<PAGE> 1
File No. 333-374
As filed with the Securities and Exchange Commission on June 18, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SEDA SPECIALTY PACKAGING CORP.
(Exact name of registrant as specified in its charter)
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<TABLE>
<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)
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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)
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Copies to:
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) 274-829
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [T]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
=============================================================================================================================
Proposed
Maximum Proposed Maximum Amount of
Title of each class of securities Amount to be Offering Price Aggregate Offering Registration
to be registered registered Per Unit Price Fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $.001 par value 82,500 $12.62(1) $1,041,150 $359.02(2)
Common Stock $.001 par value
underlying Warrants(3) 150,000 21.37 $3,206,250 $1,105.60
- -----------------------------------------------------------------------------------------------------------------------------
Total 232,500 Total $1,464.62
=============================================================================================================================
</TABLE>
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(1) The $12.00 figure represents the greater of (i) the average of the high
and low prices of a share of Registrant's Common Stock as quoted on the
Nasdaq National Market on December 26, 1995 or (ii) $12.00.
(2) This registration fee of $359.02 was calculated by multiplying the
aggregate of $1,041,150 by 1/29th of one percent.
(3) Refers to the shares underlying the warrants and the fee calculated
pursuant to Rule 457(c).
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-1 Registration Statement
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Location in Prospectus\
Form S-1 Item Registration Statement
- ------------- -----------------------
<S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus ............................. Outside Front Cover Page of
Prospectus,
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................................. Inside Front Cover Page of
Prospectus; Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges .................................. Summary; Risk Factors
4. Use of Proceeds............................................. Use of Proceeds
5. Determination of Offering Price ............................ Not Applicable
6. Dilution.................................................... Not Applicable
7. Selling Security Holders.................................... Selling Security Holders
8. Plan of Distribution........................................ Plan of Distribution
9. Description of Securities to be Registered ................. Outside Front Cover Page of
Prospectus; Description of
Securities
10. Interests of Named Experts and Counsel ..................... Legal Opinion; Experts
11. Information with Respect to Registrant ..................... Outside Front Cover Page of
Prospectus, Inside Front Cover
Page of Prospectus; Prospectus
Summary; Risk Factors;
Capitalization; Description of
Securities; Business: Market for
SEDA's Common Equity and
Related Stockholder Matters; Pro
Forma Combined Financial
Statements; Management's
Discussion of Financial Condition
and Results of Operations;
Directors and Executive Officers;
Certain Relationships and Certain
Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ............. Directors and Executive Officers
</TABLE>
ii
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS DATED JUNE , 1996
SUBJECT TO COMPLETION
---------------
SEDA SPECIALTY PACKAGING CORP.
2501 West Rosecrans Boulevard
Los Angeles, California 90059-3501
PROSPECTUS
FOR SALE OF UP TO 82,500 SHARES OF SEDA COMMON STOCK
AND UP TO 150,000 SHARES OF SEDA COMMON STOCK UNDERLYING WARRANTS TO PURCHASE
150,000 SHARES OF SEDA COMMON STOCK
This Prospectus relates (a) to the sale of 82,500 shares of common stock
of SEDA Specialty Packaging Corp., a Delaware corporation (the "Company" and
"SEDA") which were issued by SEDA in connection with the acquisition and merger
of American Safety Closure Corp., a New York corporation ("ASC") and the
Agreement and Plan of Merger (the "Merger Agreement") whereby ASC will be
acquired by through the merger of a wholly-owned subsidiary of SEDA into ASC.
Pursuant to the Plan of Merger, ASC Managing Partners, a general partnership
("ASC Partners") received $1,050,000 and 82,500 shares of common stock, $.001
par value, of SEDA (the "Common Stock") in exchange for 1,656,257 shares of the
common stock of ASC, $.30 par value, of ASC (the "ASC Common Stock"), and
(b) 150,000 shares of SEDA common stock issuable upon exercise of warrants (the
"Underwriters Warrants") held by Sutro & Co., Incorporated ("Sutro") and
NatWest Securities Limited ("NatWest"). Sutro and NatWest were the managing
underwriters in SEDA's initial public offering of October 29, 1993. The
exercise price of the Underwriters Warrants is the greater of $16.80 per share
or the closing sale price of SEDA's common stock as reported on the NASDAQ
National Market System on the date of exercise of the Underwriters Warrants
less $10.00.
The 82,500 shares of Common Stock, offered hereby are being offered by
ASC Partners (the "Selling Stockholders"). The 150,000 shares underlying the
Underwriters Warrants are being offered by SUTRO and NatWest (the "Selling
Warrant Holders"). The Company will not receive any proceeds from the sale of
Common Stock offered by the Selling Stockholders or the Selling Warrant Holders.
Expenses of the Offering are estimated to be $51,359 and are being paid
by the Company.
The Selling Stockholders may from time to time sell all or a portion of
the Common Stock which may be offered by them hereby in routine brokerage
transactions in the over-the-counter market, at prices and terms prevailing at
the time of the sale. The Selling Stockholders and Selling Warrant Holders may
also make private sales directly or through brokers or may make sales pursuant
to Rule 144 of the Securities Act of 1933, as amended (the "Securities Act").
The Selling Stockholders and Selling Warrant Holders may pay customary brokerage
fees, commissions and expenses. The brokers executing selling orders on behalf
of the Selling Stockholders and Selling Warrant Holders may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event
commissions received by such brokers may be deemed underwriting commissions
under the Securities Act. The Damon Group may be acting as a broker for the
Selling Stockholders. See "Plan of Distribution."
