreme Court for the State of
New York, Index No. 120139/95 were also settled by stipulation on this date.
The material terms and conditions of the stipulation included that SEDA would
use its best efforts to have a registration statement for the registration of
82,500 shares of SEDA (issued to ASC Managing Partners) filed with the
Commission and declared effective by December 31, 1995, that the cash election
option would be eliminated from the Merger Agreement, that SEDA would use its
best efforts to have a registration statement for the registration of the
public shareholder's exchange shares filed with the Commission and declared
effective by December 31, 1995, and that each party would bear the costs,
expenses and attorneys fees of the litigation. The Merger Agreement was
amended on March 19, 1996 to extend the date by which SEDA would have the
registration statement declared effective to May 31, 1996.
SEDA currently holds Employee Proxies to vote an aggregate of 339,250
shares of ASC Common Stock and, on the date of the Special Meeting, will hold
an aggregate of 7,950,127 shares of ASC Common Stock comprised of 1,656,127
shares of ASC Common Stock purchased from ASC Managing Partners, 6,192,000
shares of ASC Common Stock received in exchange for a contribution of equipment
and a reduction of indebtedness and an aggregate of 102,000 shares of ASC
Common Stock purchased in the open market. SEDA will thus have the ability to
vote 8,289,377 shares of ASC Common Stock at the Special Meeting or
approximately 89.5% of the 9,256,000 outstanding shares of ASC Common Stock
(including 30,000 warrants exercisable at $0.10 per share) on the Record Date,
and will vote all of said shares of ASC Common Stock in favor of the Merger.
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FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following general discussion summarizes all material Federal
income tax considerations resulting from the plan of merger between SEDA
Subsidiary and ASC. It does not discuss all aspects of Federal income taxation
that may be relevant to a particular investor in light of his personal tax
circumstances or to certain types of investors subject to special treatment
under the Federal income tax laws. No legal opinion regarding such tax
considerations is being rendered hereby. Except as otherwise indicated,
statements regarding tax treatments, tax effects or tax consequences reflect
the conclusions of Price Waterhouse LLP, independent accountants for SEDA,
which has rendered its opinion regarding the accuracy of certain tax matters
described herein. A copy of the opinion of Price Waterhouse LLP is set forth
as Annex D to this Prospectus/Proxy Statement. No rulings have been requested
from the Internal Revenue Service ("IRS"), and the IRS may disagree with some
of the conclusions set forth below, particularly those as to which Price
Waterhouse LLP's conclusions are qualified. Accordingly, each investor should
consult his/her own tax advisor as to the specific tax consequences to him/her
including the application and effect of state or local income and other tax
laws.
The following is based on existing provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed regulations and
existing administrative interpretations and court decisions. Future
legislation, regulations, administrative interpretations or court decisions
could significantly change such authorities either prospectively or
retroactively.
For Federal income tax purposes, the acquisition of ASC will be
treated as if SEDA had acquired the ASC stock directly from the ASC
stockholders in a taxable stock purchase and will not be treated as a tax-free
reorganization or a tax-free exchange. SEDA will obtain a cost basis in the
stock acquired.
No gain or loss will be recognized by ASC on the transfer of its stock
by its stockholders. ASC will retain its current tax basis in all its assets.
Any tax attributes including net operating losses, capital losses, certain
credits and built-in losses may be subject to limitation.
The stockholders of ASC will be treated as if they had sold their
stock directly to SEDA. They will recognize gain or loss based on the
difference between the fair market value of the property received and their
adjusted basis in the ASC stock. The gain or loss will be capital if the
stockholder held the stock as a capital asset on the date of the exchange. Any
loss on the sale may be limited. ASC stockholders who receive SEDA stock in
exchange for their ASC shares will have a tax basis in the SEDA shares equal to
the fair market value of such shares as of the effective date of the merger and
a new holding period for such shares will commence on the date after such date.
THE TAX DISCUSSION SET FORTH ABOVE IS BASED UPON PRESENT LAW. EACH
ASC STOCKHOLDER SHOULD CONSULT HIS/HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO HIM/HER, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
FEDERAL OR OTHER TAX LAWS. THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH
RESPECT TO ASC COMMON STOCK RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK
OPTIONS OR OTHERWISE AS COMPENSATION.
ASC FAIRNESS OPINION
ASC has retained H.J. Meyers & Co., Inc. ("Meyers") to render its
opinion as to the fairness of consideration to be received by the ASC
stockholders in the Merger. Meyers has rendered its written opinion dated
March 30, 1995 to all the ASC stockholders to the effect that, as of the date
of such opinion and based upon the considerations described in its opinion, the
consideration to be received by the ASC stockholders in the Merger is fair and
equitable to ASC and its stockholders. In rendering its opinion, Meyers
reviewed certain publicly available financial information concerning SEDA and
ASC, as well as the reported price and trading activity for the SEDA and ASC
Common Stock. Meyers also reviewed certain internal financial analyses and
forecasts for ASC and held discussions with members of senior management of ASC
regarding the business and future prospects of ASC. In rendering its opinion,
Meyers relied upon the accuracy and completeness of the financial and other
information publicly available or furnished by SEDA and ASC and did not attempt
independently to verify such information, or to make or cause to be made any
independent appraisal of any assets of either company. Meyers has received a
fee of $25,000 for its services, and is entitled to reimbursement for its
reasonable pre-approved travel expenses, not to exceed $5,000. Meyers' fee was
not contingent upon the determination reached by Meyers in its opinion. ASC
has also agreed to indemnify Meyers against certain liabilities, including
liabilities under the federal securities laws. The full text of Meyers'
opinion, which
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sets forth the assumptions made, matters considered and limitations upon the
review undertaken, is set forth as Annex B to this Prospectus/Proxy Statement.
The opinion should be read in its entirety.
In arriving at its opinion, Meyers (i) reviewed SEDA's Annual Reports
Form 10-Ks and related financial information for the years ended December 31,
1993 and 1994; (ii) reviewed ASC's Form 10-KSB for the year ended April 30,
1994 and the Quarterly Report on Form 10-QSB for the nine months ended January
31, 1995; (iii) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of ASC and
SEDA furnished to Meyers by ASC and SEDA, respectively; (iv) held discussions
with members of senior management of ASC and SEDA concerning their businesses
and prospects; (v) reviewed historical market prices and trading activity for
ASC's and SEDA's Common Stock; (vi) reviewed the Merger Agreement; and (vii)
reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as Meyers deemed
necessary.
In preparing its opinion, Meyers relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
ASC and SEDA, and did not assume any responsibility to independently verify
such information or undertake an independent appraisal of the assets of either
ASC or SEDA. Meyers assumes no responsibility to revise or update its opinion
if there is a change in the financial condition or prospects of either of ASC
or SEDA from that disclosed or projected in the information it reviewed or in
the general, economic or market conditions. Meyers' opinion does not
constitute a recommendation to any stockholder of ASC as to how any such
stockholder should vote on the Merger. Meyers' opinion does not address the
relative merits of the Merger and any other transactions or business strategies
discussed by the ASC Board of Directors as alternatives to the Merger.
The Chairman of the Board of ASC, Shawn Sedaghat, selected Meyers
because he was familiar with the Meyers firm. Mr. Sedaghat reviewed proposals
to issue the fairness opinion from Meyers and one other firm and selected
Meyers because he had a greater familiarity with Meyers and the price charged
by Meyers for the Fairness Opinion was lower than the price proposed by the
other firm. Although the Meyers Opinion is addressed to the Board of Directors
of ASC, the Board of Directors of ASC did not directly participate in the
selection of Meyers.
The material relationship between Meyers and ASC or SEDA during the
past two years is as follows: Thomas James & Co., an investment banking firm
acquired Meyers in an unrelated transaction on or around the time that ASC and
SEDA entered into the Merger Agreement. Thomas James & Co. provided services
to ASC prior to the date that ASC entered into the Merger Agreement with SEDA.
ASC and Thomas James & Co. have had a long-standing investment banking
relationship, including merger and acquisition and market making activities and
research coverage. This relationship extends back to 1991. In the Fall of
1994, ASC formally retained Thomas James & Co. to assist in selling ASC. The
agreement of retention with Thomas James & Co. was signed on September 30,
1994, and included a success fee schedule which was to be discounted by 50% in
the event ASC was sold to certain parties it had already identified including
SEDA. After execution of the Retention Agreement, Thomas James & Co. provided
significant work in an effort to sell ASC including: searches for additional
strategic and financial buyers, financial/valuation and operational analysis of
ASC, preparation and dissemination of a blind profile of ASC to gauge initial
indications of interest of potential acquirors of ASC, preparation and
dissemination of Confidentiality Agreements to any interested parties,
preparation and dissemination of a detailed selling memorandum for the purpose
of submission to potential interested parties, arrangement of conference calls
and facility visits with prospective buyers.
Potential buyers introduced by Thomas James & Co. included both
strategic buyers with operations in plastic caps and closures and other areas
of the plastics industry, as well as financial buyers seeking to create
synergies with existing operating businesses within the framework of a public
vehicle. None of the potential buyers were considered suitable.
ASC and Thomas James & Co. mutually agreed to the payment of a $60,000
fee to Thomas James & Co. for services rendered in connection with this
engagement. As mentioned above, on or about the time that SEDA and ASC entered
into the Merger Agreement, Thomas James & Co. acquired Meyers and changed its
name to "H.J. Meyers & Co., Inc."
SEDA has not had any material relationship with Meyers or Thomas James
& Co.
In arriving at its opinion, Meyers performed a variety of financial
analyses, including those summarized below. Arriving at a fairness opinion is
a complex process that involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion
is not necessarily susceptible to partial analysis or summary description.
Meyers believes that its analyses must be considered as a whole and that
selecting portions of its analyses or portions of the factors considered by it,
without considering all analyses and factors, could create an incomplete view
of the evaluation process underlying its opinion. In performing its analyses,
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<PAGE> 38
Meyers made numerous assumptions with respect to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of ASC or SEDA. Any estimates incorporated in the
analyses performed by Meyers are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, estimates of the values of
businesses and securities neither purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainly and neither ASC, SEDA nor Meyers assume responsibility for the
accuracy of such analyses and estimates.
The Meyers Fairness Opinion took into account the Cash Election Option
which was contained in the Merger Agreement as of the date of the Meyers
opinion but is no longer a term of the Merger.
The following is a summary of the material financial analyses
performed by Meyers in connection with this fairness opinion:
Balance Sheet/Asset Analysis. A balance sheet evaluation examines all
of a company's assets that represent value to an outside party seeking to
invest in the Company. This includes hard assets such as cash, accounts
receivable, property and equipment in addition to intangible assets like
patents or trademarks. Certain assets sometimes warrant enhanced value due to
the strategic synergies or increases resulting from current market values in
excess of depreciated book values. This type of analysis, however, does not
take into account the value of expected earnings nor other ongoing
operations-related issues. These attributes can be included as part of an
overall corporate valuation, but a buyer who is looking at the balance sheet as
the primary means of assessing value will discount the importance of such
components. ASC's balance sheet as of January 31, 1995 contains total assets
of $7,000,000 and a net worth of $485,000. These assets include accounts
receivable, inventory, prepaid expenses, property, plant and equipment. Meyers
concluded that the property, plant and equipment category is understated due to
the depreciation and market value of the owned real estate. ASC indicated that
the fair market value of the real estate (through an appraisal dated December
27, 1994 of the property) is approximately $1,800,000. Additionally, ASC's
machinery and equipment was recently appraised at $10,700,000 for replacement
value and $7,000,000 for depreciated value. Meyers calculated that this gave a
total current value of ASC's property, plant and equipment of between
$8,800,000 and $12,500,000, versus a net book value of $4,000,000. In the view
of Meyers, this market adjustment increased net worth from $485,000 to between
$5,300,000 and $9,000,000.
The Merger Agreement at Section 3.02 recited that the capitalization
of ASC consisted of 3,034,273 shares issued and outstanding plus warrants to
purchase 30,000 shares of Common Stock for a total of 3,064,273. Based upon
the exchange ratio recited in the Merger Agreement of 8 shares of ASC for 1
share of SEDA, this would result in a total of 383,034 shares of SEDA being
issued in exchange for all of the shares of ASC. Since at the time that the
Merger Agreement was negotiated the SEDA shares were trading at $12 per share,
the total value of the SEDA shares would be $4,596,409. This compares to a
balance sheet analysis indicating a range for the net worth of ASC from a low
of $5,300,000 to a high of $9,000,000. On the basis of the balance sheet
analysis the value of the SEDA stock to be issued in the merger was $703,591
lower than the low end of the balance sheet valuation range and $4,403,591
lower than the high end of the balance sheet valuation range and thus, the
balance sheet analyses did not support the conclusion of the Meyers Opinion as
to the financial fairness of the transaction.
Discounted Cash Flow Analysis. Discounted cash flow analysis focuses
on a company's ability to generate free cash over a particular forecast. Free
cash is defined as a company's cash flow with adjustments made in terms of
discretionary disbursements and receipts. These adjustments reflect the
ability of an investor to halt or sustain an existing cash management policy
or, in turn, reflect the same ability to initiate a completely new policy. In
other words, free cash flow is a snapshot of what a company's future operations
can accomplish without the potential distortion of accounting rules and changes
(which may be problematic in simple price/earnings calculations) nor the burden
of balance sheets laden with debt and/or under-performing or risky assets.
Discounted cash flow analysis thus relies upon the future generation of free
cash as a basis to determine an estimated value for a company. The present
value of each forecast year's cash flow is calculated using a discount rate
that is a composite of current and future interest rates, the company's cost of
capital and an assessment of the company's systematic risk of operation. In
addition, a terminal value in the final forecast year is determined by analysis
of the value of future earnings. Based on the history of losses incurred by
ASC, Meyers elected to discount ASC's projections by 40% in year 1, 50% in year
2 and 50% in year 3, including the terminal value. Meyers' discounted cash
flow analysis indicated a hypothetical equity value in the range of between
$4,800,000 and $6,000,000.
Meyers arrived at the equity value range of between $4,800,000 and
$6,000,000 through the following analytical steps:
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<PAGE> 39
Meyers started with the EBIT (earnings before interest and taxes)
projection provided to Meyers by SEDA and ASC Management. This projection
showed EBIT for 1997 of $3,700,000. Meyers multiplied this by an EBIT multiple
of 4.5 minus the long-term debt of $1,800,000, which resulted in a net terminal
value in 1997 of $14,850,000. Meyers then discounted this terminal value by
50%, resulting in a net terminal value for 1997 of $7,425,000. Meyers selected
an EBIT multiple of 4.5 because in Meyers professional opinion as an investment
banker that was an appropriate multiple for the company due to the competitive
nature of the business in which ASC was engaged and its position in the
marketplace. Meyers also discounted the terminal value of $14,850,000 by 50%
because of ASC's long-term history of losses. Meyers then applied a 15% and a
25% present value discount to the projected cash flows and projected terminal
values of American Safety Closure Corp. (see page 8 of Annex B) which resulted
in the following conclusion as shown in the table below:
Yearly Cash Flow and Preset Value (in $000's)
<TABLE>
<CAPTION>
Discount Value Present Value @ Present Value @
Year (Cash Flow) 15% Discount 25% Discount
---- ----------- ------------ ------------
<S> <C> <C> <C>
1 654 569 523
2 550 416 352
3 325 214 166
Terminal 7,425 7,882 3,802
-------- ----- ----- -----
Total Present 6,080 4,843
Value
</TABLE>
As can be seen from the above table depending upon whether a 15% or a 25%
discounted present value formula is employed, the total present value of ASC,
taking into account the above discounts, ranges from $6,000,000 to $4,800,000.
Based upon the valuation of the SEDA stock of $4,596,409, as set forth
above in the Paragraph heading "Balance Sheets/Asset Analysis," the $4,800,000
low end discounted cash flow valuation is $204,000 greater than the then
$4,596,000 market value of the SEDA stock. The $6,000,000 upper range of the
discounted cash flow analysis valuation is $1,404,000 greater than the
$4,596,000 valuation of the SEDA stock. Accordingly, the discounted cash flow
analyses did not support the Meyers opinion as to the financial fairness of the
transaction.
Price/Earnings Multiple for Market Value. Meyers reviewed certain
publicly available historical financial information of certain publicly traded
specialty plastic manufacturers. These companies showed price/earnings
multiples ranging from 9.3 to 17.5, with an average of 13.4. The stock of ASC
closed on March 27, 1995 at $1.32 per share. Meyers concluded that given the
history of losses recorded by ASC of the past several years, it appeared
appropriate that its stock will trade at the low end of the comparable range.
This market price provided a value range for ASC in the past six months of
$3,500,000 to $4,300,000, or an average of $3,900,000.
Based upon the aforementioned $4,596,000 valuation for the SEDA stock
and the price/earnings multiple for market value on the low end of the range of
$3,500,000, the value of the SEDA stock would exceed the low end valuation by
$1,096,000 and would exceed the upper end valuation of $4,300,000 by $296,000.
After reasonable inquiry and discussions with Meyers, the Board of ASC is
unable to conclude how Meyers got from a price/equity multiple and a closing
stock price to the value range disclosed. Accordingly the Board cannot
conclude that the Meyers Opinion is supported by its analysis. On March 15,
1996, the closing bid price for SEDA's stock was $17 3/8 per share. Based on
that price, the market value of the aggregate number of SEDA shares acquired to
be issued in the merger pursuant to the Merger Agreement (i.e., 383,034), would
be valued at $6,655,216. Thus each shareholder of ASC who exchanges such
shareholder's ASC stock for SEDA stock at the exchange ratio of 8 shares of ASC
stock for 1 share of SEDA would receive approximately $2.17 worth of SEDA stock
or a 45% increase in the $1.50 per share price of ASC stock upon which the
Merger Agreement was negotiated in November of 1994. It should be noted,
however, that since the Meyers Opinion is dated March 30, 1995, Meyers did not
factor in the price of the SEDA stock as of March 15, 1996 in its Opinion.
Seven public companies were selected by Meyers for price/earnings
ratio analysis and comparison. Guidelines were set for these companies by
developing a list of similar companies in related businesses. The guidelines
Meyers chose were: Revenue size within American Safety Closure and SEDA's range
(chosen as not greater than $500 million annually); market's served were
similar (plastic tamper resistant and child proof packaging); and similar
production processes (such as injection molding and closure design). Although
SEDA's revenues and ASC's revenues are less than $50 million each, Meyers chose
companies for comparison purposes with revenues up to $500 million. Meyers'
rationale for this is that companies with revenues up to $500 million could
still retain hands-on leadership. SEDA, however, believes that in the industry
which it
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<PAGE> 40
competes, it is necessary to choose the specific companies in the table below
because SEDA believes that such companies constitute the competitive
environment in which SEDA and ASC are forced to do business. The seven
companies that met the aforementioned criteria were:
<TABLE>
<CAPTION>
Symbol Company P/E Ratio Approximate Revenue
------ ------- --------- -------------------
<S> <C> <C> <C>
SN Sun Coast Industries 9.9 $80 million
TUSC Tuscarora Inc. 16.8 $120 million
SRCO Sealright Co., Inc. 14.6 $295 million
PCIS PCI Services, Inc. 9.3 $121 million
LIQB Liqui Box Corp. 15.7 $148 million
KGM Kerr Group, Inc. 10.4 $140 million
ATR Aptar Group, Inc. 17.5 $474 million
SSPC SEDA 11.3 $30 million
CLOS ASC 10.2 $10 million
</TABLE>
The table demonstrates that the lowest P/E ratio in the comparison
group is 9.3 and the maximum P/E ratio is 17.5. American Safety Closure traded
on the lower end of its comparison group, most likely a result of the
historical losses it occurred. As the table clearly shows, American Safety
Closure falls within the range of its comparison group in terms of its P/E
ratio. During the previous six months, American Safety's total market
capitalization fluctuated between $3.5 million and $4.3 million. SEDA's
purchase price was within this range.
Meyers is an investment banking firm specializing in, among other
things, the evaluation of businesses and securities of manufacturing companies.
As a customary part of its investment banking business, Meyers is engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and valuations for estate, corporate and other purposes.
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<PAGE> 41
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to
the acquisition of ASC by SEDA through the merger of a SEDA subsidiary with and
into ASC in a transaction accounted for as a purchase. The acquisition by SEDA
of 100% of ASC will be accomplished through a series of transactions, three of
which occurred in 1995 and have resulted in SEDA's ownership of 86% of the
outstanding common stock of ASC during 1995. The acquisition of the remaining
14% interest in ASC is contemplated by this registration statement. The three
transactions in 1995 were as follows:
<TABLE>
<CAPTION>
Cumulative
ASC common stock Consideration received by ownership
purchased by SEDA ASC or ASC Shareholders by SEDA
----------------- ----------------------- ----------
<S> <C> <C> <C>
1. 102,000 shares purchased in the $147,000 in cash 3%
open market
2. 6,192,000 newly issued shares $2,354,000 received by ASC, comprising equipment 68%
contributed to ASC ($1,525,000), forgiveness of ASC
debt to SEDA ($497,000) and related acquisition costs
($332,000, which amount includes $102,000 incurred in
1994)
3. 1,656,127 shares from ASC Managing $1,699,688 comprising cash ($1,050,000) and 82,500 86%1
Partners shares of SEDA common stock (valued at $7-7/8 per
share, the average of the closing bid and ask prices on
July 5, 1995)
</TABLE>
The final transaction to acquire the remaining 14% interest in ASC will require
the issuance of approximately 163,000 shares of SEDA common stock in exchange
for the approximately 1,304,000 shares of ASC common stock held by the public.
The estimated consideration of $2,234,000 comprises the 163,000 shares of SEDA
common stock valued at $12 per share (the average of the closing bid and ask
prices at December 29, 1995) and estimated acquisition costs of $275,000.
The following unaudited pro forma balance sheet is based upon SEDA's
consolidated balance sheet at December 31, 1995, which already reflects SEDA's
86% ownership of ASC, adjusted to include the pro forma effects of the
acquisition by SEDA of the remaining 14% minority interest as of December 31,
1995.
The following unaudited pro forma statement of income is based on the
individual statements of income of SEDA and ASC. The SEDA consolidated
statement of income for the year ended December 31, 1995 includes the results
of ASC from June 22, 1995, the date on which SEDA acquired a majority ownership
of ASC, through December 31, 1995. The statement of operations of ASC has been
adjusted to reflect the results of operations for the period from January 1,
1995 to June 22, 1995. The following pro forma unaudited statement of income
combines the results of operations of SEDA for the year ended December 31, 1995
(which includes the results of approximately six months of ASC operations) and
the results of operations of ASC for the period from January 1, 1995 to June
22, 1995, as if all transactions leading to SEDA's 100% ownership of ASC had
occurred on January 1, 1995.
The unaudited pro forma statements of income are not necessarily
indicative of operating results which would have been achieved had the merger
been consummated as of the beginning of such period and should not be construed
as representative of future operations.
The unaudited pro forma financial statements include pro forma
adjustments made to reflect the acquisition of ASC as contemplated, which may
differ from the actual adjustments made at the time the transaction is
consummated.
The unaudited pro forma financial statements should be read in
conjunction with the historical financial statements and the related notes
thereto of SEDA and ASC.
____________________
The 86% figure reflects actual ownership and does not include
the 339,250 Employee Proxy Shares, which if included would result in
SEDA owning and controlling 89.5% of the total ASC shares currently
outstanding.
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<PAGE> 42
SEDA SPECIALTY PACKAGING CORP. AND
AMERICAN SAFETY CLOSURE CORP. AND SUBSIDIARY
Unaudited Pro Forma Combined Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
Consolidated
SEDA
December 31, Pro Forma
1995 Adjustments Pro Forma
(Note 1) (Note 2) Combined
-------- -------- --------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $3,508 $(100) $3,408
Accounts receivable, less allowance
for doubtful accounts 9,022 -- 9,022
Inventories 7,158 -- 7,158
Prepaid expenses and other current 743 -- 743
assets
Deferred income taxes 1,120 -- 1,120
------- ------ ------
Total current assets 21,551 (100) 21,451
Property, plant and equipment, net 43,342 3,224 46,566
Other assets 989 (175) 814
------- ------ -------
$65,882 $2,949 $68,831
======= ====== =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $3,838 $ -- $3,838
Income taxes payable 650 -- 650
Accrued liabilities 1,718 -- 1,718
Current portion of long-term debt 3,582 -- 3,582
Current portion of obligations under capital
leases 493 -- 493
------ ------ -------
Total current liabilities 10,281 -- 10,281
Line of credit 1,520 -- 1,520
Long-term debt 12,453 -- 12,453
Obligations under capital leases 805 -- 805
Deferred income taxes 3,708 1,291 4,999
------- ------ -------
Total liabilities 28,767 1,291 30,058
------- ------ -------
Minority interest in consolidated
subsidiary 301 (301) --
------ ------ ------
Stockholders' equity:
Preferred stock -- -- --
Common stock 5 -- 5
Capital in excess of par value 26,983 1,959 28,942
Retained earnings 9,967 -- 9,967
Treasury stock (141) -- (141)
------- ------ -------
Total stockholders' equity 36,814 1,959 38,773
------- ------ -------
$65,882 $2,949 $68,831
======= ====== =======
</TABLE>
- --------------------
Note 1 - The consolidated balance sheet of SEDA at December 31, 1995
reflects SEDA's 86% ownership of ASC acquired during 1995.
Note 2 - The pro forma balance sheet has been prepared to reflect the
acquisition of the remaining 14% minority interest in ASC for
approximately 163,000 shares of SEDA common stock valued at
$1,959,000 ($12 per share - the average of the closing bid and
ask price of SEDA common stock at December 29, 1995) and $275,000
of related acquisition costs, of which $175,000 were deferred as
of December 31, 1995. The aggregate purchase price of $2,234,000
was allocated to the assets and liabilities acquired based on fair
values. The excess of purchase price over the net book value of the
assets and liabilities acquired at December 31, 1995 was primarily
attributable to property, plant and equipment and a related
liability for deferred taxes.
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<PAGE> 43
SEDA SPECIALTY PACKAGING CORP. AND
AMERICAN SAFETY CLOSURE CORP. AND SUBSIDIARY
Unaudited Pro Forma Combined Statement of Income
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
SEDA ASC
12 Months Period From
Ended January 1, 1995 Pro Forma
December 31, to June 22, Adjustments Pro Forma
1995 1995 (Note 1) Combined
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Net sales $41,676 $ 4,072 $ -- $ 45,748
Cost of sales 28,895 3,427 421 (a) 32,743
------- -------- ------- -------
Gross profit 12,781 645 (421) 13,005
Selling, general and administrative
expenses 5,470 804 (132)(b) 6,142
------- -------- ------ -------
Income (loss) from operations 7,311 (159) (289) 6,863
Interest expense 1,422 230 -- 1,652
Interest income (167) -- -- (167)
Other expense (income) (30) 33 -- 3
------- -------- -------- --------
Income before income taxes 6,086 (422) (289) 5,375
Provision for income taxes 1,951 -- (284)(c) 1,667
------- -------- ------ -------
Net income (loss) $ 4,135 $ (422) $ (5) $ 3,708
======= ======== ======= =======
Earnings (loss) per common and
common equivalent share $ 0.82 $ (0.10) $ 0.70
======= ======== =======
Weighted average number of
common and common equivalent
shares 5,061 4,339 (4,134)(d) 5,266
======== ======== ======= ========
</TABLE>
_________________
Note 1- The pro forma statement of income gives effect to the following pro
forma adjustments necessary to reflect the acquisition of 100% of ASC,
representing the 86% actually acquired during 1995 and the remaining
14% as outlined in the Merger Agreement, as though all transactions
leading to the acquisition of 100% of ASC had occurred January 1,
1995:
a. Additional depreciation expense of $621,000, resulting from increased
basis of property, plant and equipment acquired of $4,908,000.
Depreciation is calculated on a straight-line basis over the remaining
estimated useful lives of approximately 6 years. Also includes an
inventory fair value adjustment of $200,000;
b. Adjustments to record accounts receivable and accrued liabilities at fair
value at the date of acquisition;
c. Reduction of provision for income taxes to reflect a consolidated tax
provision; and
d. Amount represents the aggregate of (i) the 82,500 SEDA common shares
issued during 1995 in connection with the acquisition of 86% of ASC that
would have been outstanding for the entire year (42,000 shares), (ii) the
SEDA common shares assumed to be issued to ASC shareholders for the
remaining 14% minority interest (approximately 163,000); and (iii)
elimination of ASC shares (4,339,000).
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<PAGE> 44
SEDA SPECIALTY PACKAGING CORP.
BUSINESS AND PROPERTIES OF SEDA
SEDA Specialty Packaging Corp. ("SEDA") develops, manufactures and
sells specialty plastic packaging products to the personal care, food and
beverage, household and industrial chemical and pharmaceutical industries.
SEDA's products consist of lined and linerless plastic caps and closures,
flexible plastic tubes, plastic bottles and custom plastic products offered in
a broad variety of sizes with diverse choices of color and printing. SEDA
focuses on customers who require shorter lead times, superior product quality,
uniform appearance, customized service and flexible delivery schedules. SEDA's
strategy is designed to respond to these key factors in order to position SEDA
as a preferred supplier in the highly competitive industries in which it
operates.
On July 19, 1994, SEDA's stockholders approved the reincorporation of
SEDA in the State of Delaware. Such reincorporation was effected on August 1,
1994. As a result of the reincorporation, each outstanding share SEDA's no par
value common stock was exchanged for one share of $0.001 par value common stock
of the Delaware corporation. The total number of common shares outstanding at
the date of the reincorporation was 5,015,000.
SEDA's executive offices are located at 2501 West Rosecrans Boulevard,
Los Angeles, California 90059-3510 and its telephone number is (310) 635-4444.
GENERAL
SEDA was founded in 1984 by Shapour Sedaghat who has had over 35 years
of prior experience in the specialty plastics packaging industry, including the
formation and management of a group of specialty plastic packaging companies.
SEDA's management team has substantial experience in the specialty plastic
packaging industry which provides SEDA with valuable experience in the
industries in which it competes.
Originally focusing on plastic closures, SEDA grew rapidly in terms of
revenues and product lines, adding a family of flexible tubes and new plastic
custom products in 1990 and plastic bottles in 1995. In order to continue its
rapid growth, management carefully evaluates SEDA's product lines in an effort
to capture higher market share while maintaining or increasing gross margins.
Examples include the ongoing development of new high margin products such as
tamper-evident and break-away screw caps and plastic child-resistant closures.
Plastic closures are used to cap primarily plastic containers which
store a wide variety of cosmetic, food, chemical and other commercial and
industrial products. Each closure and container must be designed and
engineered to meet specific use requirements mandated by the type of container
and nature of its contents. Over the years, rigid and flexible plastic
containers have experienced significant growth in market share at the expense
of other materials such as glass and metal. Advantages of plastic containers
include durability, resistance to denting and breakage, and compatibility with
many products. Furthermore, they are lightweight, an important factor in the
transportation- sensitive packaging industry, and can be produced in a variety
of colors.
Plastic closures for plastic containers have distinct advantages over
other materials such as metal and metal composite closures. Market surveys
indicate that the performance advantages, design flexibility, value added
characteristics (e.g., aesthetics, convenience, protective features) and lower
overall costs of plastic closures and reduced applications of other materials
as a result of the widespread market penetration of plastic containers have
driven the demand for plastic closures. Since the manufacturing process
required to produce plastic closures substantially differs from that used to
produce plastic containers, many manufacturers of plastic products have focused
on one but not both areas of this market. Therefore, as the market for plastic
containers has grown, demand for products provided by plastic closure
manufacturers has dramatically risen.
Flexible plastic tubes encase a variety of products including lotions,
creams, shampoos, foodstuffs, adhesives and household chemicals. The
non-corrosive and lightweight nature of these products and the ease in product
dispensing provide distinct competitive advantages over other types of tube
materials. The tubes can be produced in a variety of colors, can be easily and
attractively decorated and do not require lining or interior surface treatment
to contain most products.
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<PAGE> 45
STRATEGY
In general, end users of specialty plastic packaging products evaluate
potential vendors according to factors such as product quality, responsiveness,
customer service and price. SEDA's strategy is designed to respond to these
factors, thus positioning SEDA as a preferred supplier in the highly
competitive industries in which it operates. The key elements of SEDA's
strategy are as follows:
# High Quality and Uniform Products. SEDA believes that its commitment
to quality is a key component of its success to date. Management
believes that its customers typically expect a low product defect rate
and high quality product aesthetics. In the specialty plastic
packaging industry, a high defect rate can mean a delay in product
shipment and higher production costs while poor product aesthetics may
depress product sales. SEDA believes it differentiates itself from its
competitors through the utilization of production and training
techniques designed to produce a high quality product conforming to a
customer's design specifications. SEDA is able to maintain product
quality, reduce defects and thereby increase demand for its products by
(i) utilizing technologically advanced machinery and production
techniques, (ii) employing advanced testing equipment and methods,
(iii) offering an in-house graphics capability that ensures that the
product's printing and graphics comply with its customer's aesthetic
demands and (iv) promoting a total quality management program.
# Flexible and Customized Service. Management has structured SEDA's
operations in a manner that promotes rapid responsiveness to
constantly changing client needs by providing customers with direct
access to key operations personnel within SEDA. Since many specialty
plastic packaging product companies market similar product lines,
management believes that customers often select suppliers on the basis
of service factors. Management's experience indicates that as the
plastics industry has grown, the largest plastic packaging product
manufacturers have often demonstrated an unwillingness or inability to
react quickly and responsively to the varying demands of many
customers. This has created opportunities for SEDA to increase market
share by catering to the service expectations of these customers.
SEDA has developed the ability to adjust production delivery schedules
to meet the needs of those customers who have in turn made aggressive
delivery commitments for their goods. SEDA's in-house graphics
capability affords it the ability to generally incorporate a
customer's last-minute printing changes and still meet its production
needs.
# Reliable and Timely Delivery. SEDA believes its low lead times (the
period from customer order to delivery) provide it with a competitive
advantage in customer service. Intense efforts are made to provide
the customer with high quality products by the designated delivery
date. SEDA seeks to maintain this level of service through careful
evaluation of its production process and the cultivation of close
relationships with actual and potential customers. By working
closely with a customer, SEDA attempts to ensure that design
specifications and delivery schedules are met without the cost
and loss of reputation associated with the initial production of
nonconforming product. Furthermore, utilization of automated high
quality production lines helps maintain lead times and low
defect rates.
# Low Delivered Cost. SEDA strives to achieve low delivered
costs to its customers. SEDA has located its manufacturing
operations in areas with high-quality and relatively low-cost
labor and has equipped its facilities with technologically
advanced, cost-effective machinery. In an effort to control
costs, SEDA's engineering department carefully evaluates SEDA's
production process and often makes technical modifications and
adjustments to reduce costs and improve production speed. Examples
include mold dedication and maximization of mold output; SEDA
generally dedicates one mold to one machine which reduces
machine downtime, and over time it has been able to add molds with
higher cavity capacity, thus improving yield, gross margins and
lead times. Additionally, SEDA's technical staff has improved
the automated nature of its machines which reduces the number of
employees required to operate them, thus decreasing costs and
improving margins. SEDA's in-house scrap recycling program and
the resulting savings from reduced scrap and rework exemplifies
SEDA's ability to control its costs.
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<PAGE> 46
To further allow it to price competitively, SEDA utilizes a low
overhead internal marketing program. Direct selling activities,
because of the higher cost-per-sale and personnel requirements,
are generally reserved for large established accounts and prospective
customers with strong sales potential. By utilizing more economical
means of marketing such as telemarketing and distributors, SEDA
supports field selling activities by prescreening prospective
customers and identifying potential accounts that warrant direct
sales calls.
# Focus on Market Opportunities. SEDA's advanced technological
design capabilities, manufacturing techniques and industry experience
afford it the ability to develop a wide variety of specialty
plastic packaging products. SEDA evaluates customer demand in an
effort to apply its expertise to introduce selected new
products designed to meet consumer needs in instances where
SEDA's margins are improved or sustained. For example,
recognizing that the largest growth in plastic closures is
expected to be in the market for tamper-evident closures, SEDA has
introduced a line of tamper-evident closures for use in
pharmaceutical and food and beverage applications. This
flexibility extends beyond plastic closures and tubes - SEDA
produces and supplies pizza trays and plastic lid supports for pizza
boxes for end-user customers. SEDA's market information is based on
Industry Study #385, plastic and competitive caps and closures to
1995, dated September 1991.
PRODUCTS
Plastic Closures
SEDA's primary plastic closure product is a plastic screw cap which is
fabricated in a wide variety of sizes and is adaptable to glass and metal as
well as plastic containers. With specialized liners or inner seals, SEDA's
screw caps are also capable of sealing containers to prevent leakage, spoilage
and product tampering. For the year ended December 31, 1994, approximately 95%
of SEDA's screw caps were manufactured with liners or seals. SEDA offers these
closures with diverse choices of styles, in a broad variety of colors and sizes
ranging in diameter from 28 millimeters to 110 millimeters.
SEDA also has a line of tamper-evident caps which include snap-on caps
with tear skirts. These products, with broad applications in food, beverage
and pharmaceutical packaging, have emerged as an ideal type of tamper-evident
closure due to the favorable cost efficiencies and ease of use in packaging
processes.
SEDA also plans to develop a line of plastic child-resistant closures.
Mandatory governmental regulations aimed at preventing access by children to
potentially dangerous consumer substances have been the major impetus behind a
steadily increasing market for child-resistant closures. Currently, these
packaging safeguards must be incorporated on all containers holding certain
prescription drugs, over-the-counter medicines and toxic household chemicals.
Management believes that the demand for such closures should continue to rise
due to the expanding use of plastic bottles for toxic household and automotive
chemicals and a rising use of pharmaceuticals.
Flexible Tubes
SEDA's flexible plastic tubes can be processed in a variety of
diameters and lengths and can be fitted with a number of plastic closures, such
as flip-top or screw caps. Generally, the capacity of these tubes ranges from
0.5 to 9.5 fluid ounces.
The finished tubes are printed with the customer's labeling on-site at
SEDA's facility. SEDA manufactures its own printing plates pursuant to the
customer's design specifications and all requested printing work is done
on-site. As a result, design modifications or additions can be quickly and
easily made as opposed to subcontracting these changes. This improves lead
times and customer relations and provides SEDA with what it believes is a
distinct competitive advantage.
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<PAGE> 47
SEDA continually examines new applications for its tube products. For
example, SEDA produces a line of co-extruded, multi-layered tubes designed to
provide greater product protection and produces barrier capabilities. These
tubes are designed to be used in applications such as toothpaste and certain
foods and medicinal products. SEDA believes that these tubes may provide
additional market opportunities.
Plastic Bottles
SEDA entered the plastic bottle market in 1995 with a line of
polyethylene terephthalate ("PET") bottles designed for specialty water
products. The bottles are produced in 0.5, 1.0 and 1.5 liter sizes.
Custom Products
SEDA's technological design capabilities and production techniques are
applicable to a wide range of custom plastic products. Current custom products
include pizza trays and plastic lid supports for pizza boxes which SEDA
manufactures for use by end-user customers.
SEDA also provides design assistance to customers in connection with
the production of their custom products. SEDA's technical specialists work
closely with customers in structuring initial production, labeling and delivery
specifications for the introduction of new product lines. Management believes
this production assistance is an important feature of SEDA's customer support
program and helps attract customers seeking custom product manufacturing.
INDUSTRIES SERVED
SEDA's flexible tubes and its plastic closures are used to package a
wide variety of products, such as personal care items, foods and beverages,
household and industrial chemicals and pharmaceuticals. SEDA's flexible tubes,
closures and custom products are sold directly through SEDA's in-house sales
force and indirectly through distributors. During the year ended December 31,
1994, SEDA sold products through a national distribution network which included
over 70 distributors; approximately 80% of closures and 10% of tubes during the
same period were sold through distributors. Since SEDA prints nearly all tubes
it manufactures, it is able to specifically identify the industry in which the
tubes are to be used. However, since closures are not printed and distributors
buy closures for a variety of users, SEDA is unable to identify with certainty
which industries are served by those distributors.
Personal Care
SEDA's closures and tubes are used for personal care products such as
shampoos, sunscreens, hair gels and facial scrubs. Demand for plastic
containers in the personal care industry is driven by considerations of safety,
cost, convenience, product aesthetics and lower weight.
Food and Beverage
Uses of SEDA's products in the food and beverage area include products
such as ketchup, vegetable oil, water and other food products. As consumers
are becoming more reliant on easy-open, easy-handling food containers, use of
plastic dispensing closures and flexible containers is expected to increase.
Recognizing that the largest growth is expected to be in the market for
tamper-evident, tear-away plastic closures for beverages, SEDA currently has
under development a family of such products which SEDA expects will contribute
to sales growth. SEDA also produces custom plastic products for use in the
pizza industry.
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<PAGE> 48
Household and Industrial Chemical
SEDA's products are used in applications such as detergents, soaps,
cleaning preparations and automotive additives. Studies indicate that this
segment of SEDA's business has exhibited the most dramatic change-over to
plastic containers of all consumer goods segments in recent years as products
traditionally packaged in paper boxes, aerosol cans and glass and metal
containers are now being sold in plastic containers.
