**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-K**

 

|   | **x** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR                            15(d)** |
|--------|-------|------------------------------------------------------------------------------|

**OF THE SECURITIES EXCHANGE ACT OF 1934**

For            the fiscal year ended December 31, 2007

|   | Or |
|--------|----|

|   | **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR                            15(d)** |
|--------|-------|----------------------------------------------------------------------------------|

|   | **OF THE SECURITIES EXCHANGE ACT OF 1934** |
|--------|--------------------------------------------|

 

For            the transition period fromto _____

 

|   | Commission File Number: 333-134089 |
|--------|------------------------------------|

**CPG International Inc.**

(Exact name of registrant as specified in its charter)

 

|   | **Delaware**                                                              |   | **20-2779385**                       |
|--------|---------------------------------------------------------------------------|--------|--------------------------------------|
|   | (State or other jurisdiction of                            incorporation) |   | (I.R.S. Employer Identification No.) |

 

| **801 Corey Street, Scranton, PA**       |   | **18505**  |
|------------------------------------------|--------|------------|
| (address of principal executive offices) |   | (Zip Code) |

 

Registrant’s telephone number, including area code:**(570) 558-8000**

 

Indicate by check mark if the registrant is a well-known seasoned            issuer, as defined in rule 405 of the Securities Act. YesoNox

 

Indicate by check mark if the registrant is not required to file reports            pursuant to Section 13 or Section 15(d) of the Exchange Act.            YesoNox

 

Indicate by check mark whether registrant (1) has filed all reports            required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934            during the preceding 12 months (or for such shorter period that the registrant was            required to file such reports), and (2) has been subject to such filing requirements            for the past 90 days. YesxNoo

Indicate by check mark if disclosure of delinquent filers pursuant to            Item 405 of Regulation S-K is not contained herein, and will not be contained, to the            best of registrant’s knowledge, in definitive proxy or information statements            incorporated by reference in Part III of this Form 10-K or any amendment to this Form            10-K.x

 

Indicate by check mark whether the registrant is a large accelerated            filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.            See the definitions of “large accelerated filer,” “accelerated            filer” and “smaller reporting company” in Rule 12b-2 of the Exchange            Act.

             

| Large accelerated filero                                              | Accelerated filero         |
|-----------------------------------------------------------------------|----------------------------|
| Non-accelerated filerx

(Do not check if a smaller reporting company) | Smaller reporting companyo |

 

Indicate by check mark whether the registrant is a shell company (as            defined in rule 12b-2 of the Exchange Act). YesoNox

 

Indicate the number of shares outstanding of each of the            registrant’s classes of common stock, as of the latest practicable            date.

There            is no public market for the registrant’s common stock. As of March 25, 2008 the            number of units of the registrant’s common stock, par value $0.01 per share,            outstanding was 10, all of which are held by CPG International Holdings LP, the            registrant’s direct parent company.

 

 

**EXPLANATORY NOTE**

 

*Presentation of Financial Information*

 

On May 10, 2005, we consummated the acquisition (the            “Transaction”) of all the equity interests of the operating subsidiaries of            Compression Polymers Holdings LLC, a Delaware limited liability company (the            “Predecessor”). CPG International Inc., formerly known as Compression            Polymers Holding II Corporation, a Delaware corporation (the “Successor”)            and its wholly owned subsidiary, CPG International I Inc. (“CPG”), formerly            known as Compression Polymers Holding Corporation , were each formed by AEA Investors            LLC and its affiliates (“AEA Investors”) for the purpose of the            Transaction. Compression Polymers Holdings LLC sold all of the equity interests of its            operating subsidiaries to the Successor in connection with the Transaction.

 

All references in this report to the “Company,”            “we,” “our” or “us” (and similar terms) mean (1)            the Predecessor for periods ending on or prior to May 10, 2005, and (2) the Successor            for periods beginning after May 10, 2005, in each case together with its consolidated            financial subsidiaries.

 

As a result of the Transaction and resulting change in control and            change in historical cost basis of accounting, we are required to present separately            the operating results for the Predecessor periods up to and including the closing date            of the Transaction (May 10, 2005) and the Successor periods following the closing date            of the Transaction (May 11, 2005 and thereafter). The financial statements and            operating results identified in this report as belonging to the            “Predecessor” are those of Compression Polymers Holdings LLC, the parent            entity existing for all periods shown prior to the completion of the Transaction. For            the period beginning after the Transaction, the financial statements and operating            results presented herein are those of the Successor. The Successor has guaranteed the            Senior Floating Rate Notes due 2012 and the 101⁄2% Senior Notes due 2013 of CPG,            collectively, the “outstanding notes”, and, as a result, although CPG is            the issuer of the outstanding notes, as required by SEC rules, the financial statements            included herein for periods beginning after the Transaction are that of the Successor,            unless otherwise noted. The Successor has no interests, operations or activities other            than through its ownership of 100% of CPG and, accordingly, the financial statements of            CPG would be substantially similar to those of the Successor included            herein.

 

 

 

 

 

 

 

 

2

 

| **CPG INTERNATIONAL INC.**                                                                                                             |     |
|----------------------------------------------------------------------------------------------------------------------------------------|----------|
| **FORM 10-K**                                                                                                                          |     |
| **DECEMBER 31, 2007**                                                                                                                  |     |
| **TABLE OF CONTENTS**                                                                                                                  |     |
|                                                                                                                                   |     |
|                                                                                                                                        | **Page** |
|                                                                                                                                   |     |
| Cautionary Note Regarding Forward Looking                            Statements                                                        | 4        |
| **PART I**                                                                                                                             |     |
|                                                                                                                                   |     |
| Item 1 Business.                                                                                                                       | 6        |
|                                                                                                                                   |     |
| Item 1A Risk Factors.                                                                                                                  | 15       |
|                                                                                                                                   |     |
| Item 1B Staff Comments.                                                                                                                | 23       |
|                                                                                                                                   |     |
| Item 2 Properties.                                                                                                                     | 24       |
|                                                                                                                                   |     |
| Item 3 Legal Proceedings.                                                                                                              | 24       |
|                                                                                                                                   |     |
| Item 4 Submission of Matters to Vote of Security                            Holders.                                                   | 24       |
| **PART II**                                                                                                                            |     |
| Item 5. Market for the Registrant’s Common Stock,                            Related Stockholder Matters and Issuer Purchases of |     |
| Equity Securities.                                                                                                                     | 24       |
|                                                                                                                                   |     |
| Item 6. Selected Financial Data.                                                                                                       | 25       |
|                                                                                                                                   |     |
| Item 7. Management’s Discussion and Analysis of                            Financial Condition and Results of Operations.        | 26       |
|                                                                                                                                   |     |
| Item7A Quantitative and Qualitative Disclosures About                            Market Risk.                                          | 47       |
|                                                                                                                                   |     |
| Item 8 Financial Statements and Supplementary                            Data.                                                         | 48       |
|                                                                                                                                   |     |
| Item 9 Changes in and Disagreements with Accountants on                            Accounting and Financial Disclosure.                | 48       |
|                                                                                                                                   |     |
| Item 9A Controls and Procedures.                                                                                                       | 48       |
|                                                                                                                                   |     |
| Item 9B Other Information.                                                                                                             | 49       |
| **PART III**                                                                                                                           |     |
| Item 10 Directors, Executive Officers and Corporate                            Governance.                                             | 49       |
|                                                                                                                                   |     |
| Item 11 Executive Compensation.                                                                                                        | 52       |
|                                                                                                                                   |     |
| Item 12 Security Ownership of Certain Beneficial Owners                            and Management and Related Stockholder              |     |
| Matters.                                                                                                                               | 61       |
|                                                                                                                                   |     |
| Item 13 Certain Relationships and Related Transactions                            and Director Independence.                           | 63       |
|                                                                                                                                   |     |
| Item 14 Principal Accountant Fees and                            Services.                                                             | 65       |
| **PART IV**                                                                                                                            |     |
| Item 15 Exhibits and Financial Statement                            Schedules.                                                         | 65       |
|                                                                                                                                   |     |
| Index to the Consolidated Financial                            Statements.                                                             | F-1      |

             

             

             

3

             

**CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS**

 

This report contains forward-looking statements within the meaning of            Section 27A of the Securities Act and Section 21E in the Securities Exchange            Act of 1934, as amended (the “Exchange Act”). You can generally identify            forward-looking statements by our use of forward-looking terminology such as            “anticipate,” “believe,” “continue,”            “could,” “estimate,” “expect,”            “intend,” “may,” “might,” “plan,”            “potential,” “predict,” “seek,”            “should,” or “will,” or the negative thereof or other            variations thereon or comparable terminology. In particular, statements about (a)            our acquisition of Santana Products (the “Santana Acquisition”), our            acquisition of Procell Decking SystemsTM (the “Procell Acquisition”)            and our acquisition of Compos-A-Tron Manufacturing Inc. (the “Composatron            Acquisition”); (b) the markets in which we operate, including growth of our            various markets and growth in the use of synthetic products; and (c) our            expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future            events or performance contained in this report and the “Management’s            Discussion and Analysis of Financial Condition and Results of Operations” section            are forward-looking statements. The forward-looking statements contained herein            regarding market share, market sizes and changes in markets are subject to various            estimations, uncertainties and risks.

 

We have based these forward-looking statements on our current            expectations, assumptions, estimates and projections. While we believe these            expectations, assumptions, estimates and projections are reasonable, such            forward-looking statements are only predictions and involve known and unknown risks and            uncertainties, many of which are beyond our control. These and other important factors,            including those discussed in this report, may cause our actual results, performance or            achievements to differ materially from any future results, performance or achievements            expressed or implied by these forward-looking statements. Some of the factors that            could cause actual results to differ materially from those expressed or implied by the            forward-looking statements include:

 

|   | **•** | risks associated with our substantial indebtedness and                            debt service; |
|--------|------------|-------------------------------------------------------------------------------------------------|

             

|   | **•** | risks of increasing competition in our existing and                            future markets, including competition from new products introduced by                            competitors; |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | risk that projections of increased market size do not                            materialize as expected; |
|--------|------------|-----------------------------------------------------------------------------------------------------------|

 

|   | **•** | increases in prices and lack of availability of resin                            and other raw materials and our ability to pass any increased costs on                            to our customers in a timely manner; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | risks related to our dependence on the performance of                            our AZEK products; |
|--------|------------|-----------------------------------------------------------------------------------------------------|

 

|   | **•** | general economic or business conditions, either                            nationally, regionally or in the individual markets in which we conduct                            business may deteriorate and have an adverse impact on our business                            strategy, including without limitation, factors relating to interest                            rates, gross domestic product levels and activity in the residential,                            commercial and institutional construction market; |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | changes in governmental laws and regulations, including                            environmental law, and regulations; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | continued increased acceptance of synthetic products as                            an alternative to wood and metal products; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | risks related to acquisitions we may pursue; |
|--------|------------|----------------------------------------------|

 

|   | **•** | our ability to retain management; |
|--------|------------|-----------------------------------|

 

|   | **•** | our ability to meet future capital                            requirements; |
|--------|------------|-----------------------------------------------------------------------------|

 

|   | **•** | our ability to protect our intellectual property                            rights; |
|--------|------------|-------------------------------------------------------------------------------------|

 

4

 

|   | **•** | downgrades in our credit ratings; and |
|--------|------------|---------------------------------------|

 

|   | **•** | other risks and uncertainties. |
|--------|------------|--------------------------------|

             

Given these risks and uncertainties, you are cautioned not to place            undue reliance on such forward-looking statements. The forward-looking statements            included in this report are made only as of the date hereof. We do not undertake and            specifically decline any obligation to update any such statements or to publicly            announce the results of any revisions to any of such statements to reflect future            events or developments.

             

 

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**Item 1. Business.**

**Company Overview**

We are a leading supplier of premium, low maintenance building products            designed to replace wood, metal and other materials in the residential, commercial and            industrial markets. With a focus on manufacturing excellence, proprietary technologies            and quality, we have introduced our products through distribution networks to sizable            markets increasingly converting to low maintenance materials. We have developed a            number of branded products including AZEK® Trim, AZEK Deck, AZEK Moulding Comtec            and Hiny Hiders bathroom partition systems, and EverTuffTM and TuffTecTM            locker systems. We operate the following two business units:

 

|   | **•** | AZEK Building Products Inc., or AZEK Building Products,                            manufactures exterior residential building products such as AZEK Trim,                            AZEK Deck, and AZEK Moulding for the residential and commercial                            building market. Additionally AZEK Building Products produces Celtec                            and other non-fabricated products for the industrial market;                            and |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Scranton Products Inc., or Scranton Products, produces                            fabricated bathroom partition and locker systems under the Comtec,                            Santana, Hiny Hiders, EverTuff and TuffTec labels for the commercial                            market and Seaboard® and Flametec® and                            other non-fabricated products for special application industrial                            markets. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

For financial information regarding our segments, please see            “*Management’s Discussion and Analysis of Financial            Condition and Results of Operations*” in Item 7 of this            report, as well as Note 2 “*Segment            Information*” to our consolidated financial statements            in this report.

 

**AZEK Building Products**

Our AZEK Building Products business unit, representing approximately            68%, 62% and 67% of our net sales for the years ended December 31, 2007, 2006 and 2005,            respectively, manufactures product for the residential markets under the AZEK brand and            product for the industrial markets under several brands including Celtec. Through our            AZEK Trim and AZEK Moulding product lines, we offer a variety of products for exterior            housing applications such as trim, fascia, soffit, cornerboards, millwork, mouldings            and window and door casements. With AZEK Deck, we supply deck boards and porch board            for residential housing. AZEK products are similar to finished wood aesthetically, but            unlike wood do not require any upkeep for protection. AZEK products provide many            functional advantages as they do not warp or rot, are impervious to water and insect            infestation and do not require paints or stains for protection. However in the case of            AZEK Trim, it can be painted to achieve a custom color and will hold paint longer in            applications where the product is painted. Both AZEK Trim and AZEK Deck are listed with            the International Code Council (ICC). Serving the industrial markets, Celtec and other            branded products are substitutes for wood and metal in a variety of applications,            including industrial tank linings, marine products, fire retardant products and            commercial signage.

On January 31, 2007, we completed the acquisition of Procell Decking,            referred to herein as the Procell Acquisition. This product line was rebranded as AZEK            Deck in 2007. We combined the Procell Decking operations with our AZEK Building            Products business unit in order to effectively leverage AZEK’s brand, sales team,            and two-step distribution footprint. AZEK Deck is manufactured with a cellular PVC            technology combined with agra-fiber to produce a durable, long-life product with            superior attributes that serve as a replacement for wood and composite products in            decking applications. The combination of cellular PVC and the agra fiber create a            product that has superior attributes over wood or wood composite decks. Most notably,            AZEK Deck is resistant to staining, resistant to scratching and when fastened close to            the edge of the board is resistant to splitting. All of our AZEK products are            manufactured from comparable raw material ingredients, including polyvinyl chloride, or            PVC, and are manufactured internally through similar processes, providing significant            cost benefits through vertical integration.

On February 29, 2008, we completed the acquisition of Compos-A-Tron            Manufacturing Inc., referred to herein as the Composatron Acquisition. Composatron is a            privately held manufacturer of Premier and Trademark

 

6

Railing            Systems, leading composite railing solutions for the residential housing market. The            Premier and Trademark branded railing systems are manufactured using a PVC / wood flour            composite and a co-extruded PVC capstock. The products have the subtle texture of            painted wood and are ICC code listed. The product lines offered by Composatron are            highly complimentary to the Company’s AZEK Deck products and already offer a            successful rail system that matches the AZEK Deck color palette. Composatron will be            combined with our AZEK Building Products business unit.

             

We sell our AZEK products through an expanding nationwide network of            specialty building product distributors with over 74 locations who then sell to over            2,100 dealers including lumber yards, contractors and installers. In addition, we sell            Celtec and other similarly manufactured products through a similar national            distribution network. Due to our product quality, market leadership and national sales            and distribution network, AZEK has developed significant brand awareness within the            residential home exteriors market, making it the product of choice for consumers of low            maintenance home exterior products.

 

**Scranton Products**

Our Scranton Products business unit, representing approximately 32%, 38%            and 33% of our net sales for the years ended December 31, 2007, 2006 and 2005,            respectively, fabricates our Comtec and Santana synthetic bathroom partition and locker            systems, and manufactures non-fabricated products, such as Seaboard and Flametec, that            are utilized in various applications including semiconductors and marine construction,            food preparation, playground equipment and other diverse applications. We have been            able to successfully differentiate our product offering from our competitors through            the introduction of proprietary products that are flame retardant, ultraviolet stable            and highly resistant to abrasion or chemical corrosion. In addition, we believe we are            the largest vertically integrated supplier of synthetic bathroom partition and locker            systems, which we sell to schools, universities, parks, recreational facilities,            stadium arenas, industrial plants, as well as various retail and commercial facilities.            Our bathroom partition and locker alternatives, sold under our leading brands of            Comtec, Capitol, EverTuff, Hiny Hiders and TuffTec, are impervious to rust, dents, and            scratches; are longer lived; graffiti resistant; easily cleaned; and require minimal            maintenance once installed, unlike competing metal products. All of our products within            this business unit are derived from comparable raw material ingredients, including            either high density polyethylene, or HDPE, or polypropylene, or PP, and are            manufactured internally through similar processes. This provides us with cost benefits            compared to competitors who do not have our vertically integrated manufacturing            capacity and therefore may have a less competitive cost position. We sell our bathroom            partition and locker systems through both a direct and indirect sales force which            covers over 1,200 local dealers across the United States, Canada and Latin            America.

On April 29, 2006, we completed the acquisition of Santana Holdings            Corporation, the direct parent of Santana Products, Inc., referred to herein as the            Santana Acquisition. Santana was combined with our Scranton Products business unit.            Santana was one of the largest, privately held manufacturers of solid plastic            commercial bathroom partitions, lockers, benches and vanities in the United States. We            believe that the Santana Acquisition helped us expand our product base, increase our            distributor network and expanded our portfolio of premium branded products.

**Our            Competitive Strengths**

We believe that our key competitive strengths are:

|   | ***Leading Market Positions with Recognized Branded                            Leadership.*** |
|--------|-----------------------------------------------------------------------------------------------|

|   | • | *AZEK Building Products*. In                            a 2007 Brand Use survey conducted by*Builder                            Magazine*, AZEK trim was named the #1 brand,                            in the category of Exterior Decorative Mouldings/Trim/Columns, and was                            voted #1 in: in (i) brand familiarity, (ii) brand most used, (iii)                            brand most used in the past two years, and (iv) quality. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             

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|   | • | *Scranton Products*. We                            believe we are the leading manufacturer of highly engineered synthetic                            bathroom and locker room products with our Comtec, Capitol, Hiny Hiders                            and EverTuff brands. With the support of our manufacturing and                            distribution capabilities, we believe we have established TuffTec as                            the market leading brand in the synthetic locker market. Each of these                            brands is well established and architects frequently request our                            fabricated products by name. In addition, we have successfully branded                            many of our non-fabricated products, such as Seaboard and                            Flametec. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Extensive and Growing Distribution            Network*****.**Our products are            distributed through an extensive network consisting of manufacturers’            representatives, distributors and dealers. We utilize a two-step distribution system            through which our AZEK products are first sold to wholesale distributors, who in turn            sell them to dealers, such as lumber yards or retail outlets. AZEK distributors are            parties to distribution agreements which contain among other items, a clause that            prohibits the distributor from carrying other brands of cellular PVC building products            which may compete with the AZEK brand. Our internal AZEK sales force consists of            seasoned marketing professionals, most of whom have been chosen for their experience in            promoting other branded building products through two-step distribution channels. We            choose distributors based on their ability to market and promote AZEK through their            internal sales force and other industry contacts. Currently, our AZEK distributor            network services dealers across the United States and Canada through over 74 locations.            We have increased our AZEK dealer base from 150 dealers in 2001 to over 2,100 local            stocking dealers as of December 31, 2007. No single dealer location accounts for more            than 2% of AZEK sales. AZEK is the exclusive cellular PVC trim product carried by            virtually all our dealers.

***Low-Cost Manufacturer*****.**Through over 24 years of developing highly engineered fabricated            products based on our manufacturing and fabrication expertise, we have positioned our            company as a low-cost vertically integrated manufacturer. Our competitive advantages            include the proprietary resin blends and equipment customization techniques we have            developed over many years. We believe our manufacturing expertise also allows us to            obtain a much higher throughput, and consequently lower unit production costs, from our            manufacturing process than most of our competitors. In addition, we have significant            scale in purchasing resin that places us in a better cost position relative to many of            our competitors. The combination of our market-leading size, vertically integrated            business model and the cost savings associated with our high throughput operations            provides us with significant cost and competitive advantages.

***Experienced and Incentivized Management            Team*****.**We are led by an            experienced and committed senior management team that has successfully guided us            through historically high resin prices in 2005 and 2006, as well as difficult housing            markets in 2006 and 2007. Members of our management team hold approximately 10% of            total equity in CPG Holdings, LP, our direct parent company.

**Business Strategy**

The key elements of our business strategy are:

***Drive Our Product Mix Toward High Value-Added End Use Building            Products.***We are focused on creating the leading brands            of innovative building products targeted at the residential and commercial building            product markets. We believe that targeting our product offering on the final end user            adds substantial value to our business because it allows us to take advantage of our            brands, well developed sales networks and our position as a fully integrated, low cost            manufacturer of the products we sell.

 

|   | • | *AZEK Building Products*.                            Within AZEK Building Products, we are creating the premium brand of                            exterior, low maintenance, residential building products for a wide                            range of home exterior applications. We began this with the                            introduction of AZEK Trim seven years ago and have continued to expand                            the product offering through new product development. AZEK has expanded                            from trimboards, to mouldings and decking. We are committed to continue                            to grow the AZEK Building Products offering of home exterior products                            over time and we believe the scale achieved in raw materials,                            manufacturing and the sales channel by these product introductions will                            increase sales and profitability over time. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | • | *Scranton Products*. Within                            Scranton Products, we are focused on expanding our bathroom and locker                            systems business marketed through our Comtec, Capitol and Santana                            brands. Our low maintenance, long |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             

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life product offering focused on the commercial building market            represents another opportunity to grow our end use building product offering in a            differentiated market. We benefit from being able to take advantage of our brands, well            developed sales networks and our position as a fully integrated, low cost manufacturer            of the products we sell. We plan to continue to leverage these strengths by growing our            product offering and expanding into new markets with the goal of increasing sales and            profitability over time.

 

Investment in and expansion of our residential home exteriors business            through AZEK Building Products and our bathroom and locker room business within            Scranton Products is the key element in our ability to continue to grow our business            profitably over time.

             

***Continue to Develop Brands and Innovative            Products*****.**We continuously            seek opportunities to leverage our core capabilities with premium, low-maintenance            branded building products to expand into adjacent end markets. Our value-added branded            products, such as AZEK and TuffTec, were internally developed and now account for more            than 81% of our net sales for the year ended December 31, 2007. We have also acquired            families of branded products such as AZEK Deck, Hiny Hiders and Capitol to supplement            internal growth. We believe that branded, end use products offer more stability in            terms of pricing in the market and generate higher gross margins. In order to build            upon our brand identity to further differentiate ourselves from our competitors and            grow our leading market share in our markets, we seek to introduce new products,            acquire well positioned products and enhance our existing offerings through research            and development activities. Examples of new branded products include AZEK Moulding to            complement AZEK Trim and AZEK Porch, an extension of AZEK Deck. New product development            and enhancements also include our introduction of a new color palette and unique            product extensions such as granite, marble, speckled and slip-resistant surfaces with            respect to our bathroom partition systems. In addition, we endeavor to utilize existing            products and know-how for new applications. For example, the development of our            synthetic locker systems was an extension of our partition systems and demonstrates our            innovative product development strategy.

***Capitalize on Material Conversion            Opportunity*****.**Across all of            our target markets, we are focused on capitalizing on the economic and functional            advantages of our products relative to competing wood and metal products. While our            AZEK and Comtec products’ initial price points can be more expensive than            traditional wood, fiber or metal products on an installed cost basis, they offer            customers a very attractive lifetime value relative to competing wood and metal            products, driven by minimal maintenance requirements, simpler installation and longer            product life. Benefits of our highly-engineered synthetic products include lower life            cycle cost; ease of fabrication; low moisture absorption; superior corrosion            resistance, even compared to stainless steel; high strength-to-weight ratios; low            maintenance; and improved cosmetic characteristics. We have been leading this            conversion in our target markets, such as synthetic trim, bathroom products, lockers            and a diverse array of other markets, including marine, signage, semiconductor,            industrial and recreational markets. We intend to seek additional growth in our net            sales and profitability from material conversion given our products’ excellent            relative aesthetics, performance characteristics and lower lifetime costs as compared            to traditional wood and metal products.

***Continue to Build Market Share of Our Branded            Products*****.**We have            successfully created meaningful brand recognition and customer loyalty with respect to            our brands such as AZEK Trim, AZEK Deck, AZEK Moulding, Comtec, Capitol, EverTuff,            TuffTec, Hiny Hiders, and Celtec, and are focused on further expanding our sales of            these and other branded products. We believe our branded products are market leaders in            their respective market segments. We have invested heavily in a national advertising            and marketing campaign focused on architects, contractors and installers to accelerate            the conversion from wood to synthetic home exterior products and to promote the AZEK            brand. We believe sales of AZEK Trim should continue to grow, as the exterior trim            markets are still in the early stage of material conversion process. Sales of AZEK Deck            should continue to grow as this conversion process is also in the early stages. In our            synthetic bathroom and locker systems business, we seek to increase sales to national            accounts and continue to increase our market share at the expense of metal competitors            and other synthetic fabricators that are not vertically integrated and have a higher            manufacturing cost position. Sales growth of our synthetic lockers was strong in 2007            and 2006, and we believe these lockers possess continued growth opportunities            associated with increased market penetration and material conversion. We are focused on            maintaining our market leading positions while simultaneously seeking additional growth            from material conversion through further education of architects,

 

9

builders, distributors, dealers and other consumers regarding the            respective advantages of our products over competing wood, fiber and metal            products.

***Leverage Our Manufacturing            Excellence***. With over 24 years of experience in            developing highly engineered synthetic products, we have gained significant internal            manufacturing expertise and technical knowledge, and are focused on remaining a leader            in plastic extrusion and fabrication. Our products are manufactured using internally            developed resin mixes that are the product of years of research, development and            experience in field application. We spent over 10 years developing AZEK Trim and, as a            result, we believe that AZEK’s highly engineered manufacturing technology would            be difficult to replicate. We perform significant customization on each machine            following manufacturer installation. We maintain a dedicated on-site laboratory with            fully functioning mixing, heating, and extrusion capabilities, and we use this facility            to continue our product innovation and experiment with new additives and processes. To            ensure our ongoing product quality and manufacturing leadership, we are committed to            our continuous process improvement and employee empowerment model based upon LEAN            manufacturing principles. We are also focused on improving our leading manufacturing            technology to increase capacity and productivity, which would in turn lead to increased            volume and profitability.

**Our            Products**

**AZEK Building Products**

***Residential Building Products.***As            the market leader in premium exterior branded building products, we offer a variety of            products under the AZEK brand for numerous residential exterior applications which            include:

|   | • | AZEK Trim: AZEK Trim was the first, and to our                            knowledge, the only non wood trim product to be listed with the ICC.                            Our free foam cellular PVC technology produces a product that has                            unparalleled uniformity, durability, workability and beauty. Product                            offerings under AZEK Trim, including: |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

AZEK Trim-Traditional- With a smooth surface on both sides, AZEK            Traditional Trim has the look and feel of a high end wood trim board.

AZEK Trim – Frontier – The Frontier series has reversible            surfaces. One side offers the traditional smooth look while the other side has a rustic            patterned texture.

AZEK Sheet - AZEK Sheet is available in sizes from 4’x 8’ to            4’x 20’ in a variety of thicknesses and is intended for pop-out bay            windows, raised panels and dormers and is easily used for applications over 12’            wide.

AZEK to Mill (“ATM”) – This offering represents the            first free foam PVC product to be manufactured at a full 1.25” thick. This            thickness makes it easier to fabricate thicker profiles such as window sills and custom            millwork. ATM is available in board sizes of 1 1⁄4” x 9 1⁄4” x            18’ and sheet size of 1 1⁄4” x 48” x 8’.

AZEK Beadboard – Available in two board styles, this popular item            is perfect for wainscoting, porch ceilings, soffits, and hot tub surrounds. The            reversible edge/ center bead and v-groove offer design flexibility when planning your            project.

AZEK Cornerboard – Pre-formed for easy installation, the AZEK            Cornerboard has a seam that will never open ensuring long lasting good looks. The AZEK            Cornerboard complements all housing exteriors and is available in either the            Traditional or Frontier finish.

|   | **•** | AZEK Moulding: AZEK Mouldings have the look and feel of                            AZEK Trim and are available in the most popular moulding profiles and                            feature the same crisp detail found in authentic wood mouldings, with                            the longevity and durability that AZEK products provide. |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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|   | • | AZEK Deck: AZEK Deck offers superior performance                            attributes for long-life, low maintenance decking. AZEK Deck is in the                            early stages of a material conversion process from wood and other                            synthetic materials. Unlike wood or composite decking materials, AZEK                            Deck, a cellular PVC product, does not contain wood fillers. Our                            ProcellTM Technology allows our boards to resist stains and                            scratches, yet be workable like wood. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

AZEK’s manufacturing process creates a superior home exterior            product that possesses the following advantages over alternative materials:

 

*Low Maintenance/Long-Life.*The superior            strength of its composition gives AZEK products a longer lifetime and a greater ability            to withstand the elements than competing wood products. AZEK products are designed for            outdoor applications, as it is impervious to termites and other insects and is not            susceptible to water or moisture damage. AZEK Trim will also not rot, cup, split, twist            or warp, and is covered by a 25-year warranty, while AZEK Deck is covered by a limited            lifetime warranty.

*Uniformity.*We believe that the quality of            our AZEK products is superior to that of natural wood and other exterior products. AZEK            Trim products are manufactured to the highest degree of consistency with uniform            thickness and premium lengths. AZEK Trim has a uniform density comparable to pine            without the knots, grain, cracks, maximizing the amount of AZEK that can be            used.

*Workability.*AZEK products offer similar            workability characteristics to wood and has clear advantages over competing synthetic            materials. AZEK products can be easily nailed, screwed, drilled and stapled without            splitting or creating unsightly “mushrooms.” AZEK also offers a proprietary            water-based cement that, when gluing two pieces of AZEK Trim together, forms a            molecular bond that is stronger than the mechanical bond formed between wood and glue.            In addition to its simple installation, AZEK Trim can also be easily manipulated for            more complex applications. AZEK products can be shaped, routed, and mitered using            standard woodworking tools and thermoforming techniques.

*Aesthetics.*AZEK looks and feels like            traditional wood, adding significant value and beauty, but lasts longer than            traditional wood trim without ongoing maintenance.

***Industrial Building Products.***We            manufacture Celtec and other branded products (such as Polycarve, Ultra White and            Vintec) which can be substitutes for wood and metal in a variety of industrial            applications, including industrial tank linings, marine products, fire retardant            products and commercial signage. Our branded Celtec products are gaining acceptance in            marine and commercial markets (Celtec 550) and industrial markets            (Celtec 700). Celtec products offer advantages over competing products, with high            structural strength, superior workability and light weight. Celtec 550 is designed to            replace wood in non-stress bearing, non-building applications. Celtec 700 is designed            for industrial and commercial signage. These products are tough, high strength and            lightweight, and can be ordered in a wide range of sizes, thicknesses and colors. We            also manufacture industrial corrosion resistant products which are suited for            applications where maximum chemical resistance, prevention of ultraviolet degradation            or tolerance to high temperature environments is necessary.

**Scranton Products**

***Commercial Building Products.***We            fabricate bathroom partitions, shower compartments and lockers from highly engineered            synthetic sheet manufactured internally, and sell these products under our Comtec,            Capitol, EverTuff, Hiny Hiders and TuffTec brands. Unlike competing metal products, our            synthetic alternatives are impervious to rust, dents, and scratches; are longer-lived;            graffiti resistant; easily cleaned; and require minimal maintenance once installed. As            compared to metal alternatives, our partitions and locker products sell at premium            prices but deliver significantly reduced lifecycle costs through increased durability            and lower maintenance expenses.