The Common Stock is included in Nasdaq and price quotations are
reported on the Nasdaq National Market under the symbol "SSPC." On June 12,
1996, the closing sales price of the Common Stock as reported on the Nasdaq
National Market was $21.3750.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS," page 6.
---------------
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 is ________________, 1996.
<PAGE> 4
AVAILABLE INFORMATION
SEDA has filed a Registration Statement (the "Registration Statement")
on Form S-1 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 omits certain information contained in the Registration Statement.
Statements made in this Prospectus 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.
SEDA is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. SEDA's Exchange Act filing number is 0-22508. Such reports, proxy
statements and any other information filed by SEDA 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, D.C. 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, Chicago, Illinois 60661; and copies of such material can be
obtained from the Public Reference Section of the Commission, located at 450
Fifth Street, N.W., Washington, D. C. Washington DC 20549 at prescribed rates.
Proxy statement, reports, and other information concerning the Company may be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W. Washington, D.C. 20006.
--------------------
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 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. THIS PROSPECTUS 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 NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF SEDA SINCE THE DATE HEREOF OR THAT THE
INFORMATION IN THIS PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the information referred to above that has been or may be
incorporated by reference into this Prospectus (not including exhibits to the
information so incorporated unless such exhibits are specifically incorporated
by reference as well). Such request should be addressed to Ronald W. Johnson,
SEDA Specialty Packaging Corp., 2501 West Rosecrans Boulevard, Los Angeles,
California 90059-3510.
<PAGE> 5
SUMMARY
Certain significant matters discussed in this Prospectus 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.
Cross-references in this summary are to captions in this Prospectus.
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.
1
<PAGE> 6
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.
2
<PAGE> 7
INTERESTS OF CERTAIN PERSONS IN 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 Testaverde. Pursuant to the letter
of intent, 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
3
<PAGE> 8
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.
4
<PAGE> 9
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 June 6, 1996, the closing bid price for SEDA Common Stock was
$21.50 and the closing bid price of ASC Common Stock was $1 7/16. 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".
5
<PAGE> 10
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.
1) 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.
2) 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. See "The Transaction -
Interests of Certain Persons in the Merger"
3) 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.
6
<PAGE> 11
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."
4) 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.
5) 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."
6) 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.
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<PAGE> 12
7) 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."
8) 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 coverage in the future. See "SEDA Specialty
Packaging Corp.--Business and Properties of SEDA--Regulation; Environmental
Considerations."
9) 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.
8
<PAGE> 13
10) 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".
11) 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.
12) RISK TO INVESTORS AS A RESULT OF CONTROL BY PRINCIPAL STOCKHOLDER SEDA.
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."
13) 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."
14) 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.
15) 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 June 1, 1996
3,160,000 shares of Common Stock were eligible for sale in the public market,
subject to compliance with Rule 144. 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.
9
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of SEDA as of
March 31, 1996.
<TABLE>
<CAPTION>
March 31, 1996
--------------
Actual
(in thousands)
<S> <C>
Debt:
Current maturities of long-term debt ............... $ 3,557
Current obligations under capitalized leases ....... 483
Line of credit ..................................... --
Long-term debt ..................................... 11,550
Obligations under capital leases ................... 708
--------
Total debt ....................................... 16,298
--------
Stockholders' equity:
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 shares outstanding ......... 5
Capital in excess of par value ..................... 26,983
Retained earnings .................................. 11,555
Treasury stock, at cost, 13,000 shares ............. (962)
--------
Total stockholders' equity ....................... 37,581
--------
Total capitalization ........................... $ 53,879
========
</TABLE>
USE OF PROCEEDS
The Company will not receive any of the proceeds of this offering. The
proceeds of this offering will accrue solely to the benefit of the Selling
Stockholders and the Selling Warrant Holders.
SELLING SECURITY HOLDERS
The following presents certain information regarding the ownership of
SEDA Common Stock to be received by ASC Managing Partners, the Selling Security
Holder, assuming that all shares offered hereby are sold. The Selling
Stockholder is a general partnership composed of David Kassel, Harry Goodman and
Vincent Conti, certain former officers and directors of ASC, all of whom served
in such capacities during the past three fiscal years, and Catherine Kassel;
Tina Conti, Robert Gillings, Dorothy Goodman and Damon Testaverde.
<TABLE>
<CAPTION>
Amount of Common Stock Significantly Amount of Common Stock Beneficially
Owned Before Offering Owned After Offering
------------------------------------ -----------------------------------
Number of Percentage Number of Percentage
Shares of of Shares Shares of of
SEDA Common Outstanding to be Common Outstanding
Name of Selling Stockholder Stock Shares Sold Stock Shares
- --------------------------- ------- -------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
ASC Managing Partners 82,500 * 82,500 0 *
c/o David Kassel
145 West 67th St., Suite 4D
New York, New York 10023
Name of Selling Warrant Holders
- -------------------------------
SUTRO & Co. Incorporated 75,000 * 75,000 0 0
201 California Street
San Francisco, CA 94111
NatWest Securities Limited 75,000 * 75,000 0 0
175 Water St.
New York, New York 10038
</TABLE>
- ------------------------
* less than one percent.
PLAN OF DISTRIBUTION
10
<PAGE> 15
The Selling Stockholders and Selling Warrant Holders may sell all or a
portion of the Common Stock offered hereby from time to time in brokerage
transactions in the over-the-counter market prices at terms prevailing at the
times of such sales. The Selling Stockholders and Selling Warrant Holders may
also make private sales directly or through brokers or make sales pursuant to
Rule 144 under the Securities Act. The Selling Stockholders and Selling Warrant
Holders may individually pay customary brokerage commissions and expenses. In
connection with any sales, the Selling Stockholders and Selling Warrant Holders
and any brokers participating in such sales may be deemed to be underwriters
within the meaning of the Securities Act, in which event commissions received by
such brokers may be deemed underwriting commissions under the Securities Act.