Pharmaceutical
SEDA's products are used for such medicinal and pharmaceutical
preparations as skin ointments, vitamins, prescription drugs, and medicinal
oils and creams. According to industry studies, the demand for plastics in
medical packaging is driven in large part by the overall aging of the
population. As people become older, they suffer from an increased number of
diseases and medical conditions requiring advanced drug therapy, translating
into an increased demand for packaging. Based on market data, management
believes that plastic closures with tamper evident safeguards will provide the
best opportunities in this segment. As a result, SEDA has introduced a family
of such closures.
MANUFACTURING
The manufacture of plastic closures involves conversion of a plastic
raw material (polypropylene or polyethylene) into a closure through an
injection molding process. The raw material is heated to the melting point,
injected into several cavities within a mold and cooled to become a finished
product. Operating efficiencies and costs are affected by the cycle time, the
number of cavities within the mold and the product defect rate.
The manufacture of flexible plastic tubes involves three steps: (i)
extrusion, (ii) heading and (iii) custom decoration. Plastic extrusion is the
process in which continuous shapes are formed by forcing viscous plastic resin
through a die. Plastic resins are heated and pushed through a die by the
extruder, which melts and mixes the material. The tube is then cooled and cut
to predetermined lengths. The tubes are then "headed," a process where molten
plastic is compression molded to the end of the hollow tube. Heading is a
complex process and production capacity can be limited by the technical
capability of a manufacturer's heading equipment. SEDA has invested in
advanced heading machines which are state-of-the-art lines capable of heading
80,000-100,000 two inch tubes per day with a near zero defect rate. The
machine was originally designed by Andreas Iseli, SEDA's Vice President of
Operations, Tube Division, during the term of his previous employment with
Aisa, Switzerland. Mr. Iseli is also responsible for overseeing technical
modifications to the extrusion and heading process which SEDA believes
substantially improves product quality, uniformity and defect rates.
Management believes that the use of these machines provides it with a distinct
advantage over the flexible tube manufacturers utilizing less sophisticated
equipment. The final step in the manufacture of flexible tubes is the printing
of the customers' labeling which is done on-site at SEDA's facility. SEDA
works closely with the customers in the printing process, utilizing its own
printing plates to ensure quality and consistency. By performing the entire
flexible tube manufacturing process in-house, SEDA can quickly and easily meet
the design and manufacturing specifications of its customers.
The manufacture of PET bottles involves the conversion of a plastic raw
material (PET) into a bottle through a combined injection molding and
stretch-blow molding process.
The conversion of raw materials into finished plastic components is a
highly capital equipment intensive process. Recognizing that faster production
capacity, low scrap rates and lower defect rates are critical to competing in
these segments of the plastics industry, SEDA has made substantial investment
in state-of-the-art automated machinery. When evaluating the purchase of new
machinery, SEDA examines the machines specifications and thereafter provides
the manufacturer with a list of design modifications if required. With these
adjustments, the machine becomes "custom" in nature and thereby further
differentiates SEDA from its competitors. This redesign process is based on
knowledge and information
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<PAGE> 49
gained by SEDA's founders and engineering department from their years of
experience in the plastics industry.
SEDA's manufacturing processes incorporate quality control, testing and
engineering procedures to assure compliance with customer requirements. These
procedures commence with certification of raw materials and include in-process
measurement and control and performance testing of finished products. Product
quality is controlled with an on-line testing process coupled with spot
checking of finished goods prior to shipment. The production process is
carefully scrutinized to determine if technical changes must be made or further
capital expenditures are required. In addition, SEDA conducts extensive
training of its personnel to ensure that a high level of technical competence
is maintained.
SEDA maintains product liability and errors and omissions insurance
against the possibility of defective product claims.
MARKETING
SEDA's line of plastic closures and custom products are sold through
its sales force consisting of a five person in-house sales staff and indirectly
through a network of over 70 distributors located throughout the United States.
Plastic tubes are sold directly through its in- house sales force and also
through SEDA's 50%-owned subsidiary, Tube Tech, which employs two in-house
sales personnel. Mr. Kearsey and SEDA own equal shares of Tube Tech.
Management expects that over time a higher percentage of SEDA's sales
will be made by SEDA's in-house sales force. In 1994, SEDA expanded its
in-house sales and marketing organization through the addition of personnel
with significant experience in the industry.
In order to allow SEDA to price competitively, SEDA has utilized a low
overhead internal marketing program. Direct selling activities, because of the
high cost and extensive manpower requirements, are generally reserved to large
established accounts and prospective customers with good sales potential. By
utilizing more economical means of marketing such as telemarketing, authorized
representatives and distributors, SEDA can support field selling activities by
prescreening prospective customers and identifying potential accounts that
warrant in-person visits.
RAW MATERIALS
The primary raw materials used by SEDA in the manufacture of its
products are various plastic resins, primarily polyethylene and polypropylene,
and various closure lining materials. Because plastic resins are commodity
products, SEDA selects its suppliers primarily on the basis of price.
Consequently, SEDA's sources for plastic resins tend to vary from year to year.
Substantially all of SEDA's suppliers of plastic resins manufacture their
plastic resins in the United States and most of SEDA's suppliers of plastic
resins produce the full range of plastic resins used by SEDA. Shortages of
plastic resins have, historically, been infrequent.
The primary plastic resins used by SEDA are produced from petrochemical
intermediates derived from products of the natural gas and crude oil refining
processes. Natural gas and crude oil markets have in the past experienced
substantially cyclical price fluctuations as well as other market disturbances
including shortages of supply, changes in OPEC policy and crises in the oil
producing regions of the world. The capacity, supply and demand for plastic
resins and the petrochemical intermediates from which they are produced are
also subject to cyclical and other market factors. Consequently, plastic resin
prices may fluctuate as a result of natural gas and crude oil prices and the
capacity, supply and demand for resin and petrochemical intermediates from
which they are produced. SEDA experienced significant price increases for its
plastic resins in 1994. Although demand will continue to influence the cost of
plastic resins in the future, SEDA has taken steps to protect itself against
shortages, to the extent it considers appropriate, through contracted
arrangements.
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Although SEDA is not generally bound by fixed price contracts with its
customers, it may not always be able to pass through increases in the cost of
its raw materials to its customers in the form of price increases. To the
extent that increases in the cost of plastic resin cannot be passed on to its
customers, such increases may have a material adverse impact on the
profitability of SEDA due to decreases in its profit margins.
SEDA currently purchases the polyethylene used by it in the manufacture
of its flexible plastic tubes and PET for its plastic bottles from a limited
number of sources. Although SEDA has been able to obtain this material in the
ordinary course of its business and while it believes that it can access
alternative sources on reasonable notice, any interruption in deliveries of
such materials would have a material adverse effect on SEDA's level of sales
and its near-term results of operations. Although SEDA currently purchases the
majority of the polypropylene used in the manufacture of its closures from a
single supplier, it believes it can obtain the material from a large number of
alternative suppliers. The delay in shipments of such material would have an
adverse effect on SEDA's ability to deliver products until alternative sources
are located.
With respect to caps, SEDA has pursued a program of expanding its scrap
resin reprocessing capacity for the recycling of internally generated scrap
generated in connection with the production of closures.
COMPETITION
Competition in the industries in which SEDA operates is intense. Many
of SEDA's competitors are more established and have greater name recognition
and marketing resources than SEDA. SEDA believes that competition for plastic
closures and tubes is based primarily on lead times, responsiveness, quality,
customer service, and price. SEDA believes that it competes favorably with
respect to these factors.
With respect to competition in the plastic closure market, management
believes it competes with over 100 firms in the United States. The market is
dominated by several large companies, which SEDA believes command over 80% of
the market share. With respect to tube sales, the industry is generally
characterized by competition from three large companies, American National Can,
Tubed Products and Thatcher Tubes, who command over 90% of market share.
Many of SEDA's competitors have greater financial resources than those
available to SEDA and certain competitors spend substantially greater amounts
for advertising and promotion. Furthermore, the standard screw top closure
market tends to be more price sensitive than the other markets in which SEDA
competes. At times in the past SEDA has had to lower prices on these products
to retain market share which has had an adverse effect on profit margins for
these products. There can be no assurance that such price competition will not
recur in the future.
REGULATION AND ENVIRONMENTAL CONSIDERATIONS
SEDA is currently not subject to any environmental proceedings. During
the year ended December 31, 1994, SEDA did not make any material expenditures
for environmental control facilities, nor does it currently anticipate any such
future expenditures. Actions by Federal, state and local governments
concerning environmental matters could result in laws or regulations that could
increase the cost of producing the products manufactured by SEDA or otherwise
adversely affect the demand for its products. At present, environmental laws
and regulations do not have a material adverse effect upon the demand for
SEDA's products. SEDA is aware, however, that certain local governments have
adopted ordinances prohibiting or restricting the use or disposal of certain
plastic products that are among the types of products produced by SEDA. If
such prohibitions or restrictions were widely adopted, such regulatory and
environmental measures could have a material adverse effect upon SEDA. In
addition, a decline in consumer preference for plastic products due to
environmental considerations could have a material adverse effect upon SEDA.
In addition, certain of SEDA's operations are subject to Federal, state and
local environmental laws and regulations that impose limitations on the
discharge of pollutants
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into the air and water and establish standards for the treatment, storage and
disposal of solid and hazardous wastes. While SEDA has not had to make
significant capital expenditures for environmental compliance, it cannot
predict with any certainty its future capital expenditure requirements relating
to environmental compliance because of continually changing compliance
standards and technology. SEDA does not have insurance coverage for
environmental liabilities and does not anticipate obtaining such coverage in
the future.
EMPLOYEES
As of November 30, 1995, SEDA had approximately 290 employees, of whom
25 were engaged in executive, sales, technical and administrative functions and
265 in production. None of SEDA's employees is represented by a labor union.
SEDA has not experienced any work shortages and considers its relations with
its employees to be good.
PROPERTIES
SEDA currently owns a production, warehouse and distribution center of
approximately 300,000 square feet located outside of Los Angeles, California.
The property was acquired in April 1994 from a corporation controlled by
Shapour Sedaghat, former Chairman of the Board, and his spouse in exchange for
an unsecured promissory note in the principal amount of $1.6 million due in
June 1995 bearing interest at 6% per annum and SEDA's assumption of the
existing $4.7 million five-year note due to a financial institution with
monthly payments of $39,033. At the closing of the transaction, which occurred
in April 1994, SEDA paid $1 million to the financial institution to reduce the
amount outstanding on the note. Prior to this transaction, SEDA leased the
facility from the aforementioned company. SEDA believes this facility is
sufficient for its current needs. The above referenced $1.6 million note was
paid-off in June 1995. The value of the above referenced property was $6.3
million at the time of its acquisition by SEDA.
LEGAL PROCEEDINGS
On June 23, 1995, SEDA filed a complaint in the United States District
Court for the Southern District of New York against ASC and other defendants in
case no. 95-CIV. 4745(LMM) seeking a declaration by the Court that the Merger
Agreement be amended with the consent of both Registrant's and ASC's Board of
Directors and without the consent of any other parties. While this action was
pending, the Court entered a temporary restraining order prohibiting the
distribution of the shares and amounts held in escrow. SEDA also sought a
preliminary injunction and a recision of the Merger Agreement. The Court
subsequently denied SEDA's motion for an injunction prohibiting the release of
the shares and amounts held in the escrow on the ground that SEDA had an
adequate remedy at law in damages, and on July 5, 1995, the escrowed shares and
amounts in escrow were distributed without SEDA's consent or approval and
contrary to SEDA's declared and continuing opposition to such disbursement.
SEDA takes the position that the release was invalid and illegal because the
Merger Agreement had been amended on June 22, 1995 to eliminate the provision
in the Merger Agreement which called for an involuntary transfer of the
1,656,127 ASC shares to SEDA if the Merger Agreement were not consummated by
July 5, 1995.
On October 24, 1995, a stipulation was filed with the Court, thereby
settling the case and effectuating the consensual purchase of the 1,656,127 ASC
shares by SEDA. Case No. 95-CIV 5209 brought in the United States District
Court for the Southern District of New York, and Supreme Court for the State of
New York, Index No. 120139/95 were also settled by stipulation on this date.
On January 8, 1996, counsel for SEDA received the following letter from
counsel for ASC Managing Partners:
"We have reviewed SEDA Forms S-1 and S-4. As stated in my
letter to you dated December 29, 1995, please add the language of
Paragraph 2 of the October 25, 1995
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Stipulation, which in fact, traces the language of Section 2.04 of the
Restated Agreement and Plan of Merger, dated as of January 5, 1995.
Paragraph 2 of the Stipulation specifically states:
"As required under Section 2.04 of the Restated Agreement and
Plan of Merger (the "Merger Agreement") dated as of January 5,
1995 by and between SEDA Specialty Packaging Corp. ("SEDA"),
SEDA ASC Acquisition Corp., and American Safety Closure Corp.
("ASC"), SEDA will use its best efforts to have a registration
statement for the registration of 82,500 shares of SEDA issued
to ASC Managing Partners filed under the Securities Act of
1933 with the Securities and Exchange Commission and declared
effective by December 31, 1995, or sooner if feasible."
Additionally please state in the S-1 and S-4 that ASC Managing
Partners claim that the 82,500 shares should have been registered on or
before December 31, 1995 as stated in the Stipulation dated October 25,
1995 and that ASC Managing Partners may seek damages from SEDA due to
this delay in registering the 82,500 shares.
As you now have all of our comments to the S-1 and S-4 please file
these documents and have the Securities and Exchange Commission ("SEC")
declare ASC Managing Partners' 82,500 shares registered. Additionally,
as stated in my December 29, 1995 letter we demand that the
registration of the 82,500 SEDA shares be valued on the deadline date
of December 31, 1995 (SEDA shares closed at $12.25 per share on
December 29, 1995), rather than on some future unknown date of the
actual registration. We also demand that interest be paid on the value
of the shares from December 31, 1995 until the date that the SEC
declares the filing effective, in order to maintain the present value
of the shares for our clients. Furthermore, SEDA will be held
accountable for all costs and damages resulting from the delay."
On January 16, 1996, counsel for SEDA received the following letter
from counsel for ASC Managing Partners:
"In response to your letter dated January 2, 1996 I have
conducted research and determined that the amount of time your firm has
had to prepare Forms S-1 and S-4 is more than sufficient. SEDA had
knowledge of its obligation to prepare Forms S-1 and S-4 for a full
year. In Section 2.04 of the Agreement and Plan of Merger, dated
January 5, 1995, and again in the Restated Agreement and Plan of
Merger, dated April 18, 1995, the parties agreed that SEDA would have
the responsibility to "immediately file a [SIC] registration statement
... and shall use its best efforts to have such registration statement
declared effective as expeditiously as possible."
Contrary to the accusations of your letter, we have used best
efforts to help achieve the mutual goal of registering the 82,500
shares and have made several comments regarding the drafts of Forms S-1
and S-4. Please note that our comments are limited solely to
information contained in Forms S-1 and S-4 pertaining to ASC Managing
Partners ("Managing Partners"). In my letter dated December 29, 1995
and again in my letter dated January 3, 1996, I stated what my client
expects to be included Forms S-1 and S-4. I have reviewed the drafts,
and as of now, my only comments are the few inclusions I indicated in
the above referenced letters.
In any event, once again, I expect the following language,
tracing the language of the Stipulation and the Agreement and Plan of
Merger, to be included in Forms S-1 and S-4:
"As required under Section 2.04 of the Restated Agreement and
Plan of Merger dated as of January 5, 1995 by and between SEDA
Specialty
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Packaging Corp., SEDA ASC Acquisition Corp., and American
Safety Closure, SEDA will use its best efforts to have a
registration statement for the registration of 82,500 shares
of SEDA Specialty Packaging Corp. issued to ASC Managing
Partners filed under the Securities Act of 1933 with the
Securities and Exchange Commission and declared effective by
December 31, 1995, or sooner if feasible."
Additionally, I have indicated in my December 29, 1995 and
January 3, 1996 letters that I expect Forms S-1 and S-4 to include that
Managing Partners is entitled to receive damages from SEDA due to the
delay from December 31, 1995 through the date the registration is filed
with the SEC.
Furthermore, in order to help alleviate your confusion
regarding the demands of my client, I will once again reiterate what is
explained in my January 3, 1996 letter. On January 5, 1995 Managing
Partners and SEDA entered into an Agreement and Plan of Merger.
Pursuant to this Agreement, Managing Partners was to be paid cash and
shares of SEDA in exchange for shares of American Safety Closure Corp.
Under this January 5, 1995 Agreement it was anticipated that the
registered SEDA shares were to be delivered by the Spring of 1995.
After Federal Court litigation which resulted from your clients wanton
disregard of its contractual obligations, Managing Partners agreed to
extend the deadline for the registration of the SEDA shares to on or
before December 31, 1995. Managing Partners settled the Federal Court
litigation and signed the Stipulation dated October 25, 1995 in
reliance on the fact that they would have the SEDA shares registered by
December 31, 1995.
Managing Partners seeks two elements of damages from SEDA.
First, my client demands that the 82,500 shares be valued on the
deadline date of December 31, 1995, and again at the future date of
actual registration. The price of the SEDA shares is subject to a
market risk and in the event SEDA shares drop in value Managing
Partners will hold SEDA accountable for the difference in price. If
SEDA does not wish to guarantee the price of the 82,500 SEDA shares as
of December 31, 1995, my client has advised me that Managing Partners
would agree to receive an additional 165 registered SEDA shares for
each day after the stipulated deadline date of December 31, 1995 until
Forms S-1 and S-4 have been declared effective by the SEC. Secondly,
as of December 31, 1995, Managing Partners would have the value of
82,500 SEDA shares. Managing Partners will not have this benefit until
the 82,500 SEDA shares are registered. It would certainly be in the
Court's discretion to order reimbursement to Managing Partners for the
market risk and the loss of interest due to SEDA's breach of the
October 25, 1995 Stipulation. Thus, at the very lease, I suspect you
will want to share this with your client and not simply disregard the
potential loss to SEDA as having "no basis".
Once again your client has ignored its contractual obligation.
There is a Court Stipulation dated October 25, 1995 that your client
has disregarded. When SEDA realized that it could not meet the
deadline date to have the 82,500 SEDA shares declared effective by the
SEC, SEDA should have renegotiated the Stipulation with Managing
Partners. My client has advised me that it will seek Court assistance
unless SEDA assures Managing Partners the full contractual benefits of
the Stipulation. Not only will Managing Partners seek actual damages
but it will seek punitive damages against your client due to SEDA's
repeated wanton disregard of its contractual obligations."
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MARKET FOR SEDA'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since October 26, 1993, SEDA's Common Stock has been traded on the
Nasdaq National Market under the symbol "SSPC". The following table sets forth
the high and low closing sales prices for the Common Stock as reported by the
Nasdaq National Market:
<TABLE>
<CAPTION>
1994 High Low
---- ------- --------
<S> <C> <C>
First Quarter $24 3/4 $21
Second Quarter $26 7/8 $13 3/4
Third Quarter $17 1/4 $10 7/8
Fourth Quarter $13 $ 9 55/64
1995
----
First Quarter $11 3/4 $ 9 3/8
Second Quarter $11 1/4 $ 6 1/2
Third Quarter $10 7/8 $ 7 3/8
Fourth Quarter $13 1/2 $10 3/16
</TABLE>
On January 5, 1995, the last full trading day prior to the first
public announcement of the Merger, the last reported closing sales price was
$11.25 per share. At March 1, 1996, there were approximately 25 shareholders
of record and approximately 800 beneficial shareholders.
Except for the S Corporation distributions prior to SEDA's initial
public offering, described further herein, SEDA has not paid cash dividends on
its Common Stock and does not anticipate that it will do so in the foreseeable
future. The present policy of SEDA is to retain earnings for use in its
operations and the expansion of its business.
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SELECTED FINANCIAL DATA
The data set forth below should be read in conjunction with SEDA's
Financial Statements and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
(In thousands, except per share and percentage data) 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Results:
Net sales $41,676 $30,400 $25,298 $17,386 $11,410
Gross profit 12,781 11,959 10,550 7,170 4,349
% of net sales 30.7% 39.3% 41.7% 41.2% 38.1%
Income from operations 7,311 7,902 7,640 5,457 2,883
Interest expense 1,422 987 983 982 867
Income before income taxes 6,086 7,108 6,684 4,018 2,030
Income taxes 1,951 2,266 1,886 122 38
Net income 4,135 4,842 4,798 3,896 1,992
Earnings per common and common equivalent share $0.82 $0.94
Weighted average number of common and common equivalent
shares 5,061 5,147
Pro forma data (a):
Pro forma provision for income taxes 2,399 1,607 812
Pro forma net income 4,285 2,411 1,218
Pro forma earnings per common and common
equivalent share $1.20 $0.75 $0.38
Weighted average number of common and
common equivalent shares 3,556 3,202 3,202
Financial Position:
Working capital (deficiency) $11,270 $11,070 $15,780 $(1,812) $(2,179)
Property, plant and equipment, net 43,342 32,463 19,696 11,807 9,309
Total assets 65,882 50,759 42,866 16,970 12,898
Long-term debt and capital leases 14,778 9,061 7,098 6,295 4,787
Total stockholders' equity 36,814 32,170 27,080 4,225 2,850
</TABLE>
(a) - Prior to October 26, 1993, the effective date of the Company's initial
public offering, the Company was exempt from payment of federal income
taxes and paid certain state income taxes at a reduced rate as the result
of an S Corporation election made by the Company. Pro forma income
statement data reflects the estimated income tax expense that would have
been recorded had the Company not been exempt from paying taxes under the
S Corporation election. As a result of terminating the Company's S
Corporation status in October 1993, the Company recorded a one-time
non-cash charge of approximately $1.6 million against historical earnings
for additional deferred taxes based upon the increase in the effective tax
rates from the Company's S Corporation status (2.5%) to C Corporation
status (40%).
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with
SEDA's Financial Statements and the notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
SEDA's financial performance in 1995 reflects the continued strength of the
Company's core business as evidenced by demand for the Company's products from
both new and existing customers. The results of operations of American Safety
Closure Corp. ("ASC") and its subsidiary have been consolidated with the
results of the Company commencing June 22, 1995. On June 22, 1995, SEDA
acquired 65% of ASC, bringing its holdings to 68%. Prior to this date SEDA was
seeking to abort the transaction via legal action. The acquisition of the
remaining minority equity interest in ASC, including 18% of ASC acquired by
SEDA after June 22, 1995, was the subject of litigation until October 1995. On
a pro forma basis, if the acquisition of approximately 86% of ASC had occurred
on January 1, 1995 and the results of ASC had been consolidated with SEDA for
all of 1995, net sales, net income and earnings per share would have
approximated $45.7 million, $4.0 million and $0.78, respectively. Refer to
Note 3 to the consolidated financial statements appearing elsewhere in this
Registration Statement for further information regarding the acquisition and
the pro forma data.
As a result of the acquisition, the Company saw a significant increase in
sales volume in the last six months of 1995. The acquisition of ASC also
broadened the Company's family of products for both containers and closures.
The Company's line of plastic containers was expanded in 1995 to include
single- and double-wall plastic jars, plastic vials and polyethylene
terephthalate ("PET") bottles in addition to the Company's flexible plastic
tubes. The Company's line of plastic closures now includes more styles and
sizes of stock and tamper-evident closures as well as a number of specialty
closures. Additional custom products were also added to the Company's
operations. The following is a percentage analysis of operating results for
the past three years:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Plastic containers 60.6% 62.1% 60.0%
Plastic closures and custom products 39.4 37.9 40.0
---- ---- ----
Net sales 100.0 100.0 100.0
Cost of sales 69.3 60.7 58.3
---- ---- ----
Gross profit 30.7 39.3 41.7
Selling expenses 6.4 7.1 6.5
General and administrative expenses 6.7 6.2 5.0
--- --- ---
Income from operations 17.6 26.0 30.2
Interest expense 3.5 3.2 3.9
Interest income (0.4) (0.9) (0.2)
Other (income) expense (0.1) 0.3 0.1
----- --- ---
Income before income taxes 14.6 23.4 26.4
Provision for income taxes (pro forma in 1993) 4.7 7.5 9.5
--- --- ---
Net income (pro forma in 1993) 9.9% 15.9% 16.9%
==== ===== =====
</TABLE>
1995 COMPARED TO 1994
Net sales for the year ended December 31, 1995 increased 37% to $41.7 million
compared to $30.4 million for 1994. Approximately 44% of the 1995 increase in
net sales was a result of the ASC acquisition. The remaining increases were
largely due to increased demand from existing customers and an expanding
customer base. Sales of containers increased 34% from $18.9 million in 1994 to
$25.3 million in 1995 and sales of closures and custom products increased 43%
from $11.5 million in 1994 to $16.4 million in 1995. Container and closure
unit volumes increased approximately 46% and 37%, respectively from 1994 to
1995. Changes in per-unit prices for 1995 as compared to 1994 were largely a
result of changes in product mix with the addition of ASC products and a higher
percentage of tubes sold with customer requested third-party dispensing
closures.
47
<PAGE> 57
Gross profit for 1995 increased 7% to $12.8 million from $12.0 million for
1994. As a percentage of net sales, gross profit decreased to 30.7% for 1995
from 39.3% in 1994. This change in gross margin percentages resulted primarily
from higher material costs (approximately 4.3%), including higher resin prices
and a higher percentage of third-party dispensing closures on tubes sold,
increased costs associated with greater production capacity and the start-up of
a new PET bottle manufacturing operation (approximately 2.2%), and the
consolidation of ASC which produced products with lower gross margins than the
other operations of the Company (approximately 1.2%). The Company is exploring
opportunities to manufacture a portion of its future dispensing closure
requirements.
Selling expenses increased 24% in 1995 to $2.7 million from $2.2 million in
1994, and as a percentage of net sales, selling expenses decreased to 6.4% for
1995 from 7.1% the prior year. The changes were due primarily to the inclusion
of ASC selling expenses and increased salaries and other expenses associated
with additional personnel, partially offset by lower commission expenses.
General and administrative expenses for the year ended December 31, 1995
increased 48% to $2.8 million from $1.9 million for 1994. As a percentage of
net sales, general and administrative expenses increased to 6.7% from 6.2% for
1994. The addition of ASC administrative expenses, higher salaries, insurance
and bad debt expenses were partially offset by lower professional fees for
legal and accounting services required in 1994 related to the Company's new
status as a publicly held corporation, which required more expenditures for
legal and accounting services. In 1995 the Company developed the experience to
handle some of these needs in-house.
Interest expense in 1995 increased to $1.4 million as compared to $1.0
million for the comparable period of 1994 as a result of the addition of ASC
interest-bearing debt as well as borrowing related to the Company's new bottle
operation and its investment in ASC. Interest income in 1995 decreased from
1994 because of lower cash and cash equivalents on hand throughout the year.
The Company's effective tax rate was relatively unchanged at 32.1% in 1995
compared to 31.9% in 1994, with both years reflecting state income tax credits
related to the Company's location in a designated Revitalization Zone.
1994 COMPARED TO 1993
Net sales for the year ended December 31, 1994 increased 20% to $30.4 million
compared to $25.3 million for 1993. Sales of containers increased 24% from
$15.2 million in 1993 to $18.9 million in 1994 and sales of closures and custom
products increased 14% from $10.1 million in 1993 to $11.5 million in 1994.
Container and closure unit volumes increased approximately 8% and 13%,
respectively from 1993 to 1994. These increases were largely due to increases
in production capacity to accommodate a larger customer base and increased
demand from existing customers. Changes in per-unit prices for 1994 as
compared to 1993 were largely a result of changes in product mix and a higher
percentage of tubes sold with customer-requested third-party dispensing
closures.
Gross profit for 1994 increased 13% to $12.0 million from $10.5 million for
1993. As a percentage of net sales, gross profit decreased to 39.3% for 1994
from 41.7% in 1993. This change in gross margin percentages resulted primarily
from higher material costs, including a higher percentage of third-party
dispensing closures on tubes sold, and increased costs associated with greater
production capacity.
Selling expenses increased 31% in 1994 to $2.2 million from $1.7 million in
1993, and as a percentage of net sales, selling expenses increased to 7. 1% for
1994 from 6.5% the prior year as a result of an expanded direct sales force and
other increases related to the growth in sales.
General and administrative expenses for the year ended December 31, 1994
increased 50% to $1.9 million from $1.3 million for 1993. As a percentage of
net sales, general and administrative expenses increased to 6.2% from 5.0% for
1993. The increases were primarily due to additional expenses related to the
Company's status as a publicly-held corporation, such as professional fees,
shareholder communication expenses and directors fees. Increases in salaries
and wages were largely offset by lower bad debt expenses.
Interest expense in 1994 was substantially unchanged from 1993. Lower
interest rates on short-term and longterm borrowings resulting from the
Company's new credit facilities and the refinancing of certain higher-rate debt
48
<PAGE> 58
offset the interest on borrowing for the Company's new facility. Interest
income in 1994 increased from 1993 because of higher cash and cash equivalents
on hand throughout the year.
The Company's effective tax rate decreased to 31.9% in 1994 from a pro forma
rate of 35.9% in 1993, reflecting increased state income tax credits related to
the Company's relocation in 1993 to its new facility, which is located in a
designated Revitalization Zone.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced rapid growth throughout its history, which has
required substantial capital expenditures for manufacturing equipment and the
corresponding financing of that equipment through the use of bank lines of
credit, five-year notes payable to finance companies and capital leases. Cash
generated by operations together with bank lines of credit have satisfied the
short-term liquidity requirements of the Company over the past three years.
The Company's short-term needs have included the financing of growth in
receivables and inventory and, while it maintained S Corporation status, the
funding of distributions to shareholders. Long-term requirements have been
satisfied by cash from operations, five-year notes and capital leases. The
Company's initial public stock offering in 1993 enhanced its ability to meet
both short-term and long-term liquidity requirements. The Company believes
that cash generated by operations, supplemented as necessary with funds
expected to be available under the Company's credit agreement, will provide
sufficient resources to meet present and reasonably foreseeable working capital
requirements, debt service and other cash needs throughout the term of its
credit agreement.
The Company has a revolving line of credit agreement with a bank, expiring
June 30, 1997, under which it may borrow up to $7.0 million to fulfill working
capital requirements. Amounts drawn under the line are secured by all of the
Company's assets, except certain property, plant and equipment where the bank's
security interest is subordinated to the holder of the related equipment notes
payable. The interest rate on this line is at the bank's prime rate or, at the
Company's option, 1.2% above LIBOR for a specified period. The credit line
requires the Company to comply with financial covenants regarding minimum
levels of tangible net worth (which limits the payment of dividends), working
capital and net income and certain financial ratios. The Company is currently
in compliance with such covenants.
Working capital increased to $11.3 million at December 31, 1995, from $11.1
million at the end of 1994. As of December 31, 1995 the Company had cash and
cash equivalents of $3.5 million. Accounts receivable and inventories
increased 68% and 86%, respectively, from the December 31, 1994 levels because
of the growth in the Company's business, the addition of receivables and
inventories from ASC and, in the case of inventories, the start-up of PET
bottle manufacturing operations.
Operating activities generated cash flows of $7.1 million in 1995 compared to
$3.5 million and $6.3 million in 1994 and 1993, respectively. The decrease in
1994 from 1993 was due to the reduction in accounts payable and accrued
liabilities in 1994 caused by the timing of capital expenditures. The increase
from 1994 to 1995 related primarily to the growth in earnings before
depreciation and increases in accounts payable and accrued liabilities from
1994 to 1995.
Principal investing activities over the past three years have been capital
expenditures for new PET bottle manufacturing equipment, new tube extrusion and
heading lines, new tube printing equipment, new injection molding equipment and
improvements to the Company's facility. Total capital expenditures were $7.6
million, $8.7 million and $8.5 million in 1995, 1994 and 1993, respectively.
In addition, $831,000 of machinery and equipment was added in 1993 through a
capital lease agreement. The Company's net investment in the acquisition of a
majority interest in ASC in 1995 required a cash investment of $3.4 million,
from available cash reserves, and 82,500 shares of the Company's common stock.
An additional investment will be made in 1996 to acquire the remaining minority
interest in ASC.
In April 1994, the Company acquired its current facility through financing
agreements aggregating $6.3 million, from a related party, as contemplated in a
September 1993 agreement. The financing agreements included an unsecured
promissory note in the principal amount of $1.6 million, which was repaid in
June 1995, and the assumption of an existing five-year note payable to a
financial institution with a principal balance of approximately
49
<PAGE> 59
$4.7 million, bearing interest at 8.5% per annum. At the closing of the
transaction, the Company paid $1 million to the financial institution to reduce
the amount outstanding on the five-year note to $3.7 million. The note is
payable in monthly installments of $39,000, including interest, plus a one time
payment of approximately $3.1 million in December 1997.
Financing activities provided $1.9 million in 1995 as proceeds from new
long-term debt were only partially offset by debt principal payments. Such
activities consumed $3.8 million in 1994 as a result of debt principal payments
in excess of borrowing. Financing activities provided $16.5 million in 1993 as
the net proceeds from the public offering were partially offset by repayments
of both lines of credit and principal on long-term debt and by S Corporation
distributions to shareholders.
50
<PAGE> 60
DIRECTORS AND EXECUTIVE OFFICERS
At December 31, 1995, the directors and executive officers of SEDA and their
ages were as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Shahrokh "Shawn" Sedaghat 30 Chief Executive Officer, Chairman of the Board, President and a Director
Ronald W. Johnson 47 Vice President of Finance, Chief Financial Officer, Secretary and a Director
Edward F. Csaszar 44 Vice President of Sales and Marketing
Edward S. Dombroski 52 Vice President and General Manager
Dennis Camara 40 Vice President of Operations, Injection Molding
Andreas Iseli 37 Vice President of Operations, Tube Division
Dann V. Angeloff(1) 59 Director
Alfred E. Osborne, Jr., Ph.D.(2) 51 Director
Robert H. King 74 Director
</TABLE>
___________________________
(1) Chairman of the Compensation Committee and Member of the Audit
Committee
(2) Chairman of the Audit Committee and Member of the Compensation
Committee
SHAHROKH "SHAWN" SEDAGHAT was elected Chief Executive Officer and
Chairman of the Board of SEDA in February 1995, and has served as President of
SEDA since November 1992. From March 1985 to November 1992, Mr. Sedaghat held
various positions with SEDA including machine operator, assembly supervisor,
molding supervisor, quality control manager and general manager.
RONALD W. JOHNSON has been Vice President of Finance and Chief
Financial Officer of SEDA since November 1992. From July 1983 until joining
SEDA, he was employed by McDonnell Douglas Information Systems Company in
various executive positions with various subsidiaries and divisions of such
company, including Vice President of Finance and Administration of McDonnell
Douglas Computer Systems Company, Vice President of Financial Planning and
Analysis of McDonnell Douglas Information Systems Group and Vice President of
Finance and Chief Financial Officer of Microdata Corporation. From 1978 to
1983 he was Corporate Controller and Chief Accounting Officer of Electronic
Memories and Magnetics Corporation, and from 1972 to 1978 he was employed by
Price Waterhouse LLP. Mr. Johnson is a Certified Public Accountant.
EDWARD F. CSASZAR became Vice President of Sales and Marketing of SEDA
in August 1993. Mr. Csaszar has served as President of General Kap Corporation,
a company involved in the development and licensing of proprietary closures,
since February 1986. From June 1988 to August 1993, he was the owner of Co-Pak
Group, a manufacturer's representative for plastics manufacturers to the
packaging industry.
EDWARD S. DOMBROSKI has been Vice President and General Manager of
SEDA since October of 1994. From April 1993 to October 1994, he was SEDA's
Vice President of Quality and Graphic Arts. He joined SEDA in March 1992 as a
manufacturing manager. Prior to joining SEDA he was employed by Peerless Tube
Co. since 1970 where he worked as a plant manager until 1992 when he became
Director of Manufacturing.
DENNIS CAMARA has been Vice President of Operations, Injection Molding
of SEDA since May 1993. Prior to that, he was Plant Manager of the Closure
Division from May 1991 to May 1993. Prior to joining SEDA, Mr. Camara was
employed by Witco Corporations (Plastics) from 1989 to 1991 as Production
Manager where he directed activities of the manufacturing department. From
1986 to 1989 he was employed by Newport Plastics, Inc. as a plant manager.
From 1976 to 1986, Mr. Camara was employed by JSN Industries as a Vice
President of Manufacturing.
51
<PAGE> 61
ANDREAS ISELI has been Vice President of Operations, Tube Division of
SEDA since March 1993. Prior to that time, Mr. Iseli was SEDA's Plant Manager,
Tube Division from February 1990 to March 1993. Prior to joining SEDA, Mr.
Iseli was employed by Aisa, Switzerland, a packaging machinery manufacturer, as
Assistant Department Manager in Engineering from July 1987 to February 1990.
DANN V. ANGELOFF became a director of SEDA in September 1993. Since
1976 Mr. Angeloff has been the President of The Angeloff Company, a corporate
financial advisory firm. Mr. Angeloff serves on the Board of Directors of
Compensation Resource Group, Datametrics Corporation, Nicholas/Applegate Growth
Equity Fund, Ready Pac Produce, Inc., Royce Medical Company, Storage Equities,
Inc. and Storage Properties, Inc. Mr. Angeloff is a former Trustee of the
University of Southern California and is a University Counselor to the
President of the University of Southern California.
ALFRED E. OSBORNE, JR., PH.D. became a director of SEDA in November
1993. He currently serves as Associate Professor of Business Economics and as
the Director of the Entrepreneurial Studies Center in the Anderson School at
UCLA, where he has held several management and teaching positions since 1972.
Dr. Osborne currently serves on the Board of Directors of First Interstate Bank
of California, Greyhound Lines, Inc., Nordstrom, Inc., ReadiCare, Inc., The
Times Mirror Company and United States Filter Corporation. He has authored
numerous articles, reports and other publications with respect to capital
market issues confronting small and growing enterprises and is a member of the
Council of Economic Advisors for California.
ROBERT H. KING became a director of SEDA in February 1995. Mr. King
has served as President of Consumer Marketing Services, Inc., a consumer
product marketing company, since 1984. From 1978 to 1984, he served as
Chairman, President, Chief Executive Officer and Chief Operating Officer of
World Book, Inc., a publisher of reference books. From 1968 to 1978, he served
as President of Time-Life Libraries, Inc., a publishing subsidiary of
Time-Life, Inc.
All directors hold office until the next annual meeting of
shareholders or until their successors are elected and qualified. Executive
officers serve at the discretion of the Board of Directors. There are no
family relationships between any of the directors or executive officers of the
Company.
DIRECTORS' COMPENSATION
Outside directors are entitled to: (i) an annual payment of $10,000,
payable in equal quarterly installments of $2,500, (ii) $750 per meeting of the
Board of Directors or any committee thereof that is attended in person, (iii)
$500 per attended telephonic Board meeting, and (iv) $750 per Committee meeting
for serving as a Committee Chairperson.
In addition, each new outside Board member is entitled to stock
options exercisable for 15,000 shares at a per share price equal to the market
price of SEDA's Common Stock on the date such person becomes a member of the
Board vesting at the rate of 25% a year. For each year after the first year,
an outside director would be granted a minimum of additional options for 5,000
shares per year at the then-market price on the date of grant. SEDA may change
this policy in the future. In October 1994, SEDA issued Dann V. Angeloff and
Alfred E. Osborne, Jr., Ph.D. stock options for 5,000 shares at a per share
exercise price of $12.50. In February 1995, SEDA issued each of Dann V.
Angeloff, Alfred E. Osborne, Jr. and Robert H. King stock options for 15,000
shares at a per share exercise price of $11.1875.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
compensation paid by the Company for services rendered during the fiscal years
ended December 31, 1995, 1994 and 1993 to the Company's Chief Executive Officer
and its most highly paid executive officers other than the Chief Executive
Officer whose compensation exceeded $100,000 (the "Named Executive Officers").
52
<PAGE> 62
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
------------------- -----------------------------
Restricted Securities
Other Annual Stock Underlying
Name and Principal Year Salary Bonus Compensation Awards Options
------------------ ---- ------ ----- ------------ ------ -------
Position
--------
<S> <C> <C> <C> <C> <C> <C>
Shapour Sedaghat 1995 $66,692(2) $60,000 $11,186(1) -- --
Former Chief Executive 1994 203,333 -- 13,045(1) -- --
Officer 1993 209,511 -- 17,100(1) -- --
Shawn Sedaghat 1995 300,150(3) 60,000 17,796(1) -- 250,000
Chairman, President and 1994 193,167 -- 11,550(1) -- 60,000
Chief Executive Officer 1993 190,000 -- 13,500(1) -- 250,000
Edward F. Csaszar 1995 174,821 5,000 10,256(1) -- 15,000
Vice President of Sales 1994 150,123 -- 9,600(1) -- 2,000
and Marketing 1993 54,808(4) -- 3,200(1) -- 15,000
Ronald W. Johnson 1995 100,259 30,000 7,093(1) -- 15,000
Vice President of 1994 100,415 -- 1,200(1) -- 5,000
Finance, Chief Financial 1993 100,000 -- -- -- 15,000
Officer and Secretary
Edward S. Dombroski 1995 98,153 5,000 6,155(1) -- 15,000
Vice President and 1994 86,634 -- 5,152(1) -- 5,000
General Manager 1993 75,385 -- 5,105(1) -- 6,000
- --------------------
</TABLE>
(1) Primarily represents automobile expenses or allowances paid by
the Company.
(2) Effective February 28, 1995, Shapour Sedaghat retired as
Chairman of the Board Chief Executive Officer of the Company.
Subsequent to his retirement Mr. Sedaghat provided consulting
services to the Company and was paid $70,000 for consulting
fees in 1995.