Our bathroom products include custom built toilet partitions, doors,            privacy screens, hardware accessories, shower cubicles, and vanities manufactured in an            array of designs and color choices. They are available in wall-mounted, floor-mounted,            floor-to-ceiling, and ceiling-hung models and they are also manufactured with a variety            of hinges and hardware accessories. Their key features and benefits are that they are            manufactured from one inch thick

 

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highly-engineered synthetic materials and resist moisture, stains,            odors, mildew, scratches, corrosion and delamination. The primary end markets for our            bathroom partition products include schools, parks, stadiums, factories, hospitals,            transportation terminals, retail locations, and fitness centers.

Our synthetic locker systems are equipped with several different locking            mechanisms and are available in a variety of sizes, colors and designs. They are            impervious to rust, dents, scratches and graffiti and require minimal maintenance.            Also, the lockers are ideal for high traffic and sanitary environments and they are            easily steam cleaned to eliminate bacteria. The primary end markets for these products            include schools, amusement parks, factories and fitness centers.

***Industrial Building Products.***We            manufacture highly engineered non-fabricated products for use in a wide variety of            applications including semiconductors and marine construction, food preparation,            machine housing, playground equipment and other diverse applications.

Our industrial product offering is comprised of the following            products:

|   | • | Protec CP—Protec CP is formulated to provide high                            levels of impact resistance as well as corrosion resistance against a                            broad group of reagents. It is used for metal plating barrels,                            scrubbers, acid tank linings, tank covers, fume hoods and ducts,                            laboratory sinks, orthopedic appliances, etching machines, etching                            rinse tubes, machined parts, battery cases, scrub stations and food                            preparation. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Sanatec—Sanatec is formulated for the manufacture                            of quality food grade equipment parts. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------|

|   | • | HiTec—HiTec is a high impact product suited for                            the manufacture of chemical resistance products and products that come                            in direct contact with foodstuffs. It is used for business machine                            parts, guides and wear plates, cams, washers, shims, packing rings in                            chemical applications, low speed bearings, laboratory vessels, rotors                            and blades, roll stand bearings, nuclear storage containers, skids and                            deflector plates, tank, chute and bin linings. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

We also provide applications to marine construction through Seaboard,            which is UV stable, scratch resistant, and has excellent impact and stiffness. We also            support semiconductors through our Flametec product, which is in the family of flame            retardant sheet formulations that meet the guidelines for clean room materials.            Finally, we offer Playboard® Modular Playground Systems, which consists            of 2-color Polycarve and Grip X® slip resistant materials utilized in            flanges, flat roofs, steps, platforms, climbing walls, spring toys, park furnishings            and signs.

**Operations and Manufacturing Process**

Our various products are manufactured through a highly technical,            precision manufacturing process in which a number of variable elements must be managed            in parallel in order for the product to be produced to specifications and perform to            expectations. During the manufacturing process, our proprietary products are blended,            heated, and then processed through an extrusion device. For our end use building            products, further steps are taken to fabricate and assemble our products through            internally designed, proprietary processes. Developing the correct mixture of raw            materials and blends, as well as the proper speed and calibrations, is highly            technical, and we have developed significant internal expertise in this process through            our 24 years of experience. Each of our machines is customized according to internal            proprietary specifications by our technicians in order to establish the correct mixing,            speed and extrusion processes.

**Sales and Marketing**

We have carefully balanced the build-out of our AZEK sales and            marketing, distribution and manufacturing infrastructure in a manner that enables us to            meet demand and control quality. Our AZEK sales organization consisted of 52 sales            representatives as of December 31, 2007, organized by geographic region. The sales            force focuses on actively promoting product awareness and educating the distributor and            dealer base on the attractive relative product characteristics of AZEK products. Our            AZEK sales and marketing team gave presentations

 

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emphasizing the unique properties and design possibilities with AZEK to            over 16,000 architects since 2004, and is accredited by the American Institute of            Architects (AIA) as an approved continuing education provider.

We have a comprehensive marketing campaign in support of the AZEK brand,            targeted towards its growing dealer base as well as the architect, custom builder,            remodeler, installer and consumer demand base. Our goal is to raise the visibility of            the AZEK brand and the value proposition of AZEK Trim, AZEK Deck and AZEK            Moulding.

We seek to leverage our Scranton Products sales force, market leading            position, promotional materials and proprietary products to develop close relationships            with architects and our Pinnacle/Elite dealer network. We employ a Business Unit            President, a regional sales manager, two external products specialists covering the Mid            Atlantic and New England territories and one internal product specialist, who covers            approximately 12 regional manufacturers’ sales representative organizations that            provide nationwide coverage to over 1,200 local dealers. Our Scranton Products sales            agents call on architects in order to influence project specifications in traditional            institutional markets, such as schools, universities, and stadium arenas, as well as            targeted new markets, such as retail stores, industrial facilities and food processing            plants. We have initiated a targeted marketing effort with the goal of having our            Scranton Products line of solid bathroom partitions and lockers specified by name by            national accounts and large school districts.

While we distribute our industrial building products primarily through            distributors, we have eight manufacturers’ sales representatives with joint            product responsibility across our product lines.

**Distribution**

Our products are distributed throughout an extensive network consisting            of manufacturing representatives, distributors and dealers. We market our products to a            diverse group of end markets, including residential, commercial and industrial            construction, semiconductor, marine, industrial and other markets. Our top ten            distributors, through more than 35 independent branches, collectively accounted for            approximately half of our net sales for the year ended December 31, 2007, and our            largest distributors, The Parksite Group, through eleven branches, U.S. Lumber, through            eight branches and Wolf Distributing, each accounted for more than 10% of net sales for            the year ended December 31, 2007, and collectively accounted for approximately 43% of            net sales for the year ended December 31, 2007.

Through a two-step distribution system, we sell our AZEK products            exclusively through an expanding nationwide network of specialty building product            distributors with multiple locations (each independently representing the AZEK product)            who in turn sell to lumber yards, contractors and installers. Our 23 AZEK distributors            are equipped to service every region of the United States and Canada in over 74            locations. We believe that AZEK has also developed the largest and most extensively            trained stocking dealer network of any non-wood trim manufacturer in the industry. We            have steadily grown our AZEK dealer base from 150 dealers in 2001 to over 2,100 as of            December 31, 2007. We combined the AZEK Deck operations with our AZEK Building Products            business unit in order to effectively leverage AZEK’s two-step distribution            system.

Our bathroom partition and locker systems are sold through a national            distribution network that covers over 1,200 local dealers. We market the benefits of            our bathroom partition and locker systems directly to architects and facilities            managers, who frequently specify building products by name and material in their            designs, leaving dealers and installers less flexibility in choosing manufacturers, and            enabling us to service the resulting demand through local dealer networks.

We primarily sell our non-fabricated products to over 400 regional            distributors, who in turn sell full sheet, and/or fabricate products for the end            users. We are typically the sole source supplier for our Original Equipment            Manufacturer (“OEM”) relationships due to the breadth of our non-fabricated            product offering.

**Raw            Materials and Suppliers**

Our most significant raw materials are PP, HDPE and PVC dry            petrochemical resin. These resins accounted for more than half of our cost of goods            sold for fiscal year 2007 and 2006. We purchase our raw materials directly from major            petrochemical suppliers. Resin purchases are based primarily on price, and we are            typically awarded a

 

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significant customer rebate by each supplier due to purchasing scale.            Prices are negotiated on a continuous basis, and we do not typically buy forward beyond            six months. Historically, we have not bought resin from a sole source and we believe            our raw materials are available from alternative sources on similar terms. Over the            past four years, PVC resin prices had more than doubled, primarily due to the increased            cost of oil and natural gas, increases in natural gas and crude oil prices and demand            in the broader economy, resin prices increased to an all time high level. These            significantly higher resin costs have impacted our profitability throughout 2007 and            2006. See “Risk Factors—Risks Related to Our Business—Our financial            performance is dependent on raw material prices, as well as the continued availability            of raw materials” and “Management’s Discussion and Analysis of            Financial Condition and Results of Operations.”

**Competition**

We compete with multiple companies with respect to each of our products,            including divisions or subsidiaries of larger companies and foreign competitors. We            compete on the basis of a number of considerations, including price (on a            price-to-value basis), service, quality, performance, product characteristics, brand            recognition and loyalty, marketing, product development, sales and distribution, and            ability to supply products to customers in a timely manner. Our products also compete            with the wood, metal and other traditional products that our synthetic products are            designed to replace. For example, AZEK Trim competes primarily with wood, aluminum,            engineered wood and vinyl coil wrap. In the cellular PVC trim market, there are few            other competitors of scale. The decking market in which AZEK Deck operates is similarly            competitive with numerous competitors who are significantly larger, manufacturing both            wood and composite decking. The bathroom partition market is highly fragmented and            consists of manufacturers typically producing products in several different materials            and price ranges. Metal currently represents more than a majority of the overall            bathroom products market. With respect to our other non-fabricated products, the market            is highly fragmented, with manufacturers generally focused on a few core materials that            are sold directly into end market applications. Our competitors for other            non-fabricated products include other national and regional manufacturers. See            “Risk Factors—Risks Related to Our Business—We face competition in            each of our businesses and our customers may not continue to purchase our            products.”

 

**Intellectual Property**

We rely on a combination of trademarks, trade secrets, unpatented            know-how, patents, licenses, and other intellectual property rights and protective            measures to protect our proprietary rights. We own approximately 22 U.S. trademark            registrations, two trademark applications and eight U.S. patents. We employ various            methods, including confidentiality and non-disclosure agreements with third parties and            employees who have access to our trade secrets, to protect our trade secrets and            know-how.

Although we use a variety of intellectual property in the development            and manufacturing of our various products, we believe that none of that intellectual            property is individually critical to our current operations. Taken as a whole, however,            we believe our intellectual property rights are significant. For a discussion of the            risks related to our intellectual property rights, please see “Risk            Factors—Risks Related to Our Business—Our business operations could be            negatively impacted if we fail to adequately protect our intellectual property rights            or if third parties claim that we are in violation of their intellectual property            rights.”

**Seasonality**

Our sales have historically been moderately seasonal and have been            strongest in the first and third quarters of the calendar year. We typically experience            increased sales of AZEK products in the first quarter of the year as a result of our            “early buy” sales program, which encourages dealers to stock AZEK products            through the use of incentive discounts. We have generally experienced decreased sales            in the fourth quarter due to adverse weather conditions in certain markets during the            winter season. In addition, we have experienced increased sales of our bathroom            partition products during the summer months during which schools are typically closed.            We expect these cycles to moderate as AZEK sales growth continues to consistently grow            throughout the calendar year.

 

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**Employees**

As of January 15, 2008, all of our workforce was non-union and totaled            573 employees, comprised of 397 production employees and 176 office employees. We are            not a party to any collective bargaining agreements. We believe our relationship with            our employees is good.

**Environmental**

We are            not aware of any environmental liabilities that would be expected to have a material            adverse effect on our business or financial condition, results of operations or cash            flows. We believe we are compliant with all environmental laws and regulations in all            material respects and possess all necessary permits to operate our manufacturing and            other facilities. Our cost of compliance with environmental laws and regulations was            minimal in 2007.

 

**Item 1A. Risk Factors**

*You should carefully consider the risk factors set forth below as            well as the other information contained in this report, including our consolidated            financial statements and related notes. Any of the following risks could materially            adversely affect our business, financial condition, results of operations or cash            flows. Information contained in this section may be considered forward-looking            statements. See “Cautionary Note Regarding Forward Looking Statements”            contained elsewhere in this report for a discussion of certain qualifications regarding            such statements.*

**Risks Related to Our Business**

***Our business could be materially hurt by economic            downturns.***

Our business is affected by a number of economic factors, including the            level of economic activity in the markets in which we operate. The demand for our            products by our customers depends, in part, on general economic conditions and business            confidence levels. Sales in the residential, commercial and institutional construction            markets correlate closely to the number of homes, buildings and schools that are built            or renovated, which in turn is influenced by factors such as interest rates, inflation,            the strength or weakness of the U.S. dollar, gross domestic product levels, consumer            confidence and spending habits, demographic trends, employment rates, state and local            government revenues and spending on schools and other macroeconomic factors over which            we have no control. Any decline in economic activity as a result of these factors could            result in a decreased demand for our products, which would materially adversely impact            our sales and profitability. For example, beginning in the third quarter of 2006, the            residential housing market entered a period of significantly reduced activity.            Distributors responded by reducing inventory levels, which had a negative impact on            AZEK sales and end market demand has softened. The slowdown in the residential housing            market is expected to continue beyond 2008 and will negatively impact our            results.

In general, demand for new home construction as well as commercial and            institutional construction may be materially adversely affected by increases in            interest rates and the reduced availability of financing. Although interest rates have            been low the past few years, as interest rates rise, the ability of prospective buyers            to finance purchases of new homes may be materially adversely affected. As a result,            our business, financial condition and results of operations may also be materially            adversely impacted. The remodeling market, in which we make a large portion of our            sales, tends to be less sensitive to changes in interest rates. Any changes in tax laws            related to mortgages and home equity financings could materially adversely affect sales            in the home construction and remodeling market. For example, in 2007, the mortgage            finance market was negatively impacted by the fallout in the subprime mortgage market            reducing the amounts residential home lenders were willing to finance as a result of            tighter lending practices. This condition continues to exist in the market today with            no indication of easing in the short term.

Our bathroom partition and locker systems are sold primarily in the            institutional segment, which includes schools, government and municipal buildings and            facilities, parks, military bases and hospitals. The demand for these products, whether            in connection with replacement orders or new construction, is impacted by the economy,            and in particular gross domestic product levels. As a result of institutional            budgeting, we may experience a decrease in sales

 

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up to            a year or more after a decline in gross domestic product levels. Decline in demand in            the institutional building market can be attributed to increased energy, pension and            healthcare costs that may reduce amounts available for school construction costs.            Furthermore, sales to schools may be impacted by lower than anticipated tax revenues            collected by state and local municipalities.

***Our financial performance is dependent on raw material prices, as            well as the continued availability of raw materials.***

The primary raw materials we use in the manufacture of our products are            various petrochemical resins, primarily PVC, HDPE and PP, which represented more than            half of our total cost of goods sold for the years ended December 31, 2007 and 2006.            Our financial performance therefore is dependent to a substantial extent on the            petrochemical resin market.

The capacity, supply and demand for resins and the petrochemical            intermediates from which they are produced are subject to cyclical price fluctuations            and other market disturbances, including supply shortages. Throughout the course of            previous supply shortages we were able to maintain necessary raw material supplies.            However, in the event of another industry-wide general shortage of resins we use, or a            shortage or discontinuation of certain types or grades of resin purchased from one or            more of our suppliers, we may not be able to arrange for alternative sources of resin.            Any such shortage may materially negatively impact our competitive position versus            companies that are able to better or more cheaply source resin.

We purchase our raw materials directly from major petrochemical and            chemical suppliers. We have long-standing relationships as well as guaranteed supply            with some of these suppliers but we have no fixed-price contracts with any of our resin            vendors. Resin purchases are made in accordance with our manufacturing specifications,            and are based primarily on price. We are typically awarded a significant customer            rebate by each supplier due to purchasing scale; however there is no assurance whether            such rebates will continue beyond the current calendar year. Prices are negotiated on a            continuous basis, and we do not typically buy forward beyond six months.

Dry petrochemical resin prices may continue to fluctuate as a result of            changes in natural gas and crude oil prices. The instability in the world market for            petroleum and the North American natural gas markets could materially adversely affect            the prices and general availability of raw materials. Over the past several years we            have at times experienced rapidly increasing resin prices primarily due to the            increased cost of oil and natural gas. Due to the uncertainty of oil and natural gas            prices, we cannot reasonably estimate our ability to successfully recover any price            increases. Even if we are able to pass these price increases on to our customers, our            gross margins could decline and we may not be able to implement other price increases            for our products. To the extent that all of the increases in the cost of resins cannot            be passed on to our customers, or the duration of time lags associated with a pass            through becomes significant, such increases may have a material adverse effect on our            profitability and cash flow. Moreover, increases in resin prices could negatively            impact our competitive position as compared to wood and metal products that are not            affected by changes in resin prices.

Additionally, we may be subject to significant increases in prices that            may materially impact our financial condition. Over the past four years, PVC resin            prices had more than doubled, due to increases in natural gas and crude oil prices and            demand in the broader economy. Although, our annual average cost of resin decreased by            approximately 11.2% from the year ended December 31, 2006 to December 31, 2007, resin            prices have steadily risen from their low point in the first half of 2007. Our            continued success is dependent on the performance of our AZEK products, which represent            a significant portion of our net sales.

In 2007 and 2006, AZEK products accounted for a majority of our net            sales, and net sales of our AZEK products have increased at an approximately 46%            compound annual growth rate over the past five years. Therefore, our future prospects            are largely dependent on the continued success of our AZEK products, which have been on            the market for eight years. If we should experience any problems, real or perceived,            with product quality, relative value and use as compared to competitive materials,            distribution, delivery or consumer acceptance of AZEK as a substitute for wood in the            trim and millwork segment, our sales and profitability could materially decline. In            particular, the success of AZEK depends on our customers continuing to be willing to            pay more for AZEK on the basis of relative

 

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value            and use as compared to wood and other products that AZEK is intended to replace. In            addition, we are subject to the risk that third parties develop new products that            compete favorably with AZEK on a price-to-value relationship.

We have recently experienced economic factors that have affected our            growth in the residential building market. In the third and fourth quarters of 2006            through 2007, demand for our products with our distributors and dealers declined as            they maintained lower levels of inventory due to recent declines in demand in the            residential building market. As a result, we experienced declining sales volume of AZEK            in this period. See “Management’s Discussion and Analysis of Financial            Condition and Results of Operations.”

***We face competition in each of our businesses and our customers            may not continue to purchase our products.***

We face competition in the sale of our products. We compete with            multiple companies with respect to each of our products, including divisions or            subsidiaries of larger companies and foreign competitors. Our products also compete            with the wood and metal products that our synthetic products are designed to replace.            For example, AZEK competes primarily with wood, aluminum, engineered wood and other            synthetic building materials, such as celuka-processed products. The decking market in            which AZEK Deck operates is similarly competitive with numerous competitors who are            significantly larger, manufacturing both wood and synthetic decking. Metal is currently            the most used material in the bathroom products market. The bathroom partition market            is highly fragmented and consists of manufacturers typically producing partitions in            several different materials and price ranges. With respect to our other basic            non-fabricated products, the market is highly fragmented, with manufacturers generally            focused on a few core materials including dry petrochemical resins and other key            materials, that are sold directly into end market applications. Our competitors for            other non-fabricated products include national and regional manufacturers.

We compete on the basis of a number of considerations, including price            (on a price-to-value basis), service, quality, performance, product characteristics,            brand recognition and loyalty, marketing, product development, sales and distribution,            and ability to supply products to customers in a timely manner. Increases in our prices            as compared to those of our competitors could materially adversely affect us. In            particular, many of these other products that we compete with on a price-to-value            basis, such as wood and metal products, are not affected by the significant increases            in the cost of resin that we have experienced over the past few years.

The competition we face involves the following key risks:

|   | • | loss of market share; |
|--------|--------|-----------------------|

|   | • | failure to anticipate and respond to changing consumer                            preferences and demographics; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | • | failure to develop new and improved products; |
|--------|--------|-----------------------------------------------|

|   | • | failure of consumers to accept our brands and exhibit                            brand loyalty and pay premium prices on the basis of relative value and                            use as compared to competitive materials; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | aggressive pricing by competitors, which may force us to                            decrease prices or increase marketing and promotional spending in order                            to maintain market share; and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | failure of our marketing and promotional spending to                            increase, or even maintain, sales volume and market share. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

Certain of our competitors have financial and other resources that are            greater than ours and may be better able to withstand price competition. In addition,            our competitors may develop products that are superior to our products or may adapt            more quickly to new technologies or evolving customer requirements. Technological            advances by our competitors may lead to new manufacturing techniques and make it more            difficult for us to compete. In addition, since we do not have long-term arrangements            with many of our customers, these competitive factors could cause our customers to            cease purchasing our products.

 

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***Some of our products experience seasonality.***

We typically experience moderately increased sales of AZEK products in            the first quarter of the year during which we conduct an “early buy” sales            program that encourages dealers to stock AZEK products through the use of incentive            discounts, typically in the range of 1% to 6%. We also have experienced decreased sales            during the fourth quarter due to adverse weather conditions in certain markets during            the winter season. Although trim can be installed year-round, unusually adverse weather            conditions can adversely impact the timing of the sales of certain of our products,            causing reduced profitability when such conditions exist. In addition, we have            experienced increased sales of our synthetic bathroom partition products during the            summer months during which schools are typically closed.

***If we are unable to meet future capital requirements, our business            may be adversely affected.***

We have made significant capital expenditures in our businesses in            recent years to expand our facilities and enhance our production processes. We spent            approximately $21.8 million, $17.0 million and $14.4 million in capital expenditures in            fiscal years 2005, 2006 and 2007. We estimate that capital expenditures for 2008 will            be $8.0 to $13.0 million. As we grow our businesses, we may have to incur significant            additional capital expenditures. We cannot assure you that we will have, or be able to            obtain, adequate funds to make all necessary capital expenditures when required, or            that the amount of future capital expenditures will not be materially in excess of our            anticipated or current expenditures. If we are unable to make necessary capital            expenditures, our product offerings may become dated, our productivity may decrease and            the quality of our products may be adversely affected, which, in turn, could reduce our            sales and profitability. In addition, even if we are able to invest sufficient            resources, these investments may not generate net sales that exceed our expenses,            generate any net sales at all or result in any commercially acceptable            products.

***Our business is subject to risks associated with manufacturing            processes.***

We internally manufacture our own products at our production facilities.            Our manufacturing facilities are in the Scranton, Pennsylvania area, where we produce            all of our products, other than AZEK Deck products, which are internally manufactured            at a production facility located in Foley, Alabama. While we maintain insurance            covering our manufacturing and production facilities, including business interruption            insurance, a catastrophic loss of the use of all or a portion of our facilities due to            accident, fire, explosion, labor issues, weather conditions, other natural disaster or            otherwise, whether short or long-term, could have a material adverse effect on            us.

Unexpected failures of our equipment and machinery may result in            production delays, revenue loss and significant repair costs, as well as injuries to            our employees. Any interruption in production capability may require us to make large            capital expenditures to remedy the situation, which could have a negative impact on our            profitability and cash flows. Our business interruption insurance may not be sufficient            to offset the lost revenues or increased costs that we may experience during a            disruption of our operations. Moreover, there are a limited number of manufacturers            that make the machines we use in our business. Because we supply our products to            original equipment manufacturers, or OEMs, a temporary or long-term business disruption            could result in a permanent loss of customers that will seek out alternate suppliers.            If this were to occur, our future sales levels, and therefore our profitability, could            be materially adversely affected.

***Our sales, cash flows from operations and results of operations            may decrease if our relations with our key distributors decline.***

Our top ten distributors, through more than 35 independent branches,            collectively accounted for approximately half of our net sales for the year end            December 31, 2007. Our largest distributor, The Parksite Group, through eleven            branches, U.S. Lumber, through eight branches and Wolf Distributing, each accounted for            more than 10% of net sales for the year ended December 31, 2007, and collectively            accounted for approximately 43% of net sales for the year ended December 31, 2007. We            expect our relationship with The Parksite Group, US Lumber, Wolf and our other key            distributors to continue; however the loss of or a significant adverse change in our            relationships with The Parksite Group, US Lumber, Wolf, or any other significant            distributor could temporarily disrupt our net sales. Our operations depend upon our            ability to maintain our relations with our network of distributors and dealers. If our            key distributors and dealers are unwilling to continue to sell our products, if we do            not provide product offerings

 

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and            price points that meet the needs of our key distributors and dealers, or if our key            distributors and dealers merge with or are purchased by a competitor, we could            experience a decline in sales. The loss of, or a reduction in orders from, any            significant distributor or dealer, losses arising from disputes regarding shipments,            fees, merchandise condition or related matters, or our inability to collect accounts            receivable from any significant distributor or dealer could cause a decrease in our net            income and our cash flow. If we are unable to replace such distributors or dealers, or            otherwise replace the resulting loss of sales, our business and results of operations            could be materially adversely affected.

***Acquisitions we may pursue in the future may be            unsuccessful.***

We may opportunistically consider the acquisition of other manufacturers            or product lines of other businesses that either complement or expand our existing            business. We cannot assure you that we will be able to consummate any such acquisitions            or that any future acquisitions will be able to be consummated at acceptable prices and            terms. Any future acquisitions we pursue involve a number of special risks, including            some or all of the following:

|   | • | the diversion of management’s attention from our                            core businesses; |
|--------|--------|----------------------------------------------------------------------------------------------------|

|   | • | the disruption of our ongoing business; |
|--------|--------|-----------------------------------------|

|   | • | entry into markets in which we have limited or no                            experience; |
|--------|--------|------------------------------------------------------------------------------------------|

|   | • | the ability to integrate our acquisitions without                            substantial costs, delays or other problems; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------|

|   | • | inaccurate assessment of undisclosed                            liabilities; |
|--------|--------|------------------------------------------------------------------------------|

|   | • | the incorporation of acquired products into our                            business; |
|--------|--------|--------------------------------------------------------------------------------------|

|   | • | the failure to realize expected synergies and cost                            savings; |
|--------|--------|----------------------------------------------------------------------------------------|

|   | • | the loss of key employees or customers of the acquired                            business; |
|--------|--------|---------------------------------------------------------------------------------------------|

|   | • | increasing demands on our operational                            systems; |
|--------|--------|---------------------------------------------------------------------------|

|   | • | possible adverse effects on our reported operating                            results, particularly during the first several reporting periods after                            the acquisition is completed; and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the amortization of acquired intangible                            assets. |
|--------|--------|----------------------------------------------------------------------------|

Additionally, any acquisitions we may make could result in significant            increases in our outstanding indebtedness and debt service requirements. The terms of            our outstanding notes and credit agreements may limit the acquisitions we may            pursue.

***Our insurance coverage may be inadequate to protect against the            potential hazards incident to our business.***

We maintain property, business interruption, product liability and            casualty insurance coverage, but such insurance may not provide adequate coverage            against potential claims, including losses resulting from war risks, terrorist acts or            product liability claims relating to products we manufacture. Consistent with market            conditions in the insurance industry, premiums and deductibles for some of our            insurance policies have been increasing and can in the future increase substantially.            In some instances, some types of insurance may become available only for reduced            amounts of coverage, if at all. In addition, there can be no assurance that our            insurers would not challenge coverage for certain claims. If we were to incur a            significant liability for which we were not fully insured or that our insurers            disputed, it could have a material adverse effect on our financial position.

 

19

***We provide product warranties that could expose us to claims,            which could in turn damage our reputation and adversely affect our            business.***

We provide a 15-year limited warranty on Scranton Products commercial            building products, a 25-year limited warranty on AZEK products and a lifetime limited            warranty on AZEK Deck products sold for residential use. The warranty period for all            other uses of AZEK Deck, including commercial use, is 25 years. The Scranton Products            warranty guarantees against breakage, corrosion and delamination. AZEK products are            guaranteed against manufacturing defects that cause the products to rot, corrode,            delaminate, or excessively swell from moisture. The AZEK Deck warranty guarantees            against manufacturing defects in material and workmanship that result in blistering,            peeling, flaking, cracking, splitting, cupping, rotting or structural defects from            termites or fungal decay.

 

Warranty reserves require a high level of judgment as AZEK products have            only been on the market for eight years and AZEK Deck has only been on the market            for five years, therefore we must estimate warranty costs over a considerable length of            time without significant historical data on warranty costs for these products.            Management assesses warranty reserves based on sales by product as well as historical            warranty costs which have been immaterial thus far. However, the impact resulting from            the aforementioned factors could cause actual results to vary.

***Our business operations could be significantly disrupted if            members of our management team were to leave.***

Our success depends to a significant degree upon the continued            contributions of our senior management. Our senior operating management members have            extensive engineering, manufacturing and finance backgrounds. We believe that the depth            of our management team is instrumental to our continued success. The loss of any of our            key executive officers in the future could significantly impede our ability to            successfully implement our business strategy, financial plans, expansion of services,            marketing and other objectives.

***Our business operations could be negatively impacted if we fail to            adequately protect our intellectual property rights or if third parties claim that we            are in violation of their intellectual property rights.***

As a company that manufactures and markets branded products, we rely            heavily on trademark and service mark protection to protect our brands. In particular,            the value of the AZEK brand is significant to the success of our business. We generally            rely on a combination of unpatented proprietary know-how and trade secrets, and to a            lesser extent, patents, in order to preserve our position in the market. Because of the            importance of our proprietary know-how and trade secrets, we employ various methods to            protect our intellectual property, such as entering into confidentiality agreements            with third parties, and controlling access to and distribution of our proprietary            information.

There is no assurance that these protections are adequate to prevent            competitors from copying, imitating or reverse engineering our products, or from            developing and marketing products that are substantially equivalent to or superior to            our own. Further, we may not be able to deter current and former employees, contractors            and other parties from breaching confidentiality obligations and misappropriating            proprietary information. Due to the nature of our products and technology, it is            difficult for us to monitor unauthorized uses of our products and technology. The steps            we have taken may not prevent unauthorized use of technology, particularly in foreign            countries where the laws may not protect our proprietary rights as fully as in the            United States. If third parties take actions that affect our rights or the value of our            intellectual property, similar proprietary rights or reputation, or we are unable to            protect our intellectual property from infringement or misappropriation, other            companies may be able to use our intellectual property to offer competitive products at            lower prices and we may not be able to effectively compete against these companies. In            addition, if any third party copies or imitates our products, including our AZEK            products, in a manner that projects a lesser quality or carries a negative connotation,            this could have a material adverse effect on our goodwill in the marketplace since it            would damage the reputation of synthetic products generally, whether or not it violates            our intellectual property rights.

In addition, we face the risk of claims that we are infringing third            parties’ intellectual property rights. We believe that our intellectual property            rights are sufficient to allow us to conduct our business without incurring liability            to third parties. We have received, and from time to time, may receive in the future,            claims from third parties by which such third parties assert infringement claims            against us in connection with the manufacture and sale of our products and we can give            no assurance that claims or litigation asserting infringement by us of third            parties’

 

20

intellectual property rights will not be initiated in the future. Any            such claim, even if it is without merit, could be expensive and time-consuming; could            cause us to cease making, using or selling certain products that incorporate the            disputed intellectual property; could require us to redesign our products, if feasible;            could divert management time and attention; and could require us to enter into costly            royalty or licensing arrangements, to the extent such arrangements are available. In            the future, we may also rely on litigation to enforce our intellectual property rights            and contractual rights, and, if such enforcement measures are not successful, we may            not be able to protect the value of our intellectual property. Regardless of its            outcome, any litigation could be protracted and costly and could have a material            adverse effect on our business and results of operations.

***The cost of complying with laws relating to the protection of the            environment may be significant.***

We are subject to extensive federal, state, municipal, local and foreign            laws and regulations relating to the protection of human health and the environment,            including those limiting the discharge of pollutants into the environment and those            regulating the treatment, storage, disposal and remediation of, and exposure to, solid            and hazardous wastes and hazardous materials. Certain environmental laws and            regulations impose joint and several strict liability on responsible parties, including            past and present owners and operators of sites, to clean up, or contribute to the cost            of cleaning up sites at which hazardous wastes or materials were disposed or            released.

While we believe that the future cost of compliance with environmental            laws and regulations and liabilities associated with claims or known environmental            conditions will not have a material adverse effect on our business, we cannot assure            you that future events, such as new or more stringent environmental laws and            regulations, any related damage claims, the discovery of previously unknown            environmental conditions requiring response action, or more vigorous enforcement or a            new interpretation of existing environmental laws and regulations would not require us            to incur additional costs that would be material.

***If we fail to maintain an effective system of internal controls,            we may not be able to accurately report our financial results or prevent            fraud.***

Effective internal controls are necessary for us to provide reliable            financial reports and effectively prevent fraud. Any inability to provide reliable            financial reports or prevent fraud could harm our business. We are continuing to            evaluate and, where appropriate, enhance our policies, procedures and internal            controls. If we fail to maintain the adequacy of our internal controls, as such            standards are modified, supplemented or amended from time to time, our financial            statements may not accurately reflect our financial condition.

 

**Risks Related Our Indebtedness**

***Our substantial indebtedness could adversely affect our financial            condition and prevent us from fulfilling our obligations under our            indebtedness.***

We have a significant amount of indebtedness. As of December 31, 2007,            we had total indebtedness of $284.9 million, excluding up to an additional $38.6            million that was available for borrowing under our then outstanding senior secured            revolving credit facility. On February 13, 2008, we terminated our senior secured            revolving credit facility and entered into a new senior secured revolving credit            agreement. On February 29, 2008, we also entered into a $25.0 million term loan and            agreement. For further details regarding these transactions, see            “Management’s Discussion and Analysis of Financial Condition and Results of            Operations—Subsequent Financing”.