The Selling Stockholders and Selling Warrant Holders may utilize The Damon Group
as a broker to effectuate sales for them.
Under the Exchange Act and the regulations thereunder, any person
engaged in a distribution of the Common Stock of the Company offered by this
Prospectus (other than any broker-dealer qualifying as a "passive market-maker"
and effecting transactions in accordance with Rule 10b-6A under the Exchange
Act) may not simultaneously engage in market making activities with respect to
the Common Stock of the Company during the applicable "cooling off" periods
prior to the commencement of such distribution. In addition, without limiting
the foregoing, each Selling Stockholder and Selling Warrant Holders will need to
comply with the applicable provisions of the Exchange Act and the rules and
regulations thereunder including, without limitation, Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of Common Stock by
such Selling Stockholders and Selling Warrant Holders.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 30,000,000 shares of
common stock, $0.001 par value per share (the "Common Stock") and 1,000,000
shares of Preferred Stock, $0.001 par value (the "Preferred Stock").
COMMON STOCK
At June 6, 1996, there were 5,097,500 shares of Common Stock
outstanding. The holders of Common Stock are entitled to one vote for each share
on all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, the holders of a majority of the stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Subject to preferences that may be applicable to any then outstanding
Preferred Stock, the holders of Common Stock will be entitled to receive such
dividends, if any, as may be declared by the Board of Directors from time to
time out of legally available funds. Upon liquidation, dissolution or winding up
of the Company, the distribution, after payment of all debts and other
liabilities and subject to the prior rights of holders of any Preferred Stock
rights, preferences and privileges of holders of Common Stock will be subject to
the rights of the holders of shares of any series of Preferred Stock that the
Company may issue in the future.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, par value $0.001 per share. The Board of Directors is authorized, subject
to any limitations prescribed by the laws off the State of Delaware, but without
further action by the Company's stockholders, to provide for the issuance of
Preferred Stock in one or more series, to establish from time to time the number
of shares to be included in each such series, to fix the designations, powers,
preferences and rights of the shares of each such series and any qualifications,
limitations or restrictions thereof, and to increase or decrease the number of
any such series (but not below the number of shares of such series then
outstanding) without further vote or action by the stockholders.
There are no shares of Preferred Stock outstanding. The Board of
Directors may authorize and issue additional Preferred Stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of Common Stock, in addition, the issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no current plan to issue any shares of Preferred Stock.
WARRANTS
In connection with its initial public offering ("IPO") of its Common
Stock in October 26, 1993, SEDA granted to Sutro & Co. and NatWest Securities
Limited, its underwriters in the IPO, warrants to purchase up to 150,000 shares
of Common Stock at a price equal to the greater of $16.80 per share or the
closing price of the Common Stock as reported on the NASDAQ NMS on the date of
exercise less $10.00. These warrants are exercisable for a period of four years
from the IPO date. These warrants were allocated as between the said
Underwriters on the basis of 75,000 shares per warrant to each such Underwriter.
11
<PAGE> 16
DIVIDENDS
Except for the S Corporation distributions prior to the Company's IPO,
described herein, the Company 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 the Company is to retain earnings for use in its operations
and the expansion of its business.
12
<PAGE> 17
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 $2,907,000 comprises the 163,000 shares of SEDA
common stock valued at $15 11/16 per share (the average of the closing bid and
ask prices at March 29, 1996) and estimated acquisition costs of $350,000.
The following unaudited pro forma balance sheet is based upon SEDA's
unaudited consolidated balance sheet at March 31, 1996, 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 March 31, 1996.
The following unaudited pro forma statement of income for the year
ended December 31, 1995 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 following unaudited pro forma statement of income for the three
months ended March 31, 1996 is based on the unaudited consolidated income
statement of SEDA for that period, which includes the results of ASC, as if all
transactions leading to SEDA's 100% ownership of ASC had occurred on January 1,
1996.
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.
13
<PAGE> 18
SEDA SPECIALTY PACKAGING CORP. AND
AMERICAN SAFETY CLOSURE CORP. AND SUBSIDIARY
Unaudited Pro Forma Combined Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
Consolidated
SEDA
March 31, Pro Forma
1996 Adjustments Pro Forma
(Note 1) (Note 2) Combined
-------- -------- --------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $2,430 $(63) $2,367
Accounts receivable, less allowance
for doubtful accounts 9,702 -- 9,702
Inventories 6,845 -- 6,845
Prepaid expenses and other current 584 -- 584
assets
Deferred income taxes 1,030 -- 1,030
------- ------ ------
Total current assets 20,591 (63) 20,528
Property, plant and equipment, net 42,609 4,352 46,961
Other assets 1,019 (287) 732
------- ------ -------
$64,219 $4,002 $68,221
======= ====== =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $3,739 $ -- $3,739
Income taxes payable 532 -- 532
Accrued liabilities 1,664 -- 1,664
Current portion of long-term debt 3,557 -- 3,557
Current portion of obligations under capital
leases 483 -- 483
------ ------ -------
Total current liabilities 9,975 -- 9,975
Long-term debt 11,550 -- 11,550
Obligations under capital leases 708 -- 708
Deferred income taxes 4,104 1,746 5,850
------- ------ -------
Total liabilities 26,337 1,746 28,083
------- ------ -------
Minority interest in consolidated
subsidiary 301 (301) --
------ ------ ------
Stockholders' equity:
Preferred stock -- -- --
Common stock 5 -- 5
Capital in excess of par value 26,983 2,557 29,540
Retained earnings 11,555 -- 11,555
Treasury stock (962) -- (962)
------- ------ -------
Total stockholders' equity 37,581 2,557 40,138
------- ------ -------
$64,219 $4,002 $68,221
======= ====== =======
</TABLE>
- --------------------
Note 1 - The consolidated balance sheet of SEDA at March 31, 1996 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
$2,557,000 ($15 11/16 per share - the average of the closing bid and
ask price of SEDA common stock at March 29, 1996) and $350,000
of related acquisition costs, of which $287,000 were deferred as
of March 31, 1996. The aggregate purchase price of $2,907,000
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 March 31, 1996 was primarily
attributable to property, plant and equipment and a related
liability for deferred taxes.