(3) Shawn Sedaghat was elected Chairman of the Board and Chief
Executive Officer effective February 28, 1995. He also
retained the title of President.
(4) Mr. Csaszar joined the Company in August 1993 at an annual
salary of $150,000, plus annual increases which are subject to
adjustments. For further information see "--Employment
Agreements".
OPTION GRANTS, EXERCISES AND YEAR END VALUES
The following stock options were granted by the Company to the Named
Executive Officers during the fiscal year ended December 31, 1995.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Potential Realizable
Percent of Value at Assumed Annual
Number of Total Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise or Option Term (1)
Options Employees in Base Price Expiration ---------------
Granted(2) Fiscal Year Per Share Date 5% 10%
---------- ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Shapour Sedaghat -- -- -- -- -- --
Shawn Sedaghat 70,000 18.6% $11.96 February 22, $231,303 $511,119
180,000 47.7% $12.31 2000 $612,185 $1,352,768
February 27,
2000
Edward F. Csaszar 15,000 4.0% $11.1875 February 27, $46,363 $102,451
2000
Ronald W. Johnson 15,000 4.0% $11.1875 February 27, $46,363 $102,451
2000
Edward S. Dombroski 15,000 4.0% $11.1875 February 27, $46.363 $102,451
2000
- --------------------
</TABLE>
(1) The dollar amounts under these columns are the result of calculations
at the 5% and 10% annual rates of stock appreciation prescribed by the
Securities and Exchange Commission and are not intended to forecast
possible future appreciation, if any, of the Company's stock price. No
gain to the optionees is possible without an increase in the price of
the Company's stock, which will benefit all shareholders
commensurately.
(2) For a description of the terms of such options, see "Stock Option
Plan".
53
<PAGE> 63
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Number of December 31, 1995 December 31, 1995
Shares ----------------- -----------------
Acquired Value Exercisable/ Exercisable/
On Exercise Realized Unexercisable(1) Unexercisable(2)
----------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shapour Sedaghat -- -- -- --
Shawn Sedaghat 0 -- 545,000/0 $598,875 / $0
Edward F. Csaszar 0 -- 19,750 / 12,250 $10,078 / $13,359
Ronald W. Johnson 0 -- 17,500 / 17,500 $8,672 / $14,766
Edward S. Dombroski 0 -- 10,750 / 15,250 $6,141 / $13,359
</TABLE>
- -----------------
(1) For a description of the terms of such options, see "Stock Option
Plan".
(2) Based on a price per share of $12.375, which was the price of a share
of Common Stock as quoted on the Nasdaq Stock Market at the close of
business on December 29, 1995.
STOCK OPTION PLAN
A total of 1,000,000 shares of the Company's Common Stock has been
reserved for issuance under the Company's 1993 Incentive Stock Option Plan and
Nonstatutory Option Plan, as amended (the "Option Plan"), which expires by its
own terms in 2003. A total of 791,500 options were outstanding at December 31,
1995, 774,500 of which had been granted to executive officers and directors of
the Company. The total options outstanding at December 31, 1995 are
exercisable at the following prices:
<TABLE>
<CAPTION>
Price Shares Price Shares
----- ------ ----- ------
<S> <C> <C> <C>
$10.00 237,000 $12.31 180,000
11.1875 125,000 12.50 36,000
11.96 70,000 13.75 60,000
12.00 68,500 14.00 15,000
</TABLE>
The Option Plan provides for the grant of "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, and nonqualified stock options to employees, officers, directors and
consultants of the Company. Incentive stock options may be granted only to
employees. The Option Plan is administered by a committee appointed by the
Board, which determines the terms of options granted, including the exercise
price, the number of shares subject to the option, and the option's
exercisability.
The exercise price of all options granted under the Option Plan must
be at least equal to the fair market value of such shares on the date of grant.
The maximum term of options granted under the Option Plan is ten years. With
respect to any participant who owns stock representing more than 10% of the
voting rights of the Company's outstanding capital stock, the exercise price of
any option must be at least equal to 110% of the fair market value on the date
of grant.
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<PAGE> 64
EMPLOYMENT AGREEMENTS
Effective June 1, 1993, Shapour Sedaghat, SEDA's former Chairman and
Chief Executive Officer, entered into a three-year employment agreement at an
annual salary of $200,000 subject to adjustment for inflation, plus an annual
bonus in an amount to be determined by the Board of Directors, but in no event
to exceed 100% of his base salary. Mr. Sedaghat resigned as Chairman and Chief
Executive Officer, and the employment agreement was terminated, in February
1995.
Effective June 1, 1993, Shawn Sedaghat entered into a three-year
employment agreement at an annual salary of $190,000 subject to adjustment for
inflation, plus an annual bonus in an amount to be determined by the Board of
Directors, but in no event to exceed 100% of his base salary. In February
1995, Mr. Sedaghat was elected as Chairman and Chief Executive Officer of SEDA,
and his employment agreement was amended, effective January 1, 1995, to
increase his annual salary to $300,000.
Effective June 1, 1993, Ronald W. Johnson entered into a three-year
employment agreement at an annual salary of $100,000 subject to adjustment for
inflation, plus an annual bonus in an amount to be determined by the Board of
Directors, but in no event to exceed 50% of his base salary.
Under each of the aforementioned employment agreements, SEDA is
required to pay compensation to each respective employee following termination
as follows: (i) with cause: SEDA shall only be obligated to pay salary through
the date on which termination occurs or (ii) without cause: SEDA is required to
pay the base salary owed through the term of the agreement plus a bonus equal
to at least what was paid in the previous period, not to exceed 100% of the
then-current salary.
Effective August 16, 1993, SEDA entered into a three-year employment
agreement with Edward F. Csaszar at an annual salary of $150,000, with
subsequent annual increases equal to 0.5% of the increase in SEDA's annual
sales for the prior 12-month period as compared to the corresponding period one
year earlier, provided that such annual increase may not exceed 50% of the
previous year's salary. In addition, SEDA has agreed to pay certain costs on
behalf of Mr. Csaszar in an amount not to exceed approximately $2,250.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
SEDA's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by Delaware law. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission.
SEDA's Bylaws provide that SEDA shall indemnify its directors and
officers to the fullest extent permitted by Delaware law, including
circumstances in which indemnification is otherwise discretionary under
Delaware law. SEDA has also entered into indemnification agreements with its
officers and directors containing provisions which are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The agreements may require SEDA, among other things, to
indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance if
available on reasonable terms.
CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS
2501 West Rosecrans, Inc. is 100% owned by Shapour and Pamela
Sedaghat. On April 20, 1994, SEDA acquired from 2501 West Rosecrans, Inc. the
building and real estate comprising its manufacturing facilities and corporate
headquarters, at a cost of approximately $6.3 million, which approximated fair
market value, in exchange for a promissory note in the principal amount of $1.6
million paid in June 1995 bearing interest at 6% per annum and SEDA's
assumption of the existing five-year note due to a financial
55
<PAGE> 65
institution in the principal amount of approximately $4.7 million bearing
interest at 8.5% per annum. At the closing of the transaction, SEDA paid $1
million to the financial institution to reduce the amount outstanding on the
five-year note. Prior to this transaction, SEDA leased the facility from 2501
West Rosecrans, Inc. Total rent paid by SEDA, prior to the closing of this
transaction, to 2501 West Rosecrans, Inc. in 1994 was $219,000.
Tube Tech Corporation of Delaware (Tube Tech) was 50% owned by Shapour
Sedaghat until SEDA acquired his 50% interest in July 1993 for $90,000. Tube
Tech became an exclusive sales representative of SEDA in 1992 for selected
plastic tube products customers. Total commissions paid by SEDA to Tube Tech
for the year ended December 31, 1995, was $294,000. SEDA's investment in Tube
Tech is accounted for using the equity method of accounting for investments.
Mr. Kearsey and SEDA own equal shares of Tube Tech.
Pacific Atlantic Brokerage, a corporation majority owned by Shawn
Sedaghat, provides freight forwarding services to SEDA. The cost of these
services provided by Pacific Atlantic Brokerage to SEDA and charged to
operations amounted to $911,000 in 1995. SEDA's Audit Committee annually
reviews the freight forwarding services and terms under which those services
are provided to SEDA by Pacific Atlantic. To the extent that such freight
forwarding services are not competitive in terms of price and otherwise with
those that could be obtained from independent sources, the Committee would
consider modifying the relationship accordingly or associating with another
freight forwarding company.
As of December 31, 1995, in the aggregate SEDA owed $136,000 to these
related parties. SEDA believes that the terms of the transactions referenced in
the previous paragraphs of this section were on terms as favorable to SEDA as
would have been received in transactions negotiated at arms-length.
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<PAGE> 66
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 1, 1996 by (i)
each person known by the Company to own beneficially 5% or more of the Common
Stock, (ii) each current director of the Company, (iii) each of the Named
Executive Officers and (iv) all current directors and executive officers as a
group.
<TABLE>
<CAPTION>
Shares
Beneficially Percent
Name and Address(1) Owned(2) Owned
- ---------------- ------------ -------
<S> <C> <C>
Shapour and Pamela Sedaghat, 2,185,967 42.9%
as joint tenants
Shawn Sedaghat(3) 1,609,133 28.5%
Edward F. Csaszar(4) 31,500 *
Ronald W. Johnson(5) 21,250 *
Dann V. Angeloff(6) 31,250 *
Alfred E. Osborne, Jr.(6) 27,250 *
Robert H. King(5) 7,500 *
All Directors and Executive
Officers as a Group (9 persons)(7) 1,776,508 30.7%
</TABLE>
_____________________
*Less than one percent.
(1) Each of such persons may be reached through the Company at 2501 West
Rosecrans Boulevard, Los Angeles, California 90059.
(2) The persons named in the table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned
by such person, subject to applicable community property laws.
(3) Includes 545,000 shares issuable pursuant to stock options exercisable
within 60 days of March 1, 1996.
(4) Includes 23,500 shares issuable pursuant to stock options exercisable
within 60 days of March 1, 1996.
(5) Represents shares issuable pursuant to stock options exercisable
within 60 days of March 1, 1996.
(6) Includes 21,250 shares issuable pursuant to stock options exercisable
within 60 days of March 1, 1996.
(7) Includes 683,375 shares issuable pursuant to stock options exercisable
within 60 days of March 1, 1996.
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<PAGE> 67
AMERICAN SAFETY CLOSURE CORP.
CERTAIN INFORMATION REGARDING VOTE ON MERGER
The following information should be read in conjunction with the
section "Special Meeting" appearing at page 2 above:
(a) Number of ASC Shares Outstanding. As of March 1, 1996, there
were 9,256,000 shares of ASC Common Stock outstanding, including shares
issuable upon exercise of 30,000 Warrants. All of such shares are entitled to
be voted at the Special Meeting. Each share is entitled to one vote per share.
(b) Record Dates. Only stockholders of record of ASC at the close
of business on ______________, 1996, will be entitled to receive notice of, and
to vote at the special meeting.
(c) Beneficial Ownership. The following table sets forth certain
information regarding the beneficial ownership of the common stock of ASC as of
March 1, 1996 by (i) each person known by ASC to be the beneficial owner of
more than 5% of ASC's Common Stock, (ii) each current director of ASC, (iii)
ASC's Chief Executive Officer and the four most highly paid executive officers
whose total annual salary and bonus exceeded $100,000 per year, during the last
completed fiscal year and up to two additional executive officers whose
compensation exceeded $100,000 but were not executive officers at the end of
ASC's last fiscal year, and (iv) each of ASC's current executive officers and
directors as a group. Unless otherwise noted in the footnotes to the table,
the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
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<PAGE> 68
<TABLE>
<CAPTION>
Name(1) and Address Shares Beneficially Owned Percentage Owned (%)
------------------- ------------------------- --------------------
<S> <C> <C>
Shawn Sedaghat,(2) -0- -0-
Chief Executive Officer,
Chairman
Eugene Biernaski,(2) 55,000 *
Director, Chief Financial
Officer, Secretary
Edward F. Csaszar,(2) -0- -0-
Director
Donald J. Robinson,(2) 57,500 *
Director
Earl McCurdy,(2) -0- -0-
Director
Kevin Kearsy,(2) -0- -0-
Director
Clarence Rohrer,(2) 83,570 *
Director
Daniel E. Wieneke,(2) -0- -0-
President
SEDA Specialty 8,289,377(3) 89.5
Packaging Corp.
2501 Rosecrans Blvd.
Los Angeles, CA 90059
All officers and directors 196,070
as a group (Consisting of
10 persons)
TOTAL 9,256,000 100%
- ----------------
</TABLE>
(1) Except as otherwise indicated, the beneficial owners listed here have
sole voting and investment power, subject to community property laws
where applicable, as to all of the shares listed as beneficially owned
by them.
(2) Each of such persons may be reached through ASC at Arpak Plastics,
Inc., 4 Plant St., Plattsburgh, N.Y. 12901.
(3) Includes Irrevocable Employee Proxies held by SEDA for 339,250 shares
of ASC Common Stock. The proxies are valid up to and including the
date of the Special Meeting. See "Special Meeting - Required Vote."
The Employee Proxies were granted by a number of employees of ASC,
none of whom are officers, directors, or 5% shareholders of ASC except
for Messrs. Biernaski, Robinson and Rohrer, who granted Employee
Proxies to SEDA in the amounts of 55,000, 53,750 and 65,500 shares of
ASC stock, respectively, held by such persons. Mr. Robinson
subsequently sold 4,000 ASC shares in the open market and thus has
61,500 shares left. The Employee Proxies provided that if SEDA chose
to utilize the proxies, the persons granting the proxies to SEDA would
have the right, at their election, to either exchange their ASC stock
for SEDA stock in the ratio of 8 shares of ASC stock for 1 share of
SEDA stock, or to receive $1.50 per share of ASC stock. See "The
Transaction - Interest of Certain Persons in the Merger."
* Less than 1%
CHANGE OF CONTROL
As a result of the Merger Agreement dated as of January 3, 1995 on or
about said date SEDA acquired from ASC Managing Partners a proxy to vote
1,656,127 shares of ASC Managing Partners in favor of the Merger. ASC Managing
Partners is a general partnership composed of David L. Kassel, Harry Goodman
and Vincent Conti the three of whom are former officers and directors of ASC,
and Catherine Kassel, Tina Conti, Robert Gillings, Dorothy Goodman and Damon
Testaverde. As of July 5, 1995 SEDA acquired ownership of these shares for the
payment of $1,050,000 in cash and 82,500 shares of SEDA common stock. On or
about January 5, 1995 SEDA also acquired Employee Proxies to vote an aggregate
of 339,250
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<PAGE> 69
shares of ASC common stock in favor of the Merger and holds an aggregate of
7,950,127 shares of ASC common stock comprised of 1,656,127 shares of ASC
common stock purchased from ASC Managing Partners, 6,192,000 shares of ASC
common stock received in exchange for equipment and a reduction of
indebtedness. At the time that SEDA acquired the irrevocable proxy for the
1,656,127 ASC Managing Partners stock, the proxy represented approximately 54%
of ASC's then outstanding common stock and thus as of that date a change in
control occurred from ASC Managing Partners to SEDA. Also on that date SEDA
acquired the Employee Proxies for 339,250 shares amounting to an additional
approximately 12% of the then outstanding common stock of ASC thus further
transferring control to SEDA. The Employee Proxies were granted by a number of
employees of ASC none of whom are officers, directors or 5% shareholders of ASC
except for Messrs Biernaski, Robinson and Rohrer who granted Employee Proxies
to SEDA in the amounts of 55,000, 53,750 and 65,000 shares of ASC stock
respectively held by each of such persons. Mr. Robinson subsequently sold
4,000 ASC shares in the open market and thus has 61,500 shares left which are
subject to the Employee Proxy. The Employee Proxies provided that if SEDA
chose to utilize the Proxies, the persons granting the Proxies to SEDA would
have the right, at their election, to either exchange their ASC stock for SEDA
stock in the ratio of eight shares of ASC stock for one share of SEDA stock, or
to receive $1.50 per share of ASC stock. See "The Transaction-Interest of
Certain Persons in the Merger".
On June 22, 1995 SEDA contributed certain equipment valued at
$1,525,000 to ASC and cancelled an aggregate of $497,000 in indebtedness owed
to ASC in return for 6,192,000 newly issued shares of ASC. See "The
Transaction-Interest of Certain Persons in the Merger" thus further solidifying
SEDA's control over ASC. Between on or about January 5, 1995 and March 3,
1995, SEDA purchased an additional 102,000 shares of ASC common stock in the
open market at prices ranging from $1.50 to $1.18 per share. As of March 3,
1995 the 102,000 shares accounted for 3.4% of the then outstanding shares of
ASC.
SEDA now has the ability to vote 8,289,377 shares of ASC common stock
at the meeting or approximately 89.5% of the 9,256,000 outstanding shares of
ASC common stock. See "The Transaction-Interest of Certain Persons in the
Merger". The source of the funds used by SEDA to purchase the 1,656,127 shares
of common stock from ASC Managing Partners which included consideration of
$1,050,000 in cash, came from SEDA's working capital. The source of the
$1,525,000 in cash paid by SEDA to KGE, a corporation affiliated with ASC
Managing Partners (see "Parties to the Merger - American Safety Closure Corp")
which enabled SEDA to acquire the equipment which it then contributed to ASC
for the 6,192,000 shares of newly issued ASC common stock, came from SEDA's
working capital. The source of the funds used to buy the 102,000 of ASC common
stock on the open market came from SEDA's working capital. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations (SEDA)
- - Liquidity and Capital Resources".
Pursuant to the Merger Agreement, the former directors of ASC were
required to resign (Messr. Goodman and Kassel) and Shawn Sedaghat was elected a
new director. This occurred on or about January 5, 1995. On or about that
date Shawn Sedaghat as the sole remaining director appointed Edward F. Csaszar,
Earl McCurdy, Kevin Kearsey, Clarence Rohrer and Donald J. Robinson to the
board of directors of ASC. Mr. Csaszar is vice president of sales and
marketing at SEDA, Mr. McCurdy is director of sales at SEDA, Mr. Kearsey and
SEDA own equal shares of Tube Tech, a plastics tube marketing business. Messrs
Robinson, Rohrer and Biernaski granted SEDA irrevocable proxies (included
within the Employee Proxies) to vote their shares of ASC in favor of the Merger
in return for which SEDA, if it utilizes the proxies, is required to allow
Messrs Robinson, Rohrer and Biernaski to elect whether to exchange their ASC
shares for SEDA shares on a ratio of eight shares of ASC stock for one share of
SEDA stock or to receive $1.50 for each share of ASC stock exchanged by such
persons in the Merger. ASC Managing Partners also granted SEDA a proxy to vote
their 1,656,127 shares of ASC common stock in favor of the Merger. However in
view of the fact that SEDA subsequently acquired those shares outright (on or
about July 5, 1995) the proxy for these shares is redundant.
BUSINESS AND PROPERTIES OF ASC
Tamper-Evident Closures. ASC produces two types of tamper-evident
caps, a drop-ring cap (when the cap is twisted off, the lower portion of the
cap - the ring - breaks away, drops down and remains on the bottle neck) and a
proprietary tear-band cap (a narrow plastic band must be removed before the
bottle can be opened). ASC also has made significant progress in developing a
tamper-evident and child-resistant cap which
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<PAGE> 70
it believes will be well received by pharmaceutical, vitamin and food
producers. ASC has four U.S. patents issued and one pending patent
applications relating to the design of its caps, the molds and process of
manufacture of the caps. In addition, ASC has been developing a cosmetic jar
line.
Highly publicized product tampering incidents such as the poisoning of
Tylenol capsules have resulted in increasing demands by consumers and
manufacturers for tamper-evident closures on a wide variety of products,
especially pharmaceutical, cosmetic, chemical, and food products. ASC
anticipates increased utilization of its plastic tamper-evident closures in
this expanding market.
Pursuant to an agreement, dated February 28, 1991, between ASC and
Robert Linkletter Associates, Inc. ("Linkletter"), Linkletter delivered tooling
to ASC and granted a license to use the tooling for the manufacture of its
tear-band tamper evident caps. Under the terms of the agreement, ASC must pay
a license fee of 5% of sales of caps derived from such tooling for a period of
five years, ending in February 1996. This agreement has been extended to
February 2001. ASC has an option until February 2001 to purchase the tooling
from Linkletter for the sum of $200,000. Upon the exercise of such option and
payment in full, the license fee will be reduced to 2 1/2% of the sales of caps
derived from such tooling for the remainder of the five year period, after
which ASC shall be free to manufacture and market the caps without any payment
obligations to Linkletter.
Through its wholly-owned subsidiary, Arpak Plastics, Inc. ("Arpak"),
ASC has made sizable inroads into the vitamin and food business with its
tamper-evident closures. Additionally, ASC plans to add a child-resistant
feature to certain caps in the near future, which is expected to increase ASC's
access to the pharmaceutical packaging and prescriptionware markets. With the
leasing, commencing in 1993, of certain assets formerly owned by Tredegar,
Arpak has maintained and further developed business with customers previously
supplied by Tredegar, who are primarily in the cosmetic sector. In January
1995, these assets were purchased by SEDA from KGE, a corporation controlled by
certain principal stockholders of ASC. See "The Transaction - Interests of
Certain Persons in the Merger". In addition to allowing Arpak to move into the
cosmetics sector, the extra mold capacity and the wide range of decorating
abilities that Arpak now possesses should enable it to become even more
competitive in its traditional market sectors.
ASC believes its tamper-evident caps have technical, economic, and
aesthetic advantages over alternative tamper-evident systems as follows:
# Increased Safety for the Consumer: The tamper-evident band,
in ASC's tear band closure, must be literally torn off of the
cap before it can be opened. The person opening a container
protected by ASC's tamper-evident caps can see, feel and hear
the tamper-evident bands breaking or tearing away from the
container, indicating that it has not been opened previously.
# Significant Cost Savings for the Bottler: ASC believes that
plastic caps are easier for the bottler to apply since they
are either pre-threaded and need only to be screwed on during
the bottling process or, as with the Linkletter cap, they are
threadless and can be snapped on during the bottling process.
ASC's tamper-evident closures do not require secondary part or
operations such as the shrink procedure to make them tamper-evident. By
eliminating secondary operational processes requiring the closure with bottle
to pass through a heating tunnel to either shrink the tamper- evident band
around the neck of the bottle or to shrink a plastic wrap around the cap and
neck of the bottle, the processor's costs are reduced. There is no need for
heat shrinking and band equipment, plastic wrap and storage space for ancillary
materials and electrical power costs are reduced.
For the reasons enumerated above, ASC believes its tamper-evident
closures have features giving them advantages over other tamper- evident
systems presently on the market, and also making them desirable and practical
for a wider range of end-uses.
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<PAGE> 71
Jars. In January 1993, ASC entered into a lease for the use of the
molds, machinery and customer lists of Tredegar (such assets are now owned by
SEDA), allowing ASC to expand its stock line of single and double wall jars and
jar closures. With this transaction, ASC has maintained and further developed
business *with customers previously supplied by Tredegar, who are primarily in
the cosmetic sector. In addition to allowing ASC to move into the cosmetics
sector, the extra mold capacity and the wide range of decorating abilities that
ASC now possesses should enable it to become even more competitive in its
traditional market sectors.
Stock Line of Plastic Closures. ASC offers a broad line of stock
plastic closures, both lined and unlined, and has been successful in selling
these closures to over-the-counter drug, vitamin and personal care markets.
Prescription Vials. ASC also produces prescription vials and
closures. In addition ASC has continued its development of child resistant and
tamper-evident closures to enhance its position in the prescription vial
market.
ARPAK PLASTICS, INC.
ASC acquired the assets of Arpak, a 28-year old manufacturer of
closure, jars and vials located in Plattsburgh, New York, in October, 1988.
ASC first entered into negotiations with Arpak shortly before Arpak filed for
protection under Chapter 11 of the United States Bankruptcy Court in Boston,
Massachusetts, while it was a subsidiary of an unaffiliated company. Arpak
continued its manufacturing operations and, assisted by ASC, worked with its
creditors to restructure its debt and to emerge from bankruptcy.
The cost of the Arpak acquisition was $4,900,000, payable as follows:
(i) $450,000 in cash, (ii) cancellation of indebtedness of $142,000
representing cash advances made to Arpak by ASC, and (iii) the assumption of
approximately $4,300,000 of liabilities representing amounts owed by Arpak to
secured and unsecured creditors (including first and second mortgages) and
federal and state tax agencies. Management of Arpak and ASC negotiated with
Arpak's creditors regarding the settlement of its outstanding obligations. The
terms of the agreement and the proposed plan for dealing with Arpak's various
creditors were approved by the Bankruptcy Court on February 29, 1988. In
September 1992, the Bankruptcy Court approved a plan whereby the unsecured debt
of Arpak could be exchanged for convertible preferred shares of Arpak. These
preferred shares are convertible into shares of common stock of ASC on a one
for ten basis. To date, except for a few creditors representing a nominal
amount of preferred stock, most of the creditors entitled to preferred stock
and who have actively asserted their claims have exchanged their claims for ASC
Common Stock. Those preferred stockholders who do not convert their preferred
stock may exchange their preferred stock into SEDA stock as if they had
converted their preferred stock into ASC Common Stock prior to the effective
date of the Merger and they may do so before or after the effective date of the
Merger.
The former assets of Arpak, which produced a line of proprietary
injection molded jars, vials , and caps, were incorporated in a wholly-owned
subsidiary of ASC, under the name Arpak Plastics, Inc. Development of this
line of products has taken place alongside the development of ASC's
tamper-evident closures, and has shown a significant growth since the
acquisition.
CURRENT OPERATING STRATEGY
ASC intends to broaden Arpak's product line to strengthen its business
base. Special emphasis is being applied to the health, beauty, and cosmetics
areas where Arpak has a well established customer base as a national supplier
of containers, such as jars and closures.
With the growing demand for tamper-evident closures, ASC is continuing
to focus on the development of tamper-evident, child resistant closures which
can be easily opened by geriatrics.
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<PAGE> 72
SOURCES OF RAW MATERIALS
The principal raw material used by ASC to manufacture its products is
petroleum-based plastic. Although such materials have been readily available
in the recent past, no assurance can be given that such availability will
continue, or that prices will be stable in the future. Management anticipates
that the price of petroleum-based plastic will, on average, be higher in 1996
than it was last year.
The price and availability of energy sources will have a significant
effect upon ASC's manufacturing costs since injection molding equipment
requires a high quantity of electricity. Management believes that Plattsburgh,
New York, the location of the Arpak facilities, presently has utility rates
which are among the lowest in the country.
ENVIRONMENTAL ISSUES
Prior to the sale of Arpak's plant to ASC, an inspection of the
facility was conducted by the New York State Environmental Agency. After
improvements costing less than $5,000, the plant was certified to be in full
compliance with applicable laws and regulations.
NEW PRODUCT DEVELOPMENT
ASC has designed different sizes of tamper-evident closures which are
primarily for use in the food, vitamin, and pharmaceutical industries. These
new closures have been produced in prototype form and are ready to be marketed.
One such prototype is ASC's child-resistant tamper-evident cap, which ASC
believes can be test-marketed without significant capital outlay due to the
fact that it has been developed as an extension of an existing line of
tamper-evident caps. This means that existing tooling can be modified, at
reasonable cost, to produce these closures for the test-marketing phase.
PATENTS
ASC's patent, U.S. No. 4,555,039, relates to the tamper-evident
feature of the drop-ring cap. To provide demonstrable evidence that the bottle
has been opened, or tampered with, ASC's drop-ring cap contains a tamper-ring
attached to the bottom part of the cap by means of a series of frangible, or
easily broken, connectors. The ring includes inwardly directed protrusions.
When the cap is unscrewed from the bottle, the connectors between the cap and
the ring break, and the protrusions on the inside of the ring, which are
positioned below the bottom thread of the bottle neck, prevent the ring from
being removed with the cap. If the consumer, when unscrewing a cap from a
bottle, does not see the connectors attached or does not feel or hear the
connectors break, then such visual or audible signs indicate that the bottle
has been previously opened.
ASC's U.S. Patent No. 4,534,479 relates to a linerless, tamper-evident
drop-ring cap which is designed to be used in the dairy, juice, water and food
industries. It also contains a tamper-evident ring to provide demonstrable
evidence of having been opened. A patent application filed by ASC in 1984,
covering the mold and tooling necessary for the manufacture of the Company's
drop-ring cap in high production quantities, resulted in two U.S. patents,
4,618,121 and 4,806,301, covering the tooling and method of making
tamper-evident caps, respectively.
A patent application is pending covering ASC's design of a
child-resistant/tamper-evident tear-band cap.
ASC has been given the right to use certain patents obtained from
Robert Linkletter Associates, Inc. (see "-- Tamper-Evident Closures").
MARKETING
ASC is attempting to sell to volume users of caps, jars and vials in
the food, pharmaceutical and health and beauty industries. Competitors for
this business include major corporations which have been selling
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<PAGE> 73
to the targeted industries and have established long term relationships.
However, ASC believes that by concentrating on niche markets within the major
sectors, its patented new cap products will gain a share of the market; its
in-house decorating capability which many of its competitors lack also adds to
its marketing capability.
COMPETITION
ASC is attempting to sell in a highly competitive market, competing
against well established manufacturers of plastic closures. These competitors
are major corporations which have been selling their products to the food,
chemical and pharmaceutical industries for many years and have established long
term relationships with the end users. Most of these competitors have a
significant advantage in size, personnel and financial resources. These
competitors include such major corporations as Owen-Brockway Inc., Kerr
Manufacturing Inc. and Wheaton Industries.
EMPLOYEES
ASC and Arpak employ approximately 100 people at December 31, 1995, of
whom 29 were engaged in executive, sales, technical and administrative
functions and 71 in production. Certain employees of Arpak are represented by
a union. The Company's collective bargaining agreement has recently been
extended to the year 2001.
PROPERTIES
With the acquisition of assets from Arpak, ASC acquired a
manufacturing facility located in Plattsburgh, New York situated on 6.7 acres.
The plant is of a modern one-story construction approximately 100,000 square
feet in size. There are two mortgages on the property. At March 1, 1996, the
first mortgage is $660,000 and the second mortgage is $410,000. Presently, all
of the plant space is utilized and expansion of manufacturing operations will
not be possible without additional construction on the site or leasing of
additional facilities elsewhere. The first mortgage is payable in monthly
payments of $9,800 including interest at 8.375% and is due October 2003. The
second mortgage is payable in monthly payments of $5,900 including interest at
7.75% and is due October 2003.
LEGAL PROCEEDINGS
ASC is party to certain trade and other miscellaneous litigation, none
of which, taken individually or in the aggregate should have a material adverse
effect upon the operations of ASC.
On June 23, 1995, SEDA filed a complaint in the United States District
Court for the Southern District of New York against ASC and other defendants in
case no. 95-CIV. 4745(LMM) seeking a declaration by the Court that the Merger
Agreement be amended with the consent of both SEDA's and ASC's Board of
Directors and without the consent of any other parties. While this action was
pending, the Court entered a temporary restraining order prohibiting the
distribution of the shares and amounts held in escrow. SEDA also sought a
preliminary injunction and a recision of the Merger Agreement. The Court
subsequently denied SEDA's motion for an injunction prohibiting the release of
the shares and amounts held in the escrow on the ground that SEDA had an
adequate remedy at law in damages, and on July 5, 1995, the escrowed shares and
amounts in escrow were distributed without SEDA's consent or approval and
contrary to SEDA's declared and continuing opposition to such disbursement.
SEDA takes the position that the release was invalid and illegal because the
Merger Agreement had been amended on June 22, 1995 to eliminate the provision
in the Merger Agreement which called for an involuntary transfer of the
1,656,127 ASC shares to SEDA if the Merger Agreement were not consummated by
July 5, 1995.
On October 24, 1995, a stipulation was filed with the Court, thereby
settling the case and effectuating the consensual purchase of the 1,656,127 ASC
shares by SEDA. Case No. 95-CIV 5209 brought in the United States District
Court for the Southern District of New York, and Supreme Court for the State of
New York, Index No. 120139/95 were also settled by stipulation on this date.
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On January 8, 1996, counsel for SEDA received the following letter
from counsel for ASC Managing Partners:
"We have reviewed SEDA Forms S-1 and S-4. As stated in my
letter to you dated December 29, 1995, please add the language of
Paragraph 2 of the October 25, 1995 Stipulation, which in fact, traces
the language of Section 2.04 of the Restated Agreement and Plan of
Merger, dated as of January 5, 1995. Paragraph 2 of the Stipulation
specifically states:
"As required under Section 2.04 of the Restated Agreement and
Plan of Merger (the "Merger Agreement") dated as of January 5,
1995 by and between SEDA Specialty Packaging Corp. ("SEDA"),
SEDA ASC Acquisition Corp., and American Safety Closure Corp.
("ASC"), SEDA will use its best efforts to have a registration
statement for the registration of 82,500 shares of SEDA issued
to ASC Managing Partners filed under the Securities Act of
1933 with the Securities and Exchange Commission and declared
effective by December 31, 1995, or sooner if feasible."
Additionally please state in the S-1 and S-4 that ASC Managing
Partners claim that the 82,500 shares should have been registered on
or before December 31, 1995 as stated in the Stipulation dated October
25, 1995 and that ASC Managing Partners may seek damages from SEDA due
to this delay in registering the 82,500 shares.
As you now have all of our comments to the S-1 and S-4 please file
these documents and have the Securities and Exchange Commission
("SEC") declare ASC Managing Partners' 82,500 shares registered.
Additionally, as stated in my December 29, 1995 letter we demand that
the registration of the 82,500 SEDA shares be valued on the deadline
date of December 31, 1995 (SEDA shares closed at $12.25 per share on
December 29, 1995), rather than on some future unknown date of the
actual registration. We also demand that interest be paid on the
value of the shares from December 31, 1995 until the date that the SEC
declares the filing effective, in order to maintain the present value
of the shares for our clients. Furthermore, SEDA will be held
accountable for all costs and damages resulting from the delay."
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MARKET FOR ASC'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ASC's Common Stock is traded over-the-counter and is included in the
Nasdaq Small-Cap Market. The following table sets forth high and low bid
information for the ASC Common Stock as reported by the National Bureau, Inc.
<TABLE>
<CAPTION>
High Low
-------- --------
<S> <C> <C>
Fiscal 1994
-----------
First Quarter 8 6 1/2
Second Quarter 9 5 3/4
Third Quarter 8 3/8 5
Fourth Quarter 5 1/2 4
Fiscal 1995
-----------
First Quarter 4 2 5/8
Second Quarter 2 5/8 2
Third Quarter 2 1
Fourth Quarter 1 3/8 1 1/8
Fiscal 1996
-----------
First Quarter 1 5/8 7/16
Second Quarter 1 3/8 1/2
Third Quarter 1 5/8 3/4
Fourth Quarter (though March 1, 1996) 1 11/16 1 1/8
</TABLE>
The above quotations represent prices between dealers and do not include retail
markup, markdown or commission. They do not represent actual transactions and
except as indicated have not been adjusted for stock dividends or splits.
On January 4, 1995, the last full trading day prior to the first
public announcement of the Merger, the last reported high and low bid prices
were $1 5/16 and $1 5/16, respectively. Stockholders are urged to obtain
current market quotations for the ASC Common Stock.
As of March 1, 1996, ASC had approximately 665 stockholders of record
and beneficially.
66
<PAGE> 76
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(in thousands, except per share
data) Year Ended April 30, Nine Months Ended January 31
-------------------- ----------------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of Operations Data: (unaudited)
Net sales . . . . . . . . . . . . . $10,114 $ 8,142 $ 6,150 $ 7,413
Cost of sales . . . . . . . . . . . 8,255 7,234 5,429 5,551
Gross profit . . . . . . . . . . . 1,859 908 721 1,862
Selling, general and
administrative expenses . . . . . 1,698 4,200 3,729 817
Non-recurring charges . . . . . . . 761 -- -- --
Operating income (loss) . . . . . . (600) (3,292) (3,008) 1,045
Interest expense . . . . . . . . . 336 380 270 291
Management fee . . . . . . . . . . -- -- -- 754
Net (loss) income . . . . . . . . . (936) (3,672) (3,278) 0
Net (loss) income per common share
$ (.69) $ (1.84) $ (1.97) $ 0.00
Weighted average number of
common shares outstanding . . . . 1,358 1,996 1,667 8,003
</TABLE>
<TABLE>
<CAPTION>
April 30, 1995 January 31, 1996
-------------- ----------------
<S> <C> <C>
Balance Sheet Data:
Working capital . . . . . . . . . . $(2,107) $(1,171)
Total assets . . . . . . . . . . . 7,309 9,141
Long-term debt . . . . . . . . . . 1,481 1,572
Total stockholders' equity . . . . 68 2,101
</TABLE>
67
<PAGE> 77
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $0 at January 31, 1996
and April 30, 1995, a decrease of $197,000 from April 30, 1994. At April 30,
1995, the Company had a working capital deficit of $2,107,000 compared to a
working capital deficit at April 30, 1994 of $4,000. The decrease in cash and
cash equivalents was due primarily to reduced sales volume and cash flow from
operations. As of April 30, 1995, the Company was in violation of certain
covenants on its line of credit agreement and certain of its other debt
agreements. Borrowings under these agreements are callable immediately by the
respective lenders. The Company would not have been able to repay such items
without assistance from SEDA. In September 1995, the Company's line of credit
with its bank was repaid in total and replaced with a $2 million line of credit
with SEDA, bearing interest at the prime rate. Approximately $1.5 million was
borrowed by the Company under this agreement with SEDA and used to repay the
bank. The Company's working capital deficit at January 31, 1996 was $1,171,000
including amounts owed to SEDA under its line of credit of $1,648,000 and
accrued management fees due to SEDA of $754,000. As of January 31, 1996, the
Company was no longer in violation of covenants under its debt agreements.
Management believes that the Company will be able to continue
operations in its present form based on its present resources and a combination
of its efforts to secure alternative financing, increase its sales levels and
implement cash conservation strategies. Management views the acquisition of a
majority of the Company's common stock by SEDA as a necessary step towards
securing additional financial and operational improvements.
During the year ended April 30, 1995, the Company continued to service
debt incurred by the Company resulting from the acquisition of Arpak and to
integrate the leased assets acquired from a former competitor with the basic
operations of its wholly owned subsidiary, Arpak. During fiscal 1995, the
Company supplemented its loss of operations through the issuance of demand
notes payable to SEDA totaling $525,000 and increasing net borrowings under its
line of credit by $203,000. Subsequently, on June 22, 1995, the Company issued
6,192,000 shares of its common stock in exchange for the cancellation of an
aggregate of $497,000 of the indebtedness payable to SEDA and also the
contribution of certain equipment to the Company. Interest and principal
payments of debt during the year ended April 30, 1995 amounted to approximately
$900,000 and for the year ended April 30, 1996 is expected to amount to
approximately $850,000. No management fee was payable to SEDA pursuant to the
Management Agreement for the year ended April 30, 1995; the amount payable to
SEDA for the nine months ended January 31, 1996 was $754,000.
The Company acquired new machinery and equipment during fiscal 1994
and 1995 at a cost of approximately $550,000 and $475,000, respectively, in
order to upgrade it's existing equipment and to increase productivity and
efficiency. The majority of the acquisitions was financed by capital leases.
The Company believes that if sales expand, cash on hand and from operating
activities will need to be supplemented by additional financing from SEDA.
Stockholders' equity reflects the infusion of $1,525,000 worth of
certain operating assets from SEDA and the cancellation of $497,000 of notes
payable to SEDA in exchange for 6,192,000 shares of the Company's common stock
in the nine months ended January 31, 1996.
RESULTS OF OPERATIONS
Year Ended April 30, 1995 as Compared to Year Ended April 30, 1994
The Company had revenues of $8,142,365 for the fiscal year 1995
compared to $10,113,559 for the fiscal year 1994 with gross margins of 12% and
18%, respectively. The decrease in revenues of $1,971,194 (19%) resulted
primarily from slow market conditions and a significant one time sale during
fiscal 1994. The decrease in gross margin from 18% to 12% resulted primarily
from an increase in raw materials cost of approximately 50% (during the 1994
calendar year) and wage rates which increased approximately 2%. Raw
68
<PAGE> 78
materials prices are expected to remain stable during fiscal 1996 and the
Company believes it will be able to increase it's gross profit margin and
sales.
Selling, general and administrative expenses in fiscal 1995 were
$4,199,720 compared to $1,697,908 in fiscal 1994. The increase of $2,501,812
for fiscal 1995 was due primarily to the issuance of approximately 1,560,000
shares of the Company's common stock (at values ranging between $1.30 and
$1.50, based on the trading price at the dates the shares were issued) in
consideration for services rendered to the Company, primarily in connection
with change of control provisions of Executive Incentive Contracts, Non-Compete
Agreements, and advisory services. The persons to whom the 1,560,000 shares
were issued were: Messrs. Kassel, Goodman, Robinson, Biernaski, Rohrer, Conti
and Testaverde (and several other non-officer director employees). See "The
Transaction--Background and Reasons for Transaction." The issuance of theses
shares resulted in a one-time non-cash charge against earnings, included in
Selling, General and Administrative Expenses of $2,227,000. The majority of
shares were issued during the third quarter.
As a result of these factors, the Company had a net loss for the year
ended April 30, 1995 of $3,672,000 versus a loss of $936,000 in the prior year.