             

Our substantial indebtedness could have important consequences. For            example, it could:

|   | • | make it more difficult for us to satisfy our obligations                            with respect to our indebtedness; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

|   | • | increase our vulnerability to general adverse economic                            and industry conditions; |
|--------|--------|------------------------------------------------------------------------------------------------------------|

 

21

|   | • | require us to dedicate a substantial portion of our cash                            flow from operations to payments on our indebtedness, thereby reducing                            the availability of our cash flow to fund working capital, capital                            expenditures, research and development efforts and other general                            corporate purposes; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | limit our flexibility in planning for, or reacting to,                            changes in our business and the industry in which we                            operate; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | place us at a competitive disadvantage compared to our                            competitors that have less debt; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------|

|   | • | limit our ability to borrow additional funds for capital                            expenditures, acquisitions, working capital or other                            purposes. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

In addition, a substantial portion of our debt bears interest at            variable rates. If market interest rates increase, such variable-rate debt will create            higher debt service requirements, which could adversely affect our cash flow. Each            0.25% increase or decrease in the applicable interest rates on our outstanding floating            rate notes would correspondingly change our interest expense by approximately $0.3            million per year.

The            indenture governing our outstanding notes and our credit agreements contain financial            and other restrictive covenants that limit our ability to engage in activities that may            be in our long-term best interests. Our failure to comply with those covenants could            result in an event of default which, if not cured or waived, could result in the            acceleration of all of our debts. Our new senior secured revolving credit facility            matures in 2013 and our new term loan matures in 2011. As a result, we may be required            to refinance any outstanding amounts under our term loan prior to the maturity of the            notes and amounts outstanding under our new revolving credit facility prior to the            maturity of the fixed rate notes. We may not be able to obtain such financing on            commercially reasonable terms or at all. Failure to refinance our indebtedness could            have a material adverse effect on us and could require us to dispose of assets if we            are unable to refinance our indebtedness. See “Management’s Discussion and            Analysis of Financial Condition and Results of Operations—Liquidity and Capital            Resources.”

 

***Despite current indebtedness levels, we and our subsidiaries may            still be able to incur substantially more debt. This could further exacerbate the risks            associated with our substantial leverage. To service our indebtedness, we will require            a significant amount of cash. Our ability to generate cash depends on many factors            beyond our control.***

Our ability to make payments on and to refinance our indebtedness and to            fund planned capital expenditures and research and development efforts will depend on            our ability to generate cash in the future. This, to a certain extent, is subject to            general economic, financial, competitive, legislative, regulatory and other factors            that are beyond our control.

We cannot be assured that our business will generate sufficient cash            flow from operations or that future borrowings will be available to us under our senior            secured revolving credit facility, or otherwise in an amount sufficient to enable us to            pay our indebtedness or to fund our other liquidity needs. We may need to refinance all            or a portion of our indebtedness on or before the maturity thereof. We cannot assure            you that we will be able to refinance any of our indebtedness, including our credit            agreements and our notes, on commercially reasonable terms or at all. If we are unable            to generate sufficient cash flow to refinance our debt obligations on favorable terms,            it could have a significant adverse effect on our financial condition and on our            ability to pay principal and interest on our indebtedness. See            “Management’s Discussion and Analysis of Financial Condition and Results of            Operations—Liquidity and Capital Resources.”

In addition, if for any reason we are unable to meet our debt service            obligations, we would be in default under the terms of our agreements governing our            outstanding debt. If such a default were to occur, the lenders under our senior secured            revolving credit facility could elect to declare all amounts outstanding under the            senior secured revolving credit facility immediately due and payable, and the lenders            would not be obligated to continue to advance funds under our senior secured revolving            credit facility. In addition, if such a default were to occur, our term loan and our            notes would become immediately due and payable. If the amounts outstanding under these            debt agreements are accelerated, our assets may not be sufficient to repay in full the            money owed to the banks or to our debt holders.

 

22

***The indenture governing our outstanding notes and our credit            agreements impose significant operating and financial restrictions, which may prevent            us from capitalizing on business opportunities and taking some            actions.***

The indenture governing our outstanding notes and our credit agreements            contain customary restrictions on our activities, including covenants that restrict us            and our restricted subsidiaries from:

|   | • | incurring additional indebtedness and issuing preferred                            stock; |
|--------|--------|-------------------------------------------------------------------------------------------|

|   | • | creating liens on our assets; |
|--------|--------|-------------------------------|

|   | • | making certain investments; |
|--------|--------|-----------------------------|

|   | • | consolidating or merging with, or acquiring, another                            business; |
|--------|--------|-------------------------------------------------------------------------------------------|

|   | • | selling or otherwise disposing of our assets; |
|--------|--------|-----------------------------------------------|

|   | • | paying dividends and making other distributions with                            respect to capital stock, or repurchasing, redeeming or retiring                            capital stock or subordinated debt; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | entering into transactions with our affiliates.                            m |
|--------|--------|------------------------------------------------------------------------------|

Our new senior secured revolving credit facility also requires us to            maintain a minimum fixed charge coverage ratio in certain circumstances. We may not be            able to maintain this ratio, and if we fail to be in compliance with this test when            required to be in compliance, we will not be able to borrow funds under our senior            secured revolving credit facility which could make it difficult for us to operate our            business. In addition, our new term loan requires us to not exceed a senior secured            leverage ratio. We may not be able to maintain this ratio, and any failure in            compliance with this test could result in default under our term loan            agreement.

The restrictions in the indenture governing our notes and our credit            agreements may prevent us from taking actions that we believe would be in the best            interest of our business, and may make it difficult for us to successfully execute our            business strategy or effectively compete with companies that are not similarly            restricted. We may also incur future debt obligations that might subject us to            additional restrictive covenants that could affect our financial and operational            flexibility. We may not be granted waivers or amendments to these agreements if for any            reason we are unable to comply with these agreements, and we may not be able to            refinance our debt on terms acceptable to us, or at all.

The breach of any of these covenants and restrictions could result in a            default under the indenture governing our notes or under our credit agreements. An            event of default under our debt agreements would permit some of our lenders to declare            all amounts borrowed from them to be due and payable. If we are unable to repay debt,            lenders having secured obligations, such as the lenders under our credit agreements,            could proceed against the collateral securing the debt. Because the indenture governing            our notes and the credit agreements have customary cross-default provisions, if the            indebtedness under our notes or under our credit agreements or any of our other            facilities is accelerated, we may be unable to repay or finance the amounts            due.

 

**Item 1B. Staff Comments.**

Not            applicable.

 

23

 

 

**Item 2. Properties.**

On our main property in the Scranton, Pennsylvania area, we operate five            facilities that are organized by material type for manufacturing purposes for both AZEK            Building Products as well as Scranton Products. We operate two additional facilities in            Scranton, Pennsylvania: (i) Winfield Avenue, which is utilized for cutting, fabricating            and shipping bathroom partition and locker systems for Scranton Products and (ii)            Keyser Avenue, for PVC manufacturing and fabricating to support the growth of our AZEK            Building Products. We also operate an extrusion facility in Foley, Alabama for            manufacturing product for AZEK Building Products. Our administrative offices are            located in Moosic, Pennsylvania within two miles of our manufacturing facilities. The            chart below summarizes our facilities.

             

| **Facility(1)**            | **Square Feet** | **Ownership** | **Use**                                 |
|----------------------------|-----------------|---------------|-----------------------------------------|
|                       |            |          |                                    |
| Scranton Building #5       | 343,000         | Owned         | Office and Extrusion Facility(2)        |
| Scranton / Keyser Avenue   | 308,000         | Leased        | Dry Blend, Extrusion and Fabrication(3) |
| Scranton / Winfield Avenue | 224,214         | Leased        | Office and Fabrication(2)               |
| Scranton Building #1       | 153,330         | Owned         | Pressing and Storage Facility(2)        |
| Scranton Building #2       | 67,500          | Owned         | Extrusion Facility(3)                   |
| Scranton Building #3       | 67,500          | Owned         | Extrusion Facility(3)                   |
| Scranton Building #4       | 16,050          | Owned         | Dry Blend and Lab Facility(3)           |
| Administrative Offices     | 22,000          | Leased        | Administrative Services(4)              |
| Foley, Alabama             | 109,500         | Leased        | Office and Extrusion Facility(3)        |

 

**_____**

 

|   | **(1)** | We will operate two manufacturing facilities in Toronto,                            Ontario, Canada in connection with the Composatron                            Acquisition. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **(2)** | Facility used by our Scranton Products business                            segment. |
|--------|---------|-------------------------------------------------------------------------------------|

|   | **(3)** | Facility used by our AZEK Building Products business                            segment. |
|--------|---------|------------------------------------------------------------------------------------------|

|   | **(4)** | Facility utilized for both segments of our                            business. |
|--------|---------|---------------------------------------------------------------------------------|

             

**Item 3. Legal Proceedings.**

From time to time, we are subject to litigation in the ordinary course            of business. Currently, there are no claims or proceedings against us that we believe            would be expected to have a material adverse effect on our business or financial            condition, results of operations or cash flows.

 

**Item 4. Submission of Matters to a Vote of Security            Holders.**

|   | None. |
|--------|-------|

**Part II**

**Item 5. Market for the Registrant’s Common Equity, Related            Stockholder Matters and Issuer Purchases of Equity Securities.**

There is no established public market for the Company’s Common            Shares.

As of December 31, 2007 all of the Company’s issued and            outstanding shares of common stock are held by CPG International Holdings LP, its            direct parent company.

**Item 6. Selected Financial Data.**

The selected historical financial data presented below as of and for the            years ended December 31, 2003 and 2004 and for the period from January 1, 2005 to May            10, 2005 have been derived from the Predecessor’s

 

24

audited            consolidated financial statements. The selected historical financial data presented            below as of December 31, 2005, 2006 and 2007, for the period from May 11, 2005 to            December 31, 2005 and the years ended December 31, 2006 and 2007 have been derived from            the Successor’s audited consolidated financial statements. You should read this            data in conjunction with “Management’s Discussion and Analysis of Financial            Condition and Results of Operations” and our audited consolidated financial            statements and the related notes included elsewhere in this report.

             

|                                   |   |   |   |   |             |   |   |   |   |   |             |   |   |   |   |   | **Combined**      |   |   |   |   |   |             |   |   |   |   |   |            |   |   |   |   |   |             |   |   |   |   |   |             |   |   |
|----------------------------------------|--------|--------|--------|--------|------------------|--------|--------|--------|--------|--------|------------------|--------|--------|--------|--------|--------|-------------------|--------|--------|--------|--------|--------|------------------|--------|--------|--------|--------|--------|-----------------|--------|--------|--------|--------|--------|------------------|--------|--------|--------|--------|--------|------------------|--------|--------|
|                                   |   |   |   |   |             |   |   |   |   |   |             |   |   |   |   |   | **Predecessor**   |   |   |   |   |   |             |   |   |   |   |   |            |   |   |   |   |   |             |   |   |   |   |   |             |   |   |
|                                   |   |   |   |   |             |   |   |   |   |   |             |   |   |   |   |   | **and**           |   |   |   |   |   |             |   |   |   |   |   |            |   |   |   |   |   |             |   |   |   |   |   |             |   |   |
|                                   |   |   |   |   | **Successor**    |   |   |   |   |   | **Successor**    |   |   |   |   |   | **Successor (1)** |   |   |   |   |   | **Successor**    |   |   |   |   |   | **Predecessor** |   |   |   |   |   |             |   |   |   |   |   |             |   |   |
|                                   |   |   |   |   |             |   |   |   |   |   |             |   |   |   |   |   |              |   |   |   |   |   | **Period**       |   |   |   |   |   | **Period**      |   |   |   |   |   |             |   |   |   |   |   |             |   |   |
|                                   |   |   |   |   | **Year**         |   |   |   |   |   | **Year**         |   |   |   |   |   | **Year**          |   |   |   |   |   | **May 11,**      |   |   |   |   |   | **January 1,**  |   |   |   |   |   | **Year**         |   |   |   |   |   | **Year**         |   |   |
|                                   |   |   |   |   | **Ended**        |   |   |   |   |   | **Ended**        |   |   |   |   |   | **Ended**         |   |   |   |   |   | **2005 to**      |   |   |   |   |   | **2005 to**     |   |   |   |   |   | **Ended**        |   |   |   |   |   | **Ended**        |   |   |
|                                   |   |   |   |   | **December 31,** |   |   |   |   |   | **December 31,** |   |   |   |   |   | **December 31,**  |   |   |   |   |   | **December 31,** |   |   |   |   |   | **May 10,**     |   |   |   |   |   | **December 31,** |   |   |   |   |   | **December 31,** |   |   |
| **(Dollars in thousands)**             |   |   |   |   | **2007**         |   |   |   |   |   | **2006**         |   |   |   |   |   | **2005**          |   |   |   |   |   | **2005**         |   |   |   |   |   | **2005**        |   |   |   |   |   | **2004**         |   |   |   |   |   | **2003**         |   |   |
|                                   |   |   |   |   |             |   |   |   |   |   |             |   |   |   |   |   |              |   |   |   |   |   |             |   |   |   |   |   |            |   |   |   |   |   |             |   |   |   |   |   |             |   |   |
| **Statement of Operations**            |   |   |   |   |             |   |   |   |   |   |             |   |   |   |   |   |              |   |   |   |   |   |             |   |   |   |   |   |            |   |   |   |   |   |             |   |   |   |   |   |             |   |   |
| Net sales                              |   | $      |   |   | 313,703          |   |   | $      |   |   | 261,790          |   |   | $      |   |   | 222,603           |   |   | $      |   |   | 140,672          |   |   | $      |   |   | 81,931          |   |   | $      |   |   | 171,060          |   |   | $      |   |   | 136,284          |   |   |
| Cost of sales                          |   |   |   |   | (225,436         |   | )      |   |   |   | (193,417         |   | )      |   |   |   | (171,930          |   | )      |   |   |   | (113,076         | )      |   |   |   |   | (58,854         |   | )      |   |   |   | (121,121         |   | )      |   |   |   | (97,240          |   | )      |
| Gross margin                           |   |   |   |   | 88, 267          |   |   |   |   |   | 68,373           |   |   |   |   |   | 50,673            |   |   |   |   |   | 27,596           |   |   |   |   |   | 23,077          |   |   |   |   |   | 49,939           |   |   |   |   |   | 39,044           |   |   |
| Selling general and administrative (2) |   |   |   |   | (46,844          |   | )      |   |   |   | (40,249          |   | )      |   |   |   | (40,775           |   | )      |   |   |   | (18,870          | )      |   |   |   |   | (21,905         |   | )      |   |   |   | (20,451          |   | )      |   |   |   | (17,111          |   | )      |
| Gain on sale of property               |   |   |   |   | 422              |   |   |   |   |   | –          |   |   |   |   |   | –           |   |   |   |   |   | –          |   |   |   |   |   | –         |   |   |   |   |   | –          |   |   |   |   |   | –          |   |   |
| Operating income                       |   |   |   |   | 41,845           |   |   |   |   |   | 28,124           |   |   |   |   |   | 9,898             |   |   |   |   |   | 8,726            |   |   |   |   |   | 1,172           |   |   |   |   |   | 29,488           |   |   |   |   |   | 21,933           |   |   |
| Interest expense, net                  |   |   |   |   | (33,698          |   | )      |   |   |   | (28,685          |   | )      |   |   |   | (23,035           |   | )      |   |   |   | (21,175          | )      |   |   |   |   | (1,860          |   | )      |   |   |   | (14,082          |   | )      |   |   |   | (10,119          |   | )      |
| Miscellaneous, net                     |   |   |   |   | 240              |   |   |   |   |   | 306              |   |   |   |   |   | (226              |   | )      |   |   |   | 158              |   |   |   |   |   | (384            |   | )      |   |   |   | (266             |   | )      |   |   |   | (5               |   | )      |
| Income (loss) before income taxes      |   |   |   |   | 8,387            |   |   |   |   |   | (255             |   | )      |   |   |   | (13,363           |   | )      |   |   |   | (12,291          | )      |   |   |   |   | (1,072          |   | )      |   |   |   | 15,140           |   |   |   |   |   | 11,809           |   |   |
| Income tax (expense) benefit           |   |   |   |   | (3,760           |   | )      |   |   |   | (230             |   | )      |   |   |   | 1,622             |   |   |   |   |   | 4,682            |   |   |   |   |   | (3,060          |   | )      |   |   |   | (5,870           |   | )      |   |   |   | (4,531           |   | )      |
| Net income (loss)                      |   | $      |   |   | 4,627            |   |   | $      |   |   | (485             |   | )      | $      |   |   | (11,741           |   | )      | $      |   |   | (7,609           | )      |   | $      |   |   | (4,132          |   | )      | $      |   |   | 9,270            |   |   | $      |   |   | 7,278            |   |   |
| **Other Data**                         |   |   |   |   |             |   |   |   |   |   |             |   |   |   |   |   |              |   |   |   |   |   |             |   |   |   |   |   |            |   |   |   |   |   |             |   |   |   |   |   |             |   |   |
| Volume sold (000’s lbs)          |   |   |   |   | 231,615          |   |   |   |   |   | 186,695          |   |   |   |   |   | 180,260           |   |   |   |   |   | 110,600          |   |   |   |   |   | 69,660          |   |   |   |   |   | 147,869          |   |   |   |   |   | 114,341          |   |   |
| Capital expenditures                   |   | $      |   |   | 14,386           |   |   | $      |   |   | 16,995           |   |   | $      |   |   | 21,784            |   |   | $      |   |   | 17,295           |   |   | $      |   |   | 4,489           |   |   | $      |   |   | 7,299            |   |   | $      |   |   | 7,402            |   |   |
| **Balance Sheet Data**                 |   |   |   |   |             |   |   |   |   |   |             |   |   |   |   |   |              |   |   |   |   |   |             |   |   |   |   |   |            |   |   |   |   |   |             |   |   |   |   |   |             |   |   |
| **(at end of period)**                 |   |   |   |   |             |   |   |   |   |   |             |   |   |   |   |   |              |   |   |   |   |   |             |   |   |   |   |   |            |   |   |   |   |   |             |   |   |   |   |   |             |   |   |
| Cash                                   |   | $      |   |   | 9,608            |   |   | $      |   |   | 2,173            |   |   | $      |   |   | 14,785            |   |   |   |   |   | 14,785           |   |   |   |   |   |            |   |   | $      |   |   | 2,697            |   |   | $      |   |   | 4,549            |   |   |
| Working capital (3)                    |   | $      |   |   | 39,058           |   |   | $      |   |   | 35,511           |   |   | $      |   |   | 32,822            |   |   |   |   |   | 32,822           |   |   |   |   |   |            |   |   | $      |   |   | 50,360           |   |   | $      |   |   | 33,131           |   |   |
| Total assets                           |   | $      |   |   | 600,496          |   |   | $      |   |   | 507,796          |   |   | $      |   |   | 464,918           |   |   |   |   |   | 464,918          |   |   |   |   |   |            |   |   | $      |   |   | 200,537          |   |   | $      |   |   | 185,171          |   |   |
| Total debt                             |   | $      |   |   | 284,933          |   |   | $      |   |   | 258,297          |   |   | $      |   |   | 216,602           |   |   |   |   |   | 216,602          |   |   |   |   |   |            |   |   | $      |   |   | 143,917          |   |   | $      |   |   | 92,637           |   |   |
| Total shareholder’s equity       |   | $      |   |   | 196,494          |   |   | $      |   |   | 156,972          |   |   | $      |   |   | 157,457           |   |   |   |   |   | 157,457          |   |   |   |   |   |            |   |   | $      |   |   | 30,557           |   |   | $      |   |   | 72,786           |   |   |

| ______________________ |
|------------------------|

| (1) | Represents the mathematical addition of the Predecessor                            period January 1, 2005 to May 10, 2005 and the Successor period                            beginning after May 10, 2005 through December 31, 2005. The Combined                            Predecessor and Successor results of operations are not indicative of                            our future results of operations or results of operations that would                            have actually occurred had the Transaction been consummated as of                            January 1, 2005, due to the fair values assigned to our assets and                            liabilities, the changes made in the related estimated useful lives of                            the assets at May 11, 2005, as well as changes in interest and income                            tax expenses as a result of the Transaction. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | We incurred a one-time compensation charge of                            approximately $12.8 million relating to the vesting of certain                            restricted units upon closing of the Transaction. This amount was                            included in selling, general and administrative expenses for the period                            from January 1, 2005 to May 10, 2005, and was funded by the seller,                            Compression Polymers Holding LLC, our Predecessor, from the purchase                            price of the Transaction. As such, there was no cash impact on the                            financial statements of the Successor related to this compensation                            charge. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Working capital is defined as current assets less                            current liabilities. |
|-----|---------------------------------------------------------------------------------------------------|

 

25

**Item            7. Management’s Discussion and Analysis of Financial Condition and Results of            Operations.**

 

*The following discussion and analysis should be read in conjunction            with and is qualified in its entirety by reference to the audited consolidated            financial statements and accompanying notes of CPG International Inc. (Successor), and            Compression Polymers Holdings LLC, (Predecessor), included elsewhere in Item 15 of this            report. Except for historical information, the discussions in this section contain            forward-looking statements that involve risks and uncertainties. Future results could            differ materially from those discussed below. See discussion under the caption            “Cautionary Note Regarding Forward-Looking Statements.”**Except where the context otherwise requires, all references to            “we,” “us,” and “our” (and similar terms) herein            mean the Successor for periods beginning after May 10, 2005 and the Predecessor for            periods ending on or prior to May 10, 2005.*

 

**OVERVIEW**

 

We are a leading supplier of premium, low maintenance building products            designed to replace wood, metal and other materials in the residential, commercial and            industrial markets. With a focus on manufacturing excellence, proprietary technologies            and quality, we have introduced our products through distribution networks to sizable            markets increasingly converting to low maintenance materials. We have developed a            number of branded products including AZEK® Trim, AZEK Deck, AZEK Moulding Comtec            and Hiny Hiders bathroom partition systems, and EverTuffTM and TuffTecTM            locker systems. We operate the following two business units:

 

|   | **•** | AZEK Building Products Inc., or AZEK Building Products,                            manufactures exterior residential building products such as AZEK Trim,                            AZEK Deck, and AZEK Moulding for the residential and commercial                            building market. Additionally AZEK Building Products produces Celtec                            and other non-fabricated products for the industrial market;                            and |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Scranton Products Inc., or Scranton Products, produces                            fabricated bathroom partition and locker systems under the Comtec,                            Santana, Hiny Hiders, EverTuff and TuffTec labels for the commercial                            market and Seaboard® and Flametec® and other non-fabricated                            products for special application industrial markets. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

On April 29, 2006, we completed the acquisition of Santana Holdings            Corporation, the direct parent of Santana Products, Inc. for a purchase price of $36.0            million (the “Santana Acquisition”). Santana is included in the Scranton            Products operating segment.

On January 31, 2007, we completed the acquisition of Pro-Cell, LLC,            which owned and operated Procell Decking Systems (“Procell”) for a purchase            price of $77.3 million (“Procell Acquisition”). Procell is included in the            AZEK Building Products operating segment.

On February 29, 2008, we completed the acquisition of Compos-A-Tron            Manufacturing Inc. (“Composatron”) for CAD $30.0 million            (“Composatron Acquisition”). Composatron will be included in the AZEK            Building Products operating segment. For further discussion,            see—“Acquisitions” below.

 

**OUR            BUSINESS**

 

The core of our operation has been to produce high-quality products            across all of the building and industrial end markets we serve. In the last decade, our            expertise in manufacturing has allowed us to successfully develop value-added, branded            building products such as AZEK, Comtec, EverTuff, TuffTec and Celtec products, which            offer accelerated volume growth and higher margins. Our volume growth has been the            result of penetrating the building and industrial end markets that create value-added            substitution opportunities from more traditional wood, fiber and steel products. We            believe many of our products are still in the early stages of the material conversion            opportunity. As a result, we believe our growth should be less sensitive to the growth            rate of our various end markets. We have generally increased our margins through volume            growth that has allowed us to self-fund investment in new technology and equipment that            has enabled us to lower our manufacturing conversion costs. In addition, we have            attained higher margins for our branded products through highly developed sales            channels and continued product

 

26

innovation. We continually look to utilize existing products and            know-how for new applications, including the development of additional branded building            products.

 

Over the eight years since their introduction, our AZEK branded building            products have gained significant market acceptance and brand loyalty as a leader within            the non-wood home exterior market. In 2007 and 2006, AZEK products have accounted for a            majority of our net sales. Through our two-step, dual distribution system, we have            established an extensive network of distributors and dealers throughout the United            States and Canada. Our strategy continues to be to maintain two distributors in each            geographic region that we enter. As of December 31, 2007, our distributors were selling            our products to over 2,100 local stocking dealers who frequently request our products            by brand name. In the first quarter of each year, we conduct an “early buy”            sales promotion that encourages distributors to stock AZEK products through the use of            incentive discounts, typically in the range of 1% to 6%. Over the course of 2007 we            have expanded AZEK Building Products through internal development of additional product            offerings as well as through the Procell Acquisition in 2007 and the Composatron            Acquisition in 2008. With the introduction of AZEK Moulding and AZEK Deck in 2007, we            continued to establish ourselves as a premier provider of branded building products.            Our goal is to continue to expand our product offerings through the development of            additional trim, moulding and decking products, as well as through the introduction of            additional product lines.

 

Across all of our target markets, we are focused on capitalizing on the            functional advantages of our synthetic products relative to competing wood, fiber and            metal products. In this regard, we have developed the leading brand in the synthetic            bathroom and locker room products market, Comtec. Our product offerings which include            Comtec, Capitol, Hiny Hider, EverTuff and TuffTec brands, and are sold to similar            primary end-markets, which include schools, stadiums, prisons, retail locations and            other high-traffic environments. Through Scranton Product’s widely established            distribution network, we are able to service our customers through representatives in            all 50 states. Although we were able to successfully integrate the Santana Acquisition            and benefit from various manufacturing synergies through integration, we experienced            some erosion in our customer base in 2007. Our current focus is to regain market share            within the commercial building markets, by actively engaging key dealers and productive            sales representatives prior to the 2008 bid season. We are also focusing on improving            our customer service experience by making improvements within our customer service            departments. Our focus is also to continue to develop leading brands for 2008 including            new locker designs as well as a line of fire rated partitions. We believe that these            additional goals will allow us to continue our market penetration into the commercial            building market.

 

Dry petrochemical resins, primarily PVC, HDPE and PP, represented a            majority of our raw material costs and cost of sales in 2007. Throughout our 24-year            history, resin prices have been subject to cyclical price fluctuations. Due to            increases in natural gas and crude oil prices and demand in the broader economy, dry            petrochemical resin prices have risen to higher levels than in previous years.            Although, our annual average cost of resin decreased by approximately 11.2% from the            year ended December 31, 2006 to December 31, 2007, resin prices have steadily risen            from their low point in the first half of 2007. In the past, we have been able to            partially offset the impact of significantly higher resin costs through increased sales            volumes, improved productivity, and selling price increases in all of our product            lines. We have not taken any significant pricing actions since we took several pricing            actions late in the third quarter and early in the fourth quarter of 2005 that were            used to mitigate higher resin prices. These pricing actions have not resulted in            reduced volume growth in our products, on a period to period basis, through 2007. In            addition, we have developed significant scale in purchasing resin, which we believe            places us in a better cost position relative to many of our competitors. With respect            to our basic non-fabricated products, we have been moderately successful in passing            through resin cost increases to our customers.

             

Our AZEK Building Products are sold in various building and industrial            end markets. AZEK products are sold in various stages of the home building construction            market, including remodeling and renovation and new construction, thereby diversifying            sales across the construction cycle. Celtec products are sold to several industrial            sectors, thereby diversifying sales across sectors sensitive to differing economic            factors. Scranton Products fabricated and non-fabricated products are sold to various            non-residential construction and industrial markets further adding to our end market            diversity. In 2007, approximately 25% of our products were sold for new construction,            34% were for remodeling, and 22% were in the commercial building sector, with the            remaining 19% sold to various industrial end markets. Over 98% and 96% of our sales in            2007 and 2006, respectively, were in the United States.

             

27

We experienced economic factors that had affected our growth in the            residential building market. Sales were stronger in the first three quarters of 2007            due to the Procell Acquisition and the expansion of our AZEK sales network that was            partially offset by the impact of a declining market for residential construction.            These factors combined to slow AZEK trim, millwork and moulding sales as dealers and            distributors worked through inventory purchased in AZEK’s successful early-buy            program in the first quarter of 2007. By late second quarter, distributors and dealers            had worked through their early-buy inventories causing order demand for AZEK trim,            millwork and mouldings to improve. Overall, we expect to see continued moderate growth            in our AZEK Building Products trim, millwork and mouldings business despite declines in            the residential building market. Growth in our AZEK decking is anticipated to continue            as we expand its distribution foot print and invest to increase its production            capacity.

 

**ACQUISITIONS**

 

On February 11, 2008, we entered into a purchase and sale agreement to            acquire 100% of the outstanding stock of Compos-A-Tron Manufacturing Inc.            (“Composatron”) for CAD $30.0 million. If certain financial targets are met            in 2008, that purchase price may increase by approximately CAD $4.0 million in cash.            The acquisition closed on February 29, 2008. Composatron is a privately held            manufacturer of Premier and Trademark Railing Systems, leading composite railing            solutions for the residential housing market. The Premier and Trademark branded railing            systems are manufactured using a PVC / wood flour composite and a co-extruded PVC            capstock. The products have the subtle texture of painted wood and are ICC code listed.            The product lines offered by Composatron are highly complimentary to our AZEK Deck            products and already offer a successful rail system that matches the AZEK Deck color            palette. We believe the acquisition of Composatron is ideal for the expansion of our            product offerings within the building products market. The Composatron business reports            as part of our AZEK Building Products business unit.

             

On December 13, 2006, we entered into a unit purchase agreement to            acquire all of the outstanding equity of Pro-Cell, LLC, which owns and operates Procell            Decking Systems for a purchase price of $77.3 million. The acquisition of Procell            closed on January 31, 2007. Since certain financial targets were met for the year ended            December 31, 2007, the purchase price was increased up to approximately $12.3 million            in cash, plus additional equity in CPG International Holdings, our parent company,            valued at approximately $5.7 million. Procell was a privately held manufacturer located            in Foley, Alabama, that had developed the next generation product in the synthetic            decking market. Procell leverages solid-core, cellular PVC technology combined with            agra-fiber to produce a durable, long-life product with superior attributes that serve            as a replacement for wood and composite products in decking applications.            Procell’s use of cellular solid-core technology is complementary to our AZEK            Trimboards manufacturing process, creating a solid, load-bearing yet lightweight            decking product. We believe that the acquisition of Procell was key to our strategy of            expanding AZEK Building Products to be the market leader for premium low maintenance            exterior home products and that the Procell Acquisition will help us expand our product            base, increase our presence throughout our distribution and dealer network and expand            our portfolio of premium branded building products. The Procell business reports as            part of our AZEK Building Products business unit.

**RECENT DEVELOPMENTS**

 

On October 3, 2007, we announced the resignation of John R. Loyack, the            President and Chief Executive Officer of the Company, effective October 3, 2007. We            also announced the appointment of Glenn M. Fischer as our Interim Chief Executive            Officer, effective the same date.

 

On March 10, 2008, we announced the appointment of Eric K. Jungbluth as            Chief Executive Officer. Mr. Jungbluth, 47, joins the Company from HNI Corporation,            where he served as an Executive Vice President and the President of The HON Company.            Mr. Jungbluth joined HNI Corporation in 2003 as President of Allsteel Inc. Prior to            joining Allsteel, Mr. Jungbluth held several senior roles at Moen Incorporated (a            division of Fortune Brands) including Vice President of National Accounts, Vice            President of Business Development, and VP/General Manager of CSI Accessories. Mr.            Jungbluth also spent two years at Kirsch (a division of Newell) as Vice President of            Sales, and ten years at Warner Lambert in sales, marketing, and brand management roles.            Mr. Jungbluth has a BA degree from the University of Wisconsin with a major in            accounting and finance. Effective April 7, 2008, Mr.

 

28

Jungbluth will replace Glenn Fischer, the Company’s Interim Chief            Executive Officer prior to Mr. Jungbluth’s appointment. Glenn Fischer will            continue to serve on the Company’s Board of Directors.