14
<PAGE> 19
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 3,427 607 (a) 32,929
------- -------- ------- -------
Gross profit 12,781 645 (607) 12,819
Selling, general and administrative
expenses 5,470 804 (132)(b) 6,142
------- -------- ------ -------
Income (loss) from operations 7,311 (159) (475) 6,677
Interest expense 1,422 230 -- 1,652
Interest income (167) -- -- (167)
Other expense (income) (30) 33 -- 3
------- -------- -------- --------
Income before income taxes 6,086 (422) (475) 5,189
Provision for income taxes 1,951 -- (359)(c) 1,592
------- -------- ------ -------
Net income (loss) $ 4,135 $ (422) $ (116) $ 3,597
======= ======== ======= =======
Earnings (loss) per common and
common equivalent share $ 0.82 $ (0.10) $ 0.68
======= ======== =======
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 $807,000, resulting from increased
basis of property, plant and equipment acquired of $6,037,000.
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).
15
<PAGE> 20
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
3 Months
Ended Pro Forma
March 31, Adjustments Pro Forma
1996 (Note 1) Combined
------------ -------- --------
<S> <C> <C> <C>
Net sales $14,943 $ -- $ 14,943
Cost of sales 9,999 155(a) 10,154
------- ------- -------
Gross profit 4,944 (155) 4,789
Selling, general and administrative
expenses 2,113 -- 2,113
------- ------ -------
Income (loss) from operations 2,831 (155) 2,676
Interest expense 336 -- 336
Interest income (26) -- (26)
------- -------- --------
Income before income taxes 2,521 (155) 2,366
Provision for income taxes 933 (62)(b) 871
------- ------ -------
Net income (loss) $ 1,588 $ (93) $ 1,495
======= ======= =======
Earnings (loss) per common and
common equivalent share $ 0.30 $ 0.28
======= =======
Weighted average number of
common and common equivalent
shares 5,218 163 (c) 5,381
======== ======= ========
</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,
1996:
a. Additional depreciation expense of $155,000, resulting from increased
basis of property, plant and equipment acquired of $6,037,000.
Depreciation is calculated on a straight-line basis over the remaining
estimated useful lives of approximately 6 years;
b. Reduction of provision for income taxes as a result of increased
depreciation expense for the period;
c. SEDA common shares assumed to be issued to ASC shareholders for the
remaining 14% minority interest (approximately 163,000).
16
<PAGE> 21
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.
17
<PAGE> 22
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.
18
<PAGE> 23
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> 24
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> 25
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> 26
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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<PAGE> 27
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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<PAGE> 28
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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<PAGE> 29
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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<PAGE> 30
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."
On May 29, 1996, ASC Managing Partners, obtained an order to
Show Cause from the United States District Court, Southern District of
New York, case no. 95-CIV. 4745, requiring SEDA to Show Cause why SEDA
should not be directed to register the 82,500 shares of SEDA stock
which SEDA is required to register, sanctioning SEDA in the amount of
$100,000 and requiring SEDA to pay ASC Managing Partners attorneys
fees. A hearing on this Order to Show Cause was scheduled for June 10,
1996 but was subsequently adjourned.
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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
1996
----
First Quarter $17 3/4 $11 5/8
Second Quarter (through June 6, 1996) $24 $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 May 31, 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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<PAGE> 32
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>
Three Months
Ended March 31, Year Ended December 31,
--------------- ---------------------------------------------------
(In thousands, except per share and percentage data) 1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results:
Net sales $14,943 $8,363 $41,676 $30,400 $25,298 $17,386 $11,410
Gross profit 4,944 2,499 12,781 11,959 10,550 7,170 4,349
% of net sales 33.1% 29.9% 30.7% 39.3% 41.7% 41.2% 38.1%
Income from operations 2,831 1,360 7,311 7,902 7,640 5,457 2,883
Interest expense 336 281 1,422 987 983 982 867
Income before income taxes 2,521 1,122 6,086 7,108 6,684 4,018 2,030
Income taxes 933 370 1,951 2,266 1,886 122 38
Net income 1,588 752 4,135 4,842 4,798 3,896 1,992
Earnings per common and common equivalent share $0.30 $0.15 $0.82 $0.94
Weighted average number of common and common equivalent
shares 5,218 5,032 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) $10,616 $11,270 $11,070 $15,780 $(1,812) $(2,179)
Property, plant and equipment, net 42,609 43,342 32,463 19,696 11,807 9,309
Total assets 64,219 65,882 50,759 42,866 16,970 12,898
Long-term debt and capital leases 12,258 14,778 9,061 7,098 6,295 4,787
Total stockholders' equity 37,581 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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<PAGE> 33
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 and the first quarter of 1996 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 and in the first quarter of 1996.