Nine Months Ended January 31, 1996 as Compared to Nine Months Ended
January 31, 1995
Results of operations for the nine months ended January 31, 1996,
compared to the same period of 1995, reflect the continued progress made in
making the Company profitable by controlling expenses. Net sales for the
period increased approximately 21% to $7.4 million from $6.1 million. Income
prior to the management fee due to SEDA increased significantly from the prior
year because of higher sales volumes and stringent cost controls, which
resulted in a $1.1 million improvement in gross profit and an improvement in
gross margin percentage from 11.7% to 25.1%. Cost reduction activities and the
assumption by SEDA of certain responsibilities pursuant to the Management
Agreement also resulted in a 46% reduction in selling, general and
administrative expenses for the nine months ended January 31, 1996 compared to
the same period of 1995, excluding the effect of the $2.2 million charge
included in such expenses in the 1995 period discussed above. As a result of
these factors, income prior to the management fee due to SEDA increased to
$754,000 in the nine months ended January 31, 1996 from a loss of $3,278,000 in
the comparable period of 1995.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On or about July 21, 1995, American Safety Closure Corp., a New York
corporation (the "Company", dismissed Urbach Kahn & Werlin PC ("Urbach Kahn &
Werlin") as its independent accountants. Urbach Kahn & Werlin was replaced
with Price Waterhouse LLP ("Price Waterhouse") as the independent accountants
for the Company. (See discussion below.) The decision to change the Company's
accountants was based on the fact that Price Waterhouse offered a lower fee
than Urbach Kahn & Werlin to audit the Company's financial reports. The
decision to change accountants has not been approved by the Board of Directors,
or any committee of the board of directors of the Company. However, it will be
on a future agenda for the Board of Directors.
Urbach Kahn & Werlin became the independent accountants for the
Company on or about April 20, 1994. Since the time that Urbach Kahn & Werlin
became the independent accountants for the Company, it has not submitted any
report regarding the financial statements of the Company that has contained an
adverse opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope, or accounting principles.
There have not been any disagreements with Urbach Kahn & Werlin
preceding the dismissal on any matter of accounting principles, or practices,
financial statement disclosure, or auditing scope or procedure. Furthermore,
there are no "reportable events" (as defined in Item 304(a)(1)(v) of Regulation
S-K) between the Company and Urbach Kahn & Werlin.
On or about July 21, 1995, the Company engaged the services of Price
Waterhouse to be its independent accountants. At no time during the Company's
two most recent fiscal years or any subsequent
69
<PAGE> 79
interim period, has Price Waterhouse been engaged by the Company regarding
either the application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that might be
rendered on the Company's financial statements, or regarding any matter that
was either the subject of a disagreement between the Company and Urbach Kahn &
Werlin or a reportable event.
70
<PAGE> 80
OTHER MATTERS
ASC knows of no other matters to be submitted to the Special Meeting.
If any other matters properly come before the Special Meeting, it is the
intention of the persons named in the enclosed form of Proxy to vote the shares
they represent in accordance with their best judgment.
LEGAL OPINION
The legality of the shares of SEDA Common Stock offered by this
Prospectus/Proxy Statement will be passed upon for SEDA by Freshman, Marantz,
Orlanski, Cooper and Klein, a law corporation, Beverly Hills.
EXPERTS
The financial statements of SEDA as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995 have been
included in this Prospectus in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of ASC as of April 30, 1995 and for the year
then ended have been included in this Prospectus in reliance on the report
(which contains an explanatory paragraph relating to ASC's ability to continue
as a going concern as described in Note 1 to the financial statements) of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of ASC as of April 30, 1994 and for the year
then ended have been included in this Prospectus in reliance on the report of
Urbach Kahn & Werlin PC, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
Information under the heading "Federal Income Tax Consequences of the
Merger" in this Prospectus has been included in reliance on the opinion of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts with respect to the matters contained in their opinion.
71
<PAGE> 81
BY ORDER OF THE BOARD OF DIRECTORS
OF AMERICAN SAFETY CLOSURE CORP.
Eugene Biernaski
Secretary
Dated: , 1996
72
<PAGE> 82
- -FOOTNOTE 1-
The 86% figure reflects actual ownership and does not include the 339,250
Employee Proxy Shares, which if included would result in SEDA owning and
controlling 89.5% of the total ASC shares currently outstanding.
73
<PAGE> 83
SEDA SPECIALTY PACKAGING CORP.
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS:
<TABLE>
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheet at December 31, 1995 and 1994 F-3
Consolidated Statement of Income for the three years ended December 31, 1995 F-4
Consolidated Statement of Stockholders' Equity for the three years ended December 31, 1995 F-5
Consolidated Statement of Cash Flows for the three years ended December 31, 1995 F-6
Notes to Consolidated Financial Statements F-7
FINANCIAL STATEMENT SCHEDULES:
For the three years ended December 31, 1995
II - Valuation and Qualifying Accounts F-15
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
F-1
<PAGE> 84
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
SEDA Specialty Packaging Corp.
In our opinion, the consolidated financial statements listed in the
accompanying index on page F-1 present fairly, in all material respects, the
financial position of SEDA Specialty Packaging Corp. and its subsidiaries at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Costa Mesa, California
February 21, 1996
F-2
<PAGE> 85
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
---------------------
(In thousands except share data) 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,508 $ 5,585
Accounts receivable, less allowance for doubtful accounts
of $424 and $200 at December 31, 1995 and 1994 9,022 5,369
Inventories (Note 4) 7,158 3,852
Prepaid expenses and other current assets 743 1,085
Deferred income taxes (Note 7) 1,120 1,030
--------------------
Total current assets 21,551 16,921
Property, plant and equipment, net (Note 5) 43,342 32,463
Other assets (Note 6) 989 1,375
--------------------
$65,882 $50,759
====================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,838 $ 1,538
Income taxes payable (Note 7) 650 -
Accrued liabilities 1,718 734
Note payable to principal stockholder (Note 11) - 1,600
Current portion of long-term debt (Note 8) 3,582 1,704
Current portion of obligations under capital leases (Note 9) 493 275
--------------------
Total current liabilities 10,281 5,851
Line of credit (Note 8) 1,520 -
Long-term debt (Note 8) 12,453 8,508
Obligations under capital leases (Note 9) 805 553
Deferred income taxes (Note 7) 3,708 3,677
--------------------
Total liabilities 28,767 18,589
--------------------
Commitments and contingencies (Note 9)
Minority interest in consolidated subsidiary (Note 3) 301 -
Stockholders' equity (Note 10):
Preferred stock, $0.001 par value, 10,000,000 shares authorized
none outstanding - -
Common stock, $0.001 par value, 30,000,000 shares authorized,
5,097,500 and 5,015,000 shares issued and outstanding at
December 31, 1995 and 1994 5 5
Capital in excess of par value 26,983 26,333
Retained earnings 9,967 5,832
Treasury stock, at cost, 13,000 shares - (141)
--------------------
Total stockholders' equity 36,814 32,170
--------------------
$65,882 $50,759
====================
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 86
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands, except per share data) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $41,676 $30,400 $25,298
Cost of sales 28,895 18,441 14,748
---------------------------------
Gross profit 12,781 11,959 10,550
Selling expenses (Note 11) 2,675 2,164 1,650
General and administrative expenses 2,795 1,893 1,260
---------------------------------
Income from operations 7,311 7,902 7,640
Interest expense 1,422 987 983
Interest income (167) (273) (50)
Other (income) expense (30) 80 23
---------------------------------
Income before income taxes 6,086 7,108 6,684
Provision for income taxes 1,951 2,266 1,886
---------------------------------
Net income $ 4,135 $ 4,842 $ 4,798
=================================
Earnings per common and common equivalent share $ 0.82 $ 0.94
====================
Weighted average number of common and common equivalent shares 5,061 5,147
====================
Pro forma data (Note 7):
Income before income taxes $ 6,684
Pro forma provision for income taxes 2,399
-------
Pro forma net income $ 4,285
=======
Pro forma earnings per common and common equivalent share $ 1.20
=======
Weighted average number of common and common equivalent shares 3,556
=======
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 87
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Capital in
----------------- ----------------- Excess of Retained Treasury
(In thousands) Shares Amount Shares Amount Par Value Earnings Stock Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 - - 3,160 $ 3 $ 749 $ 3,473 - $ 4,225
Proceeds from public offering
of common stock - - 1,840 2 23,088 - - 23,090
Distributions to shareholders - - - - - (5,033) - (5,033)
Reclassification of S Corporation
retained earnings - - - - 2,248 (2,248) - -
Net income - - - - - 4,798 - 4,798
----------------------------------------------------------------------------------------
Balance at December 31, 1993 - - 5,000 5 26,085 990 - 27,080
Exercise of stock options - - 15 - 150 - - 150
Tax benefit from stock option plan - - - - 98 - - 98
Net income - - - - - 4,842 - 4,842
----------------------------------------------------------------------------------------
Balance at December 31, 1994 - - 5,015 5 26,333 5,832 - 32,170
Common stock issued for ASC acquisition - - 83 - 650 - - 650
Purchase of 13,000 treasury shares - - - - - - $ (141) (141)
Net income - - - - - 4,135 - 4,135
----------------------------------------------------------------------------------------
Balance at December 31, 1995 - - 5,098 $ 5 $26,983 $ 9,967 $ (141) $36,814
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 88
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,135 $ 4,842 $ 4,798
---------------------------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,757 2,281 1,427
Change in provision for losses on accounts receivable 112 (50) 162
Deferred income taxes 578 933 1,639
Change in assets and liabilities before effect of ASC acquisition:
Accounts receivable (2,412) (921) (1,694)
Inventory (1,716) (1,591) (945)
Prepaid expenses and other current assets 482 (706) (301)
Other assets 474 (388) (387)
Accounts payable 993 (620) 1,441
Income taxes payable 650 - -
Accrued liabilities 10 (246) 151
---------------------------------
Total adjustments 2,928 (1,308) 1,493
---------------------------------
Net cash provided by operating activities 7,063 3,534 6,291
---------------------------------
Cash flows from investing activities:
Acquisition of majority interest in ASC (Note 3) (3,449) - -
Capital expenditures (7,616) (8,720) (8,510)
---------------------------------
Net cash used in investing activities (11,065) (8,720) (8,510)
---------------------------------
Cash flows from financing activities:
Proceeds from lines of credit and demand notes 1,520 - 1,090
Repayments of lines of credit and demand notes (1,480) (1,000) (3,315)
Proceeds from public offering of common stock - - 23,090
Exercise of stock options - 248 -
Purchase of treasury stock (141) - -
Proceeds from issuance of long-term debt 6,700 5,494 2,953
Payment of note payable to principal stockholder (Note 11) (1,600) - -
Principal payments of long-term debt and capital lease obligations (3,074) (8,545) (2,295)
Distributions of income - - (5,033)
---------------------------------
Net cash provided by (used in) financing activities 1,925 (3,803) 16,490
---------------------------------
Net increase (decrease) in cash and cash equivalents (2,077) (8,989) 14,271
Cash and cash equivalents at beginning of year 5,585 14,574 303
---------------------------------
Cash and cash equivalents at end of year $ 3,508 $ 5,585 $ 14,574
=================================
Other cash flow information:
Cash paid during the year for interest $ 1,380 $ 1,004 $ 985
Cash paid during the year for taxes on income $ 607 $ 1,512 $ 163
Non cash investing and financing activities:
Common stock issued for the acquisition of ASC $ 650 $ - $ -
Facility acquired through financing agreements $ - $ 6,328 $ -
Machinery and equipment obtained through capital lease $ - $ - $ 831
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 89
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
SEDA Specialty Packaging Corp. ("SEDA") manufactures plastic closures
and containers using injection molding, extrusion and stretch-blow molding
processes; decorates many of those products using offset printing, hot stamping
and labeling processes; and sells those products at wholesale prices to
customers primarily in the personal care, pharmaceutical, food and beverage,
and household and industrial chemical industries. On June 22, 1995, SEDA
acquired a majority interest in American Safety Closure Corp. (Note 3).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of SEDA and
its majority-owned subsidiaries (Note 3). The consolidated entity is referred
to as "the Company" in the accompanying consolidated financial statements. All
material intercompany transactions and balances are eliminated in
consolidation. The consolidated financial statements include amounts that are
based on management's best estimates and judgments. 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. Certain reclassifications have been made
for consistent presentation.
Revenue Recognition
Revenue is recognized as product is shipped to customers.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
major renewals and betterments that extend the useful lives of property, plant
and equipment are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred. When assets are sold or otherwise disposed of,
the cost and related accumulated depreciation are relieved, and any resulting
gain or loss is recognized.
Depreciation is computed on the straight-line method over the
estimated useful lives of the assets. The useful life for buildings is 40
years and the useful lives range from 7 to 15 years for machinery and
equipment, 3 to 7 years for molds and transportation equipment and 5 to 7 years
for furniture and office equipment. Leasehold improvements are amortized over
the lesser of the useful life of the related asset or the remaining lease term.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of trade receivables. This risk
is limited by the Company's large number of customers and their dispersion,
both geographically and across many industry lines. Sales to one customer
amounted to $3,396,000 (11% of net sales) in the year ended December 31, 1994.
There were no individual customers that represented over 10% of net sales for
the years ended December 31, 1995 and 1993. One customer represented 16% of
trade accounts receivable at December 31, 1995.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term, highly liquid investments with original maturities of three months
or less to be cash equivalents. The Company's investment portfolio at December
31, 1995 consisted of short-term investment funds which are included in the
Company's cash and cash equivalents. The cost and fair market value of such
securities at December 31, 1995 and 1994 was $3,156,000 and $5,299,000,
respectively.
F-7
<PAGE> 90
Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share is calculated using
the weighted average number of common shares outstanding and equivalent common
shares derived from the inclusion of dilutive stock options and warrants.
Prior to the October 1993 initial public offering, common stock equivalents
included all options granted at prices below the expected offering price of $12
in the twelve months prior to the offering.
Accounting for Stock-Based Compensation
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), effective for years beginning after December 15,
1995. For purposes of recording expense associated with stock-based
compensation, the Company intends to continue to apply the provisions of APB
Opinion 25 and related interpretations. The effect of adoption of SFAS 123 in
the year ending December 31, 1996 will be immaterial.
NOTE 3 - ACQUISITION OF AMERICAN SAFETY CLOSURE CORP.
On January 5, 1995, SEDA and American Safety Closure Corp., a New York
corporation ("ASC") entered into a "Merger Agreement", pursuant to which each
stockholder of ASC would receive one share of the Company's common stock for
every eight shares of ASC common stock owned by such stockholders. In lieu of
receiving SEDA's common stock, each such stockholder would have the option of
receiving $1.50 in cash for each share of ASC common stock so held.
Approximately 3,064,000 shares of ASC were outstanding as of that date
(including 30,000 warrants). This agreement was subsequently amended on June
22, 1995, and August 21, 1995, as discussed below.
On January 5, 1995, in connection with the proposed merger, SEDA
acquired an irrevocable proxy (the "Management Proxy") with respect to an
aggregate of 1,656,127 shares of ASC common stock, or approximately 54% of
ASC's then outstanding common stock, from ASC Managing Partners, a general
partnership. The Management proxy and the ASC shares were placed into escrow
together with $1,050,000 cash from SEDA and 82,500 shares of SEDA's common
stock, pursuant to the terms of an escrow agreement, which provided in part
that the Management Proxy and shares would not be released until the earlier of
the date of a vote by ASC's stockholders on the merger or July 5, 1995. On the
same date, SEDA acquired irrevocable proxies with respect to an aggregate of
339,000 additional shares of ASC common stock (the "Employee Proxies") from
certain employees of ASC.
On January 5, 1995, SEDA also entered into a "Management Agreement"
with ASC. The Management Agreement gave SEDA the authority to manage ASC with
the objective of using SEDA's good faith best efforts to maximize the profits
of ASC. The Management Agreement also provides that in consideration for said
management services, SEDA shall be entitled to receive an amount equal to the
profits, if any, (determined by reference to net income determined in
accordance with generally accepted accounting principles) generated during the
term of the Management Agreement. The Management Agreement continues in effect
until the closing of the contemplated merger. Prior to June 22, 1995, the date
at which the Company began consolidating the operations of ASC, the management
fee under this agreement was insignificant.
On January 5, 1995, SEDA also acquired certain equipment formerly
leased to ASC by KGE Leasing Associates, Inc. (KGE), a corporation controlled
by certain principal stockholders of ASC. The equipment was acquired for an
aggregate cash purchase price of $1,525,000. From January 5, 1995 to June 22,
1995, SEDA made loans to ASC aggregating $625,000. On June 22, 1995, ASC
issued 6,192,000 new shares of ASC common stock to SEDA in exchange for the
cancellation of $497,000 in indebtedness owed by ASC to SEDA and for the
contribution to ASC of the equipment that SEDA had acquired from KGE and that
ASC had been leasing from SEDA. These shares, together with 102,000 shares
that SEDA acquired on the open market, gave SEDA approximately 68% of the
outstanding shares of ASC at June 22, 1995.
On June 22, 1995, the Merger Agreement was amended to modify the
consideration that each ASC shareholder would receive to one share of the
SEDA's common stock for each 24.512 shares of ASC common stock. On June 23,
1995, SEDA filed an action in the U.S. District Court for the Southern
District of New York against ASC and other defendants seeking a recision of the
merger agreement and, in the alternative, a declaration by the Court that the
Merger Agreement be amended with the consent of both Boards of Directors
without the consent of any other parties. The stock and cash in escrow were
distributed in accordance with the escrow instructions on July 5, 1995, but
were still subject to the court proceedings as SEDA continued to dispute the
legal rights of ASC Managing Partners to cause the disbursal of the cash and
stock in said escrow.
F-8
<PAGE> 91
On August 21, 1995, the Merger Agreement was again amended to modify
the consideration that each ASC shareholder would receive back to one share of
SEDA's common stock for each eight shares of ASC common stock, as originally
contemplated, in anticipation of a settlement of the litigation stemming from
this acquisition. The cash option of $1.50 per share, however, was not
reinstated. On October 24, 1995, all litigation related to the ASC acquisition
was, with the consent of all parties, dismissed with prejudice. As a result of
these transactions, the Company's ownership has increased to approximately 86%
of the outstanding ASC common stock, and it is proceeding with the required
steps to acquire the remaining outstanding shares of ASC.
This transaction has been accounted in the accompanying financial
statements using the purchase method of accounting; accordingly, the cost of
the acquisition to date of $3,551,000 in cash plus $650,000 for 82,500 shares
of SEDA common stock (valued at $7 7/8, the fair value at July 5, 1995) was
allocated to the assets acquired and the liabilities assumed based on their
estimated fair values. ASC's results of operations have been included in the
Company's consolidated results since June 22, 1995.
A summary of the purchase price allocation as reflected in the
accompanying consolidated financial statements is as follows:
<TABLE>
<S> <C>
(In thousands)
Net working capital deficit $(1,943)
Property, plant and equipment 6,989
Deferred income taxes 637
Other assets 222
Long-term debt (1,403)
Minority interest in consolidated subsidiary (301)
-------
Total investment (including $102 invested in 1994) $ 4,201
=======
</TABLE>
The following table presents the unaudited pro forma results of
operations as if SEDA had acquired approximately 86% of ASC at the beginning of
each respective year presented. The pro forma information for the year ended
December 31, 1995, combines the Company's consolidated results of operations
for that period with the unaudited results of ASC for the period January 1,
1995 to June 22, 1995, since ASC results for the period June 22, 1995 to
December 31, 1995, are already reflected in the Company's consolidated results.
The pro forma information for the year ended December 31, 1994, combines SEDA's
results of operations with the unaudited ASC results of operations for that
period. The pro forma information gives effect to certain pro forma
adjustments, such as additional depreciation and amortization and the
elimination of $2.2 million of certain non-recurring charges included in ASC's
1994 results that would have been recorded prior to the merger and that are
directly related to the merger, including executive employment agreement
termination costs, incentive awards related to the merger agreement,
non-compete agreements and consulting fees related to the merger. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisition
actually been made as of those dates or of results which may occur in the
future.
<TABLE>
<CAPTION>
December 31,
---------------------
(In thousands except per share data) 1995 1994
---------------------
(Unaudited)
<S> <C> <C>
Net sales $45,748 $39,887
Net income 3,971 3,925
Earnings per common and common equivalent share 0.78 0.75
</TABLE>
F-9
<PAGE> 92
NOTE 4 - INVENTORIES
<TABLE>
<CAPTION>
December 31,
-------------------
(In thousands) 1995 1994
-------------------
<S> <C> <C>
Finished goods $2,771 $1,102
Work-in-process 1,845 1,223
Raw materials 2,542 1,527
-------------------
$7,158 $3,852
===================
</TABLE>
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
---------------------
(In thousands) 1995 1994
---------------------
<S> <C> <C>
Land $ 2,727 $ 2,555
Buildings and improvements 6,071 4,734
Machinery and equipment 38,427 29,322
Molds 6,492 2,790
Furniture and office equipment 484 252
Transportation equipment 185 137
---------------------
54,386 39,790
Less accumulated depreciation (11,044) (7,327)
---------------------
$ 43,342 $32,463
=====================
</TABLE>
Property under capital lease, primarily machinery and equipment
included above, aggregated $2,499,000 at December 31, 1995 and $2,022,000 at
December 31, 1994. Included in accumulated depreciation are amounts related to
property under capital lease of $706,000 and $535,000 at December 31, 1995 and
1994, respectively. Depreciation expense charged to operations was $3,726,000,
$2,281,000 and $1,427,000 in 1995, 1994 and 1993, respectively, which included
$171,000, $152,000 and $111,000, respectively, pertaining to property under
capital lease.
NOTE 6 - OTHER ASSETS
<TABLE>
<CAPTION>
December 31,
---------------------
(In thousands) 1995 1994
---------------------
<S> <C> <C>
Equipment deposits $ 448 $1,173
Patents and other intangibles, net of $31,000 accumulated amortization 187 -
Deferred acquisition costs (Note 3) 175 102
Investment in Tube Tech (Note 11) 105 105
Other 74 (5)
---------------------
$ 989 $1,375
=====================
</TABLE>
Deferred acquisition costs represent direct incremental costs
associated with the acquisition of the remaining minority interest in ASC (Note
3).
NOTE 7 - INCOME TAXES
Prior to its initial public offering (Note 10), SEDA elected to be
taxed as an S Corporation for both federal and state income tax purposes, and,
as a result, was not subject to federal taxation and was subject to state
taxation on income at a reduced rate (2.5%). Therefore, no asset or liability
for federal income taxes was included in the historical
F-10
<PAGE> 93
financial statements for the period prior to the offering because the
individual shareholders were liable for federal and state income taxes on their
allocated portions of SEDA's taxable income. Upon completion of the offering,
the Company's S Corporation status for income tax purposes terminated. The
termination of the Company's S Corporation election resulted in the
establishment of a net deferred tax liability calculated at normal federal and
state income tax rates, causing a one-time, non-cash charge against earnings of
$1,563,000 for additional income tax expense.. The accompanying statement of
income also includes a pro forma income tax provision, using a tax rate of
35.9% for 1993, to reflect the estimated income tax expense of SEDA as if it
had been subject to normal federal and state income taxes for all of 1993.
The Company's historical provision for income taxes for the three
years ended December 31, 1995 is comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
--------------------------------
<S> <C> <C> <C>
Current tax expense:
Federal $1,127 $1,233 $ 158
State 253 24 143
--------------------------------
Total current 1,380 1,257 301
--------------------------------
Deferred tax expense:
Federal 1,005 1,105 238
State (434) (194) (216)
Deferred tax provision resulting from termination of S Corporation status - - 1,563
--------------------------------
Total deferred 571 911 1,585
--------------------------------
Tax benefit from stock option plan - 98 -
--------------------------------
Total provision for income taxes $1,951 $2,266 $1,886
================================
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at
December 31:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
----------------------------------
<S> <C> <C> <C>
Property, plant & equipment $ 4,472 $3,677 $2,285
Revitalization Zone tax credits (1,264) (643) (239)
Inventory valuation (383) (352) (136)
Accounts receivable valuation (120) (80) (100)
Other (117) 45 (96)
----------------------------------
$ 2,588 $2,647 $1,714
==================================
</TABLE>
The Company records the benefit of Revitalization Zone tax credits in
the year earned; such credits begin expiring in the years 2009 and 2010.
The provision for income taxes (pro forma provision in 1993) differs
from the amount of income tax determined by applying the applicable US
statutory income tax rate to income before income taxes as a result of the
following differences:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
--------------------------------
<S> <C> <C> <C>
Federal tax computed at statutory rate $2,069 $2,417 $2,272
State taxes, net of federal benefit 374 437 409
Revitalization Zone tax credits (923) (764) (282)
Other 431 176 -
--------------------------------
Total provision for income taxes (pro forma in 1993) $1,951 $2,266 $2,399
================================
</TABLE>
F-11
<PAGE> 94
NOTE 8 - DEBT
Bank Credit Agreement
On June 21, 1995, the Company modified its credit agreement with a
bank which provides financing of up to $24.5 million, consisting of a $17.5
million term loan commitment for equipment financing ("equipment term loans -
bank") and a $7 million revolving line of credit. The agreement expires June
30, 1997. All amounts borrowed under the revolving line of credit are due and
payable upon expiration; as of December 31, 1995 $1,520,000 was outstanding
under the revolving line of credit. Term loans are to be repaid over periods
of up to five years. The term loans and line of credit are collateralized by a
general first priority lien on all the assets of the Company except certain
property, plant and equipment where the bank's security interest is
subordinated to the holders of the Company's building and equipment notes
payable. The term loan amount available to the Company at December 31, 1995,
for additional borrowing was $6,300,000.
Interest on the revolving line of credit is payable monthly at an
annual rate equal to the bank's prime rate or, at the Company's option, 1.2%
above the London Interbank Offered Rate (LIBOR). At December 31, 1995, the
interest rate in effect was 8.5%. Interest on the term loans is at varying
rates, at the Company's option, of from 1.5% to 1.75% above the bank's
certificate of deposit rate or LIBOR for an agreed-upon time period.
The Company must comply with covenants set forth in the agreement
which require, among other restrictions, that the Company maintain minimum
levels of tangible net worth (which effectively limited the amount available
for the payment of dividends at December 31, 1995 to $235,000), working capital
and net income and certain minimum financial ratios and that the Company
restrict the incurrence of additional debt without the bank's consent.
Long-Term Debt
Long-term debt is comprised of the following (average rate refers to
the weighted average interest rate in effect for each debt category at December
31, 1995):
<TABLE>
<CAPTION>
December 31,
--------------------
(In thousands) 1995 1994
--------------------
<S> <C> <C> <C>
Building mortgages (average rate - 8.4%) $ 4,550 $ 3,624
Equipment term loans - bank (average rate - 7.3%) 9,816 5,085
Equipment notes - other (average rate - 7.7%) 1,355 1,503
Other long-term debt (average rate - 7.0%) 314 -
--------------------
16,035 10,212
Less current portion (3,582) (1,704)
--------------------
$12,453 $ 8,508
====================
</TABLE>
The mortgages, notes and other long-term debt are payable to banks,
other financial companies and government agencies in monthly installments
through October 2003, currently approximating $371,000 plus a payment in
December 1997 of $3.1 million on one of the building mortgages. The building
mortgages are secured by land and buildings with a net book value at December
31, 1995 of $8,413,000; the equipment term loans - bank are secured as
discussed above; and the equipment notes - other are secured by equipment
Aggregate maturities of long-term debt over the next five years are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1996 $ 3,582
1997 6,498
1998 2,632
1999 2,163
2000 684
After 2000 476
-------
$16,035
=======
</TABLE>
F-12
<PAGE> 95
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain machinery and equipment under capital and
operating leases expiring in various years through 1999. The Company incurred
$96,000, $222,000, and $1,138,000 in operating lease expense during the years
ended December 31, 1995, 1994 and 1993, respectively. Generally, the Company's
capital leases include purchase options at the end of the lease term.
Minimum lease commitments under non-cancelable leases at December 31,
1995, are as follows:
<TABLE>
<CAPTION>
Capital Operating
(In thousands) Leases Leases
----------------------
<S> <C> <C>
1996 $ 568 $ 96
1997 497 87
1998 314 9
1999 54 -
----------------------
Total minimum lease payments 1,433 $ 192
=========
Less amount representing interest (135)
---------
Present value of minimum lease payments 1,298
Less current portion (493)
---------
$ 805
=========
</TABLE>
NOTE 10 - STOCKHOLDERS' EQUITY
Initial Public Offering
Effective October 26, 1993, SEDA sold 1,840,000 shares of its common
stock to the public at a price of $14 per share. Net proceeds to SEDA were
$23,090,000 after deduction of the underwriting discount of $1,803,000 and
expenses related to the offering of $886,000. SEDA also issued warrants to the
underwriters of its public offering, exercisable for three years, to purchase
150,000 shares of common stock at an exercise price equal to the greater of
$16.80 or the closing price of SEDA's common stock on the date of exercise,
less $10.
Reincorporation
On July 19, 1994, SEDA's stockholders approved the reincorporation of
SEDA in the state of Delaware. Such reincorporation was effected on August 1,
1994. As a result of the reincorporation, each outstanding share of SEDA's no
par value common stock was exchanged for 1 share of $0.001 par value common
stock of the Delaware corporation. Stockholders' equity amounts related to
common stock, contributed capital and capital in excess of par value were
adjusted to give retroactive effect to the reincorporation.
Stock Options
In September 1993, the Company adopted its 1993 Incentive and
Nonstatutory Stock Option Plan ("the Plan") and subsequently amended it in July
1994. The Plan will terminate after 10 years. A total of 1,000,000 shares of
the Company's Common Stock have been reserved for issuance under the Plan. The
Plan provides for the grant of incentive stock options to employees of the
Company and non-qualified stock options to employees, officers, directors and
consultants of the Company. The plan is administered by a committee appointed
by the Board, which determines the terms of the options granted, including the
exercise price, the number of shares subject to option, and the option's
vesting period.
The exercise price of all options granted under the Plan must be at
least equal to the fair market value of such shares on the date of grant. The
maximum term of options granted under the Plan is 10 years. With respect to
any participant who owns stock representing more than 10% of the voting rights
of the Company's outstanding capital stock, the exercise price of any option
must be at least equal to 110% of the fair market value on the date of grant.
F-13
<PAGE> 96
<TABLE>
<CAPTION>
Option Price Available
per Share Outstanding Exercisable for Grant
-------------------------------------------------------
<S> <C> <C> <C> <C>
Plan creation - 1993 - - - 700,000
Options granted $10.00 - $14.00 333,500 - (333,500)
Became exercisable $10.00 - $14.00 - 272,125 -
-------------------------------------------------------
Balance at December 31, 1993 $10.00 - $14.00 333,500 272,125 366,500
Plan amendment - - - 300,000
Options granted $12.50 - $13.75 96,000 - (96,000)
Became exercisable $12.50 - $14.00 - 61,125 -
Exercised $10.00 (15,000) (15,000) -
-------------------------------------------------------
Balance at December 31, 1994 $10.00 - $14.00 414,500 318,250 570,500
Options granted $10.00 - $12.31 377,000 - (377,000)
Became exercisable $10.00 - $14.00 - 342,875 -
-------------------------------------------------------
Balance at December 31, 1995 $10.00 - $14.00 791,500 661,125 193,500
=======================================================
</TABLE>
Note 11 - Related Party Transactions
The Company, 2501 West Rosecrans, Inc., Tube Tech Corporation of
Delaware and Pacific Atlantic Brokerage, Inc. are related parties because a
common stockholder holds or held a substantial ownership interest in each of
the companies, and Shapour Sedaghat, former Chairman of the Company, is a
related party because of his ownership interest in the Company.
2501 West Rosecrans, Inc. was 100% owned by one of the Company's
principal stockholders. On April 20, 1994, the Company acquired from 2501 West
Rosecrans, Inc. the building and real estate comprising its manufacturing
facilities and corporate headquarters, at a cost of approximately $6.3 million,
which approximated fair market value, in exchange for a promissory note in the
principal amount of $1.6 million, bearing interest at 6% per annum, and the
Company's assumption of the existing five-year note due to a financial
institution in the principal amount of approximately $4.7 million, bearing
interest at 8.5% per annum. At the closing of the transaction, the Company
paid $1 million to the financial institution to reduce the amount outstanding
on the five- year note. Prior to this transaction, the Company leased the
facility from 2501 West Rosecrans, Inc. and paid rent to 2501 West Rosecrans,
Inc. of $219,000 in 1994 and $656,000 in 1993.
Tube Tech Corporation of Delaware (Tube Tech) was 50% owned by one of
the Company's principal stockholders until the Company acquired his 50%
interest in July 1993 for $90,000. Tube Tech became an exclusive sales
representative of the Company in 1992 for selected plastic tube products
customers. Total commissions paid by the Company to Tube Tech for the years
ended December 31, 1995, 1994 and 1993 were $294,000, $496,000 and $292,000,
respectively. The Company's investment in Tube Tech is accounted for using the
equity method of accounting for investments.
Pacific Atlantic Brokerage, a corporation majority owned by one of the
Company's principal stockholders, provides freight forwarding services to the
Company. The cost of these services provided by Pacific Atlantic Brokerage to
the Company and charged to operations amounted to $911,000 in 1995, $636,000 in
1994 and $396,000 in 1993.
In 1995, the Company paid $70,000 to Shapour Sedaghat for consulting
services after his retirement from the Company.
As of December 31, 1995 and 1994, in the aggregate the Company owed
$136,000 and $1,704,000, respectively, to these related parties, which at
December 31, 1994 included $1.6 million owed to 2501 West Rosecrans, Inc.
related to the Company's facility.
F-14
<PAGE> 97
SEDA SPECIALTY PACKAGING CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning of costs and ASC end of
Description period expenses Acquisition Deductions period
- ----------- ------ -------- ----------- ---------- ------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Receivable:
Year ended December 31, 1995 $200,000 $375,000 $112,000 $263,000(1) $424,000
Year ended December 31, 1994 250,000 22,000 - 72,000(1) 200,000
Year ended December 31, 1993 88,000 182,000 - 20,000(1) 250,000
</TABLE>
_______________________
(1) Represents write-offs of bad debts
F-15
<PAGE> 98
THIS PAGE INTENTIONALLY LEFT BLANK.
F-16
<PAGE> 99
INDEX TO FINANCIAL STATEMENTS
AMERICAN SAFETY CLOSURE CORP.
<TABLE>
<S> <C>
Independent Auditors' Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-21
Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22
Consolidated Statement of Changes in Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . F-23
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25
</TABLE>
F-17
<PAGE> 100
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
American Safety Closure Corp. and Subsidiary
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and
of cash flows present fairly, in all material respects, the financial position
of American Safety Closure Corp. and Subsidiary at April 30, 1995, and the
results of their operations and their cash flows for the fiscal year then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, has a working capital deficit of $2,107,000 and is in default
on its line of credit and certain of its other debt agreements making such debt
callable upon demand by the respective lenders. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
PRICE WATERHOUSE LLP
Costa Mesa, California
August 14, 1995, except for
Notes 3 and 10, as to which the
date is August 21, 1995
F-18
<PAGE> 101
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
American Safety Closure Corp.
We have audited the accompanying consolidated balance sheet of American Safety
Closure Corp. and Subsidiary as of April 30, 1994, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Safety
Closure Corp. and Subsidiary as of April 30, 1994, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
URBACH KAHN & WERLIN PC
Glens Falls, New York
June 17, 1994
F-19
<PAGE> 102
AMERICAN SAFETY CLOSURE CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
April 30, January 31,
1996
----
1994 1995 (unaudited)
---- ----
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 197,000
Accounts receivable, net
allowance for doubtful accounts
of $109,000 and $45,000
1,416,000 $1,294,000 $1,883,000
Inventories (Note 4) 1,438,000 1,760,000 1,895,000
Prepaid expenses and other
current assets 143,000 154,000 74,000
------- ------- ------
Total current assets 3,194,000 3,208,000 3,852,000
Property, plant, and equipment,
net (Note 5) 3,904,000 3,870,000 5,103,000
Patents, net of accumulated
amortization of $350,000 and 225,000 195,000 174,000
$275,000
Other assets 135,000 36,000 12,000
------- ------ ------
$7,458,000 $7,309,000 $9,141,000
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 907,000 $ 1,392,000 $1,332,000
Accrued liabilities 496,000 664,000 1,233,000
Line of credit (Note 6) 1,238,000 1,441,000 --
Current portion of long-term debt
and capital lease obligations
(Notes 7 and 10) 557,000 1,293,000 810,000
Due to SEDA (Note 3) 525,000 1,648,000
-------- ------- ---------
Total current liabilities 3,198,000 5,315,000 5,023,000
--------- --------- ---------
Long-term debt and capital lease
obligations, net of current
portion (Notes 7 and 10) 2,378,000 1,481,000 1,572,000
--------- --------- ---------
Preferred stock of subsidiary 460,000 445,000 445,000
------- ------- -------
Commitments and contingencies (Note
10)
Stockholders' equity (Note 11)
Common stock, par value $.30
per share, authorized
15,000,000 shares, 3,002,240
and 1,441,212 shares issued and
outstanding at April 30, 1995
and 1994, respectively,
excluding shares held in treasury 432,000 901,000 2,760,000
Additional paid-in capital 8,445,000 10,317,000 10,491,000
Accumulated deficit (7,455,000) (11,127,000) (11,127,000)
Less treasury stock, at cost,
15,000 shares -- (23,000) (23,000)
------- -------- --------
Total stockholders' equity 1,422,000 68,000 2,101,000
--------- ------ ---------
$7,458,000 $7,309,000 $9,141,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE> 103
AMERICAN SAFETY CLOSURE CORP. AND SUBSIDIARY CONSOLIDATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the year ended Nine months ended
April 30, January 31,
--------- -----------
1994 1995 1995 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Net sales $10,114,000 $8,142,000 $6,150,000 $7,413,000
Cost of sales 8,255,000 7,234,000 5,429,000 5,551,000
--------- --------- --------- ---------
Gross profit 1,859,000 908,000 721,000 1,862,000
Selling, general and administrative
expenses 1,698,000 4,200,000 3,729,000 817,000
Non-recurring charges (Note 12) 761,000 -- -- --
------- ------- ------- -------
Operating (loss) income (600,000) (3,292,000) (3,008,000) 1,045,000
Other expenses:
Interest expense 336,000 380,000 270,000 291,000
Management Fee -- -- -- 754,000
--------- ------------ -------- -------
Net (loss) income $(936,000) $(3,672,000) $(3,278,000) $ 0
========== ============ ============ =======
Net loss per common share $ (0.69) $ (1.84) $ (1.97) $ 0.00
========== ========== ========= ========
Weighted average number of
common shares outstanding 1,358,000 1,996,000 1,667,000 8,003,000
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE> 104
AMERICAN SAFETY CLOSURE CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1995 AND 1994
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock Total
--------- ---------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at April 30, 1993 1,175,000 $ 353,000 $ 7,009,000 $ (6,519,000) $ 843,000
Issuance of common stock for cash 53,000 16,000 244,000 260,000
Issuance of common stock for exercise
of warrants 141,000 42,000 647,000 689,000
Issuance of common stock to officers,
directors and employees for services
rendered and bonuses 17,000 5,000 13,000 18,000
Conversion of subsidiary preferred stock
for common stock 55,000 16,000 532,000 548,000
Net loss for the year ended April 30, 1994 (936,000) (936,000)
--------- ---------- ----------- ------------ --------- ------------
Balances at April 30, 1994 1,441,000 432,000 8,445,000 (7,455,000) 1,422,000
Issuance of common stock to officers
and directors pursuant to severance
agreements 1,148,000 344,000 1,378,000 1,722,000
Issuance of common stock to officers,
directors and employees for services
rendered and bonuses 412,000 124,000 480,000 604,000
Repurchase of common stock (15,000) $ (23,000) (23,000)
Conversion of subsidiary preferred stock
for common stock 2,000 1,000 14,000 15,000
Net loss for the year ended April 30, 1995 (3,672,000) (3,672,000)
--------- ---------- ----------- ------------ --------- -----------
Balances at April 30, 1995 2,988,000 901,000 10,317,000 (11,127,000) (23,000) 68,000
Unaudited data:
Issuance of common stock to purchase
machinery and equipment 4,670,000 1,401,000 124,000 1,525,000
Issuance of common stock in exchange for
cancellation of indebtedness 1,522,000 457,000 40,000 497,000
Issuance of common stock for services
rendered 21,000 1,000 10,000 11,000
Net income for the nine months ended
January 31, 1996 -- -- -- -0- -- -0-
--------- ---------- ----------- ------------ -------- ----------
Balances at January 31, 1996 9,201,000 $2,760,000 $10,491,000 $(11,127,000) $(23,000) $2,101,000
========= ========== =========== ============ ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 105
AMERICAN SAFETY CLOSURE CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended Nine months ended
April 30, January 31,
--------- -----------
Cash flows from operating activities 1994 1995 1995 1996
------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C>
Net (loss) income $(936,000) $(3,672,000) $(3,278,000) $ -0-
---------- ------------ ------------ --------
Adjustments to reconcile net loss
to net cash provided by (used
in) operating activities:
Depreciation and amortization 591,000 604,000 441,000 546,000
Provision for bad debts 48,000 64,000 18,000 15,000
Common stock issued for services
rendered, severance agreements
and bonuses 19,000 2,326,000 2,325,000 11,000
Realized loss on write-down of
equity securities -- 21,000 -- --
Provision for inventory write
down 194,000 -- -- --
Loss on sale of equipment -- 36,000 12,000 --
Write-off of other assets 176,000 -- -- --
Changes in assets and liabilities:
Accounts receivable (113,000) 58,000 563,000 (604,000)
Inventories 40,000 (322,000) (264,000) (135,000)
Prepaid expenses and other assets 28,000 61,000 42,000 80,000
Accounts payable and accrued
liabilities (15,000) 653,000 514,000 509,000
-------- ------- ------- -------
Total adjustments 968,000 3,501,000 3,651,000 422,000
------- --------- --------- -------
Net cash provided by
(used in) operating
activities 32,000 (171,000) 373,000 422,000
------ --------- ------- -------
Cash flows from investing activities:
Capital expenditures (220,000) (198,000) (185,000) (208,000)
Proceeds from sale of equipment 2,000 13,000 --
Investments (20,000) -- -- --
-------- ------- -------- -------
Net cash used in investing
activities (240,000) (196,000) (172,000) (208,000)
--------- --------- --------- ---------
Cash flows from financing activities:
Principal payments on long-term
debt and capital lease (534,000) (535,000) (444,000) (393,000)
obligations
Issuance of long-term debt 100,000 -- -- --
Net increase (payments) on line
of credit (157,000) 203,000 47,000 (1,441,000)
Proceeds from SEDA loan 525,000 -- 1,620,000
Net proceeds from issuance of
common stock 949,000 -- -- --
Treasury stock acquired -- (23,000) -- --
------- -------- ------- -------
Net cash provided by
financing activities 358,000 170,000 (397,000) (214,000)
------- ------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 150,000 (197,000) (196,000) -0-
Cash and cash equivalents at the
beginning of the period 47,000 197,000 197,000 -0-
------ ------- ------- --------
Cash and cash equivalents at the end
of the period $197,000 $ -0- $1,000 $ -0-
======== ======== ====== =====
Supplemental disclosures of cash flow
information
Cash paid for interest $336,000 $346,000 $270,000 $223,000
======== ======== ======== ========
Non-cash investment and financing activities
Exchange of subsidiary preferred
stock for common stock $548,000 $15,000 $15,000 --
Equipment acquired under capital
lease arrangements 330,000 $374,000 $370,000 --
Equipment obtained through
issuance of common stock -- -- -- $1,525,000
Reduction in loan from SEDA for
issuance of common stock -- -- -- $497,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE> 106
AMERICAN SAFETY CLOSURE CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
NATURE OF BUSINESS AND OWNERSHIP
American Safety Closure Corp. (the "Company"), a New York corporation,
develops, manufactures, and assembles tamper-evident plastic closures and sells
these products to a diverse group of customers in the food, beverage, and
cosmetics industries primarily located in the eastern United States.