 

**BASIS OF PRESENTATION**

 

The accompanying financial statements have been prepared in accordance            with accounting principles generally accepted in the United States of America and the            rules of the Securities and Exchange Commission. Our consolidated financial statements            include the accounts of CPG International, Inc. and its wholly owned subsidiaries. All            significant intercompany accounts and transactions have been eliminated in            consolidation

 

The consolidated financial statements for the period January 1, 2005            through May 10, 2005 discussed herein include the accounts of our Predecessor,            Compression Polymers Holdings LLC and its wholly owned subsidiaries after elimination            of intercompany accounts and transactions. For the purpose of these financial            statements, reference to the Predecessor are references to the periods ended on or            prior to May 10, 2005 and references to the Successor are references to the periods            from May 11, 2005 and beyond.

 

**CRITICAL ACCOUNTING POLICIES**

The preparation of consolidated financial statements in conformity with            accounting principles generally accepted in the United States requires management to            make estimates and judgments that affect the amounts reported in the financial            statements. On an ongoing basis, management evaluates its estimates, including those            related to revenue recognition, allowance for doubtful accounts, inventories, vendor            rebates, product warranties and goodwill and intangible assets. We base our estimates            on historical experience and various other assumptions that are believed to be            reasonable under the circumstances. Actual results may differ from these estimates            under different assumptions or conditions.

***Revenue Recognition***

Revenue is recognized in accordance with SEC Staff Bulletin No.            101,*“Revenue Recognition in Financial            Statements”*(“SAB 101”), as amended by SAB            101A, SAB 101B and SAB 104. SAB 101 requires that four basic criteria must be met            before revenue can be recognized: (1) persuasive evidence of an arrangement            exists; (2) delivery has occurred; (3) the fee is fixed or determinable; and            (4) collectibility is reasonably assured. Our revenues are recognized at the time            product is shipped to the customer and title transfers.

We accrue for sales returns, discounts and other allowances based on a            current evaluation of our experience based on the stated terms of the transactions.            Should actual experience differ from our estimates, revisions to the estimated accruals            would be required.

***Allowance for Doubtful Accounts***

Our allowance for doubtful accounts is based on management’s            assessment of the business environment, customers’ financial condition,            historical collection experience, accounts receivable aging and customer disputes. When            circumstances arise or a significant event occurs that comes to the attention of            management, the allowance is reviewed for adequacy and adjusted to reflect the change            in the estimated amount to be received from the customer. Changes in the allowance for            doubtful accounts between December 31, 2007 and December 31, 2006 reflect            management’s assessment of the factors noted above, including past due accounts,            disputed balances with customers, and the financial condition of customers. The            allowance for doubtful accounts is adjusted when uncollectible accounts receivable            balances are actually written off.

***Inventories***

Inventories (mainly, petrochemical resin), are valued at the lower of            cost or market, determined on a first-in, first-out basis (“FIFO”) and            reduced for slow-moving and obsolete inventory.

 

29

Inventory obsolescence write-downs are recorded for damaged, obsolete,            excess and slow-moving inventory. At the end of each quarter, management within each            business segment, performs a detailed review of its inventory on an item by item basis            and identifies which products are believed to be obsolete or slow-moving. Management            assesses the need for, and the amount of, an obsolescence write-down based on customer            demand of the item, the quantity of the item on hand and the length of time the item            has been in inventory.

***Vendor Rebates***

Certain vendor rebates and incentives are earned by us only when a            specified level of annual purchases are achieved. We account for vendor rebates in            accordance with EITF 02-16,*Accounting by a Customer            (Including a Reseller) for Certain Consideration Received from a            Vendor*. EITF 02-16 states that a rebate or refund of a            specified amount of cash consideration that is payable pursuant to a binding            arrangement (only if a customer completes a specified cumulative level of purchases),            should be recognized on a systematic and rational allocation of the cash consideration            offered to each of the underlying transactions that results in progress by the customer            toward earning the rebate or refund, provided the amounts are probable and reasonably            estimable. We record the incentives as a reduction to the cost of inventory. Upon sale            of inventory, the incentive is recognized as a reduction to cost of sales. We record            such incentives during interim periods based on actual results achieved on a            year-to-date basis and our expectation that purchase levels will be obtained to earn            the rebate.

***Product Warranties***

We provide a 15-year limited warranty on our Scranton Products            commercial building products and a 25-year limited warranty on AZEK Trim and Moulding            products, and a lifetime limited warranty on AZEK Deck products sold for residential            use. The warranty period for all other uses of AZEK Deck, including commercial use, is            25 years. The Scranton Products warranty guarantees against breakage, corrosion and            delamination. AZEK products are guaranteed against manufacturing defects that cause the            products to rot, corrode, delaminate, or excessively swell from moisture. Warranty            reserves require a high level of judgment as our AZEK products have only been on the            market for eight years, so we must estimate warranty costs over a considerable            length of time without significant historical data on warranty costs for this product.            Management assesses warranty reserves based on sales by product as well as historical            warranty costs which have been immaterial thus far. Management believes that the            warranty reserves at December 31, 2007 are adequate. However, the impact resulting from            the aforementioned factors could cause actual results to vary.

***Goodwill and Intangible Assets***

We account for costs of acquired assets in excess of fair value            (“Goodwill”) in accordance with SFAS No. 142. In accordance with SFAS No.            142, management reviews Goodwill and other intangibles not subject to amortization for            impairment annually, or when events or circumstances indicate that its value may have            declined. The evaluation, based on various analyses including cash flow and            profitability projections, addresses the impact on the existing Company business. The            evaluation necessarily involves significant management judgment. The Company has            determined that no impairment of goodwill or other intangibles existed at            December 31, 2007 and 2006.

 

 

 

 

 

 

 

30

 

 

**RESULTS OF OPERATIONS**

 

***Year Ended December 31, 2007 Compared with Year Ended December 31,            2006***

 

The            following table summarizes certain financial information relating to the            Company’s operating results that have been derived from their consolidated            financial statements:

 

|                                         |   |   | **Year**         |   |   |   | **Year**         |   |
|----------------------------------------------|--------|--------|------------------|--------|--------|--------|------------------|--------|
|                                         |   |   | **Ended**        |   |   |   | **Ended**        |   |
|                                         |   |   | **December 31,** |   |   |   | **December 31,** |   |
| **(Dollars in thousands)**                   |   |   | **2007**         |   |   |   | **2006**         |   |
| Net sales                                    | $      |   | 313,703          |   | $      |   | 261,790          |   |
| Cost of sales                                |   |   | (225,436         | )      |   |   | (193,417         | )      |
| Gross margin                                 |   |   | 88,267           |   |   |   | 68,373           |   |
| Selling, general and administrative expenses |   |   | (46,844          | )      |   |   | (40,249          | )      |
| Gain on sale of property                     |   |   | 422              |   |   |   | -                |   |
| Operating income                             |   |   | 41,845           |   |   |   | 28,124           |   |
| Interest expense, net                        |   |   | (33,698          | )      |   |   | (28,685          | )      |
| Miscellaneous, net                           |   |   | 240              |   |   |   | 306              |   |
| Income (loss) before income taxes            |   |   | 8,387            |   |   |   | (255             | )      |
| Income tax (expense) benefit                 |   |   | (3,760           | )      |   |   | (230             | )      |
| Net income (loss)                            | $      |   | 4,627            |   | $      |   | (485             | )      |

             

The following table summarizes certain information relating to the            operating results as a percentage of net sales and has been derived from the financial            information presented above. We believe this presentation is useful to investors in            comparing historical results. Certain amounts in the table may not sum due to the            rounding of individual components.

             

|                                         |   |   |   | **Year**         |   |   |   | **Year**         |   |
|----------------------------------------------|--------|--------|--------|------------------|--------|--------|--------|------------------|--------|
|                                         |   |   |   | **Ended**        |   |   |   | **Ended**        |   |
|                                         |   |   |   | **December 31,** |   |   |   | **December 31,** |   |
|                                         |   |   |   | **2007**         |   |   |   | **2006**         |   |
| Net sales                                    |   |   |   | 100.0            | %      |   |   | 100.0            | %      |
| Cost of sales                                |   |   |   | (71.9            | )      |   |   | (73.9            | )      |
| Gross margin                                 |   |   |   | 28.1             |   |   |   | 26.1             |   |
| Selling, general and administrative expenses |   |   |   | (14.9            | )      |   |   | (15.4            | )      |
| Gain on sale of property                     |   |   |   | 0.1              |   |   |   | -                |   |
| Operating income                             |   |   |   | 13.3             |   |   |   | 10.7             |   |
| Interest expense, net                        |   |   |   | (10.7            | )      |   |   | (11.0            | )      |
| Miscellaneous—net                      |   |   |   | 0.1              |   |   |   | 0.1              |   |
| Income(loss) before income taxes             |   |   |   | 2.7              |   |   |   | (0.1             | )      |
| Income tax (expense) benefit                 |   |   |   | (1.2             | )      |   |   | (0.1             | )      |
| Net income (loss)                            |   |   |   | 1.5              | %      |   |   | (0.2             | %)     |

 

 

*Net            Sales.*Net sales increased by $51.9 million, or 19.8%,            to $313.7 million for the year ended December 31, 2007, from $261.8 million for the            year ended December 31, 2006 primarily due to increased volumes from the Procell            Acquisition. Overall, AZEK Building Products net sales increased 31.9% from December            31, 2007 compared to December 31, 2006, and Scranton Products net sales remained flat            from December 31, 2007 compared to December 31, 2006. Overall, we sold 231.6 million            pounds of product during the year ended December 31, 2007, which was a 24.0% increase            from the 186.7 million pounds sold during the year ended December 31, 2006. Volume            growth was primarily attributable to the Procell Acquisition offset by volume declines            in AZEK industrial building products and Scranton Products commercial and industrial            building products.

 

*Cost            of Sales.*Cost of sales increased by $32.0 million, or            16.6%, to $225.4 million for the year ended December 31, 2007 from $193.4 million            for the same period in 2006. The increase was primarily attributable to increased            volumes

from            the Procell Acquisition. We also benefited from an 11.2% reduction in average resin            costs for the year ended December 31, 2007 compared to the same period in 2006, as well            as from other operating cost reductions. Despite year over year reductions in resin            costs, resin prices have steadily risen from their low point in the first half of            2007.

 

*Gross Margin.*Gross margin increased by            $19.9 million, or 29.1%, to $88.3 million for the year ended December 31,            2007 from $68.4 million for the same period of 2006. Gross margin as a percent of            net sales increased to 28.1% for the year ended December 31, 2007 from 26.1% for the            same period in 2006. This increase was mainly attributable to the increase in sales            volume from the Procell Acquisition and the decrease in average resin costs and            operational improvements.

 

*Selling, General and Administrative Expenses.*Selling, general and administrative expenses increased by $6.6 million,            or 16.4 %, to $46.8 million, or 14.9% of net sales for the year ended December 31, 2007            from $40.2 million, or 15.4% of net sales for the same period in 2006. The increase in            selling, general and administrative was primarily attributable to the Procell            Acquisition, including a $1.8 million increase in amortization related to the            intangibles acquired in the Procell Acquisition, a $2.5 million increase in corporate            costs, which includes $1.0 million in severance costs, primarily related to the            departure of our former chief executive officer, additional costs related to public            company requirements, as well as increased selling and marketing costs.

 

*Gain            on Sale of Property.*Gain on sale of property was $0.4            million, or 0.1% of net sales for the year ended December 31, 2007. This transaction            involved the sale of one of Scranton Product’s manufacturing facilities for net            proceeds of $2.0 million in May 2007.

 

*Interest Expense, net.*Interest expense,            net, increased by $5.0 million, or 17.5%, to $33.7 million for the year ended December            31, 2007 from $28.7 million for the same period in 2006. Interest expense was higher            primarily from the addition of $33.0 million related to the Procell Acquisition, which            closed on January 31, 2007.

 

*Income Taxes.*Income taxes increased by            $3.5 million, or 1,534.8%, to $3.8 million for the year ended December 31, 2007 from a            $0.2 million expense for the same period in 2006. Income tax expense increased            primarily from the increase in pretax income (determined primarily based on the pretax            income of the specific subsidiaries, and the states where they are subject to income            tax), as well from adjustments in the rate at which state deferred taxes are            recorded.

 

*Net            Income.*Net income increased by $5.1 million, to net income            of $4.6 million for the year ended December 31, 2007 from a net loss of $0.5 million            for the comparable period in 2006 as a result of reasons described above, particularly            from the Procell Acquisition, lower average resin costs, offset by increased selling,            general and administrative expenses, mainly from additional amortization on the            intangible assets acquired in the Procell Acquisition, additional costs related to            public company requirements and additional marketing costs related to the additional            branding efforts for our decking products.

             

             

             

             

             

             

             

***Year Ended December 31, 2006 Compared with Year Ended December 31,            2005***

             

32

The            following table summarizes certain financial information relating to the Successor and            Predecessor operating results that have been derived from their consolidated financial            statements:

 

|                                         |   |   |   |             |   | **Combined** |   |              |   |   |   |                |   |
|----------------------------------------------|--------|--------|--------|------------------|--------|--------------|--------|-------------------|--------|--------|--------|---------------------|--------|
|                                         |   |   |   |             |   |         |   | **Predecessor**   |   |   |   |                |   |   |   |   |   |
|                                         |   |   |   | **Successor**    |   |         |   | **and Successor** |   |   |   | **Successor**       |   |   |   | **Predecessor** |   |
|                                         |   |   |   |             |   |         |   |              |   |   |   | **Period**          |   |   |   | **Period** |   |
|                                         |   |   |   | **Year Ended**   |   |         |   | **Year Ended**    |   |   |   | **May 11, 2005 to** |   |   |   | **January 1,** |   |
|                                         |   |   |   | **December 31,** |   |         |   | **December 31,**  |   |   |   | **December 31,**    |   |   |   | **to May 10,** |   |
| **(Dollars in thousands)**                   |   |   |   | **2006**         |   |         |   | **2005(a)**       |   |   |   | **2005**            |   |   |   | **2005** |   |
| Net sales                                    |   | $      |   | 261,790          |   | $            |   | 222,603           |   | $      |   | 140,672             |   | $ |   | 81,931 |   |
| Cost of sales                                |   |   |   | (193,417         | )      |         |   | (171,930          | )      |   |   | (113,076            | )      |   |   | (58,854 | ) |
| Gross margin                                 |   |   |   | 68,373           |   |         |   | 50,673            |   |   |   | 27,596              |   |   |   | 23,077 |   |
| Selling, general and administrative expenses |   |   |   | (40,249          | )      |         |   | (40,775           | )      |   |   | (18,870             | )      |   |   | (21,905 | ) |
| Operating income                             |   |   |   | 28,124           |   |         |   | 9,898             |   |   |   | 8,726               |   |   |   | 1,172 |   |
| Interest expense, net                        |   |   |   | (28,685          | )      |         |   | (23,035           | )      |   |   | (21,175             | )      |   |   | (1,860 | ) |
| Miscellaneous, net                           |   |   |   | 306              |   |         |   | (226              | )      |   |   | 158                 |   |   |   | (384 | ) |
| Loss before income taxes                     |   |   |   | (255             | )      |         |   | (13,363           | )      |   |   | (12,291             | )      |   |   | (1,072 | ) |
| Income tax (expense) benefit                 |   |   |   | (230             | )      |         |   | 1,622             |   |   |   | 4,682               |   |   |   | (3,060 | ) |
| Net loss                                     |   | $      |   | (485             | )      | $            |   | (11,741           | )      | $      |   | (7,609              | )      | $ |   | (4,132 | ) |

             

________________

| (a) | Represents the mathematical addition of the Predecessor                            period January 1, 2005 to May 10, 2005 and the Successor period May 11,                            2005 to December 31, 2005.The Combined Predecessor and Successor                            results of operations are not indicative of our future results of                            operations or results of operations that would have actually occurred                            had the Transaction with the Predecessor been consummated as of January                            1, 2005, due to the fair values assigned to our assets and liabilities,                            the changes made in the related estimated useful lives of the assets at                            May 11, 2005, as well as changes in interest and income tax expenses as                            a result of the Transaction. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             

The following table summarizes certain information relating to the            Successor and Predecessor operating results as a percentage of net sales and has been            derived from the financial information presented above. We believe this presentation is            useful to investors in comparing historical results. Certain amounts in the table may            not sum due to the rounding of individual components.

             

|                                         |   |   |   |             |   |   |   | **Combined**      |   |   |   |   |                |   |   |   |   |                |   |   |
|----------------------------------------------|--------|--------|--------|------------------|--------|--------|--------|-------------------|--------|--------|--------|--------|---------------------|--------|--------|--------|--------|---------------------|--------|--------|
|                                         |   |   |   |             |   |   |   | **Predecessor**   |   |   |   |   |                |   |   |   |   |                |   |   |
|                                         |   |   |   | **Successor**    |   |   |   | **and Successor** |   |   |   |   | **Successor**       |   |   |   |   | **Predecessor**     |   |   |
|                                         |   |   |   |             |   |   |   |              |   |   |   |   | **Period**          |   |   |   |   | **Period**          |   |   |
|                                         |   |   |   | **Year Ended**   |   |   |   | **Year Ended**    |   |   |   |   | **May 11, 2005 to** |   |   |   |   | **January 1, 2005** |   |   |
|                                         |   |   |   | **December 31,** |   |   |   | **December 31,**  |   |   |   |   | **December 31,**    |   |   |   |   | **to May 10,**      |   |   |
|                                         |   |   |   | **2006**         |   |   |   | **2005(a)**       |   |   |   |   | **2005**            |   |   |   |   | **2005**            |   |   |
| Net sales                                    |   |   |   | 100.0            | %      |   |   | 100.0             | %      |   |   |   | 100.0               | %      |   |   |   | 100.0               | %      |   |
| Cost of sales                                |   |   |   | (73.9            | )      |   |   | (77.2             | )      |   |   |   | (80.4               | )      |   |   |   | (71.8               | )      |   |
| Gross margin                                 |   |   |   | 26.1             |   |   |   | 22.8              |   |   |   |   | 19.6                |   |   |   |   | 28.2                |   |   |
| Selling, general and administrative expenses |   |   |   | (15.4            | )      |   |   | (18.3             | )      |   |   |   | (13.4               | )      |   |   |   | (26.7               | )      |   |
| Operating income                             |   |   |   | 10.7             |   |   |   | 4.4               |   |   |   |   | 6.2                 |   |   |   |   | 1.4                 |   |   |
| Interest expense, net                        |   |   |   | (11.0            | )      |   |   | (10.3             | )      |   |   |   | (15.1               | )      |   |   |   | (2.3                | )      |   |
| Miscellaneous—net                      |   |   |   | 0.1              |   |   |   | (0.1              | )      |   |   |   | 0.1                 |   |   |   |   | (0.5                | )      |   |
| (Loss) income before income taxes            |   |   |   | (0.1             | )      |   |   | (6.0              | )      |   |   |   | (8.7                | )      |   |   |   | (1.3                | )      |   |
| Income tax benefit (expense)                 |   |   |   | (0.1             | )      |   |   | 0.7               |   |   |   |   | 3.3                 |   |   |   |   | (3.7                | )      |   |
| Net (loss) income                            |   |   |   | (0.2             | %)     |   |   | (5.3              | %)     |   |   |   | (5.4                | %)     |   |   |   | (5.0                | )%     |   |

 

___________________

| (a) | Represents the mathematical addition of the Predecessor                            period January 1, 2005 to May 10, 2005 and the Successor period May 11,                            2005 to December 31, 2005. The Combined Predecessor and Successor                            results of operations are not indicative of our future results of                            operations or results of operations that would have actually occurred                            had the |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             

33

Transaction with the Predecessor been consummated as of January 1, 2005,            due to the fair values assigned to our assets and liabilities, the changes made in the            related estimated useful lives of the assets at May 11, 2005, as well as changes in            interest and income tax expenses as a result of the Transaction.

 

*Net            Sales.*Net sales increased by $39.2 million, or 17.6%,            to $261.8 million for the year ended December 31, 2006, from $222.6 million for the            year ended December 31, 2005 due to increased volumes and higher average selling            prices. Overall, AZEK Building Products net sales increased 8.4% from December 31, 2006            compared to December 31, 2005, and Scranton Products net sales increased 36.6% from            December 31, 2006 compared to December 31, 2005. We sold 186.7 million pounds of            product during the year ended December 31, 2006, which was a 3.5% increase from the            180.3 million pounds sold during the year ended December 31, 2005. Volume growth was            primarily attributable to the Santana Acquisition and year over year growth within AZEK            Building Products, offset by volume decline in Scranton Products industrial building            products. In addition to volume growth, revenues increased as a result of the full year            benefit from price increases across all of our product lines, implemented in the second            half of 2005.

 

*Cost            of Sales.*Cost of sales increased by $21.5 million, or            12.5%, to $193.4 million for the year ended December 31, 2006 from $171.9 million            for the same period in 2005. The increase was primarily attributable to increased            volumes from the Santana Acquisition, as well as an increase in average resin prices            per pound of 5.6% in the year ended December 31, 2006 compared to the same period in            2005. Despite the period over period increase in average resin prices, resin costs have            significantly declined from their peak levels in the fall of 2005. In 2005, our cost of            sales included the effect of the fair value adjustment of acquired inventories recorded            in connection with the Transaction. The $5.2 million non-cash fair value adjustment            increased acquired inventory values to estimated selling price at May 11, 2005. This            increase was then recognized as an increase to cost of sales during the period May 11,            2005 to December 31, 2005 as the related inventory was sold.

 

*Gross Margin.*Gross margin increased by            $17.7 million, or 34.9%, to $68.4 million for the year ended December 31,            2006 from $50.7 million for the same period of 2005. This increase was mainly            attributable to increases in selling prices which allowed us to offset the increase in            average resin costs. Gross margin as a percent of net sales increased to 26.1% for the            year ended December 31, 2006 from 22.8% for the same period in 2005. This increase was            mainly due to the increase in selling prices and volume growth. The increase in gross            margin in 2006 from 2005 was also attributable to the impact of the fair value            adjustment we incurred in 2005 as a result of the Transaction as discussed            above.

 

*Selling, General and Administrative Expenses.*Selling, general and administrative expenses decreased by $0.5 million,            or 1.3%, to $40.2 million, or 15.4% of net sales for the year ended December 31, 2006            from $40.8 million, or 18.3% of net sales for the same period in 2005. The decrease in            selling, general and administrative expenses from 2005 was primarily attributable to a            one-time compensation charge of approximately $12.8 million relating to the vesting of            certain restricted stock units upon the closing of the Transaction in 2005. This            decrease was primarily offset by the addition of Santana, increased sales staff and            marketing efforts for both our residential and commercial building product lines, an            approximately $0.9 million increase in amortization of intangible assets recorded in            conjunction with the Transaction and the Santana Acquisition, approximately $0.5            million in transition costs related to the Santana Acquisition, approximately $1.0            million attributable to management fees to our majority shareholder and approximately            $1.2 million of increased professional fees such as Sarbanes-Oxley compliance,            accounting and legal costs, to support our development of a public infrastructure and            the SEC registration process.

 

*Interest Expense, net.*Interest expense,            net, increased by $5.7 million, or 24.5%, to $28.7 million for the year ended December            31, 2006 from $23.0 million for the same period in 2005. Interest expense was higher            due to higher interest rates in 2006, as well as from the addition of $30.0 million in            debt attributable to the Santana Acquisition.

 

*Income Taxes.*Income tax expense, net,            increased by $1.9 million to income tax expense of $230 thousand for the year ended            December 31, 2006 compared to an income tax benefit of $1.6 million for the year ended            December 31, 2005. The increase in income tax expense is primarily attributable to a            significantly lower pretax loss before taxes in 2006 compared to 2005.

 

*Net            Income.*Net income increased by $11.3 million, to a net loss            of $0.5 million for the year ended December 31, 2006 from a net loss of $11.7 million            for the comparable period in 2005 as a result of reasons described above,

 

34

particularly as a result of the vesting of $12.8 million in restricted            stock units in 2005 offset by higher interest expense and increased selling, general            and administrative expenses, mainly from the Santana Acquisition and public company            requirements.

 

**Segment Results of Operations**

 

The            following discussion provides a review of results for our two business segments: AZEK            Building Products, which includes products such as AZEK and Celtec, as well as other            branded highly engineered, metal and wood replacement products; and Scranton Products,            which includes highly engineered fabricated products such as Comtec and Santana            bathroom products and locker systems. The components of each segment are based on            similarities in product line, production processes and methods of distribution and are            considered reportable segments under SFAS No. 131,*Disclosures            about Segments of an Enterprise and Related Information*.            Corporate overhead costs, which include corporate payroll costs and corporate related            professional fees, are not allocated to segments, and as such are discussed            separately.

 

***AZEK Building Products – Year Ended December 31, 2007            Compared With Year Ended December 31, 2006***

 

The            following table summarizes certain financial information relating to the AZEK Building            Products segment results that have been derived from the Company’s consolidated            financial statements:

 

|                                         |   |   | **Year**         |   |   |   | **Year**         |   |
|----------------------------------------------|--------|--------|------------------|--------|--------|--------|------------------|--------|
|                                         |   |   | **Ended**        |   |   |   | **Ended**        |   |
|                                         |   |   | **December 31,** |   |   |   | **December 31,** |   |
| **(Dollars in thousands)**                   |   |   | **2007**         |   |   |   | **2006**         |   |
| Net sales                                    |   | $      | 213,991          |   |   | $      | 162,198          |   |
| Cost of sales                                |   |   | (151,984         | )      |   |   | (118,921         | )      |
| Gross margin                                 |   |   | 62,007           |   |   |   | 43,277           |   |
| Selling, general and administrative expenses |   |   | (24,097          | )      |   |   | (21,001          | )      |
| Loss on sale of fixed assets                 |   |   | (21              | )      |   |   | –          |   |
| Operating income                             |   | $      | 37,889           |   |   | $      | 22,276           |   |

 

*Net            Sales.*Net sales increased by $51.8 million or 31.9%, to            $214.0 million for the year ended December 31, 2007 from $162.2 million for the same            period in 2006. Overall, we sold 181.7 million pounds of product during the year ended            December 31, 2007, which was a 34.4% increase from the 135.2 million pounds sold during            the comparable period in 2006. This volume increase was primarily attributable to the            Procell Acquisition, offset by declines in our industrial business.

 

*Cost            of Sales.*Cost of sales increased by $33.1 million, or            27.8%, to $152.0 million for the year ended December 31, 2007 from $118.9 million            for the same period of 2006. The increase was primarily attributable to higher sales            volume from the Procell Acquisition. We also benefited from the decrease in our average            resin costs of 11.2% in the year ended December 31, 2007 compared to the same period in            2006.

 

*Gross Margin.*Gross margin increased by            $18.7 million, or 43.3% to $62.0 million for the year ended December 31, 2007 from            $43.3 million for the same period in 2006. This increase was primarily            attributable to increased sales volume and favorable average resin costs. Gross margin            as a percent of net sales was 29.0% for the year ended December 31, 2007 compared to            26.7% for the same period in 2006.

 

*Selling, General and Administrative Expenses.*Selling, general and administrative expenses increased by $3.1 million,            or 14.7% to $24.1 million, or 11.3% of sales for the year ended December 31, 2007 from            $21.0 million, or 12.9% of net sales for the same period in 2006. The increase in            selling, general and administrative expenses was primarily due to increased selling and            marketing costs attributable to the expansion and introduction of additional product            lines, and an increase of $1.8 million from the amortization of intangibles related to            the Procell Acquisition.

 

35

*Operating Income.*Operating income            increased by $15.6 million, or 70.1% to $37.9 million for the year ended December 31,            2007 from $22.3 million for the comparable period in 2006 primarily due to the Procell            Acquisition and lower average resin costs.

 

***AZEK Building Products – Year Ended December 31, 2006            Compared With Year Ended December 31, 2005***

 

The            following table summarizes certain financial information relating to the AZEK Building            Products segment results that have been derived from the Company’s consolidated            financial statements:

 

|                                         |   |   |             |   |   |   |   | **Combined**      |   |   |   |   |                |   |   |   |   |                |   |
|----------------------------------------------|--------|--------|------------------|--------|--------|--------|--------|-------------------|--------|--------|--------|--------|---------------------|--------|--------|--------|--------|---------------------|--------|
|                                         |   |   |             |   |   |   |   | **Predecessor**   |   |   |   |   |                |   |   |   |   |                |   |
|                                         |   |   | **Successor**    |   |   |   |   | **and Successor** |   |   |   |   | **Successor**       |   |   |   |   | **Predecessor**     |   |
|                                         |   |   |             |   |   |   |   |              |   |   |   |   | **Period**          |   |   |   |   | **Period**          |   |
|                                         |   |   | **Year Ended**   |   |   |   |   | **Year Ended**    |   |   |   |   | **May 11, 2005 to** |   |   |   |   | **January 1, 2005** |   |
|                                         |   |   | **December 31,** |   |   |   |   | **December 31,**  |   |   |   |   | **December 31,**    |   |   |   |   | **to May 10,**      |   |
| **(Dollars in thousands)**                   |   |   | **2006**         |   |   |   |   | **2005 (a)**      |   |   |   |   | **2005**            |   |   |   |   | **2005**            |   |
| Net sales                                    |   | $      | 162,198          |   |   |   | $      | 149,695           |   |   |   | $      | 91,310              |   |   |   | $      | 58,385              |   |
| Cost of sales                                |   |   | (118,921         | )      |   |   |   | (109,570          | )      |   |   |   | (68,429             | )      |   |   |   | (41,141             | )      |
| Gross margin                                 |   |   | 43,277           |   |   |   |   | 40,125            |   |   |   |   | 22,881              |   |   |   |   | 17,244              |   |
| Selling, general and administrative expenses |   |   | (21,001          | )      |   |   |   | (18,109           | )      |   |   |   | (11,795             | )      |   |   |   | (6,314              | )      |
| Operating income                             |   | $      | 22,276           |   |   |   | $      | 22,016            |   |   |   | $      | 11,086              |   |   |   | $      | 10,930              |   |

 

**_____________________**

(a)            Represents the mathematical addition of the Predecessor period January 1, 2005 to May            10, 2005 and the Successor period May 11, 2005 to December 31, 2005. The Combined            Predecessor and Successor results of operations are not indicative of our future            results of operations or results of operations that would have actually occurred had            the Transaction with the Predecessor been consummated as of January 1, 2005, due to the            fair values assigned to our assets and liabilities, the changes made in the related            estimated useful lives of the assets at May 11, 2005, as well as changes in interest            and income tax expenses as a result of the Transaction.

 

*Net            Sales.*Net sales increased by $12.5 million or 8.4%, to            $162.2 million for the year ended December 31, 2006 from $149.7 million for the same            period in 2005. Overall, we sold 135.2 million pounds of product during the year ended            December 31, 2006, which was a 2.9% increase from the 131.4 million pounds sold during            the comparable period in 2005. This increase was primarily attributable to increases in            sales volume of AZEK in the first half of 2006. Net sales were affected by lower            volumes in the second half of 2006 due to a substantial slow down in the residential            building market as housing starts fell from approximately 2.1 million in the first            quarter of 2006 to 1.6 million in the last quarter of 2006. The decline in new home            construction caused an associated reduction in inventory throughout the distribution            channel. Net sales were also affected by increases in selling price due to AZEK            residential and industrial pricing actions enacted in the second half of            2005.

 

*Cost            of Sales.*Cost of sales increased by $9.4 million, or            8.5%, to $118.9 million for the year ended December 31, 2006 from $109.6 million            for the same period of 2005. The increase was primarily attributable to higher sales            volume as well as an increase in average resin prices of 5.6% in the year ended            December 31, 2006 compared to the same period in 2005.

 

*Gross Margin.*Gross margin increased by            $3.2 million, or 7.9% to $43.3 million for the year ended December 31, 2006 from            $40.1 million for the same period in 2005. This increase was primarily            attributable to sales volume and increased selling prices which offset resin costs.            Gross margin as a percent of net sales was 26.7% for the year ended December 31, 2006            compared to 26.8% for the same period in 2005.

 

*Selling, General and Administrative Expenses.*Selling, general and administrative expenses increased by $2.9 million,            or 16.0% to $21.0 million, or 12.9% of sales for the year ended December 31, 2006 from            $18.1 million, or 12.1% of net sales for the same period in 2005. The increase in            selling, general and administrative expenses was primarily due to an increase in the            direct selling effort and from higher marketing and advertising expenses associated            with the

 

36

expansion of the AZEK brand, as well as approximately $0.4 million from            the amortization of intangible assets recorded in conjunction with the            Transaction.