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
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ --------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Plastic containers 61.2% 59.3% 60.6% 62.1% 60.0%
Plastic closures and custom products 38.8 40.7 39.4 37.9 40.0
----- ----- ----- ----- -----
Net sales 100.0 100.0 100.0 100.0 100.0
Cost of sales 66.9 70.1 69.3 60.7 58.3
----- ----- ----- ----- -----
Gross profit 33.1 29.9 30.7 39.3 41.7
Selling expenses 6.6 7.4 6.4 7.1 6.5
General and administrative expenses 7.6 6.2 6.7 6.2 5.0
----- ----- ----- ----- -----
Income from operations 18.9 16.3 17.6 26.0 30.2
Interest expense 2.2 3.4 3.5 3.2 3.9
Interest income (0.2) (0.5) (0.4) (0.9) (0.2)
Other (income) expense -- -- (0.1) 0.3 0.1
----- ----- ----- ----- -----
Income before income taxes 16.9 13.4 14.6 23.4 26.4
Provision for income taxes (pro forma in 1993) 6.3 4.4 4.7 7.5 9.5
----- ----- ----- ----- -----
Net income (pro forma in 1993) 10.6% 9.0% 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.
29
<PAGE> 34
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
30
<PAGE> 35
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.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO 1995
Net sales for the three months ended March 31, 1996 increased approximately
79% to $14.9 million compared to $8.4 million for the three months ended March
31, 1995. This increase resulted from an 84% increase in sales of containers and
a 71% increase in sales of closures and custom products. Approximately 42% of
the increase in net sales was a result of the Company's acquisition of a
majority interest in American Safety Closure Corp. ("ASC") in mid 1995. The
remaining increases were largely due to increased demand from existing
customers and an expanding customer base. The increase in net sales was
primarily a result of increased quantities of products sold, a greater
percentage of tubes with dispensing closures, and higher average container
prices resulting from a change in product mix.
Gross profit for the three months ended March 31, 1996 increased
approximately 98% to $4.9 million from $2.5 million in the comparable period of
1995. As a percentage of net sales, gross profit increased to 33.1% for the
three months ended March 31, 1996, from 29.9% in the comparable period of the
prior year. The improvement in gross margin percentage was caused primarily by
lower raw material costs (approximately 4%), a favorable change in product mix
reflecting a greater percentage of higher margin products (approximately 3%),
and improved manufacturing economies related to higher production levels
(approximately 2%), partially offset by a higher percentage of third party
dispensing closures on tubes sold (approximately 3%) and the consolidation of
ASC which produced products with lower gross margins than the other operations
of the Company (approximately 3%).
Selling expenses for the three months ended March 31, 1996 increased 59% to
$981,000 compared to $618,000 for the comparable period of the prior year. As a
percentage of net sales, selling expenses decreased to 6.6% for the three
months ended March 31, 1996 from 7.4% for the corresponding period of 1995. The
changes were due primarily to the inclusion of ASC selling expenses and higher
freight costs.
General and administrative expenses for the three months ended March 31, 1996
increased to $1,132,000 from $521,000 for the three months ended March 31,
1995. As a percentage of sales, general and administrative expenses increased to
7.6% for the three months ended March 31, 1996 from 6.2% for the same period in
1995. The addition of ASC administrative expenses, higher salaries, higher bad
debt expenses and higher professional fees related to investment banking
services were the primary reasons for the increase in 1996.
Interest expense for the three months ended March 31, 1996 increased to
$336,000 as compared to $281,000 in the same period in 1995, primarily as a
result of the addition of ASC interest bearing debt. Other income is primarily
interest income on short-term investments.
The higher effective tax rate for the first quarter of 1996 of 37.0% as
compared to 33.0% for the comparable period of 1995 reflects a reduction in the
estimated state income tax credits related to the Company's location 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
31
<PAGE> 36
$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.
Cash provided by operations for the three months ended March 31, 1996 was $2.9
million as compared to $1.3 million for the same period of 1995, reflecting the
higher net income in the first quarter of 1996. Cash used for the acquisition
of machinery and equipment was $0.5 million in the first three months of 1996
compared to $2.6 million for the same period of 1995. Cash used in the first
three months of 1996 related to the acquisition of ASC was only $0.1 million
compared to $3.3 million in the first three months of 1995. Cash used in
financing activities during the three months ended March 31, 1996 was
$3.4 million as compared to $3.5 million cash provided by financing activities
in the first three months of 1995, due to new long-term debt of $4.0 million
in 1995 versus the repayment of $1.5 million on the Company's line of
credit and the purchase of treasury stock in the first three months of 1996.
32
<PAGE> 37
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.
33
<PAGE> 38
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").
34
<PAGE> 39
<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".
35
<PAGE> 40
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.
36
<PAGE> 41
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
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<PAGE> 42
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> 43
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 May 22, 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 June 6, 1996.
(4) Includes 23,500 shares issuable pursuant to stock options exercisable
within 60 days of June 6, 1996.
(5) Represents shares issuable pursuant to stock options exercisable
within 60 days of June 6, 1996.
(6) Includes 21,250 shares issuable pursuant to stock options exercisable
within 60 days of June 6, 1996.
(7) Includes 683,375 shares issuable pursuant to stock options exercisable
within 60 days of June 6, 1996.