During fiscal 1989, the Company, through a wholly-owned subsidiary,
acquired substantially all of the assets and assumed substantially all of the
liabilities of Arpak Plastics, Inc. (Arpak), which had filed for protection
from creditors under Chapter 11 of the Bankruptcy Code. Arpak, located in
Plattsburgh, New York, is a 28-year old manufacturer of plastic closures, jars
and vials.
On January 5, 1995, the Company and SEDA Specialty Packaging Corp.
(SEDA) entered into a "Merger Agreement", subsequently amended on June 22, 1995
and August 21, 1995, pursuant to which SEDA would acquire all of the Company's
common stock held by certain shareholders, representing approximately 90% of
the Company's total common stock shares outstanding. See Note 3 for further
discussion of the merger.
BASIS OF PRESENTATION
The Company has suffered recurring losses from operations, has a working
capital deficit of $2,107,000 at April 30, 1995, and is in default on its line
of credit agreement and certain of its other debt agreements. Borrowings under
these agreements are callable immediately by the respective lenders. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management believes that the Company will be able to continue
operations in its present form based on its present resources and a combination
of its efforts to secure alternative financing, increase its sales levels and
implement cash conservation strategies. Management views the acquisition of a
majority of the Company's common stock by SEDA as a positive step towards
securing additional financial and operational improvements.
The Company's financial statements have been prepared on the basis of
accounting principles applicable to a going concern. Accordingly, they do not
purport to give effect to adjustments, if any, that may be necessary should the
Company be required to realize its assets and liquidate its liabilities,
contingent liabilities and commitments in other than the normal course of
business at amounts different from those in the financial statements.
UNAUDITED INTERIM INFORMATION
The accompanying consolidated balance sheet at January 31, 1996, and the
consolidated statements of operations and cash flows for the nine month periods
ended January 31, 1996 and 1995, and the consolidated statement of changes in
stockholders' equity for the nine month period ended January 31, 1996 are
unaudited. In the opinion of management, these statements have been prepared
on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results of the interim periods. All significant
intercompany transactions have been eliminated. The data disclosed in these
notes to financial statements for these periods are also unaudited. The
results for the nine months ended January 31, 1996 are not necessarily
indicative of the results of operations for the year ending April 30, 1996.
F-24
<PAGE> 107
FOURTH QUARTER ADJUSTMENTS
The aggregate effect of year end April 30, 1995 adjustments is to
increase the net loss by $260,000 and is reflected in the results of the fourth
quarter. These adjustments related primarily to management's periodic review
of estimates and judgements involving inventory values, the allowance for
doubtful accounts, the impairment of an investment and contingent liabilities.
These adjustments have an immaterial effect on the first three quarters
of the year ended April 30, 1995.
2. A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary. All significant, intercompany
accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenues are recognized when products are shipped to customers.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid debt instruments with
original maturities of three months or less.
INVESTMENTS
In fiscal 1995, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), which requires that investments in debt and equity
securities be reported at fair market value. During 1994, the Company
recognized a loss of $21,000 for the write-down of equity securities which were
deemed to be permanently impaired. At April 30, 1995, the Company's investment
in equity securities totaled $4,000.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated over
the estimated useful lives of the related assets (generally five to 10 years
for equipment and 33 years for buildings). Depreciation is computed
principally on the straight-line method.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of trade receivables. This risk
is limited by the Company's large number of customers and their dispersion
across industry lines.
Sales to one customer amounted to $837,000 (10% of net sales) for the
fiscal year ended April 30, 1995, while sales to a different customer amounted
to $1,300,000 (13% of net sales) for the year ended April 30, 1994.
F-25
<PAGE> 108
PATENTS
The cost of patents (which includes patent acquisition costs and certain
legal fees) is being amortized on a straight-line basis over the estimated
useful lives of the assets ranging from 5-17 years. Periodically, the Company
evaluates the recoverability of intangibles based on estimated undiscounted
future cash flows from operating activities compared with the carrying values
of the intangibles.
INCOME TAXES
Deferred income taxes are provided in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes.
SFAS 109 requires the liability method for accounting for income taxes. This
method mandates the recognition of deferred tax liabilities and assets for
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities. The adoption of SFAS 109,
effective January 1, 1993, did not have a material impact on the Company's
consolidated financial statements or financial position.
NET LOSS PER SHARE
Net loss per common share was computed based on the weighted average
number of the Company's common shares outstanding during the fiscal years ended
April 30, 1995 and 1994. Common stock equivalents were not considered in the
net loss per share calculation because the effect on the net loss per share
would be antidilutive.
RECLASSIFICATIONS
Certain amounts in the 1994 financial statements have been reclassified
to conform with the 1995 presentation.
3. MERGER AGREEMENT WITH SEDA SPECIALTY PACKAGING CORP. (SEDA)
On January 5, 1995, the Company and SEDA entered into an agreement to
merge the Company with SEDA (the "Merger Agreement"), pursuant to which each
stockholder of the Company would receive one share of SEDA's common stock for
every eight shares of the Company's common stock owned by such stockholders.
In lieu of receiving SEDA's common stock, each such stockholder would have the
option of receiving $1.50 for each share of the Company's common stock held
(the Cash Election Option). Approximately 3,064,000 shares of the Company's
common stock were outstanding as of that date (including 30,000 warrants).
This agreement was subsequently amended on June 22, 1995 and August 21, 1995 as
discussed below.
On January 5, 1995, in connection with the proposed merger, SEDA
acquired an irrevocable proxy (the "Management Proxy") with respect to an
aggregate of 1,656,000 shares of the Company's common stock, or approximately
54% of the outstanding common stock, from ASC Managing Partners, a general
partnership. The Management Proxy was placed into escrow pursuant to the terms
of an escrow agreement, which provides in part that the Management Proxy will
not be released until the date of a vote by the Company's stockholders on the
merger. On the same date, SEDA acquired irrevocable proxies with respect to an
aggregate of 339,000 additional shares of the Company's common stock (the
"Employee Proxies") from certain employees of the Company.
On January 5, 1995, SEDA also entered into a management agreement with
the Company. The management agreement gives SEDA the authority to manage the
Company with the objective of using SEDA's good faith best efforts to maximize
the profits of the Company. The management agreement also provides that in
consideration for said management services, SEDA shall be entitled to receive
an amount equal to the profits of the Company, if any (determined by reference
to net income determined in accordance with generally accepted accounting
principles), generated during the term of the Management Agreement. The
Management Agreement continues in effect until the closing of the contemplated
merger.
F-26
<PAGE> 109
On January 5, 1995, SEDA also acquired certain equipment formerly leased
to the Company by KGE Leasing Associates, Inc. (KGE), a corporation controlled
by certain principal stockholders of the Company. The equipment was acquired
for an aggregate cash purchase price of $1,525,000.
Through April 30, 1995, SEDA made loans, bearing interest at 9% and
payable upon demand, to the Company aggregating $525,000.
On June 22, 1995, the Company issued 6,192,000 new shares of common
stock to SEDA in exchange for the cancellation of $497,000 in indebtedness owed
by the Company to SEDA and for the contribution to the Company of the equipment
that SEDA had acquired from KGE. These shares, together with the 102,000
shares that SEDA had previously acquired gave SEDA approximately 67% of the
outstanding shares of the Company at June 30, 1995.
On June 22, 1995 by approval of the Company's Board of Directors, the
Merger Agreement was amended to modify the consideration that each shareholder
would receive one share of SEDA's common stock for each 24.512 shares of the
Company's common stock. On June 23, 1995, SEDA filed an action in the U.S.
District Court for the Southern District of New York against the Company and
other defendants seeking a recision of the Merger Agreement or in the
alternative, a declaration by the Court that the Merger Agreement be amended
with the consent of both Boards of Directors without the consent of any other
parties. On August 21, 1995, SEDA voluntarily dismissed the action against the
Company.
Effective August 21, 1995, the Merger Agreement was further amended by
agreement of the Company's and SEDA's Boards of Directors, cancelling the June
22nd amendment and eliminating the Cash Election Option from the Merger
Agreement.
In July 1995, a long-time stockholder and relative of the former
Chairman of the Board of the Company filed a motion seeking appointment of a
receiver for the Company and alleging that the Company's Board of Directors has
breached its fiduciary duty to the shareholders of the Company and that SEDA
has improperly diverted assets from the Company.
On October 24, 1995, all litigation related to the Merger Agreement with
SEDA was, with the consent of all parties, dismissed.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
April 30, January 31,
1994 1995 1996
---- ---- ----
(Unaudited)
-----------
<S> <C> <C> <C>
Raw materials $636,000 $569,000 $662,000
Work in progress 171,000 240,000 209,000
Finished goods 631,000 951,000 1,024,000
------- ------- ---------
$1,438,000 $1,760,000 $1,895,000
========== ========== ==========
</TABLE>
F-27
<PAGE> 110
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
April 30,
1994 1995
---- ----
<S> <C> <C>
Land $39,000 $39,000
Building and improvements 992,000 995,000
Machinery and equipment 4,938,000 5,407,000
Furniture and fixtures 136,000 139,000
Vehicles 85,000 49,000
------ ------
6,190,000 6,629,000
Accumulated depreciation (2,286,000) (2,759,000)
----------- -----------
$3,904,000 $3,870,000
========== ==========
</TABLE>
6. LINE OF CREDIT
The Company has a $1,500,000 line of credit, bearing interest at the
bank's base rate plus 2 1/2% (12% at April 30, 1995). Borrowings on this line
of credit were $1,441,000 and $1,238,000 at April 30, 1995 and 1994,
respectively.
In connection with the line of credit agreement, the Company is required
to meet various operating and financial covenants. The Company was not in
compliance with certain of these covenants at April 30, 1995, and, as a result,
the outstanding borrowings at April 30, 1995 are payable immediately, if so
requested by the bank.
In September 1995, the Company's line of credit with its bank was repaid
in total and replaced with a $2 million line of credit with SEDA, bearing
interest at the prime rate. Approximately $1.5 million was borrowed by the
Company under this agreement with SEDA and used to repay the bank. The
Company's outstanding borrowing from SEDA at January 31, 1996, was $1,648,000.
F-28
<PAGE> 111
7. LONG-TERM DEBT
Long-term debt comprised the following:
<TABLE>
<CAPTION>
April 30,
1994 1995
---- ----
<S> <C> <C>
Equipment term loans, monthly payments of $5,900
plus interest at base rate plus 2%, (11% at April
30, 1995), due July 1995, secured by equipment
$87,000 $15,000
Mortgage note, monthly payments of $9,800
including interest at 8.375%, due October 2003,
secured by real estate 771,000 716,000
Second mortgage note, monthly payments of $5,900
including interest at 7.75% due October 2003,
secured by real estate 489,000 443,000
Term notes, monthly payments of $3,300 plus
interest at 5%, through October 1995, at which
time the remaining balance of $153,500 is due and
payable, secured by building and equipment
256,000 234,000
Unsecured notes for federal and state taxes, due
in varying amounts including interest at 10%,
maturing between September 1994 and September
1996 251,000 192,000
Term loans due in varying amounts including
interest from 5.8% to 10%, maturing between June
1994 and September 1998, secured by equipment
236,000 195,000
Other 70,000 70,000
------ ------
2,160,000 1,865,000
Less current maturities or amounts subject to
default 557,000 1,045,000
------- ---------
$1,603,000 $820,000
========== ========
</TABLE>
The Company's debt instruments listed above are secured by substantially
all of the Company's assets. The Company's debt instruments require the
Company to comply with certain covenants, including among other things, timely
payments of principal and interest, maintenance of various financial ratios and
financial reporting requirements. As of April 30, 1995, the Company was in
violation of certain of these covenants. Accordingly, those instruments for
which there has been a covenant violation are due and payable upon the lender's
demand and have been classified as current liabilities.
F-29
<PAGE> 112
Aggregate debt maturities, reflecting as payable in the current year
amounts subject to call by the lender, are as follows:
<TABLE>
<CAPTION>
Years ending April 30,
<S> <C>
1996 $1,045,000
1997 128,000
1998 155,000
1999 84,000
2000 80,000
Thereafter 373,000
-------
$1,865,000
==========
</TABLE>
8. INCOME TAXES
The Company incurred losses totaling $3,672,000 and $936,000 for fiscal
years ended April 30, 1995 and 1994, respectively. As a result, no provision
for income taxes has been charged to operations during these periods.
Deferred taxes at April 30, 1995 consist of the following components:
<TABLE>
<S> <C>
Deferred tax liabilities
Property, plant and
equipment $489,000
--------
Deferred tax assets
Allowance for doubtful
accounts $21,000
Accrued expense 40,000
Other 51,000
Net operating loss
carryforwards 3,910,000
---------
4,022,000
---------
Gross deferred tax assets 3,533,000
Less valuation allowance (3,533,000)
-----------
Net deferred tax assets $ -0-
==========
</TABLE>
The net change in valuation allowance for deferred tax assets was an
increase of approximately $1,736,000 from the balance at April 30, 1994. The
change primarily relates to additional net operating loss carryforwards
generated in fiscal 1995, which were fully reserved for at April 30, 1995.
At April 30, 1995, the Company had net operating loss carryforward for
federal and state income tax purposes totaling approximately $9,613,000 which
begin to expire in 2005. Pursuant to provisions in the Tax Reform Act of 1986
the net operating loss carryforwards available for use in any given year may be
limited as a result of the significant changes in stock ownership attributable
to the acquisition of the Company by SEDA (Note 3).
F-30
<PAGE> 113
9. RELATED PARTY TRANSACTIONS
Effective July 1, 1994 the Company entered into a discontinuance of
employment agreement with the former President of the Company. Under the terms
of this agreement, 46,000 shares of unregistered common stock were issued to
the former officer of which 30,000 shares are held in escrow pending the
disposition of certain contingencies. Quarterly, for the next twelve months,
the former officer has the right to sell 4,000 shares and the Company has the
obligation to make up the shortfall, if any, between the sale proceeds and
$25,000. During the second twelve months, the former officer has the right to
sell 3,750 shares quarterly with the Company making up the shortfall, if any,
between the sale proceeds and $25,000. As a result of this agreement, all
previous employment agreements with the former officer were terminated. Upon
execution of Merger Agreement with SEDA (Note 3), the right to sell stock as
described was terminated.
In connection with the Company entering into the Merger Agreement with
SEDA (Note 3), the Company entered into severance and termination agreements
with certain officers and directors of the Company's management. Pursuant to
these agreements, and the Company's Incentive Stock Program which specified
that two of the officers be granted 100,000 shares of common stock if the
Company merges, the Company issued approximately 1,148,000 shares of common
stock to officers and directors and recognized compensation expense of
$1,722,000 related to such grants.
During fiscal 1994 and 1995, the Company issued 17,000 and 412,000
shares of common stock, respectively, for services rendered and as bonuses to
certain employees and officers and directors. The Company recognized $18,000
and $604,000 of compensation expense relating to these issuances during fiscal
1994 and 1995, respectively.
The Company issued notes payable totaling $525,000, bearing interest at
9%, to SEDA (see Note 3).
Coincident with the January 5, 1995 Merger Agreement, certain assets
that were leased to the Company by KGE Leasing pursuant to a lease entered into
July 1994, were purchased by SEDA. The lease terms were unchanged. The lease
expires July 1997 and requires monthly payments of $3,250. On June 22, 1995,
the Company purchased such assets from SEDA in a transaction discussed at
Note 3.
In connection with the merger with SEDA (Note 3), four individuals
acting as officers, directors and/or employees of SEDA were appointed as
officers and/or directors of the Company.
10. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Licensing agreement
Pursuant to an agreement, dated February 28, 1991 between the Company
and a mold designer, the designer has agreed to deliver tooling to the Company
and has granted a license to use the tooling for the manufacture of certain of
its products. Under the terms of the agreement, the Company pays a license fee
of 5% of net sales of the products derived from such molds for a period of five
years. The initial acquisition costs, paid by the issuance of restricted
common stock and cash amounting to $158,000, have been capitalized and are
being amortized over the initial five year license period.
In December 1994, the Company extended this agreement for an additional
five years, through February 13, 2001. During this extended period, the
Company shall pay the greater of 2 1/2% of net sales, as defined, in each
respective fiscal year or an annual payment of $40,000. The Company has the
option to purchase the tooling from the designer at specified prices over the
term of the agreement.
F-31
<PAGE> 114
Leases
The Company is obligated under noncancelable capital and operating
leases for certain of its office and production equipment. Certain leases
require payment of property taxes and include escalation clauses. Minimum
rental commitments at April 30, 1995 under noncancelable leases that have
initial or remaining terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
<S> <C> <C>
1995 $311,000 $89,000
1996 305,000 89,000
1997 300,000 73,000
1998 99,000
Thereafter 23,000
------ --------
1,038,000 $251,000
========
Less interest ranging from 4.95% to 13.5% (129,000)
---------
Present value of future minimum lease
payments 909,000
Less current installments (248,000)
---------
Obligations under capital leases less
current installments $661,000
========
</TABLE>
Total rent expense for operating leases was $138,000 and $98,000 for the
years ended April 30, 1995 and 1994, respectively.
CONTINGENCIES
In June 1995, SEDA initiated legal proceedings seeking recision of the
Merger Agreement. This action against the Company was voluntarily dismissed by
SEDA on August 21, 1995. In July 1995, a long-time stockholder and relative of
the former Chairman of the Board of the Company filed a motion seeking
appointment of a receiver for the Company. See further discussion of these
matters in Note 3.
The Company is involved in various other lawsuits from time to time
arising from its normal operations. It is the opinion of management, based in
part on opinions of the Company's legal counsel, that the outcome of those
matters will not have a material effect on the Company's financial position or
results of operations.
11. STOCKHOLDERS' EQUITY
PUBLIC OFFERING
In connection with the Company's initial public offering of securities
in January 1990, warrants to purchase 30,000 shares of common stock at an
exercise price of $12.00 per share were outstanding as of April 30, 1995.
F-32
<PAGE> 115
CREDITOR AGREEMENT
In August 1992, the Company consummated an agreement with the unsecured
creditors of Arpak, its subsidiary, concerning the settlement of the amount
outstanding. Pursuant to this agreement, Arpak initially issued 1,008,140
shares of $1.00 par value 10% cumulative preferred stock redeemable at $1.25
per share for an aggregate redemption value of $1,260,175. The difference
between the amount settled, and the par value of the preferred stock, was
charged to additional paid-in capital. These shares are convertible at the
option of the holder into shares of American Safety Closure Corp. common stock
at the rate of one common share for every ten shares of preferred. The Company
may also exchange the preferred stock of its subsidiary for its common stock
under conditions which relate to the market price of its common stock. During
the fiscal year ended April 30, 1995, 15,450 preferred shares were exchanged
for 1,545 shares of common stock; during the fiscal year ended April 30, 1994,
548,175 preferred shares were exchanged for 54,818 shares of common stock,
respectively. As of April 30, 1995, 444,515 preferred shares were outstanding.
OTHER
15,200 shares of common stock, originally issued as settlement of
accounts payable, were "put" to the Company at a price of $5.00 per share on
March 20, 1995.
STOCK OPTIONS
In April 1991, the Company granted five year non-qualified options to
three officers of the Company, to purchase 50,000, 50,000 and 10,000 shares,
respectively, of the Company's Common stock at a price of $.75 per share for an
aggregate price of $82,500.
12. NON-RECURRING CHARGES
Non-recurring charges for 1994 include severance payments to former
officers of $296,356, an inventory write down of $193,878 to net realizable
value for inventory acquired during the purchase of Arpak in 1989, and $270,640
of expense incurred in connection with the initial leasing of molds, machinery,
licenses and customer lists of a former competitor.
F-33
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ANNEX A
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RESTATED
AGREEMENT AND PLAN OF MERGER
RESTATED AGREEMENT AND PLAN OF MERGER, dated as of January 5, 1995,
among Seda Specialty Packaging Corp., a Delaware corporation ("Parent"), Seda
ASC Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Subsidiary"), and American Safety Closure Corp., a New York corporation
(the "Company").
ARTICLE I.
THE MERGER
1.01. The Merger. Upon the terms and subject to the conditions of
this Agreement, and in accordance with the provisions of the General
Corporation Law of the State of Delaware (the "GCL") and the Business
Corporation Law of the State of New York (the "BCL"), at the Effective Time (as
defined in Section 1.05), (i) Subsidiary shall be merged with and into the
Company (the "Merger"), and the Company shall be the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") and shall continue
its corporate existence under the laws of the State of New York; (ii) the name,
identity, existence, rights, privileges, powers, franchises, properties,
assets, obligations and liabilities, of the Company shall continue unaffected
and unimpaired; and (iii) the separate existence of the Subsidiary shall cease,
and all of the rights, privileges, powers, franchises, properties and assets of
the Subsidiary shall be vested in the Company.
1.02. Certificate of Incorporation. The Certificate of
Incorporation of the
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Surviving Corporation shall be the certificate of incorporation of the Company.
1.03. By-Laws. The By-Laws of the Company in effect immediately
prior to the Effective Time shall be the By-Laws of the Surviving Corporation
until thereafter amended, altered or repealed as provided therein.
1.04. Directors and Officers. The directors of the Company
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, each to hold office in accordance with the By-Laws of the
Surviving Corporation, and the officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, each to hold
office until his successor is appointed and qualified or until his earlier
death, resignation or removal.
1.05. Effective Time. The Merger shall become effective at the time
that a properly executed Certificate of Merger, together with any other
documents required by law to effectuate the Merger, shall be filed and recorded
with the Secretary of State of the State of Delaware in accordance with
Sections 103 and 251 of the GCL and the Secretary of State of the State of New
York in accordance with Sections 904 and 907 of the BCL. The Certificate of
Merger shall be filed in accordance with Section 103 of the GCL and Section 904
of the BCL as soon as practicable after the Closing (as defined below). The
date and time when the Merger shall become effective is herein referred to as
the "Effective Time."
ARTICLE II.
CONVERSION OF SHARES
2.01. Company Common Stock. (a) Each share of Company common stock,
$.30 par value ("Company-Common Stock"), issued and outstanding immediately
prior to the Effective Time (except for (i) shares of Company Common Stock then
owned beneficially or of record by Parent or Subsidiary or any other subsidiary
of
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Parent, (ii) shares of Company Common Stock held in the treasury of the
Company, and (iii) Dissenting Shares, as defined in Section 2.02 shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be exchanged for and represent the right to receive one Common share of stock,
no par value of the Parent (the "Exchange Shares") in exchange for eight (8)
shares of Company Common Stock upon surrender of the certificate or
certificates representing such share of Company Common Stock. Except for ASC
Managing Partners, any shareholder of the Company may elect to receive $1.50 in
cash in lieu of the Exchange Shares, for each share of the Company Common Stock
held by such shareholder, (the "Cash Election Option") upon surrender of the
certificate or certificates representing such share or shares of the Company
Common Stock. The Cash Election Option may be exercised by the shareholders
during the time between the date of the first notice of the meeting of
shareholders called to approve the Merger and the date of the vote on the
Merger. The Cash Election Option may be withdrawn by the electing shareholders
until one business day before the shareholder meeting. Shareholders who elect
to receive cash will be required to submit a form of election to the Parent or
its agent together with the stock certificate or a guarantee of the delivery
of such certificate within the exercise period.
(b) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time which is then owned beneficially, or of
record, by Parent or Subsidiary or any other subsidiary of Parent shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be cancelled and retired and cease to exist, without payment of any
consideration therefore and without any conversion thereof.
(c) Each share of Company Common Stock held in the Company's treasury
immediately prior to the Effective Time shall, by virtue of the Merger, be
cancelled
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and retired and cease to exist, without payment of any consideration therefor
and without any conversion thereof.
(d) The holders of certificates representing shares of Company
Common stock issued and outstanding immediately prior to the Effective Time
shall as of the Effective Time cease to have any rights as stockholders of the
Company, except such rights as they may have pursuant to Section 262 of the
GCL, and Section 910 of the BCL. Except as aforesaid, their sole right shall
be the right to receive the Exchange Shares or the Cash Election Option as
aforesaid.
2.02. Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, shares of Company Common Stock which are outstanding
immediately prior to the Effective Time and which are held by stockholders who
have not consented to the Merger and who shall have delivered a written demand
for appraisal of such shares in the manner provided in Section 262 of the GCL
and Section 910 of the BCL ("Dissenting Shares") shall not be converted into or
be exchangeable for the right to receive the consideration provided in Section
2.01 (a) of this Agreement, but the holders thereof shall be entitled to
payment from the Surviving Corporation of the appraised value of such shares in
accordance with the provisions of Section 262 of the GCL and 910 of the BCL;
provided, however, that (a) if any holder of Dissenting Shares shall
subsequently deliver a written withdrawal of his demand for appraisal of such
shares of Company Common Stock (with the written approval of the Company, if
such withdrawal is not tendered within 60 days after the Effective Time), or
(b) if any holder fails to perfect or loses his appraisal rights as provided in
such Section 262, and Section 623 of the BCL or (c) if neither any holder of
Dissenting Shares nor the Surviving Corporation has filed a petition demanding
a determination of the value of all Dissenting Shares within the time provided
in Section 262 of the GCL and Section 623 of the BCL, such holder or holders
(as the
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case may be) shall forfeit the right to appraisal of such shares and such
shares shall thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the
consideration provided in Section 2.01(a) of this Agreement, without any
interest thereon.
2.03 Subsidiary Common Stock. (a) Each share of common stock, par
value $.01 per share, of Subsidiary ("Subsidiary Common Stock"), issued and
outstanding immediately prior to the Effective Time, shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and exchangeable for one fully paid and non-assessable share of common
stock, par value $.01 per share, of the Surviving Corporation ("Surviving
Corporation Common Stock").
(b) From and after the Effective Time, each outstanding certificate
theretofore representing shares of Subsidiary Common Stock shall be deemed for
all purposes to evidence ownership of and to represent the number of shares of
Surviving Corporation Common Stock into which such shares of Subsidiary Common
Stock shall have been converted. Promptly after the Effective Time, the
Surviving Corporation shall issue to Parent a stock certificate or certificates
representing [1,000] shares of Surviving Corporation Common Stock in exchange
for the certificate or certificates which formerly represented shares of
Subsidiary Common Stock, which shall be cancelled.
2.04 Registration and Qualification of the Exchange Shares. Parent
shall immediately file a registration statement under the Securities Act of
1933 as amended (the "Act") with the Securities and Exchange Commission (the
"SEC") covering the Exchange Shares and shall use its best efforts to have such
registration statement declared effective as expeditiously as possible.
(a) In connection with such registration statement, Parent will give
each holder of Exchange Shares, (a "Seller"), and its counsel and accountants,
the
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opportunity to participate in the preparation of any portion of the
registration statement which contains information regarding such Seller, each
prospectus included therein or filed with the SEC, and each amendment thereof
or supplement thereto.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective and the
prospectus current and to comply with the provisions of the Act with respect to
the sale or other disposition of all securities covered by such registration
statement whenever a Seller shall desire to sell the same and as otherwise
provided herein.
(c) Furnish to the Sellers such reasonable numbers of copies of
preliminary prospectuses and prospectuses and each supplement or amendment
thereto and such other documents as holders thereof may reasonably request in
order to facilitate the sale or other disposition of the securities owned by
Sellers in conformity with the requirements of the Act.
(d) Use its best efforts to register or qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions within the United States as to which the Sellers
have a relationship sufficient to justify such filing, and do such other
reasonable acts and things as may be required of it to enable a Seller to
consummate the sale or transfer in such jurisdictions of the securities owned
by such Seller provided, however, that Parent shall not be required to (1)
qualify as a foreign entity or consent to a general and unlimited service of
process in any such jurisdictions, or (2) qualify as a dealer in securities.
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(e) Otherwise use its best efforts to comply with all applicable
rules and regulations promulgated under the Act, and make available to its
security holders, as soon as reasonably practicable, but not later than 16
months after the effective date of the registration statement, an earnings
statement covering the period of at least 12 months beginning with the first
full month after the effective date Of such registration statement, which
earnings statement shall satisfy all applicable provisions of the Act.
(f) Notify Sellers at any time when a prospectus, relating to the
registration is required to be delivered under the Act, upon discovery that, or
upon the happening of any event as a result of which, the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and at the request of any
Seller promptly prepare and furnish to Seller a reasonable number of copies of
a supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.
(g) At the request of a Seller, advise Seller in writing as to the
initiation and progress of any registration under this Agreement.
(h) Parent in the case of registration or qualification required
by this section shall pay all expenses in connection therewith, including,
without limitation,
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(i) registration fees, (ii) printing expense, (iii) accounting and legal fees
and expenses of Parent, (iv) expenses of any reasonable special audits incident
to or required by any regulatory authority or underwriter in connection with
any such registration or qualification, (v) reasonable expenses of complying
with the securities or blue sky laws of any reasonable jurisdictions in
connection with such registration or qualification; provided, however Parent
shall not be liable for (i) any stock transfer taxes incurred in respect of the
Exchange Shares sold by Seller, or (ii) the fees and expenses of any attorneys,
auditors, agents or advisor engaged by Seller in connection with such
registration.
2.05 Antidilution Provisions. (a) In case the Parent shall at any
time prior to the Effective Time declare to the holders of its common shares a
dividend, or dividends payable in shares of any class, a holder of Company
shares (the "Holder"), shall be entitled to receive at the Effective Time in
addition to a Stock Unit, such additional shares as such Holder would have
received in the form of such dividend or dividends if he had been the holder of
record of the Stock Unit on the record date for the determination of common
shareholders entitled to received such dividend or dividends.
(b) In case the Parent shall at any time prior to the Effective Time
effect a recapitalization or stock split, stock dividend or similar increase or
reduction in the number of outstanding shares in the Parent's common stock
without receipt by the Parent of consideration therefor, the number of shares
that constitute a Stock Unit will be adjusted proportionately.
(c) In case the Parent shall at any time prior to the Effective Time
consolidate or merge with or shall transfer its property as an entirety or
substantially
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as an entirety to any other corporation, the Holder at the Effective Time shall
be entitled to receive the number of shares or other securities or property to
which the holder of record of the common shares constituting a Stock Unit would
have been entitled upon such consolidation or merger or transfer had the Holder
been the holder of record of the Stock Unit at the time of such consolidation
or merger or transfer.
(d) In case the Parent shall at any time prior to the Effective Time
make any distribution of its assets to holders of its common shares in a
liquidating or partial liquidating dividend, then the Holder at the Effective
Time shall be entitled to receive in addition to each Stock Unit the amount of
such distribution or at the option of the Parent a sum equal to the value of
any such assets at the time of such distribution to holders of common shares
as such value is determined by the Board of Directors of the Parent in good
faith, which would have been payable to such Holder had he been the holder
of record of the Stock Unit on the record date for the determination of those
entitled to such distribution.
2.06. Exchange of Shares. (a) Promptly after the Effective Time,
such [bank or trust company as Parent may determine], acting as exchange agent
(the "Exchange Agent") for the Merger shall mail to each record holder, as of
the Effective Time, of an outstanding certificate or certificates which
immediately prior to the Effective Time represented shares of Company Common
Stock (the "Certificates") a form letter of transmittal and instructions for
use in effecting the surrender of the Certificates in exchange for the Cash
Consideration or Exchange Shares. Upon surrender to the Exchange Agent of a
Certificate, together with such letter of transmittal duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefore either
Exchange Shares or if the Cash Election Option was exercised, cash
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Consideration, and such Certificate shall then be cancelled. At the Effective
Time, Parent shall furnish or cause to be furnished to the Exchange Agent all
certificates of Exchange Shares required for it to make such Exchanges and
sufficient cash to pay the cash consideration, if applicable. All Exchanges in
respect of shares of Company Common Stock which are made in accordance with the
terms hereof shall be deemed to have been made in full satisfaction of all
rights pertaining to such shares. With respect to any Certificate alleged to
have been lost, stolen or destroyed, the owner or owners of such Certificate
shall be entitled to the consideration set forth above upon delivery to the
Exchange Agent (with a copy to Parent) of an affidavit of such owner or owners
setting forth such allegation and a bond sufficient to indemnify Parent and the
Surviving Corporation against any claim that may be made against either or both
of them on account of the alleged loss, theft or destruction of any such
Certificate or the delivery of the payment set forth above. The Surviving
Corporation shall pay all charges and expenses, including those of the Exchange
Agent, in connection with the exchange of Exchange Shares and Cash
Consideration for shares of Company Common Stock.
(b) If delivery is to be made to a person other than the person in
whose name the Certificate surrendered in exchange therefor is registered, it
shall be a condition of delivery that the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such delivery shall pay any transfer or other taxes required by
reason of the delivery to a person other than the registered holder of the
Certificate surrendered or establish to the satisfaction of the Exchange Agent
and the Surviving Corporation that such tax has been paid or is not applicable.
(c) Until surrendered in accordance with the provisions of this
Section 2.04, each Certificate (other than Certificates representing shares of
Company Common Stock owned
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beneficially or of record by Parent, Subsidiary or any other subsidiary of
Parent and other than Certificates representing shares of Company Common Stock
held in the Company's treasury and Dissenting Shares in respect of which
appraisal rights are perfected) shall represent for all purposes the right to
receive Exchange Shares or Cash Consideration.
(d) After the Effective Time there shall be no transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be cancelled and exchanged for Exchange Shares as
provided in this Article II.
(e) Any Exchange Shares or Cash Consideration held by the Exchange
Agent six months after the Effective Time shall be delivered to the Surviving
Corporation, and stockholders who have not previously complied with Section
2.04(a) shall thereafter look only to the Surviving Corporation for payment of
their claim for the consideration set forth in Section 2.01(a), without any
interest thereon. Such stockholders shall have no greater rights against the
Surviving Corporation than may be accorded to general creditors of the
Surviving Corporation under Delaware law.
2.07 Provisions Relating to ASC Managers Controlling Shares
(a) Approval of Merger. ASC Managing Partners, a New York General
Partnership ("Partners") which owns 1,656,127 shares of the Company (the
"Partners Shares") hereby agrees to have the Partners Shares voted in favor of
the Merger. Notwithstanding anything to the contrary hereinabove, ASC Managing
Partners will exchange in the merger an aggregate of approximately 1,656,127
shares of the Company Common Stock for a combination of $1,050,000 cash and
82,500 Exchange Shares.
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(b) Establishment of Escrow. Simultaneously with the execution of
this Agreement
(i) Partners has deposited with the law firm of Freshman, Morantz
Orlanski, Cooper & Klein certificates for the Partners Shares, stock powers
executed by the registered holders thereof with signatures guaranteed and an
irrevocable proxy to vote the shares, which documents shall be held in escrow
pursuant to terms of an escrow agreement in the form of Exhibit A (the "Seda
Escrow"). Notwithstanding anything in the Seda Escrow to the contrary, the
irrevocable proxies may be released from escrow and voted by the Parent in
favor of the Merger at the shareholder's meeting held to vote on the Merger.
(ii) Parent has deposited with the law firm of Koerner Silberberg
and Weiner the sum of $1,050,000 in immediately available funds and a
certificate for 82,500 Exchange Shares registered in the name of Koerner
Silberberg & Weiner as Escrow Agents to be held in escrow pursuant to the terms
of an escrow agreement in the form of Exhibit A (the "Partners Escrow").
(c) Purchase and Sale of the Partners Shares. In the event that
the Merger has not become effective on or before July 5, 1995, Partners agrees
to sell and Parent agrees to purchase the Partners Shares. Partners shall
receive the escrow deposit held in the Partners Escrow in full payment for the
Partners Shares. Seda shall receive the Escrow Deposit held in the Seda Escrow
in full satisfaction of the sellers requirement to deliver the Partners Shares.
2.08 Proxy Statement. Immediately after the execution of this
Agreement, the Parent and the Company will jointly prepare and file a Proxy
Statement (the "Proxy Statement") with the SEC as described in Section 5.05 of
this Agreement.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Subsidiary as follows:
3.01. Corporate Organization. Each of the Company and its subsidiaries is,
at the Effective Time will be, a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and has
all requisite corporate power and authority to own, lease and operate
properties and to carry on its business as now being conducted. Except as set
forth in Item 3.01 of the Disclosure Schedule, each of the Company and its
subsidiaries is duly qualified or licensed and in good standing as a foreign
corporation duly authorized to do business in each jurisdiction in which such
qualification is necessary, except in such jurisdictions where the failure to
be so qualified or licensed and in good standing would not have a material
adverse effect on the business, operations, properties or financial condition
of the Company and its subsidiaries taken as a whole. Neither the Company nor
any of its subsidiaries owns capital stock of or equity interests in any
corporation, partnership, joint venture or other entity, except as listed in
Item 3.01 of the Disclosure Schedule. The Company has heretofore delivered to
Parent accurate and complete copies of the Certificates of Incorporation and
By-Laws of the Company and its subsidiaries, as amended and in effect on the
date hereof.
3.02. Capitalization. The authorized capital stock of the Company
consists of 2,013,722 shares of Company Common Stock, par value $.30 per
share, of which, on the date hereof, there are 3,034,273 shares issued and
outstanding, warrants to purchase 30,000 shares and no shares held in the
Company's treasury. Except for such shares, the Company has not issued any
shares of its capital stock. All issued and outstanding shares of Company
Common Stock are duly authorized, validly
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issued, fully paid, non-assessable and free of preemptive rights. Each
outstanding shares of capital stock of each of the Company's subsidiaries
authorized, validly issued, fully paid and non-assessable and owned, either
directly or indirectly, by the Company free and clear of all liens, pledges,
security interests, claims and other encumbrances. Except as set forth in Item
3.02 of the Disclosure Schedule, there are not now, and at the Effective Time
there will not be, any options; warrants, calls, subscriptions, or other rights
or other agreements or commitments of any nature whatsoever (either firm or
conditional) obligating the Company or any of its subsidiaries to issue,
transfer, deliver or sell, or cause to be issued, transferred, delivered or
sold, any additional shares of capital stock or other equity interest of the
Company or any of its subsidiaries or any securities or obligations convertible
into or changeable for any such capital stock or other equity interest or
obligating the Company or any of its subsidiaries to grant, extend or enter into
any such agreement or commitment. Except as set forth in Item 3.02 of the
Disclosure Schedule there are no voting trusts or other agreements or
understandings to which the Company or any of its subsidiaries is a party with
respect to the voting of the capital stock of the Company or any of its
subsidiaries.