 

***Scranton Products – Year Ended December 31, 2007 Compared            With Year Ended December 31, 2006***

 

The            following table summarizes certain financial information relating to the Scranton            Products segment results that have been derived from its consolidated financial            statements:

 

|                                         |   |   |   | **Year**         |   |   |   | **Year**         |   |
|----------------------------------------------|--------|--------|--------|------------------|--------|--------|--------|------------------|--------|
|                                         |   |   |   | **Ended**        |   |   |   | **Ended**        |   |
|                                         |   |   |   | **December 31,** |   |   |   | **December 31,** |   |
| **(Dollars in thousands)**                   |   |   |   | **2007**         |   |   |   | **2006**         |   |
| Net sales                                    |   | $      |   | 99,712           |   | $      |   | 99,592           |   |
| Cost of sales                                |   |   |   | (73,452          | )      |   |   | (74,496          | )      |
| Gross margin                                 |   |   |   | 26,260           |   |   |   | 25,096           |   |
| Selling, general and administrative expenses |   |   |   | (12,138          | )      |   |   | (11,206          | )      |
| Gain on sale of property                     |   |   |   | 443              |   |   |   | —          |   |
| Operating income                             |   | $      |   | 14,565           |   | $      |   | 13,890           |   |

 

*Net            Sales.*Net sales of $99.7 million for the year ended December            31, 2007 remained fairly level when compared to sales for the same period of 2006. Net            sales were affected by declines in our partition lines due to difficulty surrounding            the integration of product lines and shared customer bases with those from the Santana            Acquisition, as well as declines in our industrial business line, only partially offset            by growth in our locker systems. Overall, we sold 49.9 million pounds of product in the            year ended December 31, 2007, which is a decrease of 3.0% from the 51.5 million pounds            sold during the comparable period in 2006.

 

*Cost            of Sales.*Cost of sales decreased by $1.0 million, or            1.4%, to $73.5 million for the year ended December 31, 2007 from $74.5 million for            the same period of 2006. The decrease was primarily attributable to the decline in            volumes, an 11.2% year over year decrease in average resin costs as well as merger            integration savings related to the Santana Acquisition. Despite year over year declines            in average resin costs, currently resin costs continue to rise.

 

*Gross Margin.*Gross margin increased by            $1.2 million, or 4.6% to $26.3 million for the year ended December 31, 2007 from            $25.1 million for the same period in 2006. This increase was primarily attributable to            the benefit of lower average resin costs and merger integration savings related to the            Santana Acquisition, partially offset by lower sales volumes. Gross margin as a percent            of net sales increased to 26.3% for the year ended December 31, 2007 from 25.2% for the            same period in 2006.

 

*Selling, General and Administrative Expenses.*Selling, general and administrative expenses increased by $0.9 million,            or 8.3%, to $12.1 million, or 12.2% of sales for the year ended December 31, 2007 from            $11.2 million, or 11.3% of net sales for the same period in 2006. The increase in            selling, general and administrative expenses was largely attributable to a            non-recurring legal settlement of $0.5 million in June 2007.

 

*Gain            on Sale of Property.*Gain on sale of property was $0.4            million, or 0.4% of net sales for the year ended December 31, 2007. This transaction            involved the sale of one of Scranton Product’s manufacturing facilities for net            proceeds of $2.0 million in May 2007.

 

*Operating Income.*Operating income            increased by $0.7 million, or 4.9% to $14.6 million for the year ended December 31,            2007 from $13.9 million for the comparable period in 2006 due to lower sales volumes            offset by lower average resin costs.

 

***Scranton Products – Year Ended December 31, 2006 Compared            With Year Ended December 31, 2005***

 

37

The            following table summarizes certain financial information relating to the Scranton            Products segment results that have been derived from its consolidated financial            statements:

 

|                                         |   |   |   |             |   |   | **Combined** |   |              |   |   |   |             |   |   |
|----------------------------------------------|--------|--------|--------|------------------|--------|--------|--------------|--------|-------------------|--------|--------|--------|------------------|--------|--------|
|                                         |   |   |   |             |   |   |         |   | **Predecessor**   |   |   |   |             |   |   |   |   |   |   |
|                                         |   |   |   | **Successor**    |   |   |         |   | **and Successor** |   |   |   | **Successor**    |   |   |   |   | **Predecessor** |   |
|                                         |   |   |   |             |   |   |         |   |              |   |   |   | **Period**       |   |   |   |   | **Period** |   |
|                                         |   |   |   |             |   |   |         |   |              |   |   |   | **May 11, 2005** |   |   |   |   | **January 1,** |   |
|                                         |   |   |   | **Year Ended**   |   |   |         |   | **Year Ended**    |   |   |   | **to**           |   |   |   |   | **2005** |   |
|                                         |   |   |   | **December 31,** |   |   |         |   | **December 31,**  |   |   |   | **December 31,** |   |   |   |   | **to May 10,** |   |
| **(Dollars in thousands)**                   |   |   |   | **2006**         |   |   |         |   | **2005 (a)**      |   |   |   | **2005**         |   |   |   |   | **2005** |   |
| Net sales                                    |   | $      |   | 99,592           |   | $      |         |   | 72,908            |   | $      |   | 49,362           |   | $      |   |   | 23,546 |   |
| Cost of sales                                |   |   |   | (74,496          | )      |   |         |   | (62,360           | )      |   |   | (44,647          | )      |   |   |   | (17,713 | ) |
| Gross margin                                 |   |   |   | 25,096           |   |   |         |   | 10,548            |   |   |   | 4,715            |   |   |   |   | 5,833 |   |
| Selling, general and administrative expenses |   |   |   | (11,206          | )      |   |         |   | (6,409            | )      |   |   | (4,654           | )      |   |   |   | (1,755 | ) |
| Operating income                             |   | $      |   | 13,890           |   | $      |         |   | 4,139             |   | $      |   | 61               |   | $      |   |   | 4,078 |   |

 

____________________

(a)            Represents the mathematical addition of the Predecessor period January 1, 2005 to May            10, 2005 and the Successor period May 11, 2005 to December 31, 2005. The Combined            Predecessor and Successor results of operations are not indicative of our future            results of operations or results of operations that would have actually occurred had            the Transaction with the Predecessor been consummated as of January 1, 2005, due to the            fair values assigned to our assets and liabilities, the changes made in the related            estimated useful lives of the assets at May 11, 2005, as well as changes in interest            and income tax expenses as a result of the Transaction.

*Net            Sales.*Net sales increased by $26.7 million or 36.6%, to            $99.6 million for the year ended December 31, 2006, from $72.9 million for the            same period of 2005. This increase was attributable to the Santana Acquisition and            higher average selling price. We experienced a 29.5% increase in average selling prices            year over year through price increases in the industrial and commercial building            product lines during the later half of 2005, as well as from changes in product mix            sold during the year ended December 31, 2006 compared to the same period in 2005. We            increased prices in our bathroom products and locker systems, as well as industrial            business. Net sales were also affected by increases attributable to additional sales            volumes associated with the Santana Acquisition. Increased volumes within commercial            building products were partially offset by lower volumes within industrial building            segment. Overall, we sold 51.5 million pounds of product in the year ended December 31,            2006, which is an increase of 5.3% from the 48.9 million pounds sold during the            comparable period in 2005.

 

*Cost            of Sales.*Cost of sales increased by $12.1 million, or            19.5%, to $74.5 million for the year ended December 31, 2006 from $62.4 million            for the same period of 2005. The increase was primarily attributable to higher sales            volumes in the year ended December 31, 2006 from the Santana Acquisition and higher            average resin prices per pound. Despite the 5.6% year over year increase in average            resin prices, resin costs have declined from their peak levels in the fall of            2005.

 

*Gross Margin.*Gross margin increased by            $14.5 million, or 137.9% to $25.1 million for the year ended December 31, 2006            from $10.5 million for the same period in 2005. This increase was primarily            attributable to increased sales volumes from the Santana Acquisition and the benefit of            higher average selling prices. Gross margin as a percent of net sales increased to            25.2% for the year ended December 31, 2006 from 14.5% for the same period in            2005.

 

*Selling, General and Administrative Expenses.*Selling, general and administrative expenses increased by $4.8 million,            or 74.8%, to $11.2 million, or 11.3% of sales for the year ended December 31, 2006 from            $6.4 million, or 8.8% of net sales for the same period in 2005. The increase in            selling, general and administrative expenses was primarily attributable to the addition            of Santana product lines, as well as approximately $0.5 million from the amortization            of intangible assets recorded in conjunction with the Transaction and Santana            Acquisition, along with approximately $0.5 million in transition costs related to the            Santana Acquisition.

 

38

*Operating Income.*Operating income            increased by $9.8 million to $13.9 million for the year ended December 31, 2006 from            $4.1 million for the comparable period in 2005 due to increased sales volumes and            average selling price, partially offset by higher average resin costs and increased            selling general and administrative expenses due to increased amortization and the            Santana Acquisition.

 

***Corporate Costs– The Year Ended December 31, 2007 compared            to the Year Ended December 31, 2006.***

The following table summarizes certain information relating to our            corporate costs, which include corporate payroll costs, as well as corporate-related            professional fees.

 

|                                |   |   |   |   | **Year**         |   |   |   | **Year**         |   |
|-------------------------------------|--------|--------|--------|--------|------------------|--------|--------|--------|------------------|--------|
|                                |   |   |   |   | **Ended**        |   |   |   | **Ended**        |   |
|                                |   |   |   |   | **December 31,** |   |   |   | **December 31,** |   |
| **(Dollars in thousands)**          |   |   |   |   | **2007**         |   |   |   | **2006**         |   |
| Net sales                           |   | $      |   |   | —          |   | $      |   | —          |   |
| Cost of sales                       |   |   |   |   | —          |   |   |   | —          |   |
| Gross margin                        |   |   |   |   | —          |   |   |   | —          |   |
| General and administrative expenses |   |   |   |   | (10,609          | )      |   |   | (8,042           | )      |
| Operating income                    |   | $      |   |   | (10,609          | )      | $      |   | (8,042           | )      |

 

*General and Administrative            Expenses.*Corporate general and administrative expenses            increased by $2.6 million, or 31.9%, to $10.6 million for the year ended December 31,            2007 from $8.0 million for the year ended December 31, 2006. The increase in            general and administrative expenses was primarily attributable to a $0.7 million            increase in depreciation expense primarily related to our information system upgrade            completed in the third and fourth quarters of 2006, $1.0 million in severance costs,            primarily attributable to the resignation of our former chief executive officer and            approximately $1.0 million of increased professional fees such as Sarbanes-Oxley            compliance, information technology, accounting and legal costs, to support our            continued development of a public company infrastructure.

 

***Corporate            Costs***–***The Year Ended            December 31, 2006 compared to the Year Ended December 31, 2005.***

The following table summarizes certain information relating to our            corporate overhead costs, which include corporate payroll costs, as well as            corporate-related professional fees.

 

|                                |   |   |   |   |             |   |   |   |   | **Combined**      |   |   |   |   |                |   |   |   |   |                |   |
|-------------------------------------|--------|--------|--------|--------|------------------|--------|--------|--------|--------|-------------------|--------|--------|--------|--------|---------------------|--------|--------|--------|--------|---------------------|--------|
|                                |   |   |   |   |             |   |   |   |   | **Predecessor**   |   |   |   |   |                |   |   |   |   |                |   |
|                                |   |   |   |   | **Successor**    |   |   |   |   | **and Successor** |   |   |   |   | **Successor**       |   |   |   |   | **Predecessor**     |   |
|                                |   |   |   |   |             |   |   |   |   |              |   |   |   |   | **Period**          |   |   |   |   | **Period**          |   |
|                                |   |   |   |   | **Year Ended**   |   |   |   |   | **Year Ended**    |   |   |   |   | **May 11, 2005 to** |   |   |   |   | **January 1, 2005** |   |
|                                |   |   |   |   | **December 31,** |   |   |   |   | **December 31,**  |   |   |   |   | **December 31,**    |   |   |   |   | **to May 10,**      |   |
| **(Dollars in thousands)**          |   |   |   |   | **2006**         |   |   |   |   | **2005 (a)**      |   |   |   |   | **2005**            |   |   |   |   | **2005**            |   |
| Net sales                           |   | $      |   |   | —          |   | $      |   |   | —           |   | $      |   |   | —             |   | $      |   |   | —             |   |
| Cost of sales                       |   |   |   |   | —          |   |   |   |   | —           |   |   |   |   | —             |   |   |   |   | —             |   |
| Gross margin                        |   |   |   |   | —          |   |   |   |   | —           |   |   |   |   | —             |   |   |   |   | —             |   |
| General and administrative expenses |   |   |   |   | (8,042           | )      |   |   |   | (16,257           | )      |   |   |   | (2,421              | )      |   |   |   | (13,836             | )      |
| Operating loss                      |   | $      |   |   | (8,042           | )      | $      |   |   | (16,257           | )      | $      |   |   | (2,421              | )      | $      |   |   | (13,836             | )      |

             

*__________________*

(a)            Represents the mathematical addition of the Predecessor period January 1, 2005 to May            10, 2005 and the Successor period May 11, 2005 to December 31, 2005. The Combined            Predecessor and Successor results of operations are not indicative of our future            results of operations or results of operations that would have actually occurred had            the Transaction with the Predecessor been consummated as of January 1, 2005, due to the            fair values assigned to our assets and liabilities, the changes made in the related            estimated useful lives of the assets at May 11, 2005, as well as changes in interest            and income tax expenses as a result of the Transaction.

 

*General and Administrative            Expenses.*Corporate general and administrative expenses            decreased by $8.2 million, or 50.5%, to $8.0 million for the year ended December 31,            2006 from $16.3 million for the year ended December 31,

 

39

2005.            The higher level of general and administrative expenses in 2005 was primarily            attributable to a one-time compensation charge in the Predecessor period of            approximately $12.8 million relating to the vesting of certain restricted stock units            upon the closing of the Transaction in 2005. This charge was partially offset by            increases of approximately $1.2 million in professional fees such as accounting,            Sarbanes-Oxley compliance preparation and legal costs, to support our preparation of a            public infrastructure, $1.0 million attributable to our management fee, as well as            increases from management additions made at corporate to support our growth and to meet            the requirements of a public registrant.

**Liquidity and Capital Resources**

 

Our primary cash needs are working capital, capital expenditures and            debt service. We have historically financed these cash requirements through            internally-generated cash flow and debt financings. We also have a senior secured            revolving credit facility which provides additional liquidity to support our growth. In            addition, we may also issue additional equity and/or debt to finance acquisitions in            the future.

 

Net cash provided by operating activities was $21.3 million, $1.9            million and $35.1 million for the years ended December 31, 2007, 2006 and 2005,            respectively. The increase in cash provided by operating activities in the year 2007            was primarily due to higher earnings and non-cash expenses including depreciation and            amortization, as well as continued improvements in receivables and accounts payables            management, offset by increased levels of finished goods related to our winter buy at            the end of 2007 compared to 2006. The decrease in cash provided by operating activities            from 2005 to 2006 was primarily due to higher interest payments on our long-term debt,            increased raw material costs, reduction in levels of payables at the end of 2006            compared to 2005 (mainly for resin purchases made at the end of 2005) and higher            working capital levels to support growth. These factors were only partially offset by            improved finished good inventory management.

 

Net cash used in investing activities was $70.6 million, $52.0 million            and $234.5 million for the years ended December 31, 2007, 2006 and 2005, respectively.            In 2007, cash used in investing activities of $58.2 million related to the Procell            Acquisition completed on January 31, 2007. The remaining cash used in investing            activities in 2007 related to $14.4 million in capital expenditures primarily for the            capacity expansion at our Foley Alabama manufacturing facility. On May 10, 2007 we also            sold one of our manufacturing facilities for approximately $2.0 million. Cash used in            investing activities in 2006 was primarily attributable to $35.0 million related to the            Santana Acquisition completed on April 28, 2006. The majority of the remaining cash            used in investing activities in 2006 related to $17.0 million of capital expenditures            for the continued development of our new facility to manufacture AZEK Trim products, as            well as for a company-wide accounting software upgrade that was implemented during the            quarter ended September 30, 2006. In the period of May 11, 2005 to December 31, 2005,            cash used in investing activities of $212.8 million related to the acquisition of the            equity interests in the Predecessor in connection with the Transaction, while $17.3            million was attributable to capital expenditures for the AZEK Building Products            facility. Predecessor cash used in investing activities in 2005 and 2004 related to            capital expenditures of $4.5 million. We estimate that capital expenditures for 2008            will be $8.0 to $13.0 million.

 

Net cash provided by financing activities was $56.7 million, $37.4            million, and $211.5 million for the years ended December 31, 2007, 2006 and 2005,            respectively. On January 31, 2007 we received proceeds of $33.0 million related to the            additional financing of floating rate notes as well as $34.9 million in additional            capital contributions, in order to finance the Procell Acquisition. The majority of            cash provided by financing activities in 2006 related to the proceeds from the $30.0            million additional financing of floating rate notes, as well as $9.0 million in            proceeds from our senior secured credit facility, $5.3 of which we incurred as part of            the Santana Acquisition, with the remaining proceeds used for operating activities. We            also incurred an additional $1.9 million in financing costs related to the public            registration and exchange offer of our Notes. Cash provided by financing activities for            the year ended December 31, 2005 primarily represented proceeds from the refinancing            and issuance of $65.0 million of senior floating rate notes, $150.0 million in senior            fixed rate notes, $5.0 million in borrowings from our revolving credit facility and            $128.4 million in capital contributions, partially offset by payments on the            Predecessor’s long-term debt obligations of $142.3 million.

 

40

***Floating Rate Notes and Fixed Rate            Notes***. In connection with the Transaction, CPG issued            $215.0 million of indebtedness on May 10, 2005. On June 29, 2005, CPG priced a            refinancing of the Transaction debt with the issuance of $65.0 million aggregate            principal amount of Senior Floating Rate Notes due 2012 (the “Floating Rate            Notes”) and $150.0 million aggregate principal amount of 101⁄2% Senior Notes            due 2013 (the “Fixed Rate Notes,” and collectively with the Floating Rate            Notes, the “Notes”). The Notes have been guaranteed by the Company and all            of the subsidiaries of CPG. The indenture governing the Notes, which is material to our            company, contains a number of covenants that, among other things, restrict CPG’s            ability, and the ability of any subsidiary guarantors, subject to certain exceptions,            to sell assets, incur additional debt, repay other debt, pay dividends and            distributions on CPG’s capital stock or repurchase CPG’s capital stock,            create liens on assets, make investments, loans or advances, make certain acquisitions,            engage in mergers or consolidations and engage in certain transactions with            affiliates.

 

On April 28, 2006, in connection with the Santana Acquisition, CPG            issued an additional $30.0 million aggregate principal amount of Floating Rate Notes.            These additional notes are governed by the same indenture dated as of July 5, 2005,            governing the previously issued Floating Rate Notes.

 

In connection with the Procell Acquisition, CPG issued an additional            $33.0 million aggregate principal amount of Floating Rate Notes on January 31, 2007.            These additional notes are governed by the same indenture dated as of July 5, 2005,            governing the previously issued Floating Rate Notes.

***Senior Secured Credit Facility***.            Concurrently with the closing of the Transaction, CPG entered into a senior secured            revolving credit facility that provides availability of up to $40.0 million.            However, the amount of borrowing capacity available is limited to an amount equal to            the sum of (a) 85% of our accounts receivable and (b) 60% of our inventory.            The borrowings under the senior secured revolving credit facility are available until            its maturity in 2011 to fund our ongoing working capital requirements, capital            expenditures and other general corporate needs. Indebtedness under the senior secured            revolving credit facility is secured by substantially all of CPG’s present and            future assets. In addition, the senior secured credit facility is guaranteed by us and            all of CPG’s domestic subsidiaries, including Scranton Products Inc. and AZEK            Building Products, Inc.

The senior secured revolving credit facility imposes certain            restrictions on the Company, CPG and the subsidiary guarantors, including restrictions            on the ability to incur additional indebtedness or issue guarantees, grant liens, make            fundamental changes in our business, corporate structure or capital structure,            including, among other things, entering into mergers, acquisitions and other business            combinations, make loans and investments, enter into transactions with affiliates,            modify or waive material agreements in a manner that is adverse in any material respect            to the lenders, or prepay or repurchase subordinated indebtedness. In addition, the            senior secured revolving credit facility includes a material financial covenant that            requires CPG to maintain at all times a maximum total senior secured leverage ratio            less than or equal to 1.5 to 1.0. For more details of the terms of the senior secured            credit facility, see “—Covenant Ratios in Indenture and Senior Secured            Credit Facility” below. As of December 31, 2007, we were in compliance with all            covenants contained in our senior secured credit facility.

 

On February 13, 2008, the Company and its subsidiaries terminated its            senior secured revolving credit facility and entered into a new senior secured            revolving credit agreement. On February 29, 2008, the Company and its subsidiaries,            also entered into a Term Loan and Security Agreement. For further details regarding            these transactions, see “—Subsequent Financing” below.

***Change in Control Provisions in            Indebtedness***. The occurrence of certain kinds of change            of control events would constitute an event of default under the agreement governing            our senior secured revolving credit facility, and would also trigger a requirement            under the indenture governing the Notes to offer to repurchase all then outstanding            Notes at 101% of the principal amount thereof plus accrued and unpaid interest, if any,            to the date of repurchase, unless all Notes have been previously called for redemption.            A default under our senior secured revolving credit facility would result in a default            under the indenture governing the Notes if the lenders accelerate the debt under our            senior secured revolving credit facility. In addition, our failure to purchase tendered            Notes would constitute an event of default under the indenture governing the notes,            which in turn, would constitute a default under our senior secured revolving credit            facility. Moreover, our senior secured revolving credit facility restricts our ability            to repurchase the Notes, including following a change of control event. As a result,            following a change

 

41

of            control event, we would not be able to repurchase Notes unless we first repay all            indebtedness outstanding under our senior secured revolving credit facility and any of            our other indebtedness that contains similar provisions, or obtain a waiver from the            holders of such indebtedness to permit us to repurchase the Notes. We may be unable to            repay all of that indebtedness or obtain a waiver of that type. Any requirement to            offer to repurchase outstanding Notes may therefore require us to refinance our other            outstanding debt, which we may not be able to do on commercially reasonable terms, if            at all.

***Covenant Ratios in Indenture and Senior Secured Credit            Facility***. As discussed above under “—Senior            Secured Credit Facility,” the credit agreement governing our senior secured            credit facility includes a material financial covenant that requires CPG to maintain at            all times a maximum total senior secured leverage ratio less than or equal to 1.5 to            1.0 (referred to in the credit agreement as the “Senior Secured Leverage            Ratio”). The Senior Secured Leverage Ratio, for the twelve-month period ending on            the last day of any fiscal quarter, is defined in the credit agreement as the ratio of            (a) senior secured indebtedness on the last day of such period to (b)            “Consolidated EBITDA,” or earnings before interest, taxes, depreciation and            amortization for the such twelve-month period, which we refer to herein as            “Adjusted EBITDA,” in each case calculated on a pro forma basis as provided            below. Non-compliance with this financial covenant could result in an event of default            under our credit agreement and, under certain circumstances, a requirement to            immediately repay all amounts outstanding under the credit agreement and could trigger            a cross-default under our indenture governing the Notes or other indebtedness we may            incur in the future. Moreover, we will not be able to borrow additional amounts under            our senior secured credit facility if we are in default under our credit agreement,            including non-compliance with this financial covenant.

 

In addition, the indenture governing the Notes includes a material            covenant limiting the amount of indebtedness that the Company, CPG and its subsidiaries            may incur. Under the indenture, CPG and the subsidiary guarantors are permitted to            incur indebtedness only if the ratio of Adjusted EBITDA (referred to in the indenture            as “Consolidated EBITDA”) for the four most recent full fiscal quarters to            certain fixed charges for such period, calculated on a pro forma basis is greater than            2.0 to 1.0 (referred to in the indenture as the “Consolidated Fixed Charge            Coverage Ratio”) or, if the ratio is less, only if the indebtedness falls into            specified debt baskets, including, for example, a credit agreement debt basket, an            existing debt basket, a capital lease and purchase money debt basket, an intercompany            debt basket, a permitted guarantee debt basket, a hedging debt basket, a letter of            credit basket, an acquired debt basket and a general debt basket. The acquired debt            basket permits CPG or any of its restricted subsidiaries to incur debt to finance an            acquisition so long as the Consolidated Fixed Charge Coverage Ratio would be equal to            or greater than immediately prior to such acquisition. CPG utilized this debt basket to            finance the Santana Acquisition and the Procell Acquisition. Non-compliance with this            covenant could result in an event of default under the indenture and, under certain            circumstances, a requirement to immediately repay all amounts outstanding under the            Notes and could trigger a cross-default under our credit agreement or other            indebtedness we may incur in the future.

 

Adjusted EBITDA is calculated similarly under both the credit agreement            and the indenture governing the Notes by adding consolidated net income, income taxes,            interest expense, depreciation and amortization and other non-cash expenses, income or            loss attributable to discontinued operations and amounts payable pursuant to the            management agreement with AEA Investors. In addition, consolidated net income is            adjusted to exclude, among other items: after-tax gains or losses from asset sales;            unrealized gains or losses arising from hedging agreements or derivative instruments;            any after-tax extraordinary or nonrecurring gains or losses and any unusual or            nonrecurring charges (including severance, relocation costs and one-time compensation            charges or restructuring charges or reserves related to the closure of facilities),            including any expenses, gains or losses incurred in connection with any issuance of            debt or equity; any non-cash compensation charges arising from the grant or issuance of            equity instruments; fees, costs and expenses in connection with any acquisition            (including the Transaction), including, without limitation, amortization of debt            issuance costs, debt discount or premium and other financing fees and expenses directly            relating thereto and write-offs of any debt issuance costs relating to indebtedness            being retired or repaid in connection with such acquisition, as well as bonus payments            paid to employees in connection with such acquisition; any amortization of premiums,            fees, or expenses incurred in connection with the Transaction or any other acquisition,            or any non-cash write-ups and non-cash charges relating to inventory, fixed assets,            intangibles or goodwill, as permitted by Accounting Principles Board Opinions Nos. 16            and 17, respectively; any non-cash impact attributable to the application of purchase            method of accounting in accordance with GAAP; the cumulative effect of

 

42

a            change in accounting principles; and any impairment charge or asset write-off pursuant            to SFAS No. 142 and No. 144 and the amortization of intangibles arising pursuant to            SFAS No. 141.

 

In calculating the Senior Secured Leverage Ratio, Adjusted EBITDA and            senior secured indebtedness, as the case may be, are each adjusted by giving pro forma            effect to acquisitions and dispositions that occurred in the prior four quarters,            including certain cost savings and synergies expected to be obtained in the succeeding            nine months.

 

The following table sets forth the Senior Secured Leverage Ratio            pursuant to our credit agreement, as well as the amount of senior secured indebtedness            and Adjusted EBITDA, on a pro forma basis as defined by our credit            agreement:

 

|   |   |   |                          |   |                |   |   |   |   | **Year Ended**   |
|--------|--------|--------|-------------------------------|--------|---------------------|--------|--------|--------|--------|------------------|
|   |   |   |                          |   |                |   |   |   |   | **December 31,** |
|   |   | **(**  | **Dollars in thousands)**     |   | **Covenant Amount** |   |   |   |   | **2007**         |
|   |   |   | Senior Secured Leverage Ratio |   | Maximum of 1.5x     |   |   |   |   | 0.22x            |
|   |   |   | Senior secured indebtedness   |   |                |   |   |   | $      | 1,430            |
|   |   |   | Adjusted EBITDA               |   |                |   |   |   | $      | 63,845           |

 

The following table provides the calculation of Adjusted EBITDA,            pursuant to the covenants described above in our credit agreement and indenture, for            the year ended December 31, 2007, on a pro forma basis as defined by our credit            agreement: 

 

|   |   |   |                                       |   |   |   | **Year Ended**   |   |   |
|--------|--------|--------|--------------------------------------------|--------|--------|--------|------------------|--------|--------|
|   |   |   |                                       |   |   |   | **December 31,** |   |   |
|   |   |   |                                       |   |   |   | **2007**         |   |   |
|   |   |   | Net income (a)                             | $      |   |   | 4,627            |   |   |
|   |   |   | Interest expense, net (a)                  |   |   |   | 33,698           |   |   |
|   |   |   | Income tax expense                         |   |   |   | 3,760            |   |   |
|   |   |   | Depreciation and amortization              |   |   |   | 18,157           |   |   |
|   |   |   | EBITDA                                     |   |   |   | 60,242           |   |   |
|   |   |   | Settlement charges (b)                     |   |   |   | 500              |   |   |
|   |   |   | Severance costs (c)                        |   |   |   | 1,009            |   |   |
|   |   |   | Management fee (d)                         |   |   |   | 1,733            |   |   |
|   |   |   | Gain on sale of property (e)               |   |   |   | (422             | )      |   |
|   |   |   | Santana Acquisition costs (f)              |   |   |   | 13               |   |   |
|   |   |   | Procell non—recurring charges (g)    |   |   |   | 60               |   |   |
|   |   |   | Adjusted EBITDA                            |   |   |   | 63,135           |   |   |
|   |   |   | Pro forma adjustments                      |   |   |   | 710              |   |   |
|   |   |   | Adjusted EBITDA with pro forma adjustments | $      |   |   | 63,845           |   |   |

 

______________

 

(a) Net loss and interest expense each includes the amortization of            approximately $1.9 million of deferred financing costs classified as interest expense            for the year ended December 31, 2007.

| (b) | Represents the one-time settlement expense CPG incurred                            over its patent infringement settlement during the year end December                            31, 2007. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | Represents severance costs attributable to individuals                            whose positions had not been replaced. |
|-----|--------------------------------------------------------------------------------------------------------------------------|

             

| (d) | Represents the elimination of the AEA Investors                            management fee and expenses that were charged during the period                            presented. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

43

             

| (e) | Represents the gain CPG recorded related to the sale of                            one of Scranton Product’s manufacturing facilities on May 10,                            2007, offset by a loss on the disposal of some machinery and equipment                            of approximately $22,000 at its AZEK Building Product’s                            facility. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (f) | Represents charges related to integration and moving                            expenses from the Santana Acquisition, which we acquired on April 28,                            2006. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (g) | Represents charges related to integration costs from the                            Procell Acquisition, which we acquired on January 31, 2007. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------|

While the determination of appropriate adjustments in the calculation of            Adjusted EBITDA is subject to interpretation under our debt agreements, management            believes the adjustments described above are in accordance with the covenants in our            credit agreement and indenture, as discussed above. Adjusted EBITDA should not be            considered in isolation or construed as an alternative to our net income or other            measures as determined in accordance with GAAP and should be utilized in understanding            our ability to comply with our debt instruments. Adjusted EBITDA should be used to            analyze our ability to comply with our covenants. In addition, other companies in our            industry or across different industries may calculate Adjusted EBITDA differently than            we do, limiting its usefulness as a comparative measure.

***Long-term Liquidity.***At December 31,            2007, we had the availability of $38,570,000 under our revolving credit facility. We            anticipate that the funds generated by our operations, as well as funds available under            our senior secured revolving facility, will be sufficient to meet working capital            requirements and to finance capital expenditures over the next several years. There can            be no assurance, however, that our business will generate sufficient cash flow from            operations, that anticipated net sales growth and operating improvements will be            realized or that future borrowings will be available under our senior secured revolving            credit facility in an amount sufficient to enable us to service our indebtedness or to            fund our other liquidity needs. Our ability to meet our debt service obligations and            other capital requirements, including capital expenditures and acquisitions, will            depend upon our future performance and our ability to stay in compliance with our            financial covenants, which, in turn, will be subject to general economic, financial,            business, competitive, legislative, regulatory and other conditions, many of which are            beyond our control. We may also need to obtain additional funds to finance            acquisitions, which may be in the form of additional debt or equity. Some other risks            that could materially adversely affect our ability to meet our debt service obligations            include, but are not limited to, risks related to increases in the cost and lack of            availability of resin and our ability to pass through costs or price increases to cover            such costs on a timely basis, our ability to protect our intellectual property, rising            interest rates, a decline in gross domestic product levels, weakening of the            residential, commercial and institutional construction markets, the loss of key            personnel, our ability to continue to invest in equipment, and a decline in relations            with our key distributors and dealers.