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<PAGE> 44
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
40
<PAGE> 45
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> 46
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> 47
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> 48
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 110 people at March 31, 1996, of
whom 30 were engaged in executive, sales, technical and administrative
functions and 80 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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<PAGE> 49
SELECTED CONSOLIDATED FINANCIAL DATA OF ASC
<TABLE>
<CAPTION>
(in thousands, except per share
data) Fiscal 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>
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<PAGE> 50
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
46
<PAGE> 51
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
47
<PAGE> 52
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.
48
<PAGE> 53
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 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.
49
<PAGE> 54
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 and at March 31, 1996 (Unaudited) F-3
Consolidated Statement of Income for the three years ended December 31, 1995 and for the
three months ended March 31, 1996 and 1995 (Unaudited) F-4
Consolidated Statement of Stockholders' Equity for the three years ended December 31, 1995
and for the three months ended March 31, 1996 (Unaudited) F-5
Consolidated Statement of Cash Flows for the three years ended December 31, 1995 and for
the three months ended March 31, 1996 and 1995 (Unaudited) 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> 55
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> 56
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1996 ---------------------
(In thousands except share data) (Unaudited) 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,430 $ 3,508 $ 5,585
Accounts receivable, less allowance for doubtful accounts
of $424 and $200 at December 31, 1995 and 1994 9,702 9,022 5,369
Inventories (Note 4) 6,845 7,158 3,852
Prepaid expenses and other current assets 584 743 1,085
Deferred income taxes (Note 7) 1,030 1,120 1,030
-------------------------------------
Total current assets 20,591 21,551 16,921
Property, plant and equipment, net (Note 5) 42,609 43,342 32,463
Other assets (Note 6) 1,019 989 1,375
-------------------------------------
$64,219 $65,882 $50,759
=====================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,739 $ 3,838 $ 1,538
Income taxes payable (Note 7) 532 650 -
Accrued liabilities 1,664 1,718 734
Note payable to principal stockholder (Note 11) - - 1,600
Current portion of long-term debt (Note 8) 3,557 3,582 1,704
Current portion of obligations under capital leases (Note 9) 483 493 275
-------------------------------------
Total current liabilities 9,975 10,281 5,851
Line of credit (Note 8) - 1,520 -
Long-term debt (Note 8) 11,550 12,453 8,508
Obligations under capital leases (Note 9) 708 805 553
Deferred income taxes (Note 7) 4,104 3,708 3,677
-------------------------------------
Total liabilities 26,337 28,767 18,589
-------------------------------------
Commitments and contingencies (Note 9)
Minority interest in consolidated subsidiary (Note 3) 301 301 -
-------------------------------------
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 5
Capital in excess of par value 26,983 26,983 26,333
Retained earnings 11,555 9,967 5,832
Treasury stock, at cost, 13,000 shares (962) (141) -
-------------------------------------
Total stockholders' equity 37,581 36,814 32,170
-------------------------------------
$64,219 $65,882 $50,759
=====================================
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 57
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
(In thousands, except per share data) 1996 1995 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $14,943 $8,363 $41,676 $30,400 $25,298
Cost of sales 9,999 5,864 28,895 18,441 14,748
--------------------------------------------------
Gross profit 4,944 2,499 12,781 11,959 10,550
Selling expenses (Note 11) 981 618 2,675 2,164 1,650
General and administrative expenses 1,132 521 2,795 1,893 1,260
--------------------------------------------------
Income from operations 2,831 1,360 7,311 7,902 7,640
Interest expense 336 281 1,422 987 983
Interest income (26) (43) (167) (273) (50)
Other (income) expense - - (30) 80 23
--------------------------------------------------
Income before income taxes 2,521 1,122 6,086 7,108 6,684
Provision for income taxes 933 370 1,951 2,266 1,886
--------------------------------------------------
Net income $ 1,588 $ 752 $ 4,135 $ 4,842 $ 4,798
==================================================
Earnings per common and common equivalent share $ 0.30 $ 0.15 $ 0.82 $ 0.94
=====================================
Weighted average number of common and common equivalent shares 5,218 5,032 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> 58
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
Unaudited data:
Purchase of 56,000 treasury shares - - - - - - (821) (821)
Net income - - - - - 1,588 - 1,588
----------------------------------------------------------------------------------------
Balance at March 31, 1996 - - 5,098 $ 5 $26,983 $11,555 $ (962) $37,581
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 59
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ ----------------------------------
(In thousands) 1996 1995 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,588 $ 752 $ 4,135 $ 4,842 $ 4,798
--------------------------------------------------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,202 715 3,757 2,281 1,427
Change in provision for losses on accounts receivable 130 - 112 (50) 162
Deferred income taxes 485 267 578 933 1,639
Change in assets and liabilities before effect of ASC acquisition:
Accounts receivable (810) (775) (2,412) (921) (1,694)
Inventory 313 (712) (1,716) (1,591) (945)
Prepaid expenses and other current assets 159 185 482 (706) (301)
Other assets 82 299 474 (388) (387)
Accounts payable (99) 608 993 (620) 1,441
Income taxes payable (118) 103 650 - -
Accrued liabilities (54) (179) 10 (246) 151
--------------------------------------------------------
Total adjustments 1,290 511 2,928 (1,308) 1,493
--------------------------------------------------------
Net cash provided by operating activities 2,878 1,263 7,063 3,534 6,291
--------------------------------------------------------
Cash flows from investing activities:
Acquisition of majority interest in ASC (Note 3) (112) (3,343) (3,449) - -
Capital expenditures (469) (2,639) (7,616) (8,720) (8,510)
--------------------------------------------------------
Net cash used in investing activities (581) (5,982) (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 (1,520) - (1,480) (1,000) (3,315)
Proceeds from public offering of common stock - - - - 23,090
Exercise of stock options - - - 248 -
Purchase of treasury stock (821) - (141) - -
Proceeds from issuance of long-term debt - 4,000 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 (1,034) (488) (3,074) (8,545) (2,295)
Distributions of income - - - - (5,033)
---------------------------------------------------------
Net cash provided by (used in) financing activities (3,375) 3,512 1,925 (3,803) 16,490
---------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,078) (1,207) (2,077) (8,989) 14,271
Cash and cash equivalents at beginning of year 3,508 5,585 5,585 14,574 303
---------------------------------------------------------
Cash and cash equivalents at end of period $ 2,430 $ 4,378 $ 3,508 $ 5,585 $ 14,574
=========================================================
Other cash flow information:
Cash paid during the period for interest $ 338 $ 281 $ 1,380 $ 1,004 $ 985
Cash paid during the period for taxes on income $ 500 $ - $ 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> 60
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.