3.03. Corporate Authority. The Company has all requisite corporate power
and authority and has taken all necessary corporate action to execute and
deliver this Agreement and to perform its obligations hereunder and consummate
the transactions contemplated hereby, subject, insofar to approval of this
Agreement by shareholders of a majority of the outstanding shares of Company
Common Stock. This Agreement has been duly and validly executed and delivered
by the Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
3.04. Consents and Approvals; No Violations. Except for applicable
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requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and filing and recordation of appropriate merger documents as required
by the GCL and the BCL, no notice or report to or registration or filing with,
and no permit, authorization, consent, order, or approval of, any public
body or authority or third party is necessary for the consummation by the
Company of the transactions contemplated by this Agreement. Except as set
forth in Item 3.04 of the Disclosure Schedule, the execution and delivery of
this Agreement do not, and the consummation of the transactions contemplated
hereby and the compliance by the Company with any of the provisions hereof will
not, constitute or result in (a) a conflict with or any violation of any
provision of the Certificate of Incorporation or By-Laws of the Company or any
of its subsidiaries, (b) a violation of any statute, rule, regulation, order,
writ, injunction or decree of any public body or authority by Which the Company
or any of its subsidiaries or any of their respective properties is bound, (c)
a violation or breach of, or (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under any contract, agreement, arrangement, bond, mortgage,
indenture, license, franchise, permit or other instrument or obligation to
which the Company or any of its subsidiaries is a party, or by which any of
them or any of their respective Properties is bound.
3.05. Proxy Statement; etc. None of the information supplied or to
be supplied by or on behalf of the Company for inclusion in (a) the Proxy
Statement or information statement to be mailed to the Company's stockholders
in connection with the Merger, as amended or supplemented, or (b) any other
documents to be filed with the SEC or any regulatory agency in connection with
the transactions contemplated by this Agreement, as in each case amended or
supplemented, does or
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will, at the respective times that such documents or any amendments or
supplements thereto are filed or mailed to stockholders of the Company, and in
the case of the proxy Statement at the time of the Special Meeting (as defined
below), contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Proxy
Statement will comply in all material respects, both as to form and otherwise,
with the requirements of the Exchange Act and the rules and regulations
thereunder. If at any time prior to the Effective Time any event relating to
the Company or its subsidiaries should be discovered or occur which should be
set forth in an amendment of, or a supplement to, any such document, the
Company shall promptly so inform Parent and will amend or cause to be amended
such document or will provide to Parent all necessary information related to
such event for inclusion by Parent in an amendment to such document so that, as
amended, such document will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.06. Litigation. Except as set forth in Item 3.06 of the
Disclosure Schedule, there is no action, proceeding or governmental
investigation or inquiry pending to which the Company is a party or of which
either has received notice which relates to the transactions contemplated by
this Agreement, and, to the best of the Company's knowledge, no such action,
proceeding, investigation or inquiry has been threatened.
3.07. Finders and Investment Bankers. Except as set forth on the
Disclosure Schedule all negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of the Company in such manner as to give rise to
any valid claim against the Parent or Subsidiary for any broker's fee or
finder's fee or similar
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compensation. The Company shall be solely responsible for, and shall indemnify
the parent and Subsidiary with respect to, any fee payable to any finder,
investment banker or broker engaged by the Company if the Merger is not
consummated.
3.08 Financial Statements. The Financial Statements of the Company
(the "Financial Statements") were, prepared in accordance with generally
accepted accounting principles in effect at the respective dates of the
Financial Statements, applied on a consistent basis (except as otherwise noted
in such financial statements), and present fairly the financial position,
results of operations and changes in financial position of the Company and its
subsidiaries as of the dates and for the periods indicated, subject, in the
case of unaudited interim consolidated financial statements, to normal year-end
adjustments.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUBSIDIARY
Parent and Subsidiary jointly and severally represent and warrant to the
Company as follows:
4.01. Corporate Organizations. Each of Parent and Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and each has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
businesses now being conducted.
4.02. Corporate Authority. Each of Parent and Subsidiary has all
requisite Corporate power and authority and has taken all necessary corporate
action to execute
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and deliver this Agreement and to perform its obligations hereunder and
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by each of Parent and Subsidiary and
constitutes a valid and binding agreement of Parent and Subsidiary, enforceable
against Parent and Subsidiary in accordance with its terms.
4.03. Consents and Approvals: No Violation. Except for applicable
requirements of the HSR Act and filing and recordation of appropriate merger
documents as required by the GCL and BCL, no filing with, and no permit,
authorization, consent or approval of, any public body or authority is
necessary for the consummation by Parent and Subsidiary of the transactions
contemplated by this Agreement. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby nor
compliance by Parent or Subsidiary with any of the provisions hereof will (a)
conflict with or result in any violation of any provision of the Certificate of
Incorporation or By-Laws of Parent or Subsidiary, (b) violate any statute,
rule, regulation, order, writ, injunction or decree of any public body or
authority by which Parent or Subsidiary or any of their respective properties
is bound, or (c) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any contract,
agreement, note, bond, mortgage, indenture, license, franchise, permit or other
instrument or obligation to which Parent or Subsidiary is a party, or by which
either of them or any of their respective properties is bound.
4.04. Proxy Statement. None of the information supplied or to be
supplied by Parent or Subsidiary in writing for inclusion in (a) the Proxy
Statement, (b) any other document to be filed with the SEC or any other
regulatory agency in connection with the transactions contemplated by this
Agreement, as in each case
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amended or supplemented, does or will, at the respective times [MISSING] are
filed or mailed to stockholders of the Company, and in the [MISSING] Statement
at the time of the Special Meeting, contain any [MISSING] material fact or omit
to state any material fact necessary in order [MISSING} Statements therein, in
light of the circumstances under which they were made, [MISSING] misleading.
If at any time prior to the Effective Time any event relating to Parent or any
of its subsidiaries should be discovered or occur which should be set forth in
an amendment of, or a supplement to, any such document, Parent shall promptly
so inform the Company and will furnish all necessary information to the Company
relating to such event and upon so informing the Company and furnishing all
such necessary information, Parent shall be deemed to have complied with its
obligations under this Section 4.04 with respect to the information so
provided.
4.05. Finders and Investment Bankers. Except as set forth on the
Disclosure Schedule all negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of Parent or Subsidiary in such manner as to
give rise to any valid claim against the Company or any of its subsidiaries for
any broker's fee or finder's fee or similar compensation. Parent shall be
solely responsible for, and shall indemnify the Company with respect to, any
fee payable to any finder, investment banker or broker engaged by Parent if the
Merger is not consummated.
4.06. Litigation. Except as set forth in Item 4.06 of the Disclosure
Schedule, there is no action, proceeding or governmental investigation or
inquiry pending to which Parent or Subsidiary is a party or of which either has
received notice which relates to the transactions contemplated by this
Agreement, and, to the best of Parent's knowledge, no such action, proceeding,
investigation or inquiry has been threatened.
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ARTICLE V.
COVENANTS
5.01. Conduct of Business of the Company.
(a) Composition of the Board of Directors. Upon the execution of
this agreement the directors of the Company have agreed to nominate and elect
Shawn Sedaghat a director of the Company. Upon such election, David L. Kassel
and Harry Goodman shall resign as directors of the Company and any subsidiaries
of the Company.
(b) Management of the Company. Upon the constitution of the new
board of directors the Company shall enter into a management agreement with the
Parent in the form of Exhibit B.
(c) Except as contemplated by this Agreement or except with the
prior written consent of Parent, during the period from the date of this
Agreement to the Effective Time, the Company and its subsidiaries shall conduct
their operations only in the ordinary and usual course and consistent with past
practice, and shall use their customary and reasonable efforts to preserve
intact their business organizations, to keep available the services of their
officers, employees and consultants and to maintain satisfactory relationships
with licensors, licensees, suppliers, contractors, distributors, customers and
others having business relationships with them. The Company will promptly
advise Parent in writing of any change in the business, operations, properties
or financial condition of the Company or any of its subsidiaries which the
Company recognizes is or is likely to be materially adverse, provided, however,
that such advice shall not constitute an admission by the Company that any such
change is materially adverse. Without limiting the generality of the
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foregoing, and except as otherwise expressly provided in this Agreement, prior
to the Effective Time, the Company will not, and will not permit any of its
subsidiaries to, without the prior written consent of Parent:
(1) amend, modify, rescind or otherwise change or affect any of
the resolutions of the Board of Directors of the Company declaring advisable
the Merger, provided that the Company's Board of Directors shall be free to take
any such action if the Company's Board of Directors determines after
consultation with counsel that its fiduciary responsibilities require that such
action be taken;
(2) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
additional options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any shares of stock of any class of the Company or any of its
subsidiaries, or any securities convertible into or exchangeable for shares of
such stock, except upon the exercise of employee stock options outstanding on
the date hereof;
(3) split, combine or reclassify any shares of any class of
capital stock of the Company, declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of any class of the capital stock of the Company, or redeem or
otherwise acquire any shares of such capital stork;
(4) (i) create, incur, assume, maintain or permit to exist any
long-term debt including obligations in respect of capital leases (other than
obligations under capital leases existing on the date hereof), or, except in the
ordinary course of business under existing lines of credit, create, incur,
assume, maintain or permit to exist any short-term borrowing in excess of
$100,000 in the aggregate; (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person; or (iii) make any loans, advances
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or capital contributions to, or investments in, any other person (other than
its subsidiaries or customary loans or advances to employees);
(5) (i) establish, adopt, enter into, make any new grants or awards
under, amend, or increase in any manner the compensation or the benefits under
any bonus, profit-sharing, incentive, stock option, deferred compensation,
pension, retirement group insurance or other plan, agreement, trust, fund or
arrangement for the benefit of any directors, officers or other employees,
except in the ordinary course of business and in accordance with its customary
past practices (in which event the Company will consult with Parent before
taking any such action); (ii) pay or agree to pay any compensation, pension,
allowance or other benefit not required by any existing plan, agreement, trust,
fund or arrangement to any director, officer or employee, whether past or
present; or (iii) commit itself to any additional bonus, profit-sharing,
incentive, stock option, stock purchase, stock appreciation right, deferred
compensation, severance, pension, retirement, group insurance or other employee
benefit plan, agreement, trust, fund or arrangement, or to any employment or
consulting agreement with or for the benefit of any person, or to amend any of
such plans or any of such agreements in existence on the date hereof;
(6) enter into any agreement, commitment or contract with respect
to the purchase of capital assets involving an amount in excess of $100,000
($250,000 if the capital expenditures in excess of $100,000 have been
specifically approved by the Board of Directors of the Company), in any case or
in the aggregate for all such agreements, commitments or contracts;
(7) enter into any other agreements, commitments or contracts
which individually or in the aggregate involve the expenditure of more than
$100,000 or require performance by any party thereto more than six months from
the date hereof, other than (i) leases of sales offices and (ii) contracts
with current or prospective
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consumers or suppliers, which are entered into in the ordinary course of
business consistent with past practice;
(8) approve or recommend to its stockholders, or undertake, either
as the surviving or disappearing or the acquiring corporation, any other
merger, consolidation, asset acquisition or disposition (except the
Merger contemplated by this Agreement) or tender offer or other takeover
transaction involving the Company or any of its subsidiaries, provided that the
Company's Board of Directors shall be free to take such action if the Company's
Board of Directors determines after consultation with counsel that its
fiduciary responsibilities require that such action be taken;
(9) except as specifically permitted in this Agreement, take any
action that would result in the representations and warranties of the Company
contained in this Agreement not being true and correct in all material
respects on the date made or, with respect to those representations and
warranties not made expressly as of a specified date, on the Closing Date;
(10) adopt a plan of liquidation; or
(11) enter into any agreement to do any of the foregoing.
5.02. Affirmative Covenants. Except with the prior written consent
of Parent, prior to the Effective Time, the Company will, and will cause each
of its subsidiaries to:
(a) promptly advise Parent orally and in writing of any inquiry or
proposal (including, without limitation, an Acquisition Proposal) received by
the Company or any of its subsidiaries for, or any discussions or negotiations
involving, the acquisition of stock, assets or businesses of the Company or any
of its subsidiaries;
(b) promptly advise Parent in writing of any written objection to
the Merger received by the Company from any stockholder of the Company and
furnish to
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Parent such relevant information as Parent shall request with respect thereto;
(c) maintain its books of account and records in the usual, regular
and ordinary manner;
(d) use best efforts to comply in all material respects with all
statutes, laws, ordinances, rules and regulations applicable to it and to the
conduct of its business; and
(e) consult with Parent before entering into, amending or renewing
any collective bargaining agreement.
5.03. Access to Information. (a) Between the date of this Agreement
and the Effective Time, the Company will give Parent and its auditors,
attorneys, consultants, advisors, representatives and agents access to all
plants, offices, warehouses and other facilities of the Company and its
subsidiaries and to all their books and records, will permit Parent to make
such inspections as it may require and will cause its officers to furnish
Parent with a copy of each report, schedule and other document filed or
received by it during such period pursuant to the requirements of federal and
state securities laws and such financial and operating data and other
information with respect to the business and properties of the Company and its
subsidiaries as Parent may from time to time request.
(b) Parent will hold and will cause its auditors, attorneys and
other consultants, advisors, representatives and agents to hold in confidence,
unless compelled to disclose by judicial or administrative process, or by other
requirements of law, all documents and written and oral information (provided,
however, that with respect to oral information, the Company shall have
specifically identified the oral information that the Company considers to be
confidential and shall have reduced such information to writing and delivered a
copy thereof to Parent within ten business days after such oral information is
furnished or disclosed pursuant to this Section 5.03 (b)) concerning the
Company and its subsidiaries furnished or disclosed
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to Parent by the Company and its subsidiaries in connection with the
transactions contemplated by this Agreement (except to the extent that such
information can be shown to have been (i) previously known (free of any
obligation of confidentiality) by Parent, (ii) in the public domain through no
fault of Parent, or (iii) later lawfully acquired by Parent from other sources,
and except that Parent may disclose such information to potential lenders). If
the transactions contemplated by this Agreement are not consummated, such
confidence shall be maintained except to the extent such information comes into
the public domain through no fault of Parent and, if requested by the Company,
Parent will return to the Company or destroy all copies of written information
furnished to Parent. It is understood that Parent shall be deemed to have
satisfied its obligation to hold such information confidential if it
exercises the same care as it takes to preserve confidentiality for its own
similar information.
5.04. Filings: Registration Statement. Each of Parent, Subsidiary
and the Company shall use its best efforts (a) to effect all necessary filings
under the HSR Act and to request early termination of the waiting period
thereunder; and (b) to take all other actions which may be necessary to satisfy
any requirements imposed in connection with the Merger by the federal
securities laws, the rules and regulations thereunder and the HSR Act.
5.05. Stockholders' Meeting. If required by applicable law in order
to consummate the Merger, the Company, acting through its Board of Directors,
shall, in accordance with applicable law:
(a) duly call, give notice of, convene and hold a special meeting (the
"Special Meeting") of its stockholders as soon as practicable for the purpose
of adopting this Agreement;
(b) subject to its fiduciary duties under applicable laws as advised
by counsel,
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include in the Proxy Statement the recommendation of its Board of Directors that
stockholders of the Company vote in favor of the approval and adoption of this
Agreement; and (c) use its best efforts (i) to obtain and furnish the
information required to be included by it in the Proxy Statement, and, after
consultation with Parent, respond promptly to any comments made by the
Securities and Exchange Commission (the "SEC") with respect to the Proxy
Statement and any preliminary version thereof and cause the Proxy Statement to
be mailed to its stockholders at the earliest practicable time following the
date hereof, and (ii) subject to fiduciary duties of the Board of Directors
under applicable law as advised by counsel, to obtain the necessary approval of
the Merger by its stockholders. Parent agrees that, at the Special Meeting, all
of the shares of Company Common Stock acquired by Parent, Subsidiary or any
other subsidiary of Parent will be voted in favor of the Merger.
5.06. Best Efforts: Consents. Parent, Subsidiary and (subject to
fiduciary duties of the Board of Directors under applicable laws as advised by
counsel) the Company will each use its best efforts to cause the conditions
precedent to the Merger set forth in Article VII hereof to be fulfilled, to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
Each party shall promptly notify each other party of the occurrence of any
event which will or may result in the failure to satisfy any condition
specified in Article VI. Parent and the Company each will use its best efforts
to obtain consents of any third parties and governmental authorities necessary
to the consummation of the transactions contemplated by this Agreement.
5.07. Public Announcements. Parent and the Company will consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the Merger and shall not issue any
such press release or
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make any such public statement prior to such consultation without [MISSING]
Parent, except upon the advice of counsel for the Company or [MISSING] law or by
any listing agreement with any securities exchange.
5.08. Consent of Parent. Parent, as the sole stockholder of
Subsidiary, executing this Agreement consents to the execution, delivery and
performance of this Agreement by Subsidiary, and such consent shall be treated
for all purposes as a vote duly adopted at a meeting of the stockholders of
Subsidiary held for such purpose.
5.09. Further Assurances. If at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of the Company
acquired or to be acquired as a result of the Merger, or (b) otherwise to carry
out the purposes of this Agreement, the Surviving Corporation and its proper
officers and directors or their designees shall be authorized to execute and
deliver, in the name and on behalf of the Company, all such deeds, bills of
sale, assignments and assurances and do, in the name and on behalf of the
Company, all such other acts and things necessary, desirable or proper to vest,
perfect or confirm its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of the Company
acquired or to be acquired as a result of the Merger and otherwise to carry out
the purposes of this Agreement.
5.10. Directors' and Officers' Insurance and Indemnification.
Parent agrees that all rights to indemnification or limitations on liability now
existing in favor of the present or former employees, agents, directors or
officers of the Company and any of its subsidiaries (collectively, the
"Indemnified Parties") as provided in their
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respective charters, by-laws, agreements or pursuant to applicable law in
effect on the date hereof shall survive the Merger and shall continue in full
force and effect for a period of not less than the applicable statutes of
limitation; provided that, in the event any claim or claims are asserted or
made within such applicable period, all rights to indemnification in respect of
any claim or claims shall continue until disposition of any and all such
claims.
ARTICLE VI.
CLOSING CONDITIONS
6.01. Conditions Precedent to the Obligations of All Parties. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) Neither Parent, Subsidiary nor the Company shall be subject to
any order, decree or injunction of a court of competent jurisdiction or any
other governmental agency of competent jurisdiction which prevents the
consummation of the Merger.
(b) The Merger and this Agreement shall have been validly approved
and adopted by the affirmative vote of the holders of at least that number of
outstanding shares of the Company Stock required under the GCL and the BCL and
the Company's Certificate of Incorporation; and
(c) Each of Parent, the Company and any other person (as defined
in the HSR Act and the rules and regulations thereunder) required in connection
with the Merger to file a Notification and Report Form for Certain Mergers and
Acquisitions with the Department of Justice and the Federal Trade Commission
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pursuant to Title II of the HSR Act shall have made such filing and the
applicable waiting period with respect to each such filing (including any
extension thereof by reason of a request for additional information) shall have
expired or been terminated.
ARTICLE VII.
CLOSING
7.01. Time and Place. The closing of the Merger (the "Closing")
shall take place at the offices of Koerner Silberberg & Weiner, 33 Irving Place,
New York, New York 10003, as soon as practicable following satisfaction of the
closing conditions set forth in Article VII. The date on which the Closing
actually occurs is herein referred to as the "Closing Date."
7.02. Filings at the Closing. At the Closing, Parent and the
Company shall cause the Certificate of Merger to be filed and recorded in
accordance with the provisions of Section 103 of the GCL and Section 904 of the
BCL and shall take any and all other lawful actions and do any and all other
lawful things necessary to cause the Merger to become effective.
ARTICLE VIII.
TERMINATION AND ABANDONMENT
8.01. Termination. This Agreement may be terminated at any time prior
to the Effective Time:
(a) by mutual consent of the Board of Directors of Parent and the
Board of Directors of the Company;
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(b) by either Parent or the Company if the Merger shall not have
been consummated on or before December 29, 1995 provided, however, that the
right to terminate this Agreement shall not be available to any party whose
failure to fulfill any obligation of this Agreement has been the cause of, or
resulted in, the failure of the Merger to have occurred on or before the
aforesaid date; or
(c) by either Parent, Subsidiary or the Company; if any court of
competent jurisdiction or other governmental agency of competent jurisdiction
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger, and such order,
decree, ruling or other action shall have become final and non-appealable.
8.02. Procedure and Effect of Termination. In the event of
termination and abandonment of the Merger by Parent, Subsidiary or the Company
pursuant to Section 8.01, written notice thereof shall forthwith be given to
the others and this Agreement shall terminate and the Merger shall be
abandoned, without further action by any of the parties hereto. Subsidiary
agrees that any termination by Parent shall be conclusively binding upon it,
whether given expressly on its behalf or not. If this Agreement is terminated
as provided herein, no party hereto shall have any liability or further
obligation to any other party to this Agreement except that any termination
shall be without prejudice to the rights of any party hereto arising out of
willful breach by any other party of any covenant or agreement contained in
this Agreement.
ARTICLE IX.
MISCELLANEOUS
9.01. Amendment and Modification. Subject to applicable law, this
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Agreement may be amended, modified or supplemented only by written agreement of
Parent, Subsidiary and the Company at any time prior to the Effective Time with
respect to any of the terms contained herein; provided, however, that after the
approval of this Agreement by the stockholders of the Company, no amendment,
modification or supplement shall (i) alter or change the amount or kind of
consideration to be received in exchange for all or any of the shares of Company
Common Stock, (ii) alter or change any term of the certificate of incorporation
of the Surviving Corporation to be effected by the Merger, or (iii) alter or
change any of the terms and conditions of this Agreement if such alteration or
change would adversely affect the holders of Company Common Stock.
9.02. Waiver of Compliance: Consents. Any failure of Parent or
Subsidiary, on the one hand, or the Company, on the other hand, to comply with
any obligation, covenant, agreement or condition herein may be waived by the
Company or Parent, respectively, only by a written instrument signed by the
party granting such waiver (provided that after the approval of this Agreement
by the stockholders of the Company, the Company shall not waive any provision
if such waiver would (i) alter or change the amount or kind of consideration to
be received in exchange for all or any of the shares of Company Common Stock,
(ii) alter or change any term of the certificate of incorporation of the
Surviving Corporation to be effected by the Merger, or (iii) alter or change
any of the terms and conditions of this Agreement if such alteration or change
would adversely affect the holders of Company Common Stock), but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires
or permits consent by or on behalf of any party hereto, such consent shall be
given in writing in a manner consistent with the requirements for a waiver of
compliance as
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set forth in this Section 9.02. Subsidiary hereby agrees that any consent or
waiver of compliance given by Parent hereunder shall be conclusively binding
upon it, whether given expressly on its behalf or not.
9.03. Investigations; Survival of the Warranties. The respective
representations and warranties of Parent, Subsidiary and the Company contained
herein or in any certificates or other documents delivered prior to or at the
Closing shall not be deemed waived or otherwise affected by any investigation
made by any party hereto. Each and every such representation and warranty
shall expire and be terminated and extinguished on the first anniversary of the
Merger, or upon the termination of this Agreement pursuant to Section 8.01.
This Section 9.03 shall have no effect upon any other obligation of the parties
hereto to be performed before the Effective Time.
9.04. Disclosure Schedule. The Disclosure Schedule attached hereto
is incorporated herein by reference and made a part hereof as if stated herein
in full.
9.05. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice; provided that notices of a change of address shall be effective
only upon receipt thereof):
(a) if to Parent or Subsidiary to:
Seda Specialty Packaging Corp.
2501 West Rosecrans Boulevard
Los Angeles, Ca. 90059
Attn: Shawn Sedaghat
with a copy to:
Freshman, Marantz, Orlanski, Cooper & Klein
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9100 Wilshire Boulevard
Beverly Hills, Ca. 90212
Attn: Leib Orlanski, Esq.
(b) if to the Company to:
American Safety Closure Corp.
145 West 67th Street, Suite 40-D
New York, New York 10023
with copies to:
Michael C. Duban, Esq.
81 Main Street, Suite 205
White Plains, New York 10601
9.06. Assignment: Parties in Interest. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties, provided that Parent or Subsidiary may
assign its respective rights and obligations to Parent or any direct or
indirect subsidiary of Parent, but no such assignment shall relieve Parent of
its obligations hereunder. This Agreement is not intended to confer upon any
other person except the parties any rights or remedies hereunder.
9.07. Governing Law. This Agreement shall be governed by the laws
of the State of New York (regardless of the laws that might otherwise govern
under applicable principles of conflicts of law) as to all matters, including
but not limited to
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matters of validity, construction, effect, performance and remedies.
9.08. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.09. Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses (including, in any event in the case of the
Company, the costs of printing the Proxy Statement and any other filings to be
printed, and in each case all exhibits, amendments or supplements thereto
through to the Effective Date and shall thereafter be paid by the Surviving
Corporation).
9.10. Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, (a) the term
"person" shall mean and include an individual, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government or any
department or agency thereof; (b) the terms "affiliate" and "associate" shall
have the meanings set forth in Rule 405 of Regulation C promulgated under the
Act; and (c) the term "subsidiary" of any specified corporation shall mean any
corporation of which the outstanding securities having ordinary voting power to
elect a majority of the board of directors are directly or indirectly owned by
such specified corporation.
9.11. Entire Agreement. This Agreement, including the documents and
instruments referred to herein, embodies the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein. There
are no restrictions, promises, representations, warranties, covenants or
undertakings, other
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than those expressly set forth or referred to herein. This Agreement supersedes
all prior agreements and understandings between the parties with respect to such
subject matter.
IN WITNESS WHEREOF, Parent, Subsidiary and the Company have caused
this Agreement to be signed by their respective duly authorized officers on the
date first above written.
Seda Specialty Packaging Corp.
By: /s/ Shawn Sedaghat
-----------------------------
American Safety Closure Corp.
By: /s/ David Kassel
-----------------------------
Agreed with respect to
Section 2.07
ASC Managing Partners
By: /s/ David Kassel
------------------------------
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AMENDMENT TO
RESTATED MERGER AGREEMENT
This Amendment To Restated Merger Agreement is made and entered into
this 22nd day of June, 1995 by and among American Safety Closure Corp., a New
York corporation ("ASC"), Seda ASC Acquisition Corp., a Delaware corporation
and Seda Specialty Packaging Corp., a Delaware corporation ("Seda") with
reference to the following:
WHEREAS, pursuant to the provisions of Section 9.01 of the Restated
Agreement and Plan of Merger dated as of January 5, 1995 ("Merger Agreement")
among Seda, Seda ASC Acquisition Corp. and ASC, the aforesaid Merger Agreement
may be amended, modified or supplemented by written agreement of Seda and its
Subsidiary and ASC at any time prior to the Effective Time of the merger with
respect to any of the terms contained in the said Merger Agreement;
NOW, THEREFORE, for good and valuable consideration, the, parties
hereby adopt the following amendments and Modifications to the said Merger
Agreement:
Section 2.01 of the Merger Agreement shall be deleted and the
following substituted in its entirety.
"Section 2.01 Company Common Stock.
(a) Each share of Company common stock $.30 par value
("Company Common Stock"), issued and outstanding immediately prior to
the Effective Time (except for (i) shares of Company-Common Stock then
owned beneficially or of record by Parent or Subsidiary or any other
subsidiary of Parent (ii) shares of Company-Common Stock held in the
treasury of the Company, and (iii) Dissenting Shares, as defined in
Section 2.02 shall, by virtue of the Merger and without any action on
the part of the holder thereof, be exchanged for and represent the
right to receive one Common share of stock, no par value of the Parent
(the "Exchange Shares") in exchange for 24.5120 shares of Company
Common Stock upon surrender of the certificate or certificates
representing such share of Company Common Stock."
Section 2.04 of the Merger Agreement shall be amended by changing the
word "immediately" into "as soon as practicable," said term appearing in the
first line of said Section 2.04.
<PAGE> 153
Section 2.07 of the Merger Agreement at subparagraph (a) shall be
deleted and the following substituted therefore in its entirety:
"(a) Approval of Merger. ASC Managing Partners, a New
York general partnership ("Partners") which owns 1,656,127 shares of
the Company ("the Partners Shares") hereby agrees to have the Partners
Shares voted in favor of the Merger. ASC Managing Partners will
exchange in the merger an aggregate of approximately 1,656,127 shares
of Company Common Stock for the same consideration per share as is
available to all the public shareholders of American Safety Closure
Corp. and upon the same terms and conditions."
Section 2.07(b), in the introductory portion thereof, shall be amended
to read as follows:
"(b) Establishment of Escrow. Pursuant to the provisions
of this Merger Agreement and simultaneously with the execution of this
Agreement an escrow shall be established for the purposes and upon the
terms and provisions set forth in this Merger Agreement and if any
terms and provisions in said escrow agreement hereinafter described
are inconsistent with the terms and provisions of this Merger
Agreement, the terms of this Merger Agreement shall prevail over the
terms of the escrow agreement. The terms of the escrow agreement are
hereinbelow described:"
Section 2.07(b)(ii) shall be deleted and the following substituted in
its entirety:
"(ii) Parent has deposited with the law firm of Koerner
Silberberg & Weiner the sum of $1,050,000 in immediately available
funds and a certificate for 82,500 Exchange Shares registered in the
name of Koerner Silberberg & Weiner as escrow agents pursuant to the
terms of an escrow agreement in the form of Exhibit A to the Merger
Agreement. Notwithstanding anything in said escrow agreement to the
contrary, said sum of $1,050,000 and the said 82,500 shares shall be
immediately released from said escrow and returned to Parent."
Section 2.07 of the Merger Agreement shall be further amended by
adding to subparagraph (b) a subparagraph (iii) which shall read as follows:
"(iii) Notwithstanding anything to the contrary in the said
Escrow Agreement (Exhibit A to the Merger Agreement) subparagraphs
2(b) and (c) of the said Escrow Agreement shall be cancelled and of no
further force or effect."
Section 2.07(c) of the Merger Agreement shall be deleted in its
entirety and of no further force or effect.
2
<PAGE> 154
Section 2.08 of the Merger Agreement shall be amended at the first
line thereof by substituting the words "As soon as practicable" in place of the
word "immediately."
Section 7.01 of the Merger Agreement shall be amended by
deleting said section and substituting the following therefore in its entirety:
"Section 7.01 Time and Place. The closing of the Merger (the
'Closing') shall take place at the offices of Freshman, Marantz,
Orlanski, Cooper & Klein, 9100 Wilshire Boulevard, Beverly Hills,
California 90212, as soon as practicable following satisfaction of the
closing conditions set forth in Article VII. The date on which the
Closing actually occurs is herein referred to as the 'Closing Date.'"
Section 8.01(b) of the Merger Agreement shall be amended by deleting
the reference to "December 29, 1995" and substituting in place thereof "seven
(7) years from the date hereof."
Section 9.07 of the Merger Agreement shall be amended by substituting
"the laws of the state of Delaware" in place of "the laws of the state of New
York" contained in said section.
In witness whereof, the parties have executed this Amendment as of the
date set forth above.
AMERICAN SAFETY CLOSURE CORP. SEDA SPECIALTY PACKAGING CORP.
By: /s/ Shawn Sedaghat By: /s/ Shawn Sedaghat
--------------------------- -------------------------------
SEDA ASC ACQUISITION CORP.
By: /s/ Shawn Sedaghat
-------------------------------
3
<PAGE> 155
AMENDMENT TO
RESTATED MERGER AGREEMENT
This Amendment To Restated Merger Agreement is made and entered into
as of this 21st day of August, 1995 by and among American Safety Closure Corp.,
a New York corporation ("ASC"), Seda ASC Acquisition Corp., a Delaware
corporation and Seda Specialty Packaging Corp., a Delaware corporation ("Seda")
with reference to the following:
WHEREAS, pursuant to the provisions of Section 9.01 of the Restated
Agreement and Plan of Merger dated as of January 5, 1995 ("Merger Agreement")
among Seda, Seda ASC Acquisition Corp. and ASC, the aforesaid Merger Agreement
may be amended, modified or supplemented by written agreement of Seda and its
Subsidiary and ASC at any time prior to the Effective Time of the merger with
respect to any of the terms contained in the said Merger Agreement;
WHEREAS the parties hereto entered an Amendment to the Merger
Agreement dated June 22, 1995 (the "June 22 Amendment");
NOW, THEREFORE, for good and valuable consideration the parties
hereby adopt the following amendments and modifications to the said Merger
Agreement:
"The Cash Election Option as defined in Section 2.01 of the Merger
Agreement shall be eliminated. In all other respects the Merger Agreement
shall remain in full force and effect without any revisions and the Amendment
of June 22, 1995 is hereby rescinded and of no further force or effect."
In witness whereof, the parties have executed this Amendment as of the
date set forth above.
AMERICAN SAFETY CLOSURE CORP. SEDA SPECIALTY PACKAGING CORP.
By: /s/ Shawn Sedaghat By: /s/ Shawn Sedaghat
--------------------------- -----------------------------
SEDA ASC ACQUISITION CORP.
By: /s/ Shawn Sedaghat
-----------------------------
<PAGE> 156
Signatures By Both Corporations
Constituting Amendment to
Restated Merger Agreement dated as of
January 5, 1995
This Agreement is entered into by and between Seda Specialty Packaging Corp.
and American Safely Closure Corp., with reference to the Restated Agreement of
Merger dated as of January 5, 1995 by and between Seda Specialty Packaging
Corp., American Safety Closure Corp. and others.
For good and valuable consideration the parties hereto agree as follows:
Section 8.01(b) of the above referenced Restated Agreement of Merger as of
January 5, 1995 is hereby amended by extending the closing date therein from
December 29, 1995 to March 31, 1996.
On all other respects said Restated Agreement of Merger shall remain in full
force and effect except as otherwise amended prior hereto.
This amendment has been executed as of December 15, 1995 by the parties below:
AMERICAN SAFETY CLOSURE CORP.
By /s/ SHAWN SEDAGHAT
---------------------------
Shawn Sedaghat, President
SEDA SPECIALTY PACKAGING CORP.
By /s/ SHAWN SEDAGHAT
---------------------------
Shawn Sedaghat, President
<PAGE> 157
Signatures By Both Corporations
Constituting Amendment to
Restated Merger Agreement dated as of
January 5, 1995
This Agreement is entered into by and between Seda Specialty Packaging Corp.
and American Safety Closure Corp. with reference to the Restated Agreement of
Merger dated as of January 5, 1995 by and between Seda Specialty Packaging
Corp., American Safety Closure Corp. and others.
For good and valuable consideration the parties hereto agree as follows:
Section 8.01(b) of the above referenced Restated Agreement of Merger as of
January 5, 1995 is hereby amended by extending the closing date therein from
December 29, 1995 to May 31, 1996.
On all other respects said Restated Agreement of Merger shall remain in full
force and effect except as otherwise amended prior hereto.
This amendment has been executed as of March 19, 1996 by the parties below.
AMERICAN SAFETY CLOSURE CORP.
By /s/ SHAWN SEDAGHAT
---------------------------
Shawn Sedaghat, President
SEDA SPECIALTY PACKAGING CORP.
By /s/ SHAWN SEDAGHAT
---------------------------
Shawn Sedaghat, President
<PAGE> 158
ANNEX B
<PAGE> 159
AMERICAN SAFETY CLOSURE CORP.
Confidential
VALUATION ANALYSIS
March 29, 1995
H.J. MEYERS & CO., INC.
Investment Bankers
Member
NASD and SIPC
<PAGE> 160
AMERICAN SAFETY CLOSURE CORP.
Confidentiality and Disclaimer Statement
This valuation analysis (the "Analysis") has been submitted on a confidential
basis for use by the Board of Directors of American Safety Closure Corp. (the
"Company") within the limitations outlined in the engagement agreement of March
3, 1995 between the Company and H.J. Meyers & Co., Inc. Any reproduction or
distribution of this Analysis, or re-transmittal of its contents, in whole or
in part, without the prior written consent of the Company or H.J. Meyers & Co.,
Inc. ("Meyers") is prohibited.
This Analysis has been prepared from information supplied by the Company.
Meyers and the Company do not make and expressly disclaim any representation or
warranty as to the accuracy or completeness of the information contained
herein, and none may be implied. This Analysis is expressed in the context of
the transaction noted herein. This Analysis was prepared with the benefit of
publicly available material which should be read in association with the
Analysis.
This Analysis contains certain information of a highly confidential nature,
including projections by the Company's management of the Company's performance
and other material of a forward-looking nature. The receipt of this Analysis
constitutes an agreement on the part of the recipient hereof to maintain the
confidentiality of the information contained herein or any additional
information subsequently delivered in connection herewith.
No person has been authorized to make any representations or give any
information with respect to the Company, except the information contained
herein. The delivery of this Analysis at any time shall not imply that
information contained herein is correct as of any time subsequent to the date
set forth on the cover hereof
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<PAGE> 161
As a matter of course, the Company does not make public forecasts or
projections as to future financial results. However, certain forecasts and
projections (The "Projections") are contained herein. The Projections were not
prepared with a view toward public disclosure or complying with the SEC's
published guidelines regarding projected financial information. The
Projections are based on a number of assumptions and are subject to
significant uncertainties and contingencies. There is no assurance that they
will be realized and their inclusion should not be regarded as a representation
that they will be achieved. They should not be relied upon in setting a price
for any securities offering in the future. Meyers has not made any independent
investigation of the projections and does not make any representation or
warranty as to their accuracy, completeness or reliability. Neither the
Company nor Meyers undertakes any obligation to update the forecasts or
projections.
H.J. Meyers & Co., Inc.
Phone: (310) 278-7880
Fax: (310) 271-9605
March 29, 1995
-ii-
<PAGE> 162
AMERICAN SAFETY CLOSURE CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Confidentiality and Disclaimer Statement i
I. Summary - Valuation Analysis: American
Safety Closure Corp. 1
II. Company Profiles 4
A. Seller: American Safety Closure Corp. 4
1. History and Business Description 4
2. Financial Information 5
a) Financial Assumptions 5
b) Historical Financial Information 5
c) Pro Forma Financial Information 6
3. Valuation Methodology 7
a) Balance Sheet/Asset Analysis 7
b) Discounted Cash Flow Analysis 7
c) Price/Earning Multiple 8
B. Buyer: Seda Specialty Packaging Corp. 9
1. History and Business Description 9
2. Financial Information 10
a) Financial Assumptions 10
b) Historical Financial Information 11
c) Pro Forma Financial Information 12
3. Valuation Methodology 13
a) Balance Sheet/Asset Analysis 13
b) Discounted Cash Flow Analysis 13
c) Price/Earning Multiple 14
III. Appendix
Engagement Letter 3/3/95
Opinion Letter 3/30/95
</TABLE>
<PAGE> 163
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H.J. MEYERS & CO., INC.
- -----------------------------------------------------------------------------
I. SUMMARY - VALUATION ANALYSIS: AMERICAN SAFETY CLOSURE CORP.
AND SEDA SPECIALTY PACKAGING CORP.
H.J. Meyers & Co., Inc. has been retained by the Board of Directors of
American Safety Closure Corp. ("CLOS") to complete a fairness opinion in the
context of a buyout of CLOS's common stock holders by Seda Specialty Packaging
Corp ("SSPC"). Specifically, SSPC has agreed to acquire all of the outstanding
common stock of CLOS as well as the related assets currently leased from an
affiliated party under the following structure:
<TABLE>
<S> <C>
Purchase of leased assets for, cash $1,525,000
Purchase of 1,656,000 shares of CLOS common
stock from insiders for $1,050,000 in cash
and 82,500 shares of SSPC stock (SSPC
assumed value - $12/share) 2,040,000
Purchase of 1,389,000 of CLOS common stock
from the public for either $1.50 per share
in cash or 1 share of SSPC common stock for
each 8 shares of CLOS common stock owned
(SSPC assumed value - $12/share) 2,083,500
----------
Total Consideration $5,648,000
</TABLE>
Both CLOS and SSPC are involved in very similar manufacturing
operations. CLOS, through its main operating subsidiary, Arpak Plastics Inc.,
has a facility located in Plattsburgh, New York, where it manufactures plastic
closures, jars and vials for various industrial uses. CLOS acquired Arpak in
1988 out of Chapter 11 bankruptcy in Boston, Massachusetts. Since that time,
CLOS has continued to grow the operation and increase its market share.
Similar to CLOS, SSPC manufactures (in Los Angeles) various plastic
closures and caps, as well as plastic tubes. Both SSPC and CLOS distinguish
themselves from the competition by offering a unique tamper evident closure
which is used in the vitamin and pharmaceutical industries. Unlike CLOS, SSPC
manufacturers various plastic tubes for use in the cosmetics, pharmaceutical
and food industries. By servicing large customer accounts which have very long
product runs, SSPC is able to maintain unusually high gross margins relative to
its competition. The company has been successful in distinguishing itself as a
low cost producer with excellent service and minimal product defects.
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<PAGE> 164
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H.J. MEYERS & CO., INC.
- -----------------------------------------------------------------------------
SSPC's decision to acquire a facility on the East Coast was driven in
large part by the demands of one of its largest customer groups, the cosmetics
industry. With a large concentration on the East Coast, the cosmetics
customers have indicated to SSPC that it is imperative for the company to have
more than one manufacturing facility, and preferably one on the East Coast.
While SSPC had considered building its own facility, it became clear to the
company's management that it would ultimately be more economical to acquire an
existing manufacturing facility.
The valuation contained herein incorporates three common methods for
determining the value of a going concern. The first, Balance Sheet/Asset
Analysis, focuses on each company's book value as it relates to market
assessment and the value of intangibles. The second, Discounted Cash Flow
Analysis ("DCF"), addresses the present value of future cash flow. This
calculation has involved the adjustment downward of management projection in
the case of CLOS to compensate for the company's historical record of losses.