 

***Subsequent Financing*****.**On February 13, 2008, the Company and its subsidiaries entered into a            Loan and Security Agreement (the “Loan Agreement”) with Wachovia Bank,            National Association, as administrative agent, and General Electric Capital            Corporation, as syndication agent.  The Loan Agreement provides subsidiaries            of the Company with up to $65.0 million in borrowing capacity, with the actual            borrowing base limited to a percentage of eligible receivables and inventory, subject            to reserves established by the administrative agent in its permitted            discretion.  The Loan Agreement requires subsidiaries of the Company to repay            the outstanding principal on any loans thereunder at the maturity date as defined            therein, but in any case no later than February 13, 2013. Borrowings under the Loan            Agreement bear interest, at the Company’s option, at the base rate (prime rate)            plus a spread of up to 0.5% or adjusted LIBOR plus a spread of 1.5% to 2.25%, or a            combination thereof. The Loan Agreement also provides for a fee ranging between 0.25%            and 0.5% of unused commitments. Substantially all of the Company’s and its            subsidiaries’ assets (excluding real property) are pledged as collateral for any            borrowings under the Loan Agreement.

             

The Loan Agreement contains various covenants, including a financial            covenant which requires the Company and its subsidiaries to maintain, in certain            circumstances and as defined, a minimum ratio of consolidated EBITDA to

 

44

 

 

consolidated fixed charges of 1.0 to 1.0.  The Loan Agreement            also imposes certain restrictions on us, and our subsidiaries, including restrictions            on the ability to issue guarantees, grant liens, make fundamental changes in their            business, corporate structure or capital structure, make loans and investments, enter            into transactions with affiliates, modify or waive material agreements, or prepay or            repurchase indebtedness.

             

On February 13, 2008, concurrently with the execution of the Loan            Agreement, the Company and its subsidiaries terminated its senior secured revolving            credit facility. On February 13, 2008, the Company repaid the outstanding principal            amount of approximately $15.1 million under its prior facility with an approximately            $15.1 million draw under the Loan Agreement.  

             

On            February 29, 2008, the Company and its subsidiaries, entered into a Term Loan and            Security Agreement (“Term Loan Agreement”). Subsidiaries of he Company            borrowed approximately $25.0 million under the term loan as part of the financing for            the Composatron Acquisition. The Term Loan Agreement requires the borrowers thereunder            to repay the outstanding principal of the Term Loan in quarterly installments of            $62,500 from March 31, 2008 through December 31, 2010, with the remaining outstanding            principal balance of the Term Loan due no later than February 28, 2011. Interest on the            Term Loan will accrue at a rate per annum, equal to, at the option of the borrowers,            either (i) base rate (prime rate) plus a spread of 4.00%, (ii) adjusted LIBOR plus a            spread of 5.00%, or (iii) a combination thereof.

The Term Loan Agreement contains various covenants, including a            financial covenant which requires the Company and its subsidiaries to maintain, as            defined, a maximum ratio of consolidated senior secured indebtedness to consolidated            EBITDA of 2.5 to 1.0. The Term Loan Agreement also imposes certain restrictions on the            Company and its subsidiaries, including restrictions on the ability to issue            guarantees, grant liens, make fundamental changes in their business, corporate            structure or capital structure, make loans and investments, enter into transactions            with affiliates, modify or waive material agreements, or prepay or repurchase            indebtedness. The Term Loan is secured by all personal and real property and fixtures            of the Company and its subsidiaries, and obligations thereunder are guaranteed (or            cross-guaranteed) by the Company and its subsidiaries (subject to customary exceptions            with respect to foreign subsidiaries). The priority of liens on assets of the Company            and its subsidiaries created pursuant to the Term Loan Agreement, on one hand, and the            Loan Agreement, on the other hand, are governed by and subject to an intercreditor            agreement entered into by the Company and its subsidiaries and agents for lenders under            each of the Term Loan Agreement and the Loan Agreement.

             

**Contractual Obligations**

 

The following table summarizes our contractual cash obligations as of            December 31, 2007. This table does not include information on our recurring purchases            of materials for use in production, as our raw materials purchase contracts do not            require fixed or minimum quantities. This table also excludes payments relating to            income tax due to the fact that, at this time, we cannot determine either the timing or            the amounts of payments for all periods beyond December 31, 2007 for certain of these            liabilities.

 

|                        |   |   |   |   |      |   |   |   |   |   | **Due in**      |   |   |   |   |   |   |          |   |   |   |   |   |   |          |   |   |   |   |   |          |   |
|-----------------------------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|--------|-----------------|--------|--------|--------|--------|--------|--------|---------------|--------|--------|--------|--------|--------|--------|---------------|--------|--------|--------|--------|--------|---------------|--------|
|                        |   |   |   |   |      |   |   |   |   |   | **Less than 1** |   |   |   |   |   |   | **Due in**    |   |   |   |   |   |   | **Due in**    |   |   |   |   |   | **Due after** |   |
| **(Dollars in thousands)**  |   |   |   |   | **Total** |   |   |   |   |   | **Year**        |   |   |   |   |   |   | **1-3 years** |   |   |   |   |   |   | **3-5 years** |   |   |   |   |   | **5 years**   |   |
| Notes                       |   | $      |   |   | 278,000   |   |   | $      |   |   | —         |   |   |   | $      |   |   | —       |   |   |   | $      |   |   | 278,000       |   |   | $      |   |   | —       |   |
| Interest on Notes           |   |   |   |   | 152,281   |   |   |   |   |   | 30,340          |   |   |   |   |   |   | 91,021        |   |   |   |   |   |   | 30,920        |   |   |   |   |   | —       |   |
| Raw materials in transit    |   |   |   |   | 1,937     |   |   |   |   |   | 1,937           |   |   |   |   |   |   | —       |   |   |   |   |   |   | —       |   |   |   |   |   | —       |   |
| Capital lease obligations   |   |   |   |   | 15,427    |   |   |   |   |   | 2,285           |   |   |   |   |   |   | 4,226         |   |   |   |   |   |   | 2,148         |   |   |   |   |   | 6,768         |   |
| Operating lease obligations |   |   |   |   | 7,902     |   |   |   |   |   | 1,430           |   |   |   |   |   |   | 2,409         |   |   |   |   |   |   | 1,798         |   |   |   |   |   | 2,265         |   |
| Total (a)(b)(c)             |   | $      |   |   | 455,547   |   |   | $      |   |   | 35,992          |   |   |   | $      |   |   | 97,656        |   |   |   | $      |   |   | 312,866       |   |   | $      |   |   | 9,033         |   |

 

__________________

 

|   | (a) | The interest rates used in the calculation of our                            interest payments were 10.5% related to our Fixed Notes and 11.4%                            related to our Floating Rate Notes. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

45

|   | (b) | As of December 31, 2007, there was a letter of credit of                            $1.4 million held against our senior secured revolving credit facility,                            which provides for borrowings of up to $40.0 million. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | On February 13, 2008, the Company repaid the outstanding                            principal amount of approximately $15.1 million under its then existing                            senior secured credit facility with an approximately $15.1 million draw                            under the Loan Agreement. See—“Subsequent Financing”                            above. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Off-Balance Sheet Arrangements**

 

|   | None. |
|--------|-------|

**Seasonality**

Our sales have historically been moderately seasonal and have been            strongest in the first and third quarters of the calendar year. We typically experience            increased sales of AZEK products in the first quarter of the year as a result of our            “early buy” sales program, which encourages dealers to stock AZEK products            through the use of incentive discounts. We have generally experienced decreased sales            in the fourth quarter due to adverse weather conditions in certain markets during the            winter season. In addition, we have experienced increased sales of our bathroom            partition products during the summer months during which schools are typically closed.            We expect these cycles to moderate as AZEK sales growth continues to consistently grow            throughout the calendar year.

**Recent Accounting Pronouncements**

 

In June 2006, the FASB issued Interpretation 48,*Accounting for Uncertainty in Income Taxes – an interpretation            of FASB Statement No.* *109*(“FIN 48”). This            interpretation prescribes a recognition threshold and measurement attribute for the            financial statement recognition and measurement of a tax position taken or expected to            be taken in a tax return. FIN 48 also provides guidance on de-recognition,            classification, interest and penalties, accounting in interim periods, disclosure and            transition. This interpretation became effective for fiscal years beginning after            December 15, 2006 (January 1, 2007 for the Company). The Company adopted the            provisions of FIN 48 as of January 1, 2007, and as a result of that adoption, recorded            $800,000 of unrecognized tax benefits on the balance sheet, which did not result in a            cumulative effect adjustment to retained earnings as the adjustment was recorded to            goodwill based on the nature of the tax position involved.  Of the total            unrecognized tax benefits, $664,000 is carried at December 31, 2007 as a non-current            liability, and $136,000 as an offset to non-current deferred tax assets.  If the            unrecognized tax benefits were recognized in the future, there would be no impact to            the Company’s effective tax rate.

 

In February 2006, the FASB issued SFAS 155,*Accounting for Certain Hybrid Financial Instruments – an            amendment of FASB Statement No. 133 and 140*(“SFAS No.            155”). SFAS 155 allows financial instruments that contain an embedded derivative            that otherwise would require bifurcation to be accounted for as a whole on a fair value            basis. This statement is effective for all financial instruments acquired or issued            after the beginning of the first fiscal year that begins after September 15, 2006. The            adoption of SFAS 155 did not have a material impact on our consolidated financial            statements.

 

In September 2006, the FASB issued SFAS 157,*Fair Value Measurement*. SFAS 157 defines            fair value, establishes a framework for measuring fair value in generally accepted            accounting principles (GAAP), and expands disclosures about fair value measurements.            This statement is effective for fiscal years beginning after November 15, 2007 for            financial instruments, and non-financial instruments beginning after November 15, 2008,            and interim periods within those fiscal years. We do not expect that the adoption of            SFAS 157 will have a material impact on our consolidated financial            statements.

 

In February 2007, the FASB issued SFAS 159,*The            Fair Value Option for Financial Assets and Financial            Liabilities*. SFAS 159 expands opportunities to use fair value            measurement in financial reporting and permits entities to choose to measure many            financial instruments and certain other items at fair value. SFAS 159 is effective for            fiscal years beginning after November 15, 2007. We are currently evaluating the impact            of this standard on our consolidated financial statements.

 

46

In December 2007, the FASB issued SFAS No. 141 (revised            2007),*Business Combinations*, which            establishes principles over the method entities use to recognize and measure assets            acquired and liabilities assumed in a business combination and enhances disclosures on            business combinations. SFAS No. 141(R) is effective for business combinations            for which the acquisition date is on or after the beginning of the first annual            reporting period beginning on or after December 15, 2008. We are currently            evaluating the impact of this standard on our consolidated financial            statements.

 

 

**Item            7A. Quantitative and Qualitative Disclosures About Market Risk.**

 

***Interest Rate Risk***

We are subject to interest rate market risk in connection with our            long-term debt. Our principal interest rate exposure relates to the floating rate notes            and any outstanding amounts under our senior secured revolving credit facility. In            addition, the market value of the fixed rate notes will fluctuate with interest            rates.

Our outstanding floating rate notes bear interest at variable rates            based on LIBOR. Each quarter point increase or decrease in the interest rate would            change our interest expense by approximately $0.3 million per year. Our senior secured            revolving credit facility provides for borrowings of up to $40.0 million, which also            bear interest at variable rates. Assuming the senior secured revolving credit facility            is fully drawn, each quarter point increase or decrease in the applicable interest rate            would change our interest expense by approximately $0.1 million per year. In the            future, we may enter into interest rate swaps, involving the exchange of floating for            fixed rate interest payments, to reduce interest rate volatility.

***Inflation***

Our cost of sales is subject to inflationary pressures and price            fluctuations of the raw materials we use, particularly, the cost of petrochemical            resin. Historically, we have generally been able over time to recover the effects of            inflation and price fluctuations through sales price increases and production            efficiencies associated with technological enhancements and volume growth.

***Raw Material; Commodity Price Risk***

We rely upon the supply of certain raw materials and commodities in our            production processes; however, we do not typically enter into fixed price contracts            with our suppliers. The primary raw materials we use in the manufacturing of our            products are various dry petrochemical resins, primarily PVC, HDPE and PP, which            represented more than half of our cost of goods sold for the years ended December 31,            2007, 2006 and 2005. The exposures associated with these costs are primarily managed            through terms of the sales and by maintaining relationships with multiple vendors.            Prices are negotiated on a continuous basis, and we do not typically buy forward beyond            six months and we have not entered into hedges with respect to our raw material            costs.

Dry petrochemical resin prices may continue to fluctuate as a result of            changes in natural gas and crude oil prices, other precursor raw materials for the            products and underlying demand for these products. The instability in the world market            for petroleum and the North American natural gas markets could materially adversely            affect the prices and general availability of raw materials. Over the past several            years we have at times experienced rapidly increasing resin prices primarily due to the            increased cost of oil and natural gas. Due to the uncertainty of oil and natural gas            prices, we cannot reasonably estimate our ability to successfully recover any cost            increases. Even if we are able to pass these cost increases on to our customers, we may            not be able to do so, on a timely basis, our gross margins could decline and we may not            be able to implement other price increases for our products. To the extent that            increases in the cost of resins cannot be passed on to our customers, or the duration            of time lags associated with a pass through becomes significant, such increases may            have a material adverse effect on our profitability and financial condition. Moreover,            we do not reprice any existing orders. Also, increases in resin prices could negatively            impact our competitive position as compared to wood and metal products that are not            affected by changes in resin prices.

 

47

Our raw material supplies are subject to not only price fluctuations but            also other market disturbances including supply shortages and natural disasters. In the            event of industry-wide general shortage of resins, or a shortage or discontinuation of            certain types of resins purchased from one or more of our suppliers, we may not be able            to arrange for alternative sources of resin. In the past, we have been able to maintain            necessary raw material supplies, but any such shortages may materially negatively            impact our production process as well as our competitive position versus companies that            are able to better or more cheaply source resin.

 

**Item 8. Financial Statements and Supplementary            Data**.

The            financial statements of the Company, together with the report of the Independent            registered public accounting firm thereon, are presented as part of this report on            pages F-1 through F-31 under Item 15 hereof.

**Item 9. Changes in and Disagreements with Accountants on Accounting            and Financial Disclosure.**

Not            applicable.

**Item 9A(T). Controls and Procedures.**

|   | **Evaluation of Controls and Procedures** |
|--------|-------------------------------------------|

 

We have carried out an evaluation, under the supervision and with the            participation of our management, including the Chief Executive Officer and Chief            Financial Officer, of the effectiveness of the design and operation of our disclosure            controls and procedures (as defined in Rule 13(a)-15(e) under the Securities Exchange            Act of 1934) as of the end of the period covered by this report. Based upon our            evaluation, the Chief Executive Officer and Chief Financial Officer have concluded            that, as of December 31, 2007, the disclosure controls and procedures are            effective.

 

**Management’s Annual Report on Internal Control over Financial            Reporting**

 

Our management is responsible for establishing and maintaining adequate            internal control over financial reporting, as such term is defined in Exchange Act            Rules 13a-15(f) and 15d-15(f).

 

A company’s internal control over financial reporting is a process            designed to provide reasonable assurance regarding the reliability of financial            reporting and the preparation of financial statements for external purposes in            accordance with generally accepted accounting principles. Internal control over            financial reporting includes those policies and procedures that (i) pertain to the            maintenance of records that, in reasonable detail, accurately and fairly reflect the            transactions and dispositions of the assets of the Company; (ii) provide reasonable            assurance that transactions are recorded as necessary to permit preparation of            financial statements in accordance with generally accepted accounting principles, and            that receipts and expenditures of the Company are being made only in accordance with            authorizations of management and directors of the Company; and (iii) provide reasonable            assurance regarding prevention or timely detection of unauthorized acquisition, use or            disposition of the Company’s assets that could have a material effect on the            financial statements.

 

Under the supervision and with the participation of our management,            including our principal executive officer and principal financial officer, we conducted            an evaluation of the effectiveness of the Company’s internal control over            financial reporting based on the framework in Internal Control – Integrated            Framework issued by the Committee of Sponsoring Organizations of the Treadway            Commission (COSO). Based on this assessment, the Company’s management concluded            that, as of December 31, 2007, the Company’s internal control over financial            reporting was effective.

 

Because of its inherent limitations, our internal control over financial            reporting may not prevent or detect misstatements. Therefore, even those systems            determined to be effective can provide only reasonable assurance with respect to            financial statement preparation and presentation. Projections of any evaluation of            effectiveness to future periods are subject to the risk that controls may become            inadequate because of changes in conditions or that the degree of compliance with the            policies or procedures may deteriorate.

 

48

             

This annual report does not include an attestation report of the            Company’s registered public accounting firm regarding internal control of            financial reporting. Management’s report was not subject to attestation by the            Company’s registered public accounting firm pursuant to temporary rules of the            Securities and Exchange Commission that permit the Company to provide only            management’s report in this annual report.

             

On January 31, 2007, the Company acquired Pro-Cell, LLC, which owned and            operated Procell Decking Systems, later rebranded as AZEK Deck. As permitted by SEC            rules and regulations, management has excluded this business from its evaluation of            internal controls over financial reporting as of December 31, 2007 because this            business was acquired in 2007. The Company’s total consolidated net sales for the            year ended December 31, 2007 was $313.7 million, of which net sales associated with the            AZEK Deck operations were $56.2 million. The Company’s total consolidated assets            at December 31, 2007 were $600.5 million, of which assets associated with the AZEK Deck            operations were $92.2 million .

             

**Changes in Internal Control Over Financial Reporting**

There have been no changes in our internal controls over financial            reporting that occurred during the quarter ended December 31, 2007 that have            materially affected or are reasonably likely to materially affect our internal control            over financial reporting.

             

**Item 9B. Other Information.**

None.

**PART III**

**Item 10. Directors, Executive Officers and Corporate            Governance.**

|   | The following table provides information about our                            directors and executive officers. |
|--------|-----------------------------------------------------------------------------------------------------------------|

 

| **Name**              | **Age** | **Position with our Company**                                                   |
|-----------------------|---------|---------------------------------------------------------------------------------|
| Glenn M. Fischer      | 57      | Interim Chief Executive Officer and Director                                    |
| Scott Harrison        | 35      | Executive Vice President and Chief Financial                            Officer |
| Ralph Bruno           | 44      | President, AZEK Building Products Inc.                                          |
| Chris Bardasian       | 49      | President, Scranton Products Inc.                                               |
| Kevin Sloan           | 49      | Senior Vice President, Operations                                               |
| James Andersen        | 45      | Director                                                                        |
| Vincent A. Calarco    | 65      | Director                                                                        |
| Shivanandan A. Dalvie | 35      | Director                                                                        |
| Brian R. Hoesterey    | 40      | Director                                                                        |
| James Keisling        | 59      | Chairman of the Board                                                           |
| Christopher P. Mahan  | 41      | Director                                                                        |
| Scott B. Perper       | 52      | Director                                                                        |
| Vincent A. Sarni      | 79      | Director                                                                        |
| Julian M. Steinberg   | 53      | Director                                                                        |

             

*Glenn M. Fischer,*our Interim Chief            Executive Officer has served on our Board of Directors since October 2005 and will            continue to do so. Mr. Fischer is currently an Operating Partner with AEA Investors            LLC, which he joined in 2005. Mr. Fischer currently serves on the boards of Henry            Company and Pregis Corporation. He also served as the Interim CEO of Pregis Corporation            shortly after AEA Investors acquired the company from November 2005 to February 2006.            From 2000 to 2005, Mr. Fischer was President and Chief Operating Officer of Airgas,            Inc., the largest U.S. distributor of industrial, medical and specialty gases, welding,            safety, and related

 

49

products. Mr. Fischer joined Airgas after spending 19 years with The BOC            Group in a wide range of positions leading to his appointment in 1997 as president of            BOC Gases, North America. In addition to his responsibility for all North American            operations, Mr. Fischer served on The BOC Group Executive Management Board. Prior to            joining BOC in 1981, Mr. Fischer served at W.R. Grace in a variety of finance,            planning, and management roles..

             

*Scott Harrison*, our Executive Vice            President and Chief Financial Officer, joined us in November 2005 as our Vice President            of Finance. Mr. Harrison was appointed our Senior Vice President and Chief            Financial Officer in February 2006. Prior to joining us, Mr. Harrison was director            of business development at Silgan Plastics Corporation since 2003. Prior to joining            Silgan Plastics, Mr. Harrison held various positions with First Union Capital            Partners and Bowles Hollowell Conner & Co. Mr. Harrison received a B.A. in            economics from Duke University and an M.B.A. from The Tuck School of Business at            Dartmouth.

*Ralph Bruno*, our President, AZEK Building            Products Inc., joined us in 2001. Prior to joining us, Mr. Bruno served as a            national sales manager with Trex Corp., a leading manufacturer of composite decking            products, from 1991 to 2001. Mr. Bruno has been in the synthetic materials            industry his entire career. He received a B.A. from Cortland (NY) State University in            1985.

*Chris Bardasian,*our President, Scranton            Products Inc., joined us in January 2007.Chris began his            professional career at Hobart Corporation in 1977 and then went to Bendix Automation            and Measurement in 1981. Chris held positions within the manufacturing, information            technology and sales organizations, advancing through supervisory and senior management            roles. In 1992, Chris joined Alside and went on to serve as Vice President &            General Manager of Alside’s UltraGuard Vinyl Fencing, Railing and Decking            Division, reporting directly to Alside’s chief executive officer. His            responsibilities involved managing all aspects of the business unit, including            manufacturing operations, sales & marketing. In 2004 Chris joined Procell where he            focused on Sales & Marketing, as the Co-President & CEO.

*Kevin Sloan*, our Senior Vice President,            Operations, joined us in January 2007. Kevin began his professional career at The GSI            Group in 1977, where he held various management positions, and in 1989 he was appointed            President of Heritage Vinyl Fence. In 1996, Heritage Vinyl Fence was sold to Outdoor            Technology, which is the largest vinyl fence manufacturer today. In 2003, Kevin            established Procell where he focused on manufacturing operations and product            development, as Co-President & CEO.

             

*James Andersen*became a director upon            consummation of the Transaction. Mr. Andersen is the Managing Partner and            co-founder of Clearview Capital, a buyout firm which he formed in 1999. Prior to            joining Clearview Capital, Mr. Andersen was with Capital Partners from 1996 to            1999. Previously, Mr. Andersen was a project manager at Mars and Company, an            international strategy consulting firm, and prior to that, he was an international            staff field engineer with Schlumberger. Mr. Andersen received a B.S.E. in Civil            Engineering, cum laude, from Princeton University and earned an M.B.A. from the Wharton            School in 1989. He is currently a director of Twinco -Romax LLC, Senior Care Centers of            America, Inc., Hillsdale Furniture LLC, M.H. Zeigler and Sons, LLC, Rowmark, LLC and            Hettinger Welding, LLC.

*Vincent A. Calarco*became a director in            June 2006. Mr. Calarco was Chairman, President and Chief Executive Officer of            Crompton Corporation (now known as Chemtura Corporation), a producer of specialty            chemicals and polymer products, from 1999 to 2004. Previously, he was President and            Chief Executive Officer of Crompton & Knowles Corporation, a predecessor of            Crompton Corporation, from 1985 to 1999, and Chairman from 1986 to 1999.            Mr. Calarco received a B.S. in chemical engineering from Polytechnic University            and an M.B.A. with distinction from The Harvard Business School. He is currently a            director of Consolidated Edison, Inc. and Newmont Mining Corporation. In addition,            Mr. Calarco is the Chairman of the Chemical Heritage Foundation and a Trustee of            Saint Raphael Healthcare System.

*Shivanandan A. Dalvie*became a director            upon consummation of the Transaction. Mr. Dalvie is a Partner with AEA Investors,            which he joined in 1997. Prior to joining AEA, he was in the mergers and acquisitions            group of Credit Suisse First Boston. Mr. Dalvie received a B.S. in computer            science and economics from Yale University and an M.B.A. from Stanford            University.

 

50

*Brian R. Hoesterey*became a director upon            consummation of the Transaction. Mr. Hoesterey is a Partner with AEA Investors,            which he joined in 1999. Prior to joining AEA Investors, he was with BT Capital            Partners, the private equity investment vehicle of Bankers Trust. Mr. Hoesterey            has also previously worked for McKinsey & Co. and the investment banking division            of Morgan Stanley. Mr. Hoesterey graduated summa cum laude from Texas Christian            University with a B.B.A. in accounting and received an M.B.A. with honors from The            Harvard Business School. He is currently a director of Henry Company, Pregis Holding II            Corporation, Unifrax Corporation, Houghton International and Suncoast            Roofers.

*James Keisling*, our non-executive Chairman            of the Board as of January 1, 2007, previously served as our Chief Executive Officer.            Mr. Keisling has over 30 years of experience in developing and manufacturing            highly-engineered synthetic replacement products for wood and metal. He joined the            family business in 1971, one year after graduating from Lycoming College with a degree            in accounting. Prior to that he worked with Haskins & Sells in New York, from 1970            to 1971.

*Christopher P. Mahan*became a director upon            consummation of the Transaction. Mr. Mahan is a Partner with AEA Investors, which            he joined in 1991. Prior to joining AEA, Mr. Mahan was a consultant at Bain &            Company, working on a range of projects with global manufacturing companies.            Mr. Mahan received a B.A. with honors from Amherst College. He is currently a            director of Convenience Food Systems B.V.

*Scott B. Perper*became a director in            January 2006. Mr. Perper is a Managing Partner with Wachovia Capital Partners,            LLC, which he joined in 1989. Prior to joining Wachovia Capital Partners,            Mr. Perper served as a Vice President in the Media & Entertainment Group of            Kidder, Peabody & Company Incorporated in New York. Mr. Perper earned his            undergraduate degree from Bowdoin College and an M.B.A. from The Harvard Business            School. He is currently a director of American Renal Associates Inc., NuVox            Communications, Inc. and several other private companies. In addition, Mr. Perper            is a Trustee of Bowdoin College, the Charlotte Country Day School and the North            Carolina Outward Bound School.

*Vincent A. Sarni*became a director in            August 2005. Mr. Sarni was Chairman of the board of directors and Chief Executive            Officer of PPG Industries, a global supplier of coatings, glass, fiber glass, and            chemicals, from 1984 to 1993. Mr. Sarni joined PPG as a Marketing Vice President            of the former Industrial Chemical Department in 1968, after 12 years with Olin            Corporation. He is a former director of Mueller Holding Co., Noveon Inc., Amtrol Inc.,            Brockway Inc., Hershey Foods Corp., Honeywell Inc., Mellon Bank Inc., PNC Financial            Corp., and PPG Industries. Mr. Sarni is also the former Chairman of the Board for            the Pittsburgh Pirates and Allegheny General Hospital.

*Julian M. Steinberg*became a director in            August 2005. Mr. Steinberg currently serves as Senior Vice President and Chief            Operating Officer of Lubrizol Advances Materials, a business segment of the Lubrizol            Corporation. Prior to this position, he was General Manager of Performance Coatings at            Noveon, Inc. He was also Senior Vice President and General Manager of Estane® TPU,            as well as Global Marketing and Business Development and General Manager of Estane®            Americas. Mr. Steinberg joined Noveon in October 2001 from CompX International, a            manufacturer of components for office furniture. Previous to that position,            Mr. Steinberg spent twenty-two years with the BFGoodrich Company in various            Business Management, Marketing and Financial roles. His last assignment at BFGoodrich            was Commercial Vice President Specialty Plastics. Subsequent to that, he served as Vice            President and General Manager of the TempRite® CPVC division. Mr. Steinberg            has served on the Board of Directors for the Society of Plastics Industries and the            Plastic Pipe and Fittings Association. He has a Bachelor’s and M.B.A. from            Washington University.

On March 10, 2008, we announced the appointment of Eric K. Jungbluth as            Chief Executive Officer. Mr. Jungbluth, 47, joins the Company from HNI Corporation,            where he served as an Executive Vice President and the President of The HON Company.            Mr. Jungbluth joined HNI Corporation in 2003 as President of Allsteel Inc. Prior to            joining Allsteel, Mr. Jungbluth held several senior roles at Moen Incorporated (a            division of Fortune Brands) including Vice President of National Accounts, Vice            President of Business Development, and VP/General Manager of CSI Accessories. Mr.            Jungbluth also spent two years at Kirsch (a division of Newell) as Vice President of            Sales, and ten years at Warner Lambert in sales, marketing, and brand management roles.            Mr. Jungbluth has a BA degree from the University of Wisconsin with a major in            accounting and finance. Effective April 7, 2008, Mr.

 

51

Jungbluth will replace Glenn Fischer, the Company’s Interim Chief            Executive Officer prior to Mr. Jungbluth’s appointment. Glenn Fischer will            continue to serve on the Company’s Board of            Directors.           

**Committees of the Board of Directors**

Our board of directors has established an audit committee and a            compensation committee. The members of the audit committee are Brian Hoesterey,            Chairman, Scott Perper and Vincent Sarni. Mr. Sarni qualifies as our “audit            committee financial expert” within the meaning of regulations adopted by the            SEC**.**The audit committee recommends            the annual appointment and reviews independence of auditors and reviews the scope of            audit and non-audit assignments and related fees, the results of the annual audit,            accounting principles used in financial reporting, internal auditing procedures, the            adequacy of our internal control procedures, related party transactions, and            investigations into matters related to audit functions.

The members of the compensation committee are Christopher Mahan,            Chairman, Brian Hoesterey and James Andersen. The compensation committee reviews and            approves the compensation and benefits for our senior employees and directors,            authorizes and ratifies equity and other incentive arrangements, and authorizes            employment and related agreements. From time to time, our board of directors may            contemplate establishing other committees.

**Code            of Ethics**

 

We have adopted a code of ethics applicable to all of our directors,            officers (including our principal executive officer, principal financial officer and            principal accounting officer) and employees, known as the Code of Business Conduct            & Ethics. The Code of Business Conduct & Ethics is available on our website            at*www.cpgint.com/html/conduct.html*.            In the event that we amend or waive certain provisions of the Code of Business Conduct            & Ethics applicable to our principal executive officer, principal financial officer            or principal accounting officer that requires disclosure under applicable SEC rules, we            intend to disclose the same on our website at*www.cpgint.com/html/conduct.html*            .

 

**Item            11. Executive Compensation.**

 

***Compensation Discussion and Analysis***

 

*The following discussion and analysis of compensation arrangements of            our named executive officers for 2007 should be read together with the compensation            tables and related disclosure set forth below. This discussion contains forward looking            statements that are based on our current plans, considerations, expectations and            determinations regarding future compensation programs. Actual compensation programs            that we adopt may differ materially from currently planned programs as summarized in            this discussion.*

 

***Introduction***

 

Since May 2005, we have been privately owned and controlled by three            private equity firms. Together these firms own 90 percent, while management owns 10            percent of our parent company CPG International Holdings LP (“Holdings”).            The typical private equity firm makes an investment in a company and then oversees and            nurtures the investment. The overriding objective of our owners and management is to            increase the economic value and size of the company during the period of ownership to            assist the company in achieving its owners’ goals. As a result, our compensation            philosophy is designed to directly support achieving those goals and objectives. Our            named executive officers during 2007 were John R. Loyack, our former President and            Chief Executive Officer, Glenn M. Fischer, our Interim Chief Executive Officer, Scott            Harrison our Executive Vice President and Chief Financial Officer, Ralph Bruno our            President of AZEK Building Products Inc., Chris Bardasian, our President of Scranton            Products Inc. and Mr. Kevin Sloan, Senior Vice President, Operations. Mr. Loyack            resigned on October 3, 2007 and concurrently Glenn M. Fischer was named as our Interim            Chief Executive Officer. Mr. Fischer did not enter into an employment agreement with            the Company and did not receive any compensation from the Company for his service as            Interim Chief Executive Officer. On March 10, 2008, we announced the appointment of            Eric K.

 

52

Jungbluth as Chief Executive Officer. Mr. Jungbluth joins the Company on            April 7, 2008. Mr. Fischer will continue to serve on our Board of Directors.

 

***Corporate Governance***

 

*Compensation Committee Authority.*Executive            officer compensation is administered by the compensation committee of our board of            directors, which is comprised of three members. Mr. Christopher Mahan, a director,            has been the chairperson for the compensation committee from its inception in 2005. In            addition, Mr. Brian Hoesterey and Mr. James Andersen, directors, also sit on            the compensation committee. Our board of directors appoints the members of the            compensation committee and the board has delegated the direct responsibility for            compensation matters to the compensation committee, including:

             

• approving all benefit plans;

             

• approving, in advance, the compensation and employment            arrangements for our executive officers;

             

• reviewing and approving the compensation of annual cash incentive            awards; and

 

• reviewing and approving all grants of equity units in            Holdings.

 

Due to the nature of our ownership, the members of the compensation            committee hold significant ownership positions in the business. Therefore, they are not            independent directors under the Securities and Exchange Commission rules. The            compensation committee met five times in 2007.