Unaudited Interim Information
The accompanying consolidated balance sheet at March 31, 1996 and the
consolidated statements of income and cash flows for the three month periods
ended March 31, 1996 and 1995 and the consolidated statement of stockholders'
equity for the three month period ended March 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. The data disclosed in these notes to financial
statements for those periods are also unaudited. The results for the three
months ended March 31, 1996 are not necessarily indicative of results of
operations for the year ending December 31, 1996.
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> 61
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> 62
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> 63
NOTE 4 - INVENTORIES
<TABLE>
<CAPTION>
March 31, December 31,
1996 -------------------
(In thousands) (Unaudited) 1995 1994
--------------------------------------------------
<S> <C> <C> <C>
Finished goods $2,736 $2,771 $1,102
Work-in-process 1,455 1,845 1,223
Raw materials 2,654 2,542 1,527
--------------------------------------------------
$6,845 $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> 64
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> 65
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
with a net book value of $1,932,000 at December 31, 1995. 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> 66
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> 67
<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> 68
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> 69
THIS PAGE INTENTIONALLY LEFT BLANK.
F-16
<PAGE> 70
INDEX TO FINANCIAL STATEMENTS
AMERICAN SAFETY CLOSURE CORP.
<TABLE>
<S> <C>
Independent Auditors' Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20
Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-21
Consolidated Statement of Changes in Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . F-22
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
</TABLE>
F-17
<PAGE> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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
<PAGE> 87
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSONS TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY................................................. 1
RISK FACTORS....................................................... 6
CAPITALIZATION..................................................... 11
USE OF PROCEEDS.................................................... 11
SELLING SECURITY HOLDERS........................................... 11
PLAN OF DISTRIBUTION............................................... 11
DESCRIPTION OF SECURITIES.......................................... 12
PRO FORMA COMBINED FINANCIAL STATEMENTS............................ 14
SEDA SPECIALTY PACKAGING CORP...................................... 15
BUSINESS........................................................... 18
MARKET FOR SEDA'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.... 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................ 30
DIRECTORS AND EXECUTIVE OFFICERS................................... 34
EXECUTIVE COMPENSATION............................................. 35
CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS..................... 38
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..... 40
LEGAL OPINION...................................................... 51
EXPERTS............................................................ 51
INDEX TO FINANCIAL STATEMENTS...................................... F-1 &
F-17
</TABLE>
232,500 Shares
SEDA SPECIALTY PACKAGING CORP.
Common Stock
---------------
PROSPECTUS
---------------
-------------------
[date]
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13.OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the Registrant
in connection with the sale of the Common Stock being registered hereby, all of
which are estimated except for the SEC and NASD filing fees.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ------
<S> <C>
SEC registration fee......................... $359
Blue Sky fees and expenses................... 1,000
Printing and engraving expenses.............. 5,000
Legal fees and expenses...................... 15,000
Accounting fees and expenses................. 15,000
Transfer Agent and Registrar fees............ 5,000
Miscellaneous................................ 10,000
-------
Total............................... $51,359
=======
</TABLE>
ITEM 14. 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
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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 15.RECENT SALES OF UNREGISTERED SECURITIES
In connection with the proposed merger of American Safety Closure Corp. ("ASC").
with and into a wholly-owned subsidiary of SEDA, on January 5, 1995, ASC, ASC
Managing Partners ("ASC Partners") and SEDA entered into a Restated Agreement
and Plan of Merger (the "Merger Agreement"), pursuant to which SEDA deposited
$1,050,000 in cash and 82,500 shares of SEDA Common Stock into escrow and ASC
Partners deposited certificates for 1,656,127 shares of ASC Common Stock into
escrow. Pursuant to the Merger Agreement, in the event the merger had not become
effective on or before July 5, 1995, SEDA agreed to purchase the 1,656,127
shares of ASC Common Stock in the escrow for the $1,050,000 and 82,500 shares of
SEDA Common Stock placed in escrow.
On June 23, 1995, SEDA filed a complaint in the United States District Court for
the Southern District of New York against ASC, ASC Partners and KGE Leasing
Associates, Inc. case no. 95-CIV. 4745(LMM), seeking rescission of the Merger
Agreement and damages. On October 24, 1995, a stipulation was filed with the
Court, thereby settling the case and effectuating the consensual purchase of the
82,500 SEDA shares by ASC Partners.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Act, or Regulation D
promulgated thereunder. All recipients had adequate access to information about
the Registrant.
ITEM 16.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
Exhibit
Number Exhibits
2.1* Restated Agreement and Plan of Merger dated January 5, 1995
2.1.1* Amendments to Restated Agreement of Merger, dated August 21,
December 15, 1995 and March 19, 1996.