The third, Price/Earnings Multiple or Market Value focuses on the companies'
value as determined by the public markets. We have applied various weightings
to the different methods of valuation, based on their relevance in terms of
this transaction. The balance sheet analysis was given 10% weighting due to
its minimal impact on the company's cash flow. DCF was given a weighted value
of 25% based on its incorporation of future cash flow in the determination of
value. The method given the greatest weighting, however, is the Market Value
Analysis. With the common stock of both companies trading publicly, there is a
readily available indicator of value as determined in the open market.
Therefore, in the analysis for both CLOS and SSPC, the Market Value Analysis
was given a weighted preference of 65% to demonstrate its importance relative
to Balance Sheet and DCF Analysis.
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<PAGE> 165
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H.J. MEYERS & CO., INC.
- -----------------------------------------------------------------------------
The three methods of analysis are discussed in detail in the following
report including background information and financial data. The table below
summarizes this analysis and its comparison on a per share basis:
<TABLE>
<CAPTION>
($000)
CLOS SSPC
---- ----
<S> <C> <C> <C> <C>
1. Number of Shares Allocated (000) 3,045 5,015
2. Balance Sheet/Asset Analysis $5,300-$9,000 $54,000-$72,000
Weighted Importance-10% average = $7,150 average = $63,000
Value Per Share $2.35 $12.56
Exchange Ratio 5.34
3. DCF Analysis (10%-25% risk) $4,800-$6,000 $50,000-$64,900
Weighted Importance - 25% average = $5,400 average = $57,500
Value Per Share $1.77 $11.47
Exchange Ratio 6.48
4. Price/Earnings Multiple $3,500-$4,300 $54,000-$66,500
Weighted Importance - 65% average = $3,900 average = $60,250
Value Per Share $1.28 $12.01
Exchange Ratio 9.38
5. Total Weighted Average Value $4,600 $59,838
6. Weighted Average Value/Share $1.51 $11.94
7. Comparative Exchange Ratio 7.91
</TABLE>
SSPC's offer to CLOS shareholders of $1.50 per share in cash or one
share of SSPC common (assumed value - $12/share) for each eight shares of CLOS
owned is shown by the analysis above, to be a fair transaction. A weighted
average value of the CLOS's shares is shown above to be $1.51 per share or
approximately $4.6 million, whereas SSPC's value is equal to $11.94 per share
or $59.8 million. Therefore, a direct conversion of the CLOS stock for SSPC
stock would yield of ratio of 1 share of SSPC for each 7.91 shares of CLOS
owned, virtually equaling the merger terms proposed by SSPC.
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<PAGE> 166
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H.J. MEYERS & CO., INC.
- -----------------------------------------------------------------------------
II. COMPANY PROFILES
A. SELLER: AMERICAN SAFETY CLOSURE CORPORATION
1. HISTORY AND BUSINESS DESCRIPTION
American Safety Closure Corporation ("CLOS") is a publicly traded
company established in 1983 whose main operating subsidiary, Arpak Plastics,
Inc. ("Arpak") is engaged in the manufacture of injection molded plastic caps,
jars and vials. In October 1988, CLOS acquired Arpak Plastics, Inc., out of
Chapter 11 bankruptcy in Boston, Massachusetts where it had previously been the
operating subsidiary of another entity.
The strength of Arpak's operation lies in its primary product line
which consists of tamper-evident closures for use in various industries
including cosmetics, food and health care. With the increased occurrence of
product tampering incidents in recent years, there has been an increase in
demand for various types of safety protected caps on consumer products. CLOS
is a market leader in the manufacture and distribution of tamper resistant
closures on a wide variety of products, including pharmaceutical, cosmetic,
chemical and food products. The company anticipates increasing utilization of
its plastic tamper-evident closures in this expanding market.
CLOS is also a significant player in the market for plastic jars and
jar closures. In January 1993, the company entered into a lease for the use of
molds, machinery and customer lists of Tredegar Molded Products allowing CLOS
to expand its stock line of single and double wall jars and jar closures. With
this acquisition Arpak has maintained and further developed business with
customers previously supplied by Tredegar. These customers are primarily in
the cosmetic sector, an area in which Arpak was previously weak.
The company's current growth plans call for expansion of the existing
product line with further penetration into its customer base. CLOS has
recently hired a West Coast salesman with plans for a more nationwide sales
effort. The company plans a special emphasis on the health, beauty and
cosmetics industries where Arpak has a well established customer base as a
national supplier of containers, such as jars and closures.
Arpak currently operates from a manufacturing facility located in
Plattsburgh, New York. The plant is an approximately 100,000 square foot, one
story manufacturing facility located on 6.7 acres of land. Arpak maintains an
extensive line of injection molders, closure lining stamping machines and molds
for the production of jars and caps.
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<PAGE> 167
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H.J. MEYERS & CO., INC.
- -----------------------------------------------------------------------------
2. FINANCIAL INFORMATION
A) FINANCIAL ASSUMPTIONS
The following information depicts American Safety Closure's historical
financial statements and projections as an independent entity. The projections
were reviewed by CLOS management and do not include all of the anticipated
benefits of the acquisition by Seda Specialty Products. The projections
reflect growth and profitability improvements achieved by increased sales
efforts and lengthened product runs including cost reductions emphasized during
the acquisition "due diligence".
B) HISTORICAL FINANCIAL INFORMATION ($000)
<TABLE>
<CAPTION>
Balance Sheet April 91 April 92 April 93 April 94
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash 502 542 47 197
Net Receivables 1,008 1,052 1,352 1,416
Inventory 935 1,226 1,672 1,438
Other 133 120 171 143
-------------------------------------------------------------------------------------
TCA 2,578 2,940 3,242 3,194
Net PPE 3,107 2,958 3,849 3,904
Other 454 394 611 360
-------------------------------------------------------------------------------------
Total Assets 6,139 6,292 7,702 7,458
Current LTD 575 754 522 557
Accts Pay/Accruals 1,014 929 1,418 1,403
Revolver 896 977 1,395 1,238
-------------------------------------------------------------------------------------
TCL 2,484 2,660 3,335 3,198
LTD 3,036 2,440 2,447 2,378
Convertible Sub Debt 70 70 70
-------------------------------------------------------------------------------------
Preferred Stock in Subsidiary 460
-------------------------------------------------------------------------------------
Equity 549 1,122 1,850 1,422
-------------------------------------------------------------------------------------
Total Lia/Equity 6,139 6,292 7,702 7,458
1991 1992 1993 1994
Income Statement 12 Mos 12 Mos 12 Mos 12 Mos
- --------------------------------------------------------------------------------------------------------------------------------
Net Sales 6,273 7,419 8,515 10,114
Gross Profit 1,096 1,817 1,897 1,858
Percent of Sales 18% 25% 22% 18%
SG&A/Other 2,158 1,534 1,910 1,698
-------------------------------------------------------------------------------------
EBIT (1,063) 283 (13) 160
Net Int. Expense 383 341 (317) 336
-------------------------------------------------------------------------------------
Non-Recurring Charges 760
PBT (1,446) (58) (330) (936)
Net Income (1,446) (58) (330) (936)
</TABLE>
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<PAGE> 168
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H.J. MEYERS & CO., INC.
- -----------------------------------------------------------------------------
2. FINANCIAL INFORMATION
C) PRO FORMA FINANCIAL INFORMATION ($000)
<TABLE>
<CAPTION>
Balance Sheet Dec 95 Dec 96 Dec 97
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash 100 100 150
Net Receivables 1,800 2,200 2,700
Inventory 1,400 1,600 1,900
Other 200 200 200
----------------------------------------------
TCA 3,500 4,100 4,950
Net PPE 6,700 6,700 7,000
Other 600 600 600
----------------------------------------------
Total Assets 10,800 11,400 12,550
Current LTD 600 600 600
Accts Pay/Accrual 1,300 1,400 1,900
Revolver 500 600 0
TCL 2,400 2,600 2,500
LTD 2,400 1,800 1,200
Equity (Net Worth) 6,000 7,000 8,850
----------------------------------------------
Total Lia/Equity 10,800 11,400 12,550
Income Statement Dec 95 Dec 96 Dec 97
- --------------------------------------------------------------------------------------------
Net Sales 11,000 13,000 16,000
Gross Profit 2,600 3,800 5,600
Percent of Sales 24% 29% 35%
SG&A/Other 1,400 1,600 1,900
----------------------------------------------
EBIT 1,200 2,200 3,700
Net Int. Expense 350 350 400
----------------------------------------------
Amortization 200 200 200
PBT 650 1,650 3,100
Net Income 400 1,000 1,850
</TABLE>
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<PAGE> 169
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H.J. MEYERS & CO., INC.
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3. VALUATION METHODOLOGY
A) BALANCE SHEET/ASSET ANALYSIS
A balance sheet valuation examines all of the company's assets that
represent value to an outside party seeking to invest in the company. This
includes hard assets such as cash, accounts receivable, property and equipment
in addition to intangible assets like patents or trademarks. Certain assets
sometimes warrant enhanced value due to strategic synergies or increases
resulting from current market values in excess of depreciated book values. It
is important to note however, that this type of analysis does not take into
account the value of expected earnings nor other ongoing operations-related
issues. These attributes can be included as part of an overall corporate
valuation, but a buyer who is looking at the balance sheet as the primary means
of assessing value, will discount the importance of such components.
American Safety Closure's balance sheet as of January 1995 contains
total assets of $7 million and a net worth of $485,000. These assets include
accounts receivable, inventory, prepaid expenses, property, plant and
equipment. The property, plant and equipment category is understated due to
depreciation and market value of the owned real estate. Their fair market
value of the real estate (through a recently conducted appraisal of the
property) is approximately $1.8 million. Additionally, the company's machinery
and equipment was recently appraised at $10.7 million for replacement value and
$7 million for depreciated value. This gives a total current market value of
the company's property, plant and equipment of between $8.8 million and $12.5
million verses a net book value of $4 million. This market adjustment
increases net worth from $485,000 to between $5.3 million and $9 million.
B) DISCOUNTED CASH FLOW ANALYSIS
Discounted cash flow analysis ("DCF") focuses on a company's ability
to generate free cash over a particular forecast period. Free cash is defined
as a company's cash flow with adjustments made in terms of discretionary
disbursements and receipts. These adjustments reflect the ability of an
investor to halt or sustain an existing cash management policy or, in turn,
reflect the same ability to initiate a completely new policy. In other words,
free cash flow is a snapshot of what a company's future operations can
accomplish without the potential distortion of accounting rules and changes
(which may be problematic in simple price/earnings calculations) nor the burden
of balance sheets laden with debt and/or under performing or risky assets.
DCF relies upon the future generation of free cash as a basis to
determine an estimated value for the organization. The present value of each
forecast year's cash flow is calculated using a discount rate that is a
composite of current and future interest rates, the company's cost of capital,
and an assessment of the organization's systematic risk of operation. In
addition, a terminal value in the final forecast year is determined by analysis
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H.J. MEYERS & CO., INC.
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of the value of future earnings. Loosely translated, the terminal value
reflects the company's sales price in the terminal year (Year 3 in this
analysis). Based on the history of losses incurred by CLOS, however, we have
elected to discount the company's projections by 40% in year one, 50% in year
two and 50% in year three, including the terminal value. Thus, our calculation
of the terminal value for American Safety Closure Corp., was: 4.5 x future EBIT
(less long term debt service) in 1997 or (4.5 x 3,700M) - 1,800 = $14,850M
($14,850 x 50% = $7,425).
The following is a summary of the DCF process. Capital expenditures
and depreciation are calculated on a net basis and totaled under the Other
heading.
($000)
<TABLE>
<CAPTION>
Year Net Income Change in WC Other Net Cash Flow Discount Value
- ---- ---------- ------------ ----- ------------- --------------
<S> <C> <C> <C> <C> <C>
1 400 (110) 800 1,090 654
2 1,000 100 0 1,100 550
3 1,850 (900) (300) 650 325
Terminal 14,850 14,850 7,425
</TABLE>
Again, because of CLOS's negative earnings history, we elected to
discount the amounts in years one, two and three plus the terminal value by the
percentages shown above. Additionally, because of the uncertainty in
predicting future interest rates, cost of capital, systematic risk and economic
factors, three discount rates have been selected; 15%, 20% and 25%. This range
reflects a high and low valuation. The DCF value of American Safety Closure
Corp. is as follows:
- 15% discount rate = $6.0 million
- 20% discount rate = $5.4 million
- 25% discount rate = $4.8 million
The DCF analysis provides a range of $4.8 million to $6.0 million depending
upon assumed risk.
C) PRICE/EARNING MULTIPLE
Publicly traded companies are frequently valued on the basis of a
price to earnings (P/E) multiple. Different industries and market
capitalization values command different P/E multiples. Companies that operate
in very high growth industries or industries with perceived significant
appreciation potential, tend to carry P/E multiples that are higher than
stable, mature or slow growth industries.
-8-
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H.J. MEYERS & CO., INC.
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A sample of seven publicly traded specialty plastic manufacturers
shows P/E multiples ranging from 9.3 to 17.5, with an average of 13.4. The
stock of American Safety Closure Corp. closed on 3/27/95 at $1.32 per share or
10.2 times forecasted Earnings Per Share ("EPS") for the period ending
12/31/95. Given the history of losses recorded by CLOS of the past several
years, it appears appropriate that its stock would trade at the low end of the
comparable range. This market price provides a value range for the company in
the past six months of $3.5 million to $4.3 million or an average of $3.9
million. This is comparable to the price of $4.1 million paid by SSPC for
CLOS's common stock and shows a slight premium over the market value.
B. BUYER: SEDA SPECIALTY PACKAGING CORP.
1. HISTORY AND BUSINESS DESCRIPTION
Seda Specialty Packaging Corp. ("SSPC") is a manufacturer of plastic
closures and tubes for use in the cosmetics, pharmaceutical and food
industries. The company was founded in 1984 by Mr. Shepaur Sedaghat who has
over 35 years experience in the specialty plastics business. The business is
currently run by Mr. Sedaghat and his son, Shawn Sedaghat, who has worked at
SSPC for over ten years in a variety of capacities including production,
operations and management.
From the company's inception through 1990 SSPC was primarily a
manufacturer of plastic closures. Through its injection molding process, SSPC
produced both lined and linerless closures which were used in a variety of
industries including cosmetics, pharmaceuticals, and food production. The
company's primary product in this area is the standard Series 400 plastic screw
cap which is fabricated in a wide variety of sizes and is adaptable to glass
and metal as well as plastic containers. The company has been able to
distinguish itself from the competition by offering high quality products, with
timely delivery and minimal product defects.
At the recommendation of one of its primary customers, SSPC entered
the plastic tube business in 1990. After researching the market, the company
perceived a need for more responsiveness than was being offered by the large
manufacturing companies that were producing plastic tubes at that time. Today,
SSPC's tubes are produced in a variety of sizes and used in the cosmetics, food
and pharmaceutical industries. Additionally, the company maintains printing
machines which allow its plastic tubes to be printed with the customer's
proprietary labels. In 1993, SSPC issued an initial public offering of its
common stock, with a major portion of the proceeds from that offering going to
expand its production capabilities for plastic tubes.
As SSPC has continued to grow and expand its customer base in the
cosmetics industry, a number of the company's largest customers have indicated
that in order to increase their purchase volume, the company would need to add
an additional manufacturing facility. This demand was driven by the fact that
these companies would
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- -----------------------------------------------------------------------------
require adequate supply should something happen to one of the company's
facilities. With many of the largest cosmetics customers based on the East
Coast, it made sense for SSPC's new facility to be located there as well. The
acquisition of CLOS was an excellent opportunity for SSPC because it provided
the company with the second manufacturing facility it needed, at a
significantly lower cost than would have been incurred by constructing its own
plant.
2. FINANCIAL INFORMATION
A) FINANCIAL ASSUMPTIONS
The following information depicts Seda Specialty Products including
the acquisition of American Safety Closure. The CLOS projections have been
included to show the benefit that will be received by CLOS shareholders who
elect to receive SSPC common stock in exchange for their CLOS shares. These
projections do not show any adjustment for the market value of CLOS's acquired
assets, which has been appraised to be significantly in excess of its book
value. The projections show the significant growth that is anticipated as SSPC
is able to achieve inroads into the large cosmetics manufacturers located on
the East Coast.
-10-
<PAGE> 173
- -------------------------------------------------------------------------------
H.J. MEYERS & CO., INC.
- -------------------------------------------------------------------------------
2. FINANCIAL INFORMATION
B) HISTORICAL FINANCIAL INFORMATION ($000)
<TABLE>
<CAPTION>
Balance Sheet Dec 91 Dec 92 Dec 93 Dec 94
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash 148 303 14,574 5,585
Net Receivables 1,916 2,866 4,398 5,369
Inventory 945 1,316 2,261 3,852
Other 43 78 950 1,999
--------------------------------------------------------------------------------
TCA 3,052 4,563 22,183 16,850
Net PPE 9,309 11,807 19,696 32,463
Other 537 600 987 1,375
--------------------------------------------------------------------------------
Total Assets 12,898 16,970 42,866 50,643
Current LTD 1,346 1,579 2,265 1,979
Accts Pay/Accruals 1,016 1,571 3,138 2,156
Revolver 2,569 2,925 1,000 0
--------------------------------------------------------------------------------
Other Current Liabs. 300 300 0 1,600
TCL 5,231 6,375 6,403 5,735
LTD 4,188 5,894 6,270 8,508
Other LT Liabs. 629 476 3,113 4,230
--------------------------------------------------------------------------------
Equity 2,850 4,225 27,080 32,170
--------------------------------------------------------------------------------
Total Lia/Equity 12,898 16,970 42,866 50,643
</TABLE>
<TABLE>
<CAPTION>
Income Statement Dec 91 Dec 92 Dec 93 Dec 94
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales 11,410 17,386 25,298 30,400
Gross Profit 4,349 7,170 10,550 11,959
Percent of Sales 38% 41% 42% 39%
SG&A/Other 1,466 1,713 2,910 4,057
--------------------------------------------------------------------------------
EBIT 2,883 5,457 7,640 7,902
Net Int. Expense 867 982 933 714
--------------------------------------------------------------------------------
Non-Recurring Charges (14) 457 23 80
PBT 2,030 4,018 6,684 7,108
Net Income 1,992 3,896 4,798 4,842
</TABLE>
-11-
<PAGE> 174
- -------------------------------------------------------------------------------
H.J. MEYERS & CO., INC.
- -------------------------------------------------------------------------------
2. FINANCIAL INFORMATION
C) PRO FORMA FINANCIAL INFORMATION ($000)
<TABLE>
<CAPTION>
Balance Sheet Dec 95 Dec 96 Dec 97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash 6,349 6,559 9,184
Net Receivables 9,500 11,000 13,500
Inventory 6,450 7,000 8,000
Other 2,000 2,000 2,000
---------------------------------------------------------------------
TCA 24,299 26,559 32,684
Net PPE 44,063 45,163 46,563
Other 1,850 2,000 2,000
---------------------------------------------------------------------
Total Assets 70,212 73,722 81,247
Current LTD 4,475 4,775 4,500
Accts Pay/Accrual 4,540 5,500 6,000
Revolver 1,500 0 0
TCL 10,515 10,275 10,500
LTD 14,500 10,000 5,800
Other LT Liabs. 4,927 5,677 6,677
---------------------------------------------------------------------
Equity (Net Worth) 40,270 47,770 58,270
---------------------------------------------------------------------
Total Lia/Equity 70,212 73,722 81,247
</TABLE>
<TABLE>
<CAPTION>
Income Statement Dec 95 Dec 96 Dec 97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales 47,000 60,000 75,000
Gross Profit 17,000 20,500 27,000
Percent of Sales 36% 34% 36%
SG&A/Other 6,070 6,800 7,900
---------------------------------------------------------------------
EBIT 10,930 13,700 19,100
Net Int. Expense 1,730 1,600 1,600
---------------------------------------------------------------------
PBT 9,200 12,100 17,500
Net Income 6,100 7,500 10,500
</TABLE>
-12-
<PAGE> 175
- -------------------------------------------------------------------------------
H.J. MEYERS & CO., INC.
- -------------------------------------------------------------------------------
3. VALUATION METHODOLOGY
A) BALANCE SHEET/ASSET ANALYSIS
Seda Specialty Packaging Corp.'s balance sheet as of December 1994
contains total assets of $50.6 million and a net worth of $32.1 million. The
balance sheet contains a significant amount of cash and new machinery and
equipment which was acquired through the proceeds of the company's 1993 initial
public offering. The property, plant and equipment category is understated due
to depreciation and market value of the owned real estate. The company's land
and building, which has a book value of under $7 million was assessed prior to
the company's IPO at a value in excess of $11 million. This market adjustment
increases SSPC's net worth from $32.1 million to approximately $36 million.
Based on SSPC's history of profitability, growth and its strong market
position, the company would warrant a premium over book (or market adjusted
book) of between 1.5-3.0 times. While the average market premium for all
publicly traded companies is approximately 2 times book, we have assigned a
range of book multiple to SSPC of between 1.5 and 2.0 times market book. This
range of multiples indicates a value of between $54 million and $72 million.
B) DISCOUNTED CASH FLOW ANALYSIS
The DCF analysis for SSPC involves the use of a projection scenario
which incorporates 50% of CLOS in 1995 and 100% of CLOS in 1996 and 1997. This
data has been included in the projection scenario to show the value that will
be received by CLOS shareholders who accept SSPC stock in the exchange offer.
Additionally, the SSPC projections have been reduced to reflect the same
adjustments made to the CLOS projections in the analysis provided earlier in
this report. The terminal value in the final forecast year has been determined
similarly to CLOS's terminal value, which reflects the company's sales price in
the terminal year (Year 3 in this analysis). Thus, our calculation of the
terminal value for Seda Specialty Packaging, was: 4.5 x future EBIT (less long
term debt service) in 1997 or (4.5 x 19,100M) - 4,500 = $81,750M.
The following is a summary of the DCF process. The discount value
shows the discounting of CLOS's projections. Capital Expenditures and
depreciation are calculated on a net basis and totaled under the Other heading.
($000)
<TABLE>
<CAPTION>
Year Net Income Change in WC Other Net Cash Flow Discount Value
- ---- ---------- ------------ ----- ------------- --------------
<S> <C> <C> <C> <C> <C>
1 6,100 (4,446) (3,170) (1,516) (1,716)
2 7,500 (2,590) (100) 4,810 4,310
3 10,500 (3,000) (400) 7,100 6,175
Terminal 81,450 81,450 73,125
</TABLE>
-13-
<PAGE> 176
- -------------------------------------------------------------------------------
H.J. MEYERS & CO., INC.
- -------------------------------------------------------------------------------
Due to SSPC's larger size, more consistent earnings history and
greater financial flexibility, the company's cost of capital is perceived to be
less than CLOS's. The company's cost of short term bank debt is roughly Prime
and its long term debt is equal to its bank's cost of funds + 1.50%. Based on
this fact, we have used a lower cost of capital range to calculate SSPC's DCF.
These cost of capital discount rates give values as shown below:
- 10% discount rate = $64.9 million
- 15% discount rate = $56.8 million
- 20% discount rate = $50.0 million
The DCF analysis provides a range of $50.0 million to $64.9 million
depending upon assumed risk.
C) PRICE/EARNING MULTIPLE
For the calculation of SSPC's market value, we used the same sample of
seven publicly traded specialty plastic manufacturers which was used in the CLOS
analysis based on the company's similar operations. Again, the P/E multiples
of the comparable companies ranged from 9.3 to 17.5 and had an average of
13.4. This compares to SSPC common stock ($10.88 at 3/27/95) which has a P/E
multiple of 11.3 times trailing 12 months EPS. While SSPC's stock is trading
at slightly below the comparable average, the company has experienced a
leveling off of its stock price which has ranged between $10.88 and $13.25 over
the past six months. This price range provides a value for the company of
between $54.5 million and $66.5 million.
-14-
<PAGE> 177
Engagement Letter
<PAGE> 178
H.J. MEYERS & CO., INC.
INVESTMENT BANKERS
MEMBER, NEW YORK STOCK EXCHANGE
356 NORTH CAMDEN DRIVE
BEVERLY HILLS CALIFORNIA 90210
TELEPHONE (310) 278-7880
FAX (310) 859-4706
March 3, 1995
Shawn Sedaghat
Chief Executive Officer
American Safety Closure Corp.
1 Plant Road
Plattsburgh, NY 12901
Dear Mr. Sedaghat
This letter (the "Engagement Letter") will confirm the engagement of H.J.
Meyers & Co., Inc. ("Meyers") by American Safety Closure Corp. ("the Company")
to render financial and investment banking services on an exclusive basis as
described below. In connection with this engagement, Meyers will familiarize
itself with such information as provided by the Company regarding the business
operations, financial condition and prospects of Seda Specialty Packaging Corp.
and American Safety Closure Corp. ("the Companies") for the purpose of
providing a fairness opinion on the terms and conditions of the acquisition of
American Safety Closure Corp. by Seda Specialty Packaging Corp.
Meyers will review such corporate documents and other information provided by
the Companies as Meyers in its sole discretion deems necessary. The Companies
will furnish to Meyers such information and data (the "Information") relating
to the Companies as Meyers reasonably requests and will provide reasonable
access to the Companies' officers, directors, employees, counsel and
independent accountants. Meyers may rely upon the information without
independently verifying it and does not assume responsibility for its accuracy
or completeness. Meyers will not make an independent appraisal of the assets
of the Companies.
The Companies agree to indemnify and hold Meyers and its officers, directors,
advisors and shareholders ("Indemnitees") harmless from any loss, claim, damage
(including attorneys' fees) or liability asserted against the Indemnitees
relating in any manner to the services rendered by them hereunder or any of the
matters upon which they are requested to consult, whether under the Securities
Act of 1933, the Securities Exchange Act of 1934, or any other state or federal
law or otherwise, unless resulting primarily from willful misconduct or gross
negligence. The Companies shall also assume responsibility for the
Indemnitees' defense in any such matters, except where a conflict exists such
that they are required to retain separate counsel, in which event, the
Companies shall pay the legal fees and expenses, as and when incurred, of
separate counsel retained by Indemnitees to provide such defense. The term of
this Agreement shall be two months beginning with the date of your acceptance
of this Engagement Letter as evidenced below, and will be renewed automatically
unless there is prior written notification to the contrary. Meyers or the
Company may cancel this Agreement upon 15 days written notice. Should the
Company elect to terminate this engagement prior to its completion, no refund
of fees paid will occur and all reasonable travel expenses already incurred
will be reimbursed.
<PAGE> 179
American Safety Closure Corp.
March 3, 1995
Page two
In connection with the engagement, Meyers will be paid a total fee of $25,000
with $10,000 paid upon signing this engagement and the remaining $15,000 upon
submission of a completed document summarizing the opinion and analytical
process. In addition, Meyers will be reimbursed for all reasonable
pre-approved travel expenses associated with the engagement not to exceed
$5,000.
This Engagement Letter sets forth the entire understanding of the parties
relating to the subject matter hereof and supersedes and cancels any prior or
contemporaneous communications, understandings or agreements between the
parties. This Agreement cannot be modified or changed, nor can any of its
provisions be waived, except by written agreement signed by all parties hereto.
This Agreement shall be governed by and construed to be in accordance with the
laws of the State of California applicable to contracts made and to be
performed solely in such State by citizens thereof. The parties hereto shall
deliver notices to each other by personal delivery or by registered mail
(return receipt requested) at the addresses set forth above.
All controversies or claims between the parties hereto or arising out of or
relating to the business combination contemplated by this Agreement, including
but not limited to the making or enforcement of documents relating thereto,
shall be resolved by arbitration in accordance with applicable rules of the
American Arbitration Association. Judgment on the arbitrators' award may be
entered in any court having jurisdiction. If any action or proceeding is
brought to enforce the terms of this Agreement, the prevailing party shall be
entitled to recover all of its reasonable attorney's fees and costs.
If the terms and conditions of this Engagement Letter confirm our agreement and
understanding, please execute the copy of this Engagement Letter in the space
provided below and return it to us.
Agreed to and accepted this
Very truly yours, 8th day of March 1995
H.J. MEYERS & CO., INC. AMERICAN SAFETY CLOSURE CORP.
By: /s/ F.D. (CHUCK) ROGERS By: /s/ SHAWN SADAGHAT
------------------------ ---------------------------
F.D. (Chuck) Rogers Shawn Sadaghat
Managing Director Chief Executive Officer
<PAGE> 180
Opinion Letter
<PAGE> 181
H.J. MEYERS & CO., INC.
INVESTMENT BANKERS
MEMBER, NASD AND SIPC
356 NORTH CAMDEN DRIVE
BEVERLY HILLS CALIFORNIA 90210
TELEPHONE (310) 278-7880
FAX (310) 859-4706
March 30, 1995
Shawn Sedaghat and the
Board of Directors
American Safety Closure Corp.
1 Plant Road
Plattsburgh, NY 12901
Gentlemen:
You have requested our opinion as to the fairness from a financial
standpoint of the acquisition of American Safety Closure Corporation (CLOS) by
Seda Specialty Packaging Corporation (SSPC).
We understand that both CLOS and SSPC are public companies trading on
the NASDAQ Small Cap and National Market Systems and are involved in similar
manufacturing operations which include production and marketing of plastic
closures (tamper proof and otherwise) and plastic tubes that serve a variety of
markets such as cosmetics, pharmaceuticals and the food industry. We further
understand, the transaction involves the acquisition of all of the outstanding
common stock of CLOS as well as related assets currently leased from an
affiliated party in exchange for cash and stock that amounts to an exchange
value of eight (8) shares of CLOS for each share of SSPC issued or a cash
equivalent value of $5.648 million.
H.J. Meyers & Co., Inc. as part of its investment banking activities,
engages in the evaluation of businesses and their securities in connection with
mergers and acquisitions, underwriting of public offerings and private
placements.
In connection with this opinion, we have reviewed, among other things,
publicly available information on the specialty packaging industry as well as
selected public and private companies that specialize in this industry. We
have received certain internal financial reports and projections prepared by
CLOS and SSPC. We have had discussions with members of management of both
companies with respect to current operations, financial conditions and business
prospects.
<PAGE> 182
American Safety Closure Corp.
March 30, 1995
Page two
In preparing this opinion, we have conclusively relied upon the
accuracy and completeness of all aspects of the information provided to us. We
have not attempted to independently verify the information considered in our
evaluation and have assumed that the manner in which this transaction will be
effected will comply with applicable laws.
Based upon the foregoing and such other factors that we consider
relevant, it is our opinion that, as of the date hereof, the value of the
acquisition of American Safety Closure Corporation by Seda Specialty Packaging
Corporation is fair and equitable to American Safety Closure and its
Stockholders.
Very truly yours,
/s/ F.D. (CHUCK) ROGERS
- ---------------------------
F.D. (Chuck) Rogers
Managing Director
<PAGE> 183
ANNEX C
<PAGE> 184
NEW YORK BUSINESS CORPORATION LAW
SECTION 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE
PAYMENT FOR SHARES.-(a) A shareholder intending to enforce his right under a
section of this chapter to receive payment for his shares if the proposed
corporate action referred to therein is taken shall file with the corporation,
before the meeting of shareholders at which the action is submitted to a vote,
or at such meeting but before the vote, written objection to the action. The
objection shall include a notice of his election to dissent, his name and
residence address, the number and classes of shares as to which he dissents and
a demand for payment of the fair value of his shares if the action is taken.
Such objection is not required from any shareholder to whom the corporation did
not give notice of such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of shareholders without a
meeting.
(b) Within ten days after the shareholders' authorization date,
which term as used in this section means the date on which the shareholders'
vote authorizing such action was taken, or the date on which such consent
without a meeting was obtained from the requisite shareholders, the corporation
shall give written notice of such authorization or consent by registered mail
to each shareholder who filed written objection or from whom written objection
was not required, excepting any shareholder who voted for or consented in
writing to the proposed action and who thereby is deemed to have elected not to
enforce his right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who elects to
dissent shall file with the corporation a written notice of such election.
stating his name and residence, address, the number and classes of shares as to
which he dissents and a demand for payment of the fair value of his shares.
Any shareholder who elects to dissent from a merger under section 905 (Merger
of subsidiary corporation) or paragraph (c) of section 907 (Merger or
consolidation of domestic and foreign corporations) or from a share exchange
under paragraph (g) of Section 913 (Share exchanges) shall file a written
notice of such election to dissent
Exhibit A
Dissenters' Right of Apprasial
<PAGE> 185
94 Business Corporation Law Section 623
within twenty days after the giving to him of a copy of the plan of merger or
exchange or an outline of the material features thereof under section 905 or
913.
(d) A shareholder may not dissent as to less than all of the
shares, as to which he has a right to dissent held by him of record, that he
owns beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder
shall cease to have any of the rights of a shareholder except the right to be
paid the fair value of his shares and an other rights under this section. A
notice of election may be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer is
made. Upon expiration of such time, withdrawal of a notice of election shall
require the written consent of the corporation. In order to be effective,
withdrawal of a notice of election must be accompanied by the return to the
corporation of any advance payment made to the shareholder as provided in
paragraph (g). If a notice of election is withdrawn, or the proposed corporate
action is abandoned or rescinded, or a court shall determine that the
shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in
cash as determined by the board as of the time of such expiration or
completion, but without prejudice otherwise to any corporate proceedings that
may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or
within one month thereafter the shareholder of shares represented by
certificates shall submit the certificates representing his shares to
<PAGE> 186
Section 623 Business Corporation Law 95
the corporation, or to its transfer agent, which shall forthwith note
conspicuously thereon that a notice of election has been filed and shall return
the certificates to the shareholder or other person who submitted them on his
behalf. Any shareholder of shares represented by certificates who fails to
submit his certificates for such notation as herein specified shall, at the
option of the corporation exercised by written notice to him within forty-five
days from the date of filing of such notice of election to dissent, lose his
dissenter's rights unless a court, for good cause shown, shall otherwise
direct. Upon transfer of a certificate bearing such notation, each new
certificate issued therefor shall bear a similar notation together with the
name of the original dissenting holder of the shares and a transferee shall
acquire no rights in the corporation except those which the original dissenting
shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within
which shareholders may file their notices of election to dissent, or within
fifteen days after the proposed corporate action is consummated, whichever is
later (but in no case later than ninety days from the shareholders'
authorization date), the corporation or, in the case of a merger or
consolidation, the surviving or new corporation, shall make a written offer by
registered mail to each shareholder who has filed such notice of election to
pay for his shares at a specified price which the corporation considers to be
their fair value. Such offer shall be accompanied by a statement setting forth
the aggregate number of shares with respect to which notices of election to
dissent have been received and the aggregate number of holders of such shares.
If the corporate action has been consummated, such offer shall also be
accompanied by (1) advance payment to each such shareholder who has submitted
the certificates representing his shares to the corporation, as provided in
paragraph (f), of an amount equal to eighty percent of the amount of such
offer, or (2) as to each shareholder who has not yet submitted his certificates
a statement that advance payment to him of an amount equal to eighty percent of
the amount of such offer will be made by the corporation promptly upon
submission of his certificates. If the corporate action has not been
consummated at the time of the making of the offer, such advance payment or
statement as to advance payment shall be sent to each shareholder entitled
thereto forthwith upon consummation of the corporate action. Every advance
payment or statement as to advance payment shall include advice to the
shareholder to the effect that
<PAGE> 187
96 Business Corporation Law Section 623
acceptance of such payment does not constitute a waiver of any dissenters'
rights. If the corporate action has not been consummated upon the expiration
of the ninety-day period after the shareholders' authorization date, the offer
may be conditioned upon the consummation of such action. Such offer shall be
made at the same price per share to all dissenting shareholders of the same
class, or if divided into series, of the same series and shall be accompanied
by a balance sheet of the corporation whose shares the dissenting shareholder
holds as of the latest available date, which shall not be earlier than twelve
months before the making of such offer, and a profit and loss statement or
statements for not less than a twelve-month period ended on the date of such
balance sheet or, if the corporation was not in existence throughout such
twelve-month period, for the portion thereof during which it was in existence.
Notwithstanding the foregoing, the corporation shall not be required to furnish
a balance sheet or profit and loss statement or statements to any shareholder
to whom such balance sheet or profit and loss statement or statements were
previously furnished, nor if in connection with obtaining the shareholders'
authorization for or consent to the proposed corporate action the shareholders
were furnished with a proxy or information statement, which included financial
statements, pursuant to Regulation 14A or Regulation 14C of the United States
Securities and Exchange Commission. If within thirty days after the making of
such offer, the corporation making the offer and any shareholder agree upon the
price to be paid for his shares, payment therefor shall be made within sixty
days after the making of such offer or the consummation of the proposed
corporate action, whichever is later, upon the surrender of the certificates
for any such shares represented by certificates.
(h) The following procedure shall apply if the corporation fails
to make such offer within such period of fifteen days, or if it makes the
offer and any assenting shareholder or shareholders fail to agree with it
within the period of thirty days thereafter upon the price to be paid for their
shares:
(l) The corporation shall, within twenty days after the expiration
of whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which the
office of the corporation is located to determine the rights of dissenting
shareholders and to fix the fair value of their shares. If, in the case of
merger or consolidation, the surviving or new corporation is a foreign
corporation without an
<PAGE> 188
Section 623 Business Corporation Law 97
office in this state, such proceeding shall be brought in the county where the
office of the domestic corporation, whose shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within
such period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the expiration
of such twenty day period. If such proceeding is not instituted within such
thirty day period, all dissenter's rights shall be lost unless the supreme
court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided
in paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall have
the effect of an action quasi in rem against their shares. The corporation
shall serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law for
the service of a summons, and upon each nonresident dissenting shareholder
either by registered mail and publication, or in such other manner as is
permitted by law. The jurisdiction of the court shall be plenary and
exclusive.
(4) The court shall determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the shares,
which, for the purposes of this section, shall be the fair value as of the
close of business on the day prior to the shareholders' authorization date. In
fixing the fair value of the shares, the court shall consider the nature of the
transaction giving rise to the shareholder's right to receive payment for
shares and its effects on the corporation and its shareholders, the concepts
and methods then customary in the relevant securities and financial markets for
determining fair value of shares of a corporation engaging in a similar
transaction under comparable circumstances and all other relevant factors. The
court shall determine the fair value of the shares without a jury and without
referral to an appraiser or referee. Upon application by the corporation or by
any shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not
<PAGE> 189
98 Business Corporation Law, Section 623
intended for use at the trial in the proceeding and notwithstanding subdivision
(d) of section 3101 of the civil practice laws and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at
such rate as the court finds to be equitable, from the date the corporate act
was consummated to the date of payment. In determining the rate of interest,
the court shall consider all relevant factors, including the rate of interest
which the corporation would have had to pay to borrow money during the pendency
of the proceeding. If the court finds that the refusal of any shareholder to
accept the corporation offer of payment for his shares was arbitrary, vexatious
or otherwise not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its
discretion, apportion and assess all or any part of the costs, expenses and
fees incurred by the corporation against any or all of the dissenting
shareholders who are parties to the proceeding, including any who have
withdrawn their notices of election as provided in paragraph (e), if the court
finds that their refusal to accept the corporate offer was arbitrary, vexatious
or otherwise not in good faith. Such expenses shall include reasonable
compensation for and the reasonable expenses of the appraiser, but shall
exclude the fees and expenses of counsel for and experts employed by any party
unless the court, in its discretion, awards such fees and expenses. In
exercising such discretion, the court shall consider the court may, in its
discretion, apportion and assess all or any part of the costs, expenses and
fees incurred by any or all of the dissenting shareholders who are parties to
the proceeding against the corporation if the court finds any of the following:
(A) that the fair value of the shares as determined materially exceeds the
amount which the corporation offered to pay; (B) that no offer or required
advance payment was made by the corporation; -and- (C) that the corporation
failed to institute the special proceeding within the period specified
therefor; or (D) that the action of the corporation in complying with its
obligations as provided in this section was arbitrary, vexatious or otherwise
not in good faith. In making any determination as provided in
<PAGE> 190
Section 623 Business Corporation Law 99
clause (A), the court may consider the dollar amount or the percentage, or
both, by which the fair value of the shares as determined exceeds the corporate
offer.
(8) Within sixty days after final determination of the proceeding,
the corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificates for any such shares represented by
certificates.
(i) Shares acquired by the corporation upon the payment of the
agreed value therefor or of the amount due under the final order, as provided
in this section, shall become treasury shares or be cancelled as provided in
section 515 (Reacquired shares), except that, in the case of a merger or
consolidation, they may be held and disposed of as the plan of merger or
consolidation may otherwise provide.
(j) No payment shall be made to a dissenting shareholder under
this section at a time when the corporation is insolvent or when such payment
would make it insolvent. In such event, the dissenting shareholder shall, at
his option:
(1) Withdraw his notice of election, which shall in such event be
deemed with drawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and,
if it is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting shareholders, and
if it is not liquidated, retain his right to be paid for his shares, which
right the corporation shall be obliged to satisfy when the restrictions of this
paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment for
his shares cannot be made because of the restrictions of this paragraph. If
the dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive
payment for his shares in the manner provided herein shall exclude the
enforcement by such shareholder of any other right to which he might otherwise
be entitled by virtue of share ownership, except as provided in paragraph (e),
and except that this section shall not exclude the right of such shareholder to
bring or maintain an appropriate action to obtain relief on the ground that
such corporate action will be or is unlawful or fraudulent as to him.