             

*Role of Compensation Experts.*The            compensation committee is authorized at the expense of the company to obtain surveys,            reports on the design and implementation of compensation programs for directors,            executives and employees, and any other data or documentation necessary for the            compensation committee to carry out its responsibilities. However, due to the nature of            our ownership and the fact that our executive officers are covered by arms-length,            negotiated employment agreements, the compensation committee has not used such experts            in the determination of executive compensation in 2007. An employment agreement            typically reflects our judgment regarding an executive’s impact on the business            and our subjective assessment of the relative importance of this executive to the            overall success of the business. Although these employment agreements require us to pay            severance if an executive officer is terminated under certain circumstances and limits,            to some extent, the flexibility to adjust the compensation paid to the officer, we            believe we derive substantial value from these arrangements from having non-compete            agreements with these executive officers.

 

*Role of Executive Officers in the Compensation Process.*Our Chief Executive Officer is actively involved in providing            recommendations to the compensation committee in its evaluation and design of the            compensation programs for our executive officers, including the recommendation of            individual compensation levels for executive officers other than himself. Our Chief            Executive Officer relied on his personal experience serving in the capacity of an            executive officer for a public company as well as publicly available compensation            information. Mr. Loyack played an active role in the evaluation, design or            administration of 2007 executive officer compensation programs through October 2007.            Mr. Fischer actively served in this role as Interim Chief Executive Officer and Mr.            Jungbluth will serve an active role in the evaluation, design and administration of            officer compensation once he assumes the role of Chief Executive Officer on April 7,            2008.

 

***Executive Officer Compensation Strategy and            Philosophy***

 

Our executive officer compensation strategy has been designed to attract            executives with true entrepreneurial spirit and strong ability to manage a rapidly            growing business. The compensation strategy is focused on aligning our executives with            the long-term business strategy of creating a profitable, high growth building products            company with market leading brands. As such, a significant amount of our executive            compensation is in the form of equity incentives in Holdings and annual cash incentive            awards. It has been our view that compensation for executives and key managers should            consist of the following components:

             

53

• base salaries;

 

• annual cash incentive awards;

 

• long term equity incentives; and

 

• certain other benefits

             

All of these forms of compensation are connected by our philosophy to            create a reward system that focuses our executive team and key managers on profitably            growing the Company through expanding markets, introducing new products, identifying            and successfully implementing strategic acquisitions, improving the productivity of            business processes and operations, technological innovation and de-levering the            business over time with an end goal of increasing the Company’s overall economic            value.

 

These key initiatives are used in determining each executive’s and            key managers’ annual performance level. Awards under these compensation            components are determined by how well each executive or key manager performs in the key            initiative areas within their individual span of control. In addition, a significant            component of the annual cash incentive award and any equity award is based upon meeting            specific economic targets, including sales growth, market expansion and            profitability.

             

The compensation components the Company uses to reward executives and            key managers also provide an effective way to reward short-term performance while            ensuring that long-term business strategy is being implemented successfully and value            creation is occurring. This is accomplished by incorporating both annual cash and            multi-year equity incentive award program.

             

The following provides an overview of each compensation            component:

 

*Base Salaries.*We believe that salaries are            an essential element of a competitive compensation program to attract and retain            qualified executives. Our executive officers are covered by employment agreements, and            as such, we pay compensation initially in accordance with the term of the agreement and            thereafter based upon our assessment of their relative responsibilities, performance            and contribution to creating value for our owners.

 

*Annual Cash Incentive Awards.*We believe            the payment of annual cash incentives based upon specific performance criteria is            consistent with our goal of creating alignment between our executives and the goals of            our owners. The 2007 cash incentive award was focused on both corporate and business            unit EBITDA goals set by the compensation committee. The 2007 consolidated EBITDA            target was $71.6 million, with $58.5 million attributable to the AZEK Building Products            business unit and $22.6 million attributable to the Scranton Products business unit. In            addition, the 2007 incentive award program included the following personal performance            targets:

 

• meeting certain business unit sales growth targets;

             

• expansion of our business into new geographies;

 

• successful integration of our recent Procell            acquisition;

 

• successful introductions of new products;

 

• other accomplishments critical to our business            strategy.

 

The 2007 bonus payable to each Named Executive was determinable, in            part, on our EBITDA or our divisions’ EBITDA and, in part, on individualized            performance goals, except for Mr. Bardasian and Mr. Sloan., whose bonuses were            negotiated under the Procell Acquisition as a percentage of Procell’s sales. The            proportion based on EBITDA and individualized performance goals was 65%-35%, 65%-35%,            50%-50%, for each of Messrs. Loyack, Harrison and Bruno, respectively.

 

54

 

 

*Equity Ownership*. We believe the most            critical component of compensation for an entrepreneurial business such as ours is            appropriate long-term equity incentives. We believe that long-term equity ownership            directly aligns the interests of management with our other equity owners. All of our            executive officers own an equity interest in Holdings.

             

Beginning in 2005, Holdings established an equity compensation program            for executive officers and other key managers under which officers and key managers are            awarded the right to purchase limited partnership units in Holdings. These equity            interests in Holdings are intended to allow each participant to share in the value            created at the time the current owners sell or otherwise exit the business based upon            the number of limited partnership units held in Holdings by the executive officer or            key manager when the sale or exit transaction is completed. In 2007, Mr. Harrison            purchased an additional 400 units and Mr. Bruno purchased 100 units. The employees            choose to buy the units offered at their then fair market value, payable immediately.            Mr. Bardasian and Mr. Sloan were not offered Class B Units in 2007 due to their            significant Class A Unit ownership upon completion of the Procell Acquisition. For            further detail regarding Messrs. Bardasian and Sloan’s ownership, please see            – “Item 12 Security Ownership of Certain Beneficial Owners and Management            and Related Stockholder Matters” below. In addition, Mr. Jungbluth will be            purchasing 3,000 B Units and an undetermined number of Class A Units within 30 days of            his employment agreement, dated March 3, 2008.

             

As part of Mr. Loyack’s Separation Agreement described below,            Holdings exercised its right to redeem and purchase for cash 2,500 Class B Units held            by Mr. Loyack for an aggregate purchase price of $194,465. Mr. Loyack continues to hold            500 Class B Units.

 

The following table sets forth information regarding compensation earned            during 2007 by our former President and Chief Executive Officer, Interim Chief            Executive Officer, Chief Financial Officer, and our three other most highly compensated            executive officers serving on December 31, 2007 (the “Named            Executives”): 

             

|                                                                            |   |     |   |   |       |   |   |   |   |         |   |              |   |   | **Non—Equity** |   |   |   |             |   |   |   |      |   |
|---------------------------------------------------------------------------------|--------|----------|--------|--------|------------|--------|--------|--------|--------|--------------|--------|-------------------|--------|--------|----------------------|--------|--------|--------|------------------|--------|--------|--------|-----------|--------|
|                                                                            |   |     |   |   |       |   |   |   |   |         |   | **Class B**       |   |   | **Incentive Plan**   |   |   |   | **All Other**    |   |   |   |      |   |
| **Name and Principal**                                                          |   |     |   |   |       |   |   |   |   |         |   | **Partnership**   |   |   | **Compensation**     |   |   |   | **Compensation** |   |   |   |      |   |
| **Position**                                                                    |   | **Year** |   |   | **Salary** |   |   |   |   | **Bonus(1)** |   | **Units ($) (2)** |   |   | **(3)**              |   |   |   | **(4)**          |   |   |   | **Total** |   |
| John R. Loyack                                                                  |   |     |   |   |       |   |   |   |   |         |   |              |   |   |                 |   |   |   |             |   |   |   |      |   |
| Former President and Chief Executive Officer                            (5)     |   | 2007     |   |   | 400,000    |   |   |   |   | —      |   | —           |   |   | 281,000              |   |   |   | 13,072           |   |   |   | 694,072   |   |
|                                                                            |   | 2006     |   |   | 300,000    |   |   |   |   | 96,250       |   | —           |   |   | —              |   |   |   | 14,620           |   |   |   | 410,870   |   |
| Glenn M. Fischer

                                                         |   |     |   |   |       |   |   |   |   |         |   |              |   |   |                 |   |   |   |             |   |   |   |      |   |
| Interim Chief Executive Officer                                                 |   | 2007     |   |   | —    |   |   |   |   | —      |   | —           |   |   | —              |   |   |   | —          |   |   |   | —   |   |
| Scott Harrison                                                                  |   |     |   |   |       |   |   |   |   |         |   |              |   |   |                 |   |   |   |             |   |   |   |      |   |
| Executive Vice President and Chief Financial                            Officer |   | 2007     |   |   | 193,000    |   |   |   |   | 29,000       |   | —           |   |   | 21,750               |   |   |   | 4,834            |   |   |   | 248,584   |   |
|                                                                            |   | 2006     |   |   | 159,176    |   |   |   |   | 37,500       |   | —           |   |   | —              |   |   |   | —          |   |   |   | 196,676   |   |
| Ralph Bruno                                                                     |   |     |   |   |       |   |   |   |   |         |   |              |   |   |                 |   |   |   |             |   |   |   |      |   |
| President, AZEK Building Products                                               |   | 2007     |   |   | 250,000    |   |   |   |   | 20,875       |   | —           |   |   | 23,484               |   |   |   | 5,970            |   |   |   | 300,329   |   |
|                                                                            |   | 2006     |   |   | 228,638    |   |   |   |   | 40,000       |   | —           |   |   | —              |   |   |   | 3,349            |   |   |   | 271,987   |   |
| Chris Bardasian                                                                 |   |     |   |   |       |   |   |   |   |         |   |              |   |   |                 |   |   |   |             |   |   |   |      |   |
| President, Scranton Products (6)                                                |   | 2007     |   |   | 250,000    |   |   |   |   | —      |   | —           |   |   | 56,250               |   |   |   | 500,000          |   |   |   | 806,250   |   |
|                                                                            |   | 2006     |   |   | —    |   |   |   |   | —      |   | —           |   |   | —              |   |   |   | —          |   |   |   | —   |   |
| Kevin Sloan                                                                     |   |     |   |   |       |   |   |   |   |         |   |              |   |   |                 |   |   |   |             |   |   |   |      |   |
| Senior Vice President, Operations(6)                                            |   | 2007     |   |   | 250,000    |   |   |   |   | —      |   | —           |   |   | 56,250               |   |   |   | 500,000          |   |   |   | 806,250   |   |
|                                                                            |   | 2006     |   |   | —    |   |   |   |   | —      |   | —           |   |   | —              |   |   |   | —          |   |   |   | —   |   |

 

___________________________________

| (1) | Represents only the individualized performance component                            of the 2007, 2006 and 2005 bonus. |
|-----|-----------------------------------------------------------------------------------------------------------------------|

| (2) | Represents the amount of compensation recognized in                            2007, as would be reflected in the financial statements of Holdings, in                            accordance with FAS 123R, with respect to purchases of Class B limited                            partnership units for their fair market value of $10.00 per unit. For                            further detail regarding the vesting of Class B units, please see                            Footnote 1 of the “Outstanding Equity Awards” table                            below. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Represents only the EBITDA component of the 2007 bonus                            except for Messrs. Bardasian and Sloan whose bonuses were based on                            sales thresholds obtained on the AZEK Deck product line. These bonuses                            were part of their negotiated compensation in connection with the                            Procell Acquisition. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Amounts reflect: (i) matching contributions to our                            401(k) defined contribution retirement plan for 2007 which were made in                            the amounts of $5,271, $4,834 and $5,970 on behalf of each of Messrs                            Loyack, Harrison and Bruno, respectively and (ii) $7,801 in insurance                            reimbursements to Mr. Loyack. In 2006 amounts reflect (i) matching                            contributions to our 401(k) defined contribution retirement plan for                            2005 which were made in 2006 in the amounts of $3,349 on behalf of Mr.                            Bruno, and (ii) $14,620 in insurance reimbursements to Mr. Loyack.                            In connection with the closing of the Procell Acquisition in 2007,                            Messrs. Bardasian and Sloan received transaction bonuses totaling                            $500,000 each, paid for by the former stockholders of Procell Decking                            Systems, Inc. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Mr. Loyack served as our Chief Executive Officer                            until October 3, 2007. Concurrently, Mr. Glenn Fischer was named                            Interim Chief Executive Officer for the remainder of 2007. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Mr. Bardasian and Mr. Sloan became employees of the                            Company on February 1, 2007, upon the closing of the Procell                            Acquisition. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| **2007 GRANTS OF PLAN BASED AWARDS**                                            |
|---------------------------------------------------------------------------------|
|                                                                            |   |   |   |   |   | **Grant** |
|                                                                            |   | **Estimated Future Payouts Under                            Non-Equity** |   | **Date Fair** |
|                                                                            |   | **Incentive Plan Awards**(2) |   | **Value of** |
|                                                                            |   |   |   |   | **Class B** | **Class** |
|                                                                            |   |   |   |   | **Partnership** | **B** |
|                                                                            |   |   |   |   | **Units** | **Partnership** |
|                                                                            | **Grant Date** | **Threshold** | **Target**

                              | **Maximum** | **(Number of** | **Units** |
| **Name and Principal Position**                                                 | **(1)** | **($) (2)** | **($) (2)** | **($) (2)** | **Units) (#) (3)** | **(4)** |
| John R. Loyack                                                                  |   |   |   |   |   |   |
| Former President and Chief Executive Officer                            (5)     | _____ | 281,250 | 375,000 | 515,625 | — | — |
|                                                                            |   |   |   |   |   |   |
| Glenn M. Fischer                                                                |   |   |   |   |   |   |
| Interim Chief Executive Officer                                                 | — | — | — | — | — | — |
|                                                                            |   |   |   |   |   |   |
| Scott Harrison                                                                  | _____

                              | 83,250 | 111,000 | 152,625 | — | — |
| Executive Vice President and Chief Financial                            Officer | 2/1/07 | — | — | — | 133 | 1,330 |
|                                                                            | 7/1/07 | — | — | — | 133 | 1,330 |
|                                                                            | 12/1/07 | — | — | — | 134 | 1,340 |
| Ralph Bruno                                                                     | _____

                              | 62,625 | 167,000 | 229,625 | — | — |
| President, AZEK Building Products, Inc.                                         | 1/1/07 |   |   |   | 100 | 1,000 |
|                                                                            |   |   |   |   |   |   |
| Chris Bardasian                                                                 | _____ | 25,000 | 75,000 | 100,000 | — | — |
| President, Scranton Products                                                    |   |   |   |   |   |   |
|                                                                            |   |   |   |   |   |   |
| Kevin Sloan                                                                     | _____

                              | 25,000 | 75,000 | 100,000 | — | — |
| Senior Vice President, Operations                                               |   |   |   |   |   |   |

 

_________________________________________

|   | (1) | These are the grant dates for equity based awards.                            Non-equity incentive plan awards for 2007 were determined in the                            beginning of 2008. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Represents only the EBITDA component of the 2007 bonus.                            For Mr. Bruno, a portion of his 2007 bonus was determinable based                            solely on the EBITDA of AZEK Building Products. For Mr. Bardasian and                            Mr. Sloan, 2007 bonuses were based on sales thresholds obtained on the                            AZEK Deck product line. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Class B limited partnership units purchased during 2006                            and on January 1, 2007 for $10.00 per unit. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Represents the aggregate grant date fair value for the                            Class B limited partnership units purchased by our Named Executives, as                            would be reflected in the financial statements of Holdings, in                            accordance with FAS 123R, for their then fair market value of $10.00                            per unit. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Mr. Loyack served as our President and Chief                            Executive Officer until October 3, 2007. Concurrently, Mr. Glenn                            Fischer was named Interim Chief Executive Officer for the remainder of                            2007. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             

56

**Employment Arrangements**

Compensation payable to the Named Executives is determined primarily by            the terms of their individually negotiated employment agreements.

***Mr.*** ***Ralph Bruno***

We have entered into an employment agreement with Mr. Ralph Bruno,            President, AZEK Building Products Inc. Mr. Bruno’s current base salary is            $250,000. Mr. Bruno is eligible to receive an annual cash bonus based upon our            company’s performance and individualized performance goals. In addition, if            Mr. Bruno’s employment is terminated by us without cause or if            Mr. Bruno terminates his employment for good reason, (i) Mr. Bruno would be            entitled to continuation of his then base salary for one year from the date of            termination, (ii) all accrued but unpaid amounts payable to Mr. Bruno under his            employment agreement and any bonus, incentive or other plan and (iii) in general, an            additional 25% of Mr. Bruno’s Class B limited partnership units in Holdings,            which would otherwise become repurchasable by Holdings upon termination of employment            at the lower of cost and fair market value, would become subject to repurchase by            Holdings at fair market value. Mr. Bruno has entered into an agreement that            contains standard non-competition, non-solicitation and confidentiality            covenants.

***Mr.*** ***Scott Harrison***

We have entered into an employment agreement with Mr. Scott            Harrison, Executive Vice President and Chief Financial Officer.            Mr. Harrison’s current base salary is $235,000. Mr. Harrison is            eligible to receive an annual cash bonus based upon our company’s performance and            individualized performance goals. In addition, in the event Mr. Harrison’s            employment is terminated by us without cause, (i) Mr. Harrison would be entitled            to a lump sum payment equal to his then base salary plus any bonus accrued to the date            of termination and (ii) in general, an additional 25% of Mr. Harrison’s            Class B limited partnership units in Holdings which would otherwise become            repurchasable by Holdings upon termination of employment at the lower of cost and fair            market value, would become subject to repurchase by Holdings at fair market value.            Mr. Harrison has entered into an agreement that contains standard non-competition,            non-solicitation and confidentiality covenants.

***Mr.*** ***Christopher Bardasian***

We have entered into an employment agreement with Mr. Christopher            Bardasian, President, Scranton Products Inc. Mr. Bardasian’s current base salary            is $250,000 and he is eligible to receive an annual cash bonus based upon our            company’s performance and individualized performance goals. If Mr. Bardasian            should terminate his employment, Mr. Bardasian’s compensation and other benefits            shall terminate on the date of termination. If Mr. Bardasian’s employment is            terminated by us without cause or by him for good reason, Mr. Bardasian would be            entitled to continuation of then current base salary, for one year from the date of            termination plus any bonus accrued to the date of termination. Mr. Bardasian has            entered into an agreement that contains standard non-competition, non-solicitation and            confidentiality covenants.

***Mr.*** ***Kevin Sloan***

We have entered into an employment agreement with Mr. Kevin Sloan,            Senior Vice President, Operations. Mr. Sloan’s current base salary is $250,000            and he is eligible to receive an annual cash bonus eligible to receive an annual cash            bonus based upon our company’s performance and individualized performance goals.            If Mr. Sloan should terminate his employment, Mr. Sloan’s compensation and other            benefits shall terminate on the date of termination. If Mr. Sloan’s employment is            terminated by us without cause or by him for good reason, Mr. Sloan would be            entitled to continuation of his then current base salary, for one year from the date of            termination plus any bonus accrued to the date of termination. Mr. Sloan has entered            into an agreement that contains standard non-competition, non-solicitation and            confidentiality covenants.

             

 

57

***Mr. Eric Jungbluth***

In March 2008, we entered into an employment agreement with Mr.            Jungbluth for a 3 year term.  His annual base salary is $400,000.  He is            receiving a one-time signing bonus of $100,000. He is eligible to receive an annual            bonus of up to 100% of his annual base salary based upon the Company’s            achievement of budgeted performance goals.  He is also eligible to receive an            additional bonus if in the next 36 months the Company is sold to a strategic            buyer.  Within 30 days, Mr. Jungbluth will be purchasing 3,000 B Units and an            undetermined number of Class A Units of CPG International Holdings LP, the            Company’s parent within 30 days of his employment agreement.  If we            terminate Mr. Jungbluth's employment without cause or he resigns his employment for            good reason, the Company would be required to pay Mr. Jungbluth his base annual salary            until the eighteen month anniversary of the termination date and a pro rata annual            bonus for the year of termination, provided Mr. Jungbluth executes a release in favor            of the us and he does not violate a non-competition agreement with the us. In addition,            25% of Mr. Jungbluth’s Class B limited partnership units in Holdings which            would otherwise become repurchasable by Holdings upon termination of employment at the            lower of cost and fair market value, would become subject to repurchase by Holdings at            fair market value.

             

***Mr.*** ***John R. Loyack***

On November 5, 2007, subsidiaries of the Company, together with its            parent company, Holdings, entered into a Separation Agreement and Release            (“Separation Agreement”) with Mr. Loyack. The Separation Agreement provided            Mr. Loyack with a severance benefit equal to his base salary effective immediately            preceding the October 3, 2007 through December 31, 2008 ($100,000 being payable with            respect to the remainder of the 2007 calendar year at such times and in such amounts as            would have been paid in accordance with the Company’s normal payroll procedures            and $400,000 being payable in a lump sum on the first regular payroll date in 2008).            The Separation Agreement provides that Mr. Loyack will receive an amount equal to            $281,000 in respect of his 2007 annual bonus, payable in a lump sum on the first            regular payroll date in 2008. From the Separation Date through December 31, 2008, the            Company will provide Mr. Loyack with the right to continue to participate in the            Company’s group medical, vision and dental insurance plans and the Company will            continue to pay the normal monthly employer’s share of the premium payments for            the medical plans while Mr. Loyack is a participant. As part of Mr. Loyack’s            Separation Agreement, Holdings exercised its right to redeem and purchase for cash            2,500 Class B Units held by Mr. Loyack for an aggregate purchase price of            $194,465.

             

| **OUTSTANDING EQUITY AWARDS AT FISCAL                                YEAR-END** |
|---------------------------------------------------------------------------------|
|                                                                            | **Class B Limited Partnership Units** |
|                                                                            | **Number of Units Subject to** | **Market Value of Units** |
|                                                                            | **Repurchase at the Lower of** | **Subject to Repurchase at** |
|                                                                            | **Cost and Fair Market** | **the Lower of Cost and Fair** |
| **Name and Principal Position**                                                 | **Value (#)**(1) | **Market Value ($)** |
|                                                                            |   |   |
| John R. Loyack                                                                  |   |   |
| President and Chief Executive Officer (2)                                       | 250 | 2,500 |
| Glenn M. Fischer                                                                |   |   |
| Interim Chief Executive Officer                                                 | – | – |
| Scott Harrison                                                                  |   |   |
| Chief Financial Officer                                                         | 717 | 7,170 |
| Ralph Bruno                                                                     |   |   |
| President, AZEK Building Products Inc.                                          | 750 | 7,500 |
| Chris Bardasian                                                                 |   |   |
| President, Scranton Products Inc.                                               | – | – |
| Kevin Sloan                                                                     |   |   |
| Senior Vice President, Operations                                               | – | – |

_________________

 

58

 

| (1) | All of the Class B limited partnership units sold to                            management are generally subject to repurchase by Holdings at the lower                            of cost and fair market value upon termination of employment during the                            first twelve months following their purchase. Thereafter, generally,                            75% of such Class B limited partnership units are subject to repurchase                            by Holdings at the lower of cost and fair market value upon termination                            during the second twelve months following their purchase, 50% during                            the third twelve months and 25% during the fourth twelve months.                            Interests which are not repurchasable for such amounts are nonetheless                            repurchasable by Holdings upon termination of employment for their then                            fair market value. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Mr. Loyack served as our Chief Executive Officer                            until October 3, 2007. As part of Mr. Loyack’s Separation                            Agreement, Holdings exercised its right to redeem and purchase for cash                            2,500 Class B Units held by Mr. Loyack for an aggregate purchase price                            of $194,465. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             

| **CLASS B UNITS VESTED**                                                        |
|---------------------------------------------------------------------------------|
|                                                                            | **Class B Limited Partnership Units** |
|                                                                            | **Number of Units Subject to** |   |
|                                                                            | **Subject to Repurchase at the Lower of** |   |
|                                                                            | **At Fair Market** | **Value Realized** |
| **Name and Principal Position**                                                 | **Value (#)** | **on Vesting ($)** |
|                                                                            |   |   |
|                                                                            |   |   |
| John R. Loyack                                                                  |   |   |
| President and Chief Executive Officer (2)                                       | 250 | 44,866 |
| Glenn M. Fischer                                                                |   |   |
| Interim Chief Executive Officer                                                 | – | – |
| Scott Harrison                                                                  |   |   |
| Executive Vice President and Chief Financial                            Officer | 283 | 50,789 |
| Ralph Bruno                                                                     |   |   |
| President, AZEK Building Products Inc.                                          | 700 | 125,626 |
| Chris Bardasian                                                                 |   |   |
| President, Scranton Products Inc.                                               | – | – |
| Kevin Sloan                                                                     |   |   |
| Senior Vice President, Operations                                               | – | – |

 

_____

| (1) | Mr. Loyack served as our Chief Executive Officer                            until October 3, 2007. |
|-----|---------------------------------------------------------------------------------------------------------|

**Payments upon Termination and Change in Control**

 

*Mr. Eric Jungbluth.*If Mr. Jungbluth's            employment is terminated by us without cause or he resigns his employment for good            reason, the Company would be required to pay Mr. Jungbluth his base annual salary,            currently $400,000 until the eighteen month anniversary of the termination date and a            pro rata annual bonus for the year of termination, provided Mr. Jungbluth executes a            release in favor of the us and he does not violate a non-competition agreement with the            us.

             

*Mr.* *Scott            Harrison*. If Mr. Harrison’s employment is            terminated by us without cause , Mr. Harrison would be entitled to a lump sum            payment equal to his current base salary, $235,000, plus any accrued but unpaid amounts            payable to Mr. Harrison under his employment agreement and any bonus, incentive or            other plan and (ii) in general, an additional 25% of Mr. Harrison’s Class B            limited partnership units in Holdings, which would otherwise become repurchasable by            Holdings upon termination of employment at the lower of cost and fair market value,            would become subject to repurchase by Holdings at fair market value. If            Mr. Harrison is terminated for cause, Holdings will be entitled to redeem all of            Mr. Harrison’s Class B limited partnership units at the lower of cost            and the fair market value of the Class B limited partnership units on the date of            termination.

 

59

*Mr.* *Ralph            Bruno*. If Mr. Bruno’s employment is terminated by            us without cause or if Mr. Bruno terminates his employment for good reason, (i)            Mr. Bruno would be entitled to continuation of his current base salary, $250,000,            for one year from the date of termination, (ii) all accrued but unpaid amounts payable            to Mr. Bruno under his employment agreement and any bonus, incentive or other            planand (iii) in general, an additional 25% of            Mr. Bruno’s Class B limited partnership units in Holdings, which would            otherwise become repurchasable by Holdings upon termination of employment at the lower            of cost and fair market value, would become subject to repurchase by Holdings at fair            market value. If Mr. Bruno is terminated for cause, Holdings will be entitled to            redeem all of Mr. Bruno’s Class B limited partnership units at the            lower of cost and the fair market value of the Class B limited partnership units on the            date of termination.

*Mr. Christopher Bardasian.*If Mr. Bardasian            should terminate his employment, Mr. Bardasian’s compensation and other benefits            shall terminate on the date of termination. If Mr. Bardasian’s employment is            terminated by us without cause or by him for good reason, (i) Mr. Bardasian would            be entitled to continuation of his current base salary, $250,000, for one year from the            date of termination.

*Mr. Kevin Sloan*. If Mr. Sloan should            terminate his employment, Mr. Sloan’s compensation and other benefits shall            terminate on the date of termination. If Mr. Sloan’s employment is terminated by            us without cause or by him for good reason, (i) Mr. Sloan would be entitled to            continuation of his current base salary, $250,000, for one year from the date of            termination.

*Mr. John Loyack.*On November 5, 2007,            subsidiaries of the Company, together with its parent company, Holdings, entered into a            Separation Agreement and Release (“Separation Agreement”) with Mr. Loyack.            The Separation Agreement provided Mr. Loyack with a severance benefit equal to his base            salary effective immediately preceding the October 3, 2007 through December 31, 2008            ($100,000 being payable with respect to the remainder of the 2007 calendar year at such            times and in such amounts as would have been paid in accordance with the            Company’s normal payroll procedures and $400,000 being payable in a lump sum on            the first regular payroll date in 2008). The Separation Agreement provides that Mr.            Loyack will receive an amount equal to $281,000 in respect of his 2007 annual bonus,            payable in a lump sum on the first regular payroll date in 2008. From the Separation            Date through December 31, 2008, the Company will provide Mr. Loyack with the right to            continue to participate in the Company’s group medical, vision and dental            insurance plans and the Company will continue to pay the normal monthly            employer’s share of the premium payments for the medical plans while Mr. Loyack            is a participant.

             

Director Compensation. Our Directors have not received any annual cash            compensation in 2007 or 2006. However, in 2006 our Directors purchased Class B Units            from the Company. No Class B Units were purchased by directors in 2007. The following            table reflects total Class B Units purchased by our directors in 2006 as            follows:

             

| **DIRECTOR COMPENSATION** |
|---------------------------|
| **Name**                  | **Class B Limited Partnership Units ($)**(1) | **Total ($)** |
| Vincent A. Calarco        | 2,500 | 2,500 |
| Julian M. Steinberg       | 2,500 | 2,500 |
| Vincent A. Sarni          | 3,500 | 3,500 |

             

___________

(1) Vincent A. Calarco, Julian M. Steinberg, and Vincent A. Sarni            purchased 250, 250, and 350 Class B limited partnership units, respectively, on January            17, 2006 for $10.00 per unit, their then fair market value. This represents the            aggregate fair value of all Class B limited partnership units purchased by our            Directors, as would be reflected in the financial statements of Holdings in accordance            with FAS 123R. All of these units are currently subject to repurchase over four years            in the same manner as Class B units held by our Named Executives.

             

 

60

**Item 12. Security Ownership of Certain Beneficial Owners and            Management and Related Stockholder Matters.**

All of our issued and outstanding common stock is held by CPG            International Holdings LP, our direct parent company (“Holdings”). Holdings            is a limited partnership. The general partner of Holdings is CPG Holding I LLC, which            is an affiliate of AEA Investors. The business and affairs of Holdings is managed            exclusively by the general partner. The general partner has full and complete            authority, power and discretion to act on behalf of Holdings in all matters respecting            the partnership and its operations, business and properties, to manage and control the            business, affairs and properties (including the disposition of all or part thereof) of            the partnership, to make all decisions regarding those matters and to perform any and            all other acts or activities customary or incident to the management of the            partnership’s business. The units reflected in the following table are the            limited partnership units of Holdings. The limited partners are not agents of Holdings            or any other partner, and have no right or authority to act for or bind the            partnership, or to incur any expenditure on behalf of or with respect to the            partnership.