2.1.1a* Amendment to Restated Agreement Merger, dated May 24, 1996.
3.1** Certificate of Organization of Registrant
3.2** Bylaws of Registrant
4.1** Specimen of Common Stock Certificate
5.1 Opinion of Freshman, Marantz. Orlanski, Cooper & Klein
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
11.1* Computation of per Share Earnings
23.1 Consent of Freshman, Marantz. Orlanski, Cooper & Klein contained in
Opinion, Exhibit No. 5.1
23.2(a) Consent of Price Waterhouse LLP regarding financial statements of SEDA
23.2(b) Consent of Price Waterhouse LLP regarding financial statements of ASC
23.2.1 Consent of Urbach Kahn & Werlin PC.
24.1 Powers of Attorney (set forth on signature pages to this Registration
Statement), previously filed as part of the original S- 1, on January
18, 1996, file no. 333-374.
(b) FINANCIAL STATEMENT SCHEDULES FOR THE THREE YEARS ENDED DECEMBER 31, 1995:
Schedule 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."
*Incorporated by reference to, and such Exhibits have the corresponding Exhibit
number filed as part of SEDA's S-4 Amendments No. 1, 2, 3 & 4 filed with the
SEC as file no. 35-93248 on January 18, 1996, March 29, 1996, May 16, 1996,
June 6, 1996, respectively.
**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.
ITEM 17.UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 14, or otherwise, the Registrant
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 the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
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, the Registrant 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 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.
The undersigned Registrant hereby undertakes:
(1) 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; (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,
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<PAGE> 90
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.
(2) That, for the purpose of determining any liability under the Securities Act,
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
(3) 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.
(4) That for purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement In reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(5) That for the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus 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.
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<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Los
Angeles, State of California, on the 18th day of June, 1996.
SEDA SPECIALTY PACKAGING CORP.
By: /s/ Shawn Sedaghat
_______________________________
Shawn Sedaghat, Chairman,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this 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 June 18, 1996
Shawn Sedaghat Executive Officer
/s/ Ronald W. Johnson
__________________________ Chief Financial Officer and June 18, 1996
Ronald W. Johnson Secretary, and a Director
(Principal Financial and
Accounting Officer)
__________________________ Director June 18, 1996
* Dann V. Angeloff
__________________________ Director June 18, 1996
* Alfred E. Osborne, Jr., PhD
__________________________ Director
Robert H. King
/s/ Shawn Sedaghat
____________________________________ June 18, 1996
*By Shawn Sedaghat, Attorney-in-Fact
</TABLE>
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<PAGE> 92
INDEX TO EXHIBITS
Exhibit
Number Exhibits
2.1* Restated Agreement and Plan of Merger dated January 5, 1995
2.1.1* Amendments to Restated Agreement of Merger, dated August 21 and
December 15, 1995.
2.1.1a* Amendment to Restated Agreement Merger, dated May 24, 1996.
3.1** Certificate of Organization of Registrant
3.2** Bylaws of Registrant
4.1** Specimen of Common Stock Certificate
5.1 Opinion of Freshman, Marantz. Orlanski, Cooper & Klein, to be filed by
Amendment
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
11.1* Computation of per Share Earnings
23.1 Consent of Freshman, Marantz. Orlanski, Cooper & Klein contained in
Opinion, Exhibit No. 5.1
23.2 Consent of Price Waterhouse LLP
23.2.1 Consent of Urbach Kahn & Werlin PC.
24.1 Powers of Attorney (set forth on signature pages to this Registration
Statement), previously filed in original S-1 filing, January 18, 1996,
file no. 333-374.
(b) Financial Statement Schedules for the three years ended December 31, 1995:
Schedule 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."
*Incorporated by reference to, and such Exhibits have the corresponding Exhibit
number filed as part of SEDA's S-4 Amendments No. 1, 2, 3 & 4 filed with the
SEC as file no. 35-93248 on January 18, 1996, March 29, 1996, May 16, 1996,
June 6, 1996, respectively.
**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.
II-5
<PAGE> 1
[FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN LETTERHEAD]
(310) 285-1629 212.082651-4
June 12, 1996
SEDA Specialty Packaging Corp.
2501 West Rosecrans Boulevard
Los Angeles, California 90059
Re: SEDA Specialty Packaging Corp.
Registration Statement on Form S-1,
SEC File No. 333-274
Gentlemen:
At your request, we have examined the Registration Statement on Form S-1 (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 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 82,500
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> 2
FRESHMAN, MARANTZ, ORLANSKI
COOPER & KLEIN
A LAW CORPORATION
SEDA Specialty Packaging Corp.
June 12, 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 Delaware. 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
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 21, 1996
relating to the financial statements of SEDA Specialty Packaging Corp. and its
subsidiaries, 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 16(b) of this Registration
Statement when such schedule is read in conjunction with the financial
statements referred to in our report. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Costa Mesa, California
June 14, 1996
<PAGE> 2
EXHIBIT 23.2
(Cont.)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of SEDA Specialty Packaging Corp. of our
report dated August 14, 1995, except as to Notes 3 and 10 which are as of 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
June 14, 1996
<PAGE> 1
EXHIBIT 23.2.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated June 17, 1995, on our audit of the 1994 consolidated financial
statements of American Safety Closure Corp. and Subsidiary. We also consent to
the reference to our firm under the caption "Experts."
/s/ URBACH KAHN & WERLIN PC
URBACH KAHN & WERLIN PC
Glens Falls, New York
June 14, 1996