<PAGE> 191
100 Business Corporation Law Section 623
(l) Except as otherwise expressly provided in this section, any
notice to be given by a corporation to a shareholder under this section shall
be given in the manner provided in section 605 (Notice of meetings of
shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e), (2) of section 907 (Merger or consolidation of
domestic and foreign corporations). (Amended by L. 1965, Ch. 803; L. 1982,
Ch. 202, Sections 3-9, Ex. Sess., Ch. 928, Sections 38-40; L. 1986, Ch 117,
Section 3.)
<PAGE> 192
ANNEX D
<PAGE> 193
Price Waterhouse LLP [LOGO]
March 27, 1996
Board of Directors
Seda Specialty Packaging Corp.
2501 W. Rosecrans Blvd.
Los Angeles, California 90059
ACQUISITION OF AMERICAN SAFETY CLOSURE CORP. BY SEDA SPECIALTY
PACKAGING CORP.
Dear Directors:
You have requested our opinion regarding certain Federal income tax
consequences resulting from the plan of merger between Seda Specialty Packaging
Corp. ("Seda"), Seda ASC Acquisition Corp. ("Subsidiary") and American Safety
Closure Corp. ("ASC") as described in Amendment No. 2 to Form S-4 ("Form S-4")
to be filed with the Securities and Exchange Commission later this month. As
more fully described below, Subsidiary will be merged with and into ASC with
ASC surviving.
Specifically, you asked us to address the following issues:
1) How will the acquisition be treated for Federal income tax purposes?
2) What will the tax consequences of the transaction be to Seda?
3) What will the tax consequences of the transaction be to the shareholders
of ASC?
4) What will the tax consequences of the transaction be to ASC?
CONCLUSIONS
As part of our review of these transactions, we have reviewed the Form S-4 and
it is our opinion, based on the facts, assumptions, and representations
contained herein, that:
1 For Federal income tax purposes, Seda's acquisition of ASC through a
merger of a wholly-owned subsidiary with and into ASC will be treated
as if Seda had acquired the ASC stock directly from the ASC
shareholders in a taxable stock purchase and will not be treated
<PAGE> 194
Board of Directors
Seda Specialty Packaging Corp. [LOGO]
March 27, 1996
Page 2
as a tax-free reorganization under section 3681 or a tax-free exchange
under section 351. Rev. Rul. 73-427.
2) Seda will obtain a cost basis in the stock acquired equal to the
amount of cash paid plus the fair market value of other property
transferred plus any transaction costs incurred. Section 1012.
3) The shareholders of ASC will be treated as if they had sold their
stock directly to Seda. They will recognize gain or loss based on the
difference between the fair market value of the property received and
their adjusted basis in the ASC stock. Section 1001. The gain or
loss will be capital if the shareholder held the stock as a capital
asset on the date of the exchange. Any loss on the sale may be
limited.
4) No gain or loss will be recognized by ASC on the transfer of its stock
by its shareholders. ASC will retain its current tax basis in all its
assets. Any tax attributes including net operating losses, capital
losses, certain credits and built-in losses may be subject to
limitation under sections 382 and 383, Treas. Reg. section 1.1502-21
(i.e., SRLY limitation) or other relevant sections.
BACKGROUND
Seda is an existing company that has been operating since February 1984. Seda
and Subsidiary are Delaware corporations. Seda has 30,000,000 shares of common
stock authorized. As of December 31. 1994, Seda had 5,015,000 shares of common
stock issued and outstanding. Subsidiary will be owned 100 percent by Seda.
Subsidiary is being formed with 1,000 shares of common stock for purposes of
this transaction.
ASC was incorporated on May 16, 1983 to develop, manufacture, assemble and sell
tamper-evident plastic closures. In October 1988, ASC purchased substantially
all of the assets and assumed substantially all of the liabilities of Arpak
Plastics, Inc. ("Arpak") out of bankruptcy. ASC went public in 1990, is traded
in the "over-the-counter" market but recently lost its market maker. In January
1993, ASC entered into a lease Agreement with KGE Leasing Associates, Inc.
("KGELA"), a related party, for the use of molds, machinery and customer lists
of Tredegar Molded Products.
ASC, a New York corporation, has 15,000,000 shares of common stock authorized.
The shares have a par value of $.30. As of April 30, 1995, there were 3,034,273
shares issued and outstanding, warrants to purchase 30,000 shares and no shares
held in treasury. ASC Managing Partners
- ----------------------
1 All section references are to the Internal Revenue Code of
1986, as amended. All regulation references are to the Income Tax Regulations
thereunder.
<PAGE> 195
Board of Directors
Seda Specialty Packaging Corp. [LOGO]
March 27, 1996
Page 3
("Partners"), a New York general partnership, owned 1,656,127 shares of the
common stock at that date. During the first quarter of 1995, Seda acquired
approximately 102,000 shares of ASC stock on the open market.
The following are the transaction steps that have occurred to date as
described in the Form S-4:
On January 5, 1995, Seda and ASC entered into a "Merger Agreement",
pursuant to which each stockholder of ASC would receive one share of
the Seda's common stock for every eight shares of ASC common stock
owned by such stockholders. Approximately 3,064,000 shares of ASC
were outstanding as of that date (including 30,000 warrants). This
agreement was subsequently amended on June 22, 1995, August 21, 1995,
December 15, 1995 and March 19, 1996. as discussed below.
On January 5, 1995, in connection with the proposed merger, Seda
acquired an irrevocable proxy (the "Management Proxy") with respect to
an aggregate of 1,656,127 shares of ASC common stock, or approximately
54% of ASC's then outstanding common stock, from Partners. The
Management proxy and the ASC shares were placed into escrow together
with $1,050,000 cash from Seda and 82,500 shares of Seda's common
stock pursuant to the terms of an escrow agreement which provided, in
part, that the Management Proxy and shares would not be released until
the earlier of the date of a vote by ASC's stockholders on the merger
or July 5, 1995. On the same date, Seda acquired irrevocable proxies
with respect to an aggregate of 339,250 additional shares of ASC
common stock (the "Employee Proxies") from certain employees of ASC.
On January 5, 1995, Seda also entered into a "Management Agreement"
with ASC. The Management Agreement gave Seda the authority to manage
ASC with the objective of using Seda's good faith best efforts to
maximize the profits of ASC. The Management Agreement also provides
that in consideration for said management services, Seda shall be
entitled to receive an amount equal to the profits, if any,
(determined by reference to net income determined in accordance with
generally accepted accounting principles) generated during the term of
the Management Agreement. The Management Agreement continues in
effect until the closing of the contemplated merger. Prior to June
22, 1995, the date at which Seda began consolidating the operations of
ASC, the management fee under this agreement was not material.
On January 5, 1995, Seda also acquired certain equipment formerly
leased to ASC by KGELA. The equipment was acquired for an aggregate
cash purchase price of $1,525,000. During the six months ended June
30, 1995, Seda made loans to ASC aggregating $625,000.
<PAGE> 196
Board of Directors
Seda Specialty Packaging Corp. LOGO
March 27, 1996
Page 4
On June 22, 1995, ASC issued 6,192,000 new shares of ASC common stock
to Seda in exchange for the cancellation of $497,000 in indebtedness
owed by ASC to Seda and for the contribution to ASC of the equipment
that Seda had acquired from KGELA and that ASC had been leasing from
Seda. These shares, together with the 102,000 shares that Seda
acquired on the open market, gave Seda approximately 67% of the
outstanding shares of ASC at June 22, 1995.
On June 22, 1995, the Merger Agreement was amended to modify the
consideration that each ASC shareholder would receive to one share of
Seda's common stock for each 24.152 shares of ASC common stock. On
June 23, 1995, Seda filed an action in the U.S. District Court for the
Southern District of New York against ASC and other defendants seeking
a recision of the merger agreement and, in the alternative, a
declaration by the Court that the Merger Agreement be amended with the
consent of both Boards of Directors without the consent of any other
parties. The stock and cash in escrow were distributed in accordance
with the escrow instructions on July 5, 1995, but were still subject
to the court proceedings as the Company continued to dispute the legal
rights of Partners to cause the disbursal of the cash and stock in
said escrow.
On August 21, 1995 the Merger Agreement was again amended to modify
the consideration that each ASC shareholder would receive back to one
share of Seda's common stock for each 8 shares of ASC common stock, as
originally contemplated, in anticipation of a settlement of the
litigation stemming from this acquisition. The cash option of $1.50
per share, however, was not reinstated. On October 24, 1995, all
litigation related to the ASC acquisition was, with the consent of all
parties, dismissed with prejudice. As a result of these transactions,
Seda's ownership has increased to approximately 86% of the outstanding
ASC common stock, and it is proceeding with the required steps to
acquire the remaining outstanding shares of ASC. On December 15, 1995
and March 19, 1996 the merger agreement closing dates were extended to
March 31, 1996 and May 31, 1996, respectively.
The following is a description of the proposed steps yet to be
completed. Subsidiary will be merged with and into ASC with ASC
surviving. The ASC common stock will be converted into the right to
receive a certain number of Seda common shares, as described above.
Fractional shares will be rounded to the nearest whole number.
REPRESENTATIONS
The management of Seda has represented that Subsidiary will be formed
for purposes of this transaction and will not be a pre-existing
subsidiary of Seda and Subsidiary will have no activity other than
that necessary to facilitate its merger into ASC. Seda acquired the
102,000 shares of
<PAGE> 197
Board of Directors
Seda Specialty Packaging Corp. [LOGO]
March 27, 1996
Page 5
ASC on the open market in anticipation of acquiring control of ASC. Seda
understands that these representations form an integral part of our opinion
regarding the proposed transaction.
FEDERAL INCOME TAX CONSEQUENCES
An acquisition by one corporation of stock of another corporation is generally
taxable unless a specific nonrecognition provision applies. The provisions of
section 368(a)(1)(B) and (a)(2)(E) and section 351 are the nonrecognition
provisions that can apply to a corporation's acquisition of stock of another
corporation.
TRANSACTION DOES NOT QUALIFY FOR TAX-FREE TREATMENT
A reorganization under section 368(a)(1)(B) is defined as the acquisition by
one corporation, in exchange solely for all or a part of its voting stock, of
stock of another corporation if, immediately after the acquisition, the
acquiring corporation is in control of such other corporation within the
meaning of section 368(c). Treasury regulations, case law, and Internal
Revenue Service ("IRS") revenue rulings have elaborated upon this definition and
provide that such a reorganization may be achieved only by strict compliance
with the literal language of section 368(a)(1)(B).
In the instant case, the net effect of the transaction (that is, a direct
acquisition by Seda of all of the ASC stock from the ASC shareholders partly in
exchange for cash and partly in exchange for Seda stock) is that it does not
qualify as a reorganization described in section 368(a)(1)(B) since such
acquisition was not made by Seda solely for Seda voting stock.
Section 368(a)(1)(A) and (a)(2)(E) provides that a merger otherwise qualifying
under section 368(a)(1)(A) shall not be disqualified by reason of the fact that
stock of a corporation which before the merger was in control of the merged
corporation is used in the transaction if: (i) after the transaction, the
corporation surviving the merger holds substantially all of its properties and
substantially all of the properties of the merged corporation; and (ii) in the
transaction, former shareholders of the surviving corporation exchanged, for an
amount of voting stock of the controlling corporation, an amount of stock in
the surviving corporation which constitutes control of such corporation.
Control, as defined by section 368(c), means ownership of stock possessing at
least 80 percent of the total combined voting power of all shares entitled to
vote and at least 80 percent of the total number of shares of all other classes
of stock of the corporation.
The merger of Subsidiary into ASC does not qualify as a reorganization under
section 368(a)(1)(A) by reason of section 368(a)(1)(A) and (a)(2)(E). Since
Seda owns approximately 86 percent of the ASC stock prior to the proposed
transaction, Seda cannot acquire control (i.e., 80 percent) as a result of the
proposed transaction. The prior Seda ownership is not considered for purposes
of this determination. See Treas. Reg. section 1.368-2(j)(7)Ex. 4.
<PAGE> 198
Board of Directors
Seda Specialty Packaging Corp. [LOGO]
March 27, 1996
Page 6
Section 351 states that no gain or loss is recognized if property is
transferred to a corporation by one or more persons solely in exchange for
stock and immediately after the exchange, the person or persons are in control
of the transferee corporation. Control for this purpose is the same as that
required under section 368(a)(1)(A) and (a)(2)(E) (i.e., stock possessing 80
percent of the voting power and 80 percent of each class of nonvoting stock).
Since Seda has been in operation for several years and the shareholders of ASC
are not in control of Seda after the transaction, the transfer of ASC stock to
Seda would not be considered an exchange under section 351.
APPLICATION OF STEP TRANSACTION
In general, a taxpayer is entitled to design his transactions in such a manner
as to achieve the desired tax results, provided that he does so consistent with
the law. Judge Learned Hand stated that "[a]ny one may so arrange his affairs
that his taxes shall be as low as possible; he is not bound to choose that
pattern which will best pay the Treasury; there is not even a patriotic duty to
increase one's taxes." Helvering v. Gregory, 69 F.2d 809, 810 (2d Cir. 1934),
aff'd, 293 U.S. 465 (1935). On the other hand, if the form used for a
transaction does not accurately comport with the substance, the IRS may assert
that the transaction should be recharacterized and treated in accordance with
its substance. Except in certain fairly well established instances the ability
to assert that a transaction should be treated in a manner inconsistent with
its form is generally a single-edged sword. A taxpayer is, in general, bound
by the form he has chosen, whereas the IRS may assert that form should be
disregarded and a transaction recharacterized in accordance with its substance.
See, e.g., Higgins v. Smith, 308 U.S. 473 (1940). Therefore, it is necessary,
although not sufficient, to guarantee that the form chosen would, if respected,
result in the desired tax consequences. The problem, however, is that the
analysis presupposes that there is a substantive distinction between
transactions which the tax law treats in a different manner. In many cases,
these substantive distinctions are, at best, difficult to see.
A doctrine related to that of substance over form, the step-transaction
doctrine, also is important to the planning of corporate acquisitions.
Generally, when a series of transactions are undertaken as part of a plan or
occur reasonably close in time, the applicability of the step transaction
doctrine must be considered. The IRS position as to step transaction doctrine
is quite clear and is summarized as follows:
The step transaction doctrine generally permits a series of formally
separate steps to be amalgamated and treated as a single transaction
if they are in substance integrated, interdependent, and focused
toward a particular end result. The Internal Revenue Service has
indicated on several occasions that the threshold steps will not be
disregarded under the step transaction analysis if such preliminary
activity results in a permanent alteration of a previous bona fide
business relationship. Thus, the substance of each of a series of
steps will be recognized and the step
<PAGE> 199
Board of Directors
Seda Specialty Packaging Corp. [LOGO]
March 27, 1996
Page 7
transaction doctrine will not apply, if each step demonstrates
independent economic significance, is not subject to attack as a sham,
and was undertaken for valid business purposes and not mere avoidance
of taxes.2
In Rev. Rul. 73-427, 1973-2 CB 301, the IRS addressed a transaction similar to
the one proposed by Seda. Corporation P ("P") wanted to acquire all of the
outstanding stock of Corporation Y ("Y") for cash and thereby become the sole
shareholder of Y. Pursuant to the plan of acquisition, P was only able to
purchase 97.9 percent of the outstanding stock of Y for cash. In order to
complete the acquisition, P, as part of the same plan, acquired the remaining
2.1 percent of the outstanding stock of Y in exchange for P stock.
The latter transaction was structured in the following manner. P formed S, a
wholly owned subsidiary, solely to effectuate the acquisition. Pursuant to the
applicable state laws, S was merged with and into Y, with Y acquiring all the
assets of S. Y distributed the shares of P stock received in the merger to the
minority shareholders of Y in exchange for their stock, and by operation of
state law the S stock held by P was automatically converted into Y stock.
While the exchange of P stock for the minority shares of Y may have qualified
as a tax-free section 368(a)(1)(B) transaction if taken alone, the result of
the entire plan was that P acquired all of the stock of Y partly in exchange
for cash and partly in exchange for P voting stock, with Y becoming a wholly
owned subsidiary of P.
Therefore, although no gain or loss was recognized by P, S or Y, the ruling
held that the shareholders of Y recognized gain or loss on the sale of their
stock for cash or P stock under sections 1001 and 1002.
The ruling was distinguished from Rev. Rul. 67-448, 1967-2 C.B. 144. In Rev.
Rul. 67-448, a series of interrelated steps involving the transitory existence
of a newly created corporation is disregarded and the transaction is treated as
the mere exchange by a corporation of shares of its voting stock for the
outside minority stock interest in its subsidiary, which transaction qualified
as a reorganization under section 368(a)(1)(B). In the ruling, pursuant to a
plan of reorganization, a parent corporation, P, issued some of its voting
stock to its new subsidiary S which, pursuant to the plan, merged into
unrelated corporation Y, with some of the Y shareholders exchanging their Y
stock, in an amount constituting control of Y, for the P stock received by Y in
the merger of S into Y. Unlike Seda's acquisition of ASC stock, there was no
consideration other than P voting stock used to acquire Y in Rev. Rul. 67-448.
- ------------------------
2 Rev. Rul. 79-250, 1979-2 C.B. 156.
<PAGE> 200
Board of Directors
Seda Specialty Packaging Corp. LOGO
March 27, 1996
Page 8
As previously discussed, the Seda transaction as described herein does not
qualify for nonrecognition under sections 368(a)(1)(B), 368(a)(1)(A) and
(a)(2)(E) or 351. In addition, the fact that Seda purchased some shares of ASC
on the open market prior to the proposed transaction emphasizes that Seda had
no intention of trying to structure this acquisition as a tax-free transaction.
Therefore, in our opinion, the plan of merger between Seda, Subsidiary and ASC
will be treated as a taxable acquisition of ASC stock by Seda and will not
constitute a tax-free reorganization within the meaning of section 368.
SUBSTANTIAL AUTHORITY
Providing the facts, assumptions, and representations contained herein are
correct, substantial authority, within the meaning of section 6662, exists to
reach the conclusions made in this opinion.
CONSENT
We hereby consent to the filing of this opinion with the Registration Statement
on Form S-4 and to the references to Price Waterhouse LLP ("Price
Waterhouse") under the headings "Federal Income Tax Consequences of the Merger"
and "Experts" in the related Prospectus.
CAVEATS AND LIMITATIONS
1. The conclusions reached in this opinion represent and are based upon
our best judgment regarding the application of Federal income tax laws
arising under the Code, existing judicial decisions, administrative
regulations and published rulings and procedures. This opinion is not
binding upon the Internal Revenue Service or the courts. It is our
opinion that the Internal Revenue Service will not successfully assert
a contrary position, although this cannot be guaranteed in the absence
of a private letter ruling from the Internal Revenue Service.
Furthermore, no assurance can be given that future legislative or
administrative changes, on either a prospective or retroactive basis,
would not adversely affect the accuracy of the conclusions stated
herein. Price Waterhouse undertakes no responsibility to advise any
party or shareholder of any new developments in the application or
interpretation of the Federal income tax laws.
2. This opinion addresses the Federal tax consequences to ASC, Seda and
the shareholders of ASC. It does not address the purchase of the
Series A Preferred stock from the Arpak minority shareholders. This
opinion does not address any Federal tax consequences of the
transactions set forth above, or transactions related or proximate to
the transactions set forth above, except as specifically set forth
herein. This opinion does not address any state, local, foreign, or
other tax consequences that may result from any of the transactions
set forth above, or transactions related to the transactions set forth
above.
<PAGE> 201
Board of Directors
Seda Specialty Packaging Corp. [LOGO]
March 27, 1996
Page 9
3. This opinion addresses the Federal tax consequences to the ASC
shareholders in general terms. Each shareholder should consult with
their tax advisor regarding their specific tax results.
4. This opinion does not address any transactions other than those
described above, or any transactions whatsoever, if all the
transactions described herein are not consummated as described herein
without waiver or breach of any material provision thereof or if the
assumptions set forth herein are not true and accurate at all relevant
times. In the event any one of the assumptions is incorrect, the
conclusions reached in this opinion might be adversely affected.
5. This opinion is based on the transactions as described in the Form
S-4. Should any subsequent documents contain changes from this
document, the conclusions of this opinion could be adversely affected.
6. This opinion only discusses the Federal tax consequences of the
proposed merger. It does not discuss the tax consequences of any of
the prior transaction steps.
If you have any questions, please call either John M. Tangney at (818) 595-0213
or Mark W. Boyer at (202) 414-1629.
Sincerely yours,
/s/ PRICE WATERHOUSE LLP
- -----------------------------
Price Waterhouse LLP
<PAGE> 202
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and Bylaws of SEDA indemnify its
officers and directors to the fullest extent permitted by Section 145 of the
Delaware General Corporation Laws and applicable law. Section 145 of the
Delaware General Corporation Laws makes provision for the indemnification of
officers, directors and other corporate agents in terms sufficiently broad to
indemnify such persons, under certain circumstances, for liabilities (including
reimbursement of expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act").
Delaware General Corporation Law, Section 102(b)(7), enables a
corporation in its original certificate of incorporation, or an amendment
thereto validly approved by stockholders, to eliminate or limit personal
liability of members of its Board of Directors for violations of a director's
fiduciary duty of care. However, the elimination or limitation shall not apply
where there has been a breach of the duty of loyalty, failure to act in good
faith, engaging in intentional misconduct or knowingly violating a law, paying
a dividend or approving a stock repurchase which was deemed illegal, or
obtaining an improper personal benefit. The Company's Certificate of
Incorporation includes the following language:
"To the maximum extent permitted by Section 102(b)(7)
of the General Corporation Laws of Delaware, a director of
this corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit."
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware law to indemnify directors and officers with respect
to any matter in which the director or officer acted in good faith and in a
manner he reasonably believed to be not opposed to the best interests of the
Company, and, with respect to any criminal action, he had reasonable cause to
believe his conduct was lawful. The Bylaws of the Company include the
following provision:
"Reference is made to Section 145 and any other
relevant provisions of the General Corporation Law of the
State of Delaware. Particular reference is made to the class
of persons, hereinafter called "Indemnities", who may be
indemnified by a Delaware corporation pursuant to the
provisions of such Section 145, namely, and person or the
heirs, executors, or administrators of such person, who was or
is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, by
reason of the fact that such person is or was a director,
officer, employee, or agent of such corporation or is or was
serving at the request of such corporation as a director,
officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise. The
Corporation shall, and is hereby obligated to, indemnify the
Indemnitees, and each of them in each and every situation
where the Corporation is obligated to make such
indemnification pursuant to the aforesaid statutory
provisions. The Corporation shall indemnify the Indemnitees,
and each of them, in each and every situation where, under the
aforesaid statutory provisions, the Corporation is not
obligated, but is nevertheless permitted or empowered, to make
such indemnification, it being understood that, before making
such indemnification with respect to any situation covered
under this sentence, (i) the Corporation shall promptly make
or cause to be made, by any of the methods referred to in
Subsection (d) of such Section 145, a determination as to
whether each Indemnitee acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, in the case of any criminal
action or
II-1
<PAGE> 203
proceeding, had no reasonable cause to believe that his
conduct was unlawful, and (ii) that no such indemnification
shall be made unless it is determined that such Indemnitee
acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the
Corporation, and, in the case of any criminal action or
proceeding, had no reasonable cause to believe that his
conduct was unlawful."
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER Description
- -------- -----------
<S> <C>
2.1*** Restated Agreement and Plan of Merger dated as of January 5, 1995, and amendments to date
2.1.1*** Amendment to Restated Agreement of Merger, dated August 21, 1995 and December 15, 1995 and March 19, 1996
3.1 Form of Certificate of Organization of SEDA
3.3*** Form of Restated By-laws of SEDA
3.4*** Certificate of Incorporation of ASC and Amendments to date
3.5*** By-laws of ASC
4.1*** Form of Certificate for Common Stock of SEDA
5.1 Form of Opinion of Freshman, Marantz, Orlanski, Cooper & Klein with respect to legality of the securities of
SEDA being registered
8.1*** Opinion of Price Waterhouse LLP regarding certain federal tax consequences
8.1.1*** Revised Opinion of Price Waterhouse LLP regarding federal tax consequences
10.1* 1993 SEDA Incentive Stock Option Plan and Nonstatutory Stock Option Plan, as amended, and Form of Stock Option
Agreement
10.5** Form of Indemnification Agreement
10.7** Employment Agreement dated June 1, 1993, by and between SEDA and Shapour Sedaghat
10.8** Employment Agreement dated June 1, 1993, by and between SEDA and Shawn Sedaghat
10.9** Employment Agreement dated June 1, 1993, by and between SEDA and Ronald W. Johnson
10.10** Form of Employment Agreement dated August 16, 1993, by and between SEDA and Edward F. Csaszar
10.13** Agreement dated February 18, 1993, by and between SEDA and Tube Tech Corporation
10.14** Form of Agreement re Transfer of Property, dated as of September 9, 1993, by and between 2501 West Rosecrans, Inc.
and SEDA
10.15** Tube Tech Stock Transfer Agreement dated as of July 1, 1993, by and between Shapour Sedaghat SEDA
10.17** Credit Agreement dated June 23, 1994, between SEDA and Union Bank, as amended
10.18*** Articles of Agreement by and between Arpak Plastics, Inc., and Teamsters Local 687, effective January 1, 1994
10.19*** Executive Agreement made on September 1, 1994 by and between ASC and Harry Goodman
10.20*** Executive Agreement made on September 1, 1994 by and between ASC and David L. Kassel
10.21*** Executive Employment Agreement made as of September 1, 1994 by and between ASC and Donald Robinson
10.22*** Executive Agreement made as of September 1, 1994 by and between ASC and Eugene Biernaski
10.23*** Executive Employment Agreement made as of September 1, 1994 by and between ASC and Clarence Rohrer
10.24*** Agreement to Buy and Sell Assets entered into as of January 5, 1995 by and between KGE Leasing Associates, Inc.
and SEDA
10.25*** Management Agreement entered into as of January 5, 1995 by and between ASC and SEDA
10.26*** Escrow Agreement made as of January 5, 1995 by and among SEDA, ASC, ASC Managing Partners, Freshman, Marantz,
Orlanski, Cooper & Klein and Koerner, Silberberg & Weiner
10.27*** Letter of Intent between SEDA and ASC dated January 3, 1995
10.28*** Letter Agreement between SEDA and ASC Managing Partners, dated January 5, 1995
</TABLE>
II-2
<PAGE> 204
<TABLE>
<S> <C>
10.29*** Letter Agreement between SEDA and ASC Managing Partners, dated January 5, 1995
[10.30(a)&(b)]*** Non-Competition Agreements, dated January 5, 1995 with Messrs. Goodman and Kassel
11.1*** SEDA Statement of Computation of Per Share Earnings.
16. Letter re Change in Accountants, incorporated by reference to ASC's 8K/A, dated April 25, 1994 to which said
letter is attached.
21.*** List of subsidiaries.
23.1*** Consent of Urbach Kahn & Werlin P.C. regarding ASC's financial statements (See Page II-5 of this Registration
Statement)
23.1.1*** Consent of Frederick S. Todman & Company regarding ASC's statements (See Page II-6 of this Registration Statement
23.3 Consent of Freshman, Marantz, Orlanski, Cooper & Klein included in Opinion, Exhibit No. 5.1
23.4 Consent of Price Waterhouse LLP regarding financial statements of SEDA
23.4.1 Consent of Price Waterhouse LLP regarding financial statements of ASC
23.5*** Consent of H.J. Meyers & Co., Inc.
24.1*** Powers of Attorney (set forth on signature pages to this Registration Statement)
99.1*** Form of proxy to be used by ASC
99.3*** H. J. Meyers & Co., Inc Fairness Opinion
99.4*** Form of Letter of Transmittal to be used in soliciting the stockholders of ASC. See page 5 of sequentially
numbered pages.
99.5*** Appraisal by Appraisal Affiliates, Inc. dated December 27, 1994.
</TABLE>
_________________
* Incorporated by reference to, and such Exhibits have the corresponding
Exhibit number filed as part of SEDA's 10-K for the year ended
December 1994, filed with the SEC on March 29, 1995.
** Incorporated by reference to, and all such Exhibits have the
corresponding Exhibit number filed as part of, Seda's Registration
Statement on Form S-1 (File No. 33-68706) and Amendments No. 1 and 2
filed with the SEC on September 13, 1993, October 19, 1993 and October
21, 1993, respectively.
*** Previously filed as part of the Registration Statement on Form S-4,
filed June 8, 1995, file No. 33-93248. All such exhibit numbers have
corresponding exhibit numbers and such exhibits are incorporated by
reference.
(b) Financial Statement Schedules: For the three years ended
December 31, 1995--II Valuation and Qualifying Accounts.
All other schedules are omitted either because they are not required
or because the required information is included in the financial statements and
notes thereto included in the Prospectus. See "Index to Financial Statements."
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called
for by the other terms of the applicable form.
(2) SEDA undertakes that every prospectus (i) that is filed pursuant to
paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a
part of an amendment to the Registration Statement and will not be
used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be
II-3
<PAGE> 205
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to
the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment, all information concerning a transaction,
and the company being acquired involved therein, that was not the
subject of and included in the Registration Statement when it became
effective.
(5) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of SEDA pursuant to
the foregoing provisions described above in Item 20, or otherwise SEDA has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by SEDA of expenses incurred
or paid by a director, officer or controlling person of SEDA in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, SEDA will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-4
<PAGE> 206
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, SEDA has duly
caused this Amendment No. 3 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Los Angeles,
California on May 17, 1996.
<TABLE>
<S> <C>
SEDA SPECIALTY PACKAGING CORP.
By: /s/ Shawn Sedaghat
-------------------------------------
Shawn Sedaghat
Chairman, Chief Executive Officer,
and President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Shawn Sedaghat Chairman, President and Chief May 17, 1996
------------------------------------------- Executive Officer
Shawn Sedaghat
/s/ Ronald W. Johnson Chief Financial Officer and May 17, 1996
------------------------------------------- Secretary, and a Director
Ronald W. Johnson (Principal Financial and
Accounting Officer)
Director May 17, 1996
-------------------------------------------
*Dann V. Angeloff
Director May 17, 1996
-------------------------------------------
*Alfred E. Osborne, Jr., PhD
Director May 17, 1996
-------------------------------------------
*Robert H. King
/s/ Shawn Sedaghat
-------------------------------------------
*Shawn Sedaghat under power of attorney
dated June 8, 1995
</TABLE>
II-5
<PAGE> 207
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ----------- ----
<S> <C>
2.1*** Restated Agreement and Plan of Merger dated as of January 5, 1995, and
amendments to date
2.1.1*** Amendment to Restated Agreement of Merger, dated August 21, 1995 and
December 15, 1995 and March 19, 1996
3.1 Form of Certificate of Organization of SEDA
3.3*** Form of Restated By-laws of SEDA
3.4*** Certificate of Incorporation of ASC and Amendments to date
3.5*** By-laws of ASC
4.1*** Form of Certificate for Common Stock of SEDA
5.1 Form of Opinion of Freshman, Marantz, Orlanski, Cooper & Klein with
respect to legality of the securities of SEDA being registered
8.1*** Opinion of Price Waterhouse LLP regarding certain federal tax consequences
8.1.1*** Revised Opinion of Price Waterhouse LLP regarding federal tax consequences
10.1* 1993 SEDA Incentive Stock Option Plan and Nonstatutory Stock Option Plan,
as amended, and Form of Stock Option Agreement
10.5** Form of Indemnification Agreement
10.7** Employment Agreement dated June 1, 1993, by and between SEDA and
Shapour Sedaghat
10.8** Employment Agreement dated June 1, 1993, by and between SEDA and
Shawn Sedaghat
10.9** Employment Agreement dated June 1, 1993, by and between SEDA and
Ronald W. Johnson
10.10** Form of Employment Agreement dated August 16, 1993, by and between SEDA
and Edward F. Csaszar
10.13** Agreement dated February 18, 1993, by and between SEDA and Tube Tech
Corporation
10.14** Form of Agreement re Transfer of Property, dated as of September 9, 1993,
by and between 2501 West Rosecrans, Inc. and SEDA
10.15** Tube Tech Stock Transfer Agreement dated as of July 1, 1993, by and between
Shapour Sedaghat SEDA
10.17** Credit Agreement dated June 23, 1994, between SEDA and Union Bank, as amended
10.18*** Articles of Agreement by and between Arpak Plastics, Inc., and Teamsters
Local 687, effective January 1, 1994
10.19*** Executive Agreement made on September 1, 1994 by and between ASC and
Harry Goodman
10.20*** Executive Agreement made on September 1, 1994 by and between ASC and
David L. Kassel
10.21*** Executive Employment Agreement made as of September 1, 1994 by and between
ASC and Donald Robinson
10.22*** Executive Agreement made as of September 1, 1994 by and between ASC and
Eugene Biernaski
10.23*** Executive Employment Agreement made as of September 1, 1994 by and between
ASC and Clarence Rohrer
10.24*** Agreement to Buy and Sell Assets entered into as of January 5, 1995 by
and between KGE Leasing Associates, Inc. and SEDA
10.25*** Management Agreement entered into as of January 5, 1995 by and between
ASC and SEDA
10.26*** Escrow Agreement made as of January 5, 1995 by and among SEDA, ASC,
ASC Managing Partners, Freshman, Marantz, Orlanski, Cooper & Klein and Koerner, Silberberg & Weiner
10.27*** Letter of Intent between SEDA and ASC dated January 3, 1995
10.28*** Letter Agreement between SEDA and ASC Managing Partners, dated January 5, 1995
10.29*** Letter Agreement between SEDA and ASC Managing Partners, dated January 5, 1995
</TABLE>
II-6
<PAGE> 208
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ----------- ----
<S> <C>
[10.30(a)&(b)]*** Non-Competition Agreements, dated January 5, 1995 with Messrs. Goodman
and Kassel
11.1*** SEDA Statement of Computation of Per Share Earnings.
16. Letter re Change in Accountants, incorporated by reference to ASC's 8K/A,
dated April 25, 1994 to which said letter is attached.
21.*** List of subsidiaries.
23.1*** Consent of Urbach Kahn & Werlin P.C. regarding ASC's financial statements
(See Page II-5 of this Registration Statement)
23.1.1*** Consent of Frederick S. Todman & Company regarding ASC's statements
(See Page II-6 of this Registration Statement
23.3 Consent of Freshman, Marantz, Orlanski, Cooper & Klein included in Opinion,
Exhibit No. 5.1
23.4 Consent of Price Waterhouse LLP regarding financial statements of SEDA
23.4.1 Consent of Price Waterhouse LLP regarding financial statements of ASC
23.5*** Consent of H.J. Meyers & Co., Inc.
24.1*** Powers of Attorney (set forth on signature pages to this Registration Statement)
99.1*** Form of proxy to be used by ASC
99.3*** H. J. Meyers & Co., Inc Fairness Opinion
99.4*** Form of Letter of Transmittal to be used in soliciting the stockholders of ASC.
See page 5 of sequentially numbered pages.
99.5*** Appraisal by Appraisal Affiliates, Inc. dated December 27, 1994.
</TABLE>
_________________
* Incorporated by reference to, and such Exhibits have the corresponding
Exhibit number filed as part of SEDA's 10-K for the year ended
December 1994, filed with the SEC on March 29, 1995.
** Incorporated by reference to, and all such Exhibits have the
corresponding Exhibit number filed as part of, Seda's Registration
Statement on Form S-1 (File No. 33-68706) and Amendments No. 1 and 2
filed with the SEC on September 13, 1993, October 19, 1993 and October
21, 1993, respectively.
*** Previously filed as part of the Registration Statement on Form S-4,
filed June 8, 1995, file No. 33-93248. All such exhibit numbers have
corresponding exhibit numbers and such exhibits are incorporated by
reference.
All other schedules are omitted either because they are not required or because
the required information is included in the financial statements and notes
thereto included in the Prospectus. See "Index to Financial Statements."
II-7
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
SEDA SPECIALITY PACKAGING CORP.
FIRST: The name of the corporation is Seda Specialty Packaging Corp.
SECOND: The address of the corporation's registered office in the State
of Delaware is 15 East North St., Dover, Delaware 19901. The name of its
registered agent at that address is Paracorp Incorporated. The County of Kent.
THIRD: The name and mailing address of the incorporator of the
corporation is:
Kasey Hannah
Freshman, Marantz, Orlanski, Cooper & Klein
9100 Wilshire Boulevard, 8th Fl. East Tower
Beverly Hills, California 90212-3480
FOURTH: The nature of the business or purposes to be conducted or
promoted by the corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FIFTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is forty million (40,000,000),
consisting of:
(1) ten million (10,000,000) shares of Preferred
Stock, par value one mil ($0.001) per share (the "Preferred Stock"); and
(2) thirty million (30,000,000) shares of Common Stock
par value one mil ($0.001) per share (the "Common Stock")
SIXTH: The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of the Article FIFTH, to provide for the
issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
(a) The number of shares constituting that series and
the distinctive designation of that series;
(b) The dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on shares
of that series;
(c) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) Whether that series shall have conversion
privileges, and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
1
<PAGE> 2
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and the amount
per share payable in case of redemption,which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(h) Any other relative rights preferences and limitations of
that series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the same
dividend period.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the assets available for distribution to holders
of shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
SEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the board of directors is expressly authorized to adopt, amend and
repeal from time to time any or all of the bylaws of the corporation, including
bylaw amendments increasing or reducing the authorized number of directors.
EIGHTH: The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law. In furtherance and not in limitation of the foregoing provision of this
Article EIGHTH, a director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
Any repeal or modification of the foregoing provisions of this Article
EIGHTH by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation to do business both within and without the
State of Delaware, and in pursuance of the Delaware Corporation Law, does
hereby make and file this Certification.
/s/ KASEY HANNAH
----------------------------------------
Kasey Hannah
2
<PAGE> 1
EXHIBIT 5.1
<PAGE> 2
[FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN LETTERHEAD]
(310) 285-1629 212.082651-4
April 22, 1996
SEDA Specialty Packaging Corp.
2501 West Rosecrans Boulevard
Los Angeles, California 90059
Re: SEDA Specialty Packaging Corp.
Registration Statement on Form S-4,
SEC File No. 33-93248
Gentlemen:
At your request, we have examined the Registration Statement on Form S-4 (File
No. 33-93248) of SEDA Specialty Packaging Corp. (the "Company"), together with
Amendments thereto (the "Registration Statement"), with exhibits as filed in
connection therewith and the form of a merger/proxy statement prospectus
contained therein, which you have filed with the Securities and Exchange
Commission ("SEC") in connection with the registration under the Securities Act
of 1933, as amended, of 262,243 shares of Common Stock, $.001 par value per
share (the "Common Stock"), of the Company (the Common Stock are the "Shares").
For purposes of this opinion, we have examined such matters of law and
originals, or copies certified or otherwise identified to our satisfaction, of
such documents, corporate records and other instruments as we have deemed
necessary. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as certified,
photostatic or conformed copies, and the authenticity of the originals of all
such latter documents. We have also assumed the due execution and delivery of
all documents where due execution and delivery are prerequisites to the
effectiveness thereof. We have relied upon certificates of public officials
and certificates of officers of the Company for the accuracy of material,
factual matters contained therein which were not independently established.
Based on the foregoing and on all other instruments, documents and matters
examined for the rendering of this opinion, it is our opinion that, subject to
effectiveness of the Registration Statement with the SEC and to registration or
qualification under
<PAGE> 3
FRESHMAN, MARANTZ, ORLANSKI
COOPER & KLEIN
A LAW CORPORATION
SEDA Specialty Packaging Corp.
April 22, 1996
Page 2
the securities laws of the states in which the securities may be sold, upon the
sale and issuance of the Shares in the manner referred to in the Registration
Statement, the Shares will be legally issued, fully paid and nonassessable
shares of the Common Stock of the Company.
We express no opinion as to the applicability or effect of any laws, orders or
judgments of any state of jurisdiction other than federal securities laws and
the substantive laws of the State of California. Further, our opinion is based
solely upon existing laws, rules and regulations, and we undertake no
obligation to advise you of any changes that may be brought to our attention
after the date hereof.
We consent to the use of our name under the caption "Legal Matters" in the
Prospectus, constituting part of the Registration Statement, and to the filing
of this opinion as an exhibit to the Registration Statement.
By giving you this opinion and consent, we do not admit that we are experts
with respect to any part of the Registration Statement or Prospectus within the
meaning of the term "expert" as used in Section 11 of the Securities Act of
1933, as amended, or the rules and regulations promulgated thereunder by the
SEC, nor do we admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Freshman, Marantz, Orlanski, Cooper & Klein
-----------------------------------------------
Freshman, Marantz, Orlanski,
Cooper & Klein
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of SEDA Specialty Packaging Corp. of our
report dated February 22, 1995 relating to the financial statements of SEDA
Specialty Packaging Corp., which appears in such Prospectus. We also consent to
the application of such report to the Financial Statement Schedule for the three
years ended December 31, 1995 listed under Item 21(b) of this Registration
Statement when such schedule is read in conjunction with the financial
statements referred to in our report. The audits referred to in such report also
included this schedule. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Costa Mesa, California
May 17, 1996
Exhibit 23.4
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of SEDA Specialty Packaging Corp. of our
report dated August 21, 1995, except for Notes 3 and 10, as to which the date
is August 21, 1995, relating to the financial statements of American
Safety Closure Corp. and Subsidiary, which appears in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Costa Mesa, California
May 17, 1996
EXHIBIT 23.4.1