The following table sets forth information with respect to the            beneficial ownership of our parent, Holdings, as of the date of this report, by (a) any            person or group who will beneficially own more than five percent of the outstanding            Class A limited partnership units and Class B limited partnership units of Holdings (b)            each of our directors and executive officers and (c) all of our directors and executive            officers as a group.

|                                                                                    | **Number of**     |                   |                   |                  |
|-----------------------------------------------------------------------------------------|-------------------|------------------------|------------------------|-----------------------|
|                                                                                    | **Class A Units** |                   | **Number of Class B**  | **Percent of**        |
|                                                                                    | **Beneficially**  | **Percent of Class A** | **Units Beneficially** | **Class B**           |
| **Name of Beneficial Owner:**                                                           | **Owned**(1)      | **Units Outstanding**  | **Owned**(1)(2)        | **Units Outstanding** |
| AEA Investors(3)                                                                        | 75,019            | 68.9%                  | —                | —               |
| Wachovia Capital Partners 2005, LLC(4)                                                  | 16,126            | 14.8%                  | —                | —               |
| KF Equities(5)                                                                          | 6,272             | 5.8%                   | —                | —               |
| Clearview/CP/Vycom Acquisition, LLC(6)                                                  | 5,006             | 4.6%                   | —                | —               |
| AEA Mezzanine (7)                                                                       | 1,146             | 1.0%                   | —                | —               |
| James Keisling(8)                                                                       | 6,272             | 5.76%                  | 2,000                  | 20.9%                 |
| John R. Loyack                                                                          | —           | *                      | 500                    | 5.2%                  |
| Ralph Bruno                                                                             | 731               | *                      | 1,350                  | 15.1%                 |
| Chris Bardasian                                                                         | 553               | *                      | —                | —               |
| Kevin Sloan                                                                             | 553               | *                      | —                | —               |
| Scott Harrison                                                                          | 240               | *                      | 1,000                  | 10.4%                 |
| James Andersen(9)                                                                       | —           | *                      | —                | —               |
| Vincent A. Calarco(10)                                                                  | —           | *                      | 250                    | 2.6%                  |
| Shivanandan A. Dalvie(11)                                                               | —           | *                      | —                | —               |
| Glenn M. Fischer(11)                                                                    | —           | *                      | —                | —               |
| Brian R. Hoesterey(11)                                                                  | —           | *                      | —                | —               |
| Christopher P. Mahan(11)                                                                | —           | *                      | —                | —               |
| Scott B. Perper(11) (12)                                                                | —           | *                      | —                | —               |
| Vincent A. Sarni(10)                                                                    | —           | *                      | 350                    | 3.7%                  |
| Julian M. Steinberg(10)                                                                 | 219               | *                      | 250                    | 2.6%                  |
| All directors and executive officers as a group (15                            persons) | 8,568             | 7.9%                   | 5,700                  | 59.5%                 |

 

_________________________

| * | Represents beneficial ownership of less than                            1%. |
|---|-----------------------------------------------------------------------------|

 

61

| (1) | As used in this table, each person or entity with the                            power to vote or direct the disposition of units is deemed to be a                            beneficial owner. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The Class B limited partnership units of Holdings                            entitle the holders thereof to share in profits of Holdings with the                            holders of Class A limited partnership units only after the holders of                            the Class A limited partnership units have received a 7% preferred                            return. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Consists of Class A units held by investment vehicles                            managed by AEA Investors LLC or AEA Management (Cayman) Ltd. The                            address for AEA Investors LLC is 65 East 55th Street, New York, New                            York 10022. The address for AEA Management (Cayman) Ltd. is c/o Walkers                            SPV Limited, P.O. Box 908GT, George Town, Grand Cayman, Cayman                            Islands. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | The address for Wachovia Capital Partners 2005, LLC is                            301 South College Street, 12th Floor, Charlotte, North Carolina                            28288. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Consists of Class A limited partnership units held by KF                            Equities, a partnership whose members include Mr. James Keisling                            and other members of the Keisling family. The address for KF Equities                            is 5 Bucknell Drive, Clarks Green, Pennsylvania 18411. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | The address for Clearview/CP/Vycom Acquisition, LLC is                            1445 East Putnam Avenue, Old Greenwich, Connecticut 06870. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | Consists of Class A limited partnership units held by                            AEA Mezzanine Fund L.P. and AEA Mezzanine (Unleveraged) Fund L.P.,                            which are affiliated with AEA Investors LLC. The address for AEA                            Mezzanine Fund L.P. and AEA Mezzanine (Unleveraged) Fund L.P. is 200                            First Stamford Place, Stamford, CT 06902. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8) | Includes 6,272 Class A limited partnership units held by                            KF Equities, which may be deemed to be beneficially owned by                            Mr. James Keisling. The address for Mr. James Keisling is c/o                            CPG International I Inc., 801 Corey Street, Scranton, PA                            18507. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9) | Does not include Class A limited partnership units                            beneficially owned by Clearview/CP/Vycom Acquisition, LLC.                            Mr. Andersen serves on our board of directors as a representative                            of Clearview/CP/Vycom Acquisition, LLC. Mr. Andersen is the                            Managing Partner and co-founder of Clearview Capital, an indirect                            parent of Clearview/CP/Vycom Acquisition, LLC. Mr. Andersen                            disclaims beneficial ownership of the Class A limited partnership units                            owned by Clearview/CP/Vycom Acquisition, LLC, except to the extent of                            his pecuniary interest therein. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (10) | Messrs. Calarco, Sarni and Steinberg serve on our                            board of directors as representatives of AEA Investors LLC. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------|

| (11) | Messrs. Dalvie, Fischer, Hoesterey and Mahan serve                            on our board of directors as representatives of AEA Investors LLC.                            Messrs. Dalvie, Hoesterey and Mahan are Partners of AEA Investors                            LLC and Mr. Fischer is an Operating Partner of AEA Investors LLC.                            Messrs. Dalvie, Fischer, Hoesterey and Mahan disclaim beneficial                            ownership of the Class A limited partnership units owned by investment                            vehicles managed by AEA Investors LLC and AEA Management (Cayman) Ltd.,                            except to the extent of their respective pecuniary interests                            therein. |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (12) | Does not include Class A limited partnership units                            beneficially owned by Wachovia Capital Partners 2005, LLC.                            Mr. Perper serves on our board of directors as a representative of                            Wachovia Capital Partners 2005, LLC. Mr. Perper is a Managing                            Partner with Wachovia Capital Partners, LLC, an indirect parent of                            Wachovia Capital Partners 2005, LLC. Mr. Perper disclaims                            beneficial ownership of the Class A limited partnership units owned by                            Wachovia Capital Partners 2005, LLC, except to the extent of his                            pecuniary interest therein. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

 

62

 

 

**ITEM 13. Certain Relationships and Related Transactions and Director            Independence.**

**Related Party Transaction Policy**

 

Our Company, CPG and all other operating subsidiaries follow the same            policy regarding the definition of a related party transaction. A related party            transaction is defined by the Company as any transaction or series of similar            transactions in which the Company or any of its subsidiaries is a participant with any            related person who has a direct or indirect material interest. A related person can            include any person who is either a director or officer of the Company or any of our            subsidiaries, any person who is a director or officer of Holdings, our direct parent            company, or a person known by Holdings as the beneficial owner of more than 5% of any            class of Holdings partnership units, any family member of the foregoing, and any entity            which any foregoing person is employed or has a 5% or greater beneficial ownership            interest.

 

**AEA            Investors**

Upon consummation of the Transaction, we entered into a management            agreement with AEA Investors relating to the provision of advisory and consulting            services. AEA Investors agreed not to charge a fee for the first year following the            Transaction, but commencing as of May 1, 2006, AEA Investors receives a $1.5 million            annual fee, subject to the limitations under our bank facility covenants. In addition,            in consideration of services performed in connection with the Santana Acquisition and            the related financings, we paid a $0.4 million fee to AEA Investors upon the closing of            the Santana Acquisition, and in consideration of services performed in connection with            the Procell Acquisition and the related financings, we paid a $1.0 million fee to AEA            Investors upon closing of the Procell Acquisition. We believe that the management            agreement and the services mentioned above are or were on terms at least as favorable            to us as we would expect to negotiate with unrelated third parties.

             

Certain mezzanine funds affiliated with AEA Investors purchased $16.5            million aggregate principal amount of our floating rate notes in connection with the            Procell Acquisition, as well as approximately 1,146 units in Holdings. In connection            with the foregoing, these funds received certain registration rights and/or management            rights. We believe that these rights were granted on terms at least as favorable to us            as we would expect to negotiate with unrelated third parties.

             

**Management Equity Participation Following the            Transaction**

Members of our management team own Class A limited partnership units of            Holdings, our direct parent, representing approximately 10% of the total equity of            Holdings and also own Class B limited partnership units of Holdings. See            “Security Ownership of Certain Beneficial Owners and            Management.”

**Wachovia Capital Partners 2005, LLC**

Wachovia Capital Partners 2005, LLC (“Wachovia Capital”) is            a co-investor in our company. See “Security Ownership of Certain Beneficial            Owners and Management.” As described below, Wachovia Capital has one            representative on our board of directors as well as one representative on the advisory            board of CPG International Holdings. An affiliate of Wachovia Capital served as an            initial purchaser in the placement of a portion of our outstanding notes in 2006 for            which it received approximately $0.6 million of fees.

**Partnership Agreement and Registration Rights            Agreement**

A partnership agreement with respect to Holdings has been entered into            among AEA Investors, Wachovia Capital, Clearview/CP/Vycom Acquisition, LLC            (“Clearview”) and certain members of management. The partnership agreement            contains, among other things, preemptive rights and certain restrictions on the ability            of the parties thereto to freely transfer the partnership units of CPG International            Holdings LP or shares of our stock, which may be distributed by CPG International            Holdings LP to the partners. CPG International Holdings has an advisory board whose            role is to advise and make recommendations to the general partner of CPG International            Holdings (which is an affiliate of AEA Investors) with respect to the business of CPG            International Holdings. The

 

63

advisory board consists of ten members, which includes seven members            (Messrs. Calarco, Dalvie, Fischer, Hoesterey, Mahan, Sarni and Steinberg) who are            representatives of AEA Investors, one member (Mr. Perper) who is a representative            of Wachovia Capital, one member (Mr. Andersen) who is a representative of            Clearview and James Keisling, our Chairman of the Board. The parties to the partnership            agreement have agreed to enter into a registration rights agreement upon the            distribution to the partners of shares of our stock. The registration rights agreement            will provide that, upon certain conditions, the parties will have the ability to cause            us to register our securities under the Securities Act, and other parties to the            registration rights agreement may participate in such registrations.

**Board of Directors**

The company’s board of directors consists of ten members, which            includes seven members (Messrs. Calarco, Dalvie, Fischer, Hoesterey, Mahan, Sarni            and Steinberg) who are representatives of AEA Investors, one member (Mr. Perper)            who is a representative of Wachovia Capital, one member (Mr. Andersen) who is a            representative of Clearview, and James Keisling, our non-executive Chairman of the            Board.

**Lease and Option to Purchase**

Upon the closing of the Transaction, AZEK Building Products Inc.            (formerly known as Vycom Corp.), our wholly owned subsidiary, entered into an amended            lease with respect to the 308,000 square foot property located in Scranton,            Pennsylvania (Keyser Avenue). The lessor and owner of the property is an entity whose            owners include affiliates of Clearview and Wachovia Capital, co-investors of our            company in connection with Transaction, as well as affiliates of certain members of our            management team, including Mr. James Keisling, our Chairman of the Board. The            initial term of the lease is four years, and AZEK Building Products Inc. has options to            extend the lease term for five additional four-year periods. Rent for the lease is paid            monthly at a rate of $492,800 per year, increasing by 1% each year            thereafter.

In addition, pursuant to a separate agreement with the lessor and owner            of this property, we have an option to purchase the property for $4.0 million at any            time from January 1, 2006 until January 1, 2009.

Upon completion of the Procell Acquisition, the Company entered into an            amended lease agreement related to Procell’s office and manufacturing facilities            location, with North Alabama Property Leasing, Inc. The lessor of the property is an            entity whose sole shareholder is an equity holder in Holdings. Total lease payments for            year ended December 31, 2007 were approximately $464,000.

 

Tide Transport, Inc., a freight company owned by two equity holders of            Holdings, provides certain freight services to our Foley, Alabama facility on a regular            basis. These services include shipping finished product and for the transportation of            resin purchases. Total freight costs for this arrangement were approximately $802,000            for the year ended December 31, 2007.

             

**Director Independence**

 

As a privately held corporation, whose securities are not listed on any            national securities exchange, we are not required to have a majority of, or any,            independent directors. Further, even if we had securities listed on a national            securities exchange, because AEA Investors owns more than 50% of the outstanding equity            of the Parent, and Parent owns all of our common stock, we would be deemed a            “controlled company” under the rules of either the New York Stock Exchange            or Nasdaq and, therefore, would be exempt from the requirements to have a majority of            independent directors or compensation and nominating committees consisting entirely of            independent directors. However, the rules of the SEC require us to disclose in this            Form 10-K which of our directors would be considered independent within the meaning of            the rules of a national securities exchange that we may choose. We currently have three            directors who would be considered independent within the definitions of either the New            York Stock Exchange or NASDAQ: Messrs. Calarco, Sarni (audit committee member) and            Steinberg. Mr. Fischer, our Interim Chief Executive Officer, is not an independent            director because of his position as an executive officer and as an operating director            of AEA Investors, and Mr. Keisling, our Chairman of the Board, is not an            independent

 

64

director because of his ownership, directly or indirectly, of a            significant amount of equity interests in the Parent. Our remaining directors are not            independent because of their affiliations with private equity funds that hold            approximately 5% or more of the equity interests in the Parent: Messrs. Dalvie,            Hoesterey (audit committee member) and Mahan are partners of AEA Investors; Mr.            Andersen is the managing partner and co-founder of Clearview; and Mr. Perper (audit            committee member) is a managing partner with Wachovia Capital.

 

**Item 14. Principal Accountant Fees and Services.**

**Audit Fees**

The aggregate fees billed by Deloitte & Touche LLP, the member firms            of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, "Deloitte            & Touche") for professional services rendered for the audit of the Company’s            annual financial statements for the years ended December 31, 2007 and 2006 and for the            reviews of the financial statements included in the Company’s Quarterly Reports            on Form 10-Q for that year were $507,185 and $485,255, respectively.

 

**Aggregate Audit-Related Fees**

 

The aggregate fees billed by Deloitte & Touche for professional            services rendered for the Company for the year ended December 31, 2007 and 2006 were            $90,825 and $438,340, respectively. Audit-related fees include reviews of and required            procedures related to other 1933 and 1934 Act filings and registration statements            (Forms 8-K, S-1, S-4) and related consents and comfort letters and employee benefit            plans.

 

**Tax            Fees**

 

The aggregate fees billed by Deloitte & Touche for professional tax            services rendered for the Company for the year ended December 31, 2007 and 2006 were            $280,051 and $221,423, respectively. Professional tax services include tax compliance,            tax planning and related tax services.

 

**Pre-Approval Policies and Procedures**

The Audit Committee annually engages and pre-approves the audit and            audit-related services performed by the independent registered public accounting firm,            for the following year, to assure that the provision of such services does not impair            the auditor’s independence. All allowable non-audit services are required to be            specifically identified and submitted to the Audit Committee for approval during            regularly scheduled meetings.

For 2007, the Audit Committee discussed the non-audit services with            Deloitte and Touche LLP and management to determine that they are permitted under the            rules and regulations concerning auditor independence promulgated by the SEC and the            Public Accounting Oversight Board. Following such discussions, the Audit Committee            determined that the provision of such non-audit services by Deloitte and Touche LLP was            compatible with maintaining their independence.

 

| **Item 15.** | **Exhibits.** |
|--------------|---------------|

             

| (a) | The following documents are filed as part of this                            report: |
|-----|--------------------------------------------------------------------------------------|

|   | (i) | Financial Statements |
|--------|-----|----------------------|

 

|   | (b) | Exhibits: |
|--------|-----|-----------|

             

 

 

65

 

| **Exhibit****Number**

                              |   |  

**Description**

                                                                                                     |   |   |
|-----------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| 2.1                                                       |   | Stock Purchase Agreement, dated as of March 12, 2005, by                            and among Compression LLC                      |   |   |
|                                                      |   | Polymers Holdings LLC, Compression Polymers Holding II                            Corporation, Vycom Corp.,                        |   |   |
|                                                      |   | Compression Polymers Corp. and CPCapitol Acquisition                            Corp. and North Keyser Partners,                   |   |   |
|                                                      |   | (filed as Exhibit 2.1 to the Registration Statement                            on Form S-4 filed on May 12, 2006 (the         |   |   |
|                                                      |   | “Form S-4”) and incorporated herein by                            reference).                                          |   |   |
| 2.2                                                       |        | First Amendment to the Stock Purchase Agreement, dated                            as of May 5, 2005, by and among                  |   |   |
|                                                      |   | Compression Polymers Holdings LLC, Compression Polymers                            Holding II Corporation,                         |   |   |
|                                                      |   | Compression Polymers Corp., Vycom Corp. and CPCapitol                            Acquisition Corp. (filed as                       |   |   |
|                                                      |   | Exhibit 2.2 to the Form S-4 and incorporated                            herein by reference).                            |   |   |
| 2.3                                                       |   | Stock Purchase Agreement, dated as of April 20,                            2006, between Santana Holdings, LLC and            |   |   |
|                                                      |   | Compression Polymers Holding Corporation (filed as                            Exhibit 2.3 to the Form S-4 and            |   |   |
|                                                      |   | incorporated herein by reference).                                                                                                 |   |   |
|  

2.4                                               |   |  

Unit Purchase Agreement, dated as of December 13, 2006,                            by and among CPG International          |   |   |
|                                                      |   | I Inc., as Buyer, and Christopher Bardasian, Kevin                            Sloan, and Larry Sloan, as Sellers (filed            |   |   |
|                                                      |   | as Exhibit 2.1 to the Current Report on Form 8-K                            filed on December 13, 2006 (the                   |   |   |
|                                                      |   | “December 13, 2006 Form 8-K”) and                            incorporated herein by reference).                        |   |   |
|  

2.5                                               |   |  

Contribution Agreement, dated as of December 13, 2006,                            by and among CPG International           |   |   |
|                                                      |   | Holdings LP and Christopher Bardasian, Kevin Sloan, and                            Larry Sloan, as Subscribers (filed              |   |   |
|                                                      |   | as Exhibit 2.2 to the December 13, 2006 Form 8-K                            and incorporated herein by reference).            |   |   |
|                                                      |   |                                                                                                                               |   |   |
| 2.6*                                                      |   | Share Purchase Agreement, dated as of February 11, 2008,                            by and among AZEK Canada,                      |   |   |
|                                                      |   | as Buyer, and John Scrymgeour, Cheryl Scrymgeour, Paolo                            Baldassarra, Mary Baldassarra, Kurt             |   |   |
|                                                      |   | Gowman, Donna Gowman, Janet Pratt, Knox & Company                            International, Inc. and Creative                  |   |   |
|                                                      |   | Composite Products Inc. as Sellers                                                                                                 |   |   |
| 3.1                                                       |   | Certificate of Incorporation of CPG International Inc.                            (formerly known as Compression                   |   |   |
|                                                      |   | Polymers Holding II Corporation) (filed as                            Exhibit 3.3 to the Form S-4 and               |   |   |
|                                                      |   | incorporated herein by reference).                                                                                                 |   |   |
| 3.2                                                       |        | Certificate of Amendment of Certificate of Incorporation                            of CPG International Inc. to the               |   |   |
|                                                      |   | (formerly known as Compression Polymers Holding II                            Corporation) (filed as Exhibit 3.3(a)      |   |   |
|                                                      |   | Form S-4 and incorporated herein by                            reference).                                                    |   |   |
| 3.3                                                       |   | By-laws of CPG International Inc. (formerly known as                            Compression Polymers Holding II               |   |   |
|                                                      |   | Corporation) (filed as Exhibit 3.4 to the                            Form S-4 and incorporated herein by reference).     |   |   |
| 4.1                                                       |   | Indenture, dated July 5, 2005, among Compression                            Polymers Holding Corporation, page                |   |   |
|                                                      |   | Compression Polymers Holding II Corporation, the                            other guarantors listed on the signature          |   |   |
|                                                      |   | thereof, and Wells Fargo Bank, N.A., as trustee (filed                            as Exhibit 4.1 to the Form S-4 and     |   |   |
|                                                      |   | incorporated herein by reference).                                                                                                 |   |   |
| 4.2                                                       |   | First Supplemental Indenture, dated as of April 27,                            2006, among CPH Sub I Corporation, as          |   |   |
|                                                      |   | CPH Sub II Corporation, CPC Sub I Corporation, VC Sub I                            Corporation, Compression                        |   |   |
|                                                      |   | Polymers Holding Corporation, Compression Polymers                            Holding II Corporation, the other                    |   |   |
|                                                      |   | guarantors listed on the signature page thereof, and                            Wells Fargo Bank, N.A., as trustee (filed          |   |   |
|                                                      |   | Exhibit 4.2 to the Form S-4 and incorporated                            herein by reference).                            |   |   |
| 4.3                                                       |   | Second Supplemental Indenture, dated as of                            April 28, 2006, among Santana Holdings Corp.,           |   |   |
|                                                      |   | Santana Products, Inc., Compression Polymers                            Holding Corporation, Compression Polymers             |   |   |
|                                                      |   | Holding II Corporation, the other guarantors listed on                            the signature page thereof, and Wells            |   |   |
|                                                      |   | Fargo Bank, N.A., as trustee (filed as Exhibit 4.3                            to the Form S-4 and incorporated herein by |   |   |

 

 

66

 

|   |   | reference). |   |   |
|--------|--------|-------------|--------|--------|

 

|  

4.4  |   |  

Third Supplemental Indenture dated as of January 31,                            2007, among CPG International I Inc.,   |   |   |
|--------------|--------|---------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|         |   | a Delaware corporation, CPG International Inc., the                            other guarantors listed on the signature         |   |   |
|         |   | page thereof, and Wells Fargo Bank, N.A., a national                            banking association, as Trustee (filed          |   |   |
|         |   | as Exhibit 4.2 to the Current Report on Form 8-K                            filed on February 2, 2007 (the “February |   |   |
|         |   | 2, 2007 Form 8-K”) and incorporated herein by                            reference).                                      |   |   |
| 4.5          |   | Form of Initial Note and Form of Exchange Note (included                            within the Indenture filed as               |   |   |
|         |   | Exhibit 4.1 to the Form S-4 and incorporated herein                            by reference).                              |   |   |
| 4.6          |   | The Registration Rights Agreement, dated July 5, 2005,                            among Compression Polymers listed             |   |   |
|         |   | Holding Corporation, Compression Polymers Holding II                            Corporation, the other guarantors               |   |   |
|         |   | on the signature page thereof, and Wachovia Capital                            Markets, LLC (filed as Exhibit 4.5 to       |   |   |
|         |   | the Form S-4 and incorporated herein by                            reference).                                             |   |   |
| 4.7          |   | The Registration Rights Agreement, dated as of                            April 28, 2006, by and among Compression         |   |   |
|         |   | Polymers Holding Corporation, Compression Polymers                            Holding II Corporation, the other                 |   |   |
|         |   | guarantors listed on the signature page thereof, and                            Wachovia Capital Markets, LLC (filed as         |   |   |
|         |   | Exhibit 4.6 to the Form S-4 and incorporated                            herein by reference).                         |   |   |
|  

4.8  |   |  

The Registration Rights Agreement, dated as of January                            31, 2007, among CPG International     |   |   |
|         |   | I Inc., CPG International Inc., the other guarantors                            listed on the signature page thereof, and       |   |   |
|         |   | AEA Mezzanine Funding LLC and AEA Mezzanine                            (Unleveraged) Fund LP (filed as                          |   |   |
|         |   | Exhibit 4.3 to the February 2, 2007 Form 8-K and                            incorporated herein by reference).             |   |   |
| 4.9          |   | The Registration Rights Agreement, dated as of January                            31, 2007, among CPG International             |   |   |
|         |   | I Inc., CPG International Inc., the other guarantors                            listed on the signature page thereof, and       |   |   |
|         |   | Orpheus Funding LLC, Midland National Life Insurance                            Company, North American                         |   |   |
|         |   | Company for Life and Health Insurance, Sands Point                            Funding Ltd., Kennecott Funding Ltd.,             |   |   |
|         |   | 1888 Fund, Ltd. and Copper River CLO Ltd. (filed as                            Exhibit 4.4 to the February 2, 2007         |   |   |
|         |   | Form 8-K and incorporated herein by                            reference).                                                      |   |   |
| 10.1         |   | Second Amended and Restated Credit Agreement, dated as                            of May 10, 2005, by and among                 |   |   |
|         |   | Compression Polymers Holding Corporation, Compression                            Polymers Holding II                            |   |   |
|         |   | Corporation, the subsidiary guarantors named therein,                            the several banks, other financial             |   |   |
|         |   | institutions and related funds as may from time to time                            become parties thereto, and                  |   |   |
|         |   | Wachovia Bank, National Association, as administrative                            agent (filed as Exhibit 10.1 to the      |   |   |
|         |   | Form S-4 and incorporated herein by                            reference).                                                 |   |   |
| 10.2         |   | First Amendment to Credit Agreement, dated as of                            April 24, 2006, by and among signature         |   |   |
|         |   | Compression Polymers Holding Corporation, Compression                            Polymers Holdings II                      |   |   |
|         |   | Corporation, the subsidiary guarantors named therein,                            the lenders identified on the                  |   |   |
|         |   | pages thereto and Wachovia Bank, National Association,                            as administrative agent (filed as             |   |   |
|         |   | Exhibit 10.2 to the Form S-4 and incorporated                            herein by reference).                        |   |   |
|  

10.3 |   |  

Second Amendment and Waiver to Credit Agreement, dated                            as of January 17, 2007, by and        |   |   |
|         |   | among CPG International I Inc., CPG International Inc.,                            the subsidiary guarantors named              |   |   |
|         |   | therein, the lenders identified on the signature pages                            thereto and Wachovia Bank, National           |   |   |
|         |   | Association, as administrative agent (filed as                            Exhibit 10.1 to the February 2, 2007 Form 8-K    |   |   |
|         |   | and incorporated herein by reference).                                                                                          |   |   |
| 10.4         |   | Amended and Restated Industrial Lease between North                            Keyser Partners, LLC and Vycom                   |   |   |
|         |   | Corp., dated May 10, 2005, re: 888 North Keyser Avenue,                            Scranton, PA 18504 Lackawanna                |   |   |
|         |   | County (filed as Exhibit 10.3 to the Form S-4                            and incorporated herein by reference).       |   |   |

 

 

67

 

| 10.6   |   | Amended and Restated Employment Agreement, as of January                            1, 2006, among Compression            |   |   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   | Polymers Holding Corporation, Compression Polymers                            Corp., Vycom Corp. and John                 |   |   |
|   |   | Loyack (filed as Exhibit 10.5 to the Form S-4                            and incorporated herein by reference). |   |   |

 

| 10.7   |   | Employment Agreement, as of May 10, 2005, among                            Compression Polymers Holding                               |   |   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   | Corporation, Vycom Corp. and Ralph Bruno (filed as                            Exhibit 10.6 to the Form S-4 and              |   |   |
|   |   | incorporated herein by reference).                                                                                                    |   |   |
| 10.9   |   | Employment Agreement, as of October 4, 2005, among                            Compression Polymers Holding                            |   |   |
|   |   | Corporation, Compression Polymers Corp., Vycom Corp. and                            Scott Harrison (filed as                          |   |   |
|   |   | Exhibit 10.8 to the Form S-4 and incorporated                            herein by reference).                              |   |   |
| 10.10  |   | Management Agreement, dated as of May 10, 2005, by                            and between Compression Polymers                   |   |   |
|   |   | Holding Corporation and AEA Investors LLC (filed as                            Exhibit 10.10 to the Form S-4 and            |   |   |
|   |   | incorporated herein by reference).                                                                                                    |   |   |
| 10.11  |   | Amendment No. 1 to Management Agreement, dated as                            of May 1, 2006, by and between to              |   |   |
|   |   | Compression Polymers Holding Corporation and AEA                            Investors LLC (filed as Exhibit 10.11                |   |   |
|   |   | the Form S-4 and incorporated herein by                            reference).                                                   |   |   |
| 10.12  |   | Management Rights Letter Agreement, dated as of January                            31, 2007, between CPG Fund LP                      |   |   |
|   |   | International I Inc. and AEA Mezzanine Funding LLC and                            AEA Mezzanine (Unleveraged)                         |   |   |
|   |   | (filed as Exhibit 10.2 to the February 2, 2007 Form                            8-K and incorporated herein by reference).        |   |   |
| 10.13* |   | Loan and Security Agreement, dated as of February 13,                            2008, by and among Scranton Products Inc.,           |   |   |
|   |   | AZEK Building Products Inc. and Procell Decking Inc., as                            borrowers, CPG International Inc.,                |   |   |
|   |   | CPG International I Inc., Santana Products Inc., CPG Sub                            I Corporation, Vycom Corp. and Sanatec            |   |   |
|   |   | Sub I Corporation, as guarantors the lenders identified                            on thepages thereto and                            |   |   |
|   |   | Wachovia Bank, National Association, as administrative                            agent, and General Electric Capital Corporation, as |   |   |
|   |   | syndication agent.                                                                                                                    |   |   |
| 10.14* |   | Amendment No. 1 to Loan and Security Agreement dated as                            of February 29, 2008, by and among CPG             |   |   |
|   |   | International I Inc., Scranton Products Inc., AZEK                            Building Products Inc. and Procell Decking Inc.,        |   |   |
|   |   | the guarantors named therein, the lenders identified on                            the pages thereto and Wachovia Bank,               |   |   |
|   |   | as administrative agent.                                                                                                              |   |   |
| 10.15* |   | Term Loan and Security Agreement, dated as of February                            29, 2008 by and among CPG International I Inc.,     |   |   |
|   |   | Scranton Products Inc., AZEK Building Products Inc. and                            Procell Decking Inc.,                              |   |   |
|   |   | the guarantors named therein, the lenders identified on                            the                                                |   |   |
|   |   | pages thereto, Wachovia Bank, National Association, as                            administrative agent, and Wachovia Capital          |   |   |
|   |   | Markets, LLC, as lead arranger and lead                            bookrunner.                                                        |   |   |
| 10.16* |   | Separation Agreement and Release, dated as of November                            5, 2007, by and among CPG International I Inc.,     |   |   |
|   |   | Scranton Products Inc. and AZEK Building Products Inc.,                            and John R. Loyack.                                |   |   |
|   |   |                                                                                                                                  |   |   |
| 10.17* |   | Employment agreement, dated as of March 3, 2008, by and                            among CPG International Inc., CPG                  |   |   |
|   |   | International I Inc., Scranton Products Inc., and AZEK                            Building Products Inc. and Eric Jungbluth.          |   |   |
| 10.18* |   | Non-Compete Agreement, dated as of March 3, 2008, by and                            among CPG International Inc., CPG                 |   |   |
|   |   | International I Inc., Scranton Products Inc., and AZEK                            Building Products Inc. and Eric Jungbluth.          |   |   |
| 10.19* |   | Employment Agreement, dated as of January 31,2007, by                            and among CPG International Inc., CPG                |   |   |
|   |   | International I Inc., Scranton Products Inc., and AZEK                            Building Products Inc. and Christopher Bardasian.   |   |   |
| 10.20* |   | Employment Agreement, dated as of January 31,2007, by                            and among CPG International Inc., CPG                |   |   |
|   |   | International I Inc., Scranton Products Inc., and AZEK                            Building Products Inc. and Kevin Sloan.             |   |   |
| 21.1*  |   | List of Subsidiaries.                                                                                                                 |   |   |
| 31.1*  |   | Rule 13a-14(a)/15d-14(a) Certification of Interim Chief                            Executive Officer                                  |   |   |
| 31.2*  |   | Rule 13a-14(a)/15d-14(a) Certification of Chief                            Financial Officer                                          |   |   |
| 32.1*  |   | Section 1350 Certification of the Interim Chief                            Executive Officer                                          |   |   |
| 32.2 * |   | Section 1350 Certification of Chief Financial                            Officer                                                      |   |   |

 

________________________

* Filed            herewith.

 

68

 

 

**CPG International Inc.**

**And Subsidiaries**

 

| **INDEX TO CONSOLIDATED FINANCIAL                            STATEMENTS**                                                                                                                                                                    |        |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|
|                                                                                                                                                                                                                                         |        |
| Report of Independent Registered Public Accounting                            Firm                                                                                                                                                           | F-2         |
|                                                                                                                                                                                                                                         |        |
| Consolidated Balance Sheets as of December 31, 2007 and                            December 31, 2006                                                                                                                                         | F-3         |
|                                                                                                                                                                                                                                         |        |
| Consolidated Statements of Operations for the years                            ended December 31, 2007,

December 31, 2006 and periods May 11 to December 31,                            2005 and January 1 to May 10, 2005                  | F-4         |
|                                                                                                                                                                                                                                         |        |
| Consolidated Statements of Shareholder’s Equity                            for the year ended December 31, 2007 and December 31, 2006 and periods                            May 11 to December 31, 2005 and January 1 to May 10, 2005 |  

F-5 |
|                                                                                                                                                                                                                                         |        |
| Consolidated Statements of Cash Flows for the year ended                            December 31, 2007 and December 31, 2006 and periods May 11 to December                            31, 2005 and January 1 to May 10, 2005                 | F-6         |
|                                                                                                                                                                                                                                         |        |
| Notes to Consolidated Financial Statements                                                                                                                                                                                                   | F-7         |

 

 

 

 

 

 

 

 

 

 

 

F-1

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING            FIRM**

 

To the            Board of Directors and Shareholder of

CPG            International

Scranton, PA

 

We have            audited the accompanying consolidated balance sheets of CPG International, Inc. and            subsidiaries (the “Successor”) as of December 31, 2007 and 2006 and the            related consolidated statements of operations, shareholder’s equity, and cash            flows of the Successor for the years ended December 31, 2007 and 2006 and for the            period May 11, 2005 to December 31, 2005 and of Compression Polymers Holdings LLC (the            “Predecessor”) for the period January 1, 2005 to May 10, 2005            (collectively, the “Companies”). These financial statements are the            responsibility of the Companies’ management. Our responsibility is to express an            opinion on the financial statements based on our audits.

 

We            conducted our audits in accordance with the standards of the Public Company Accounting            Oversight Board (United States). Those standards require that we plan and perform the            audit to obtain reasonable assurance about whether the financial statements are free of            material misstatement. The Companies are not required to have, nor were we engaged to            perform, an audit of their internal control over financial reporting. Our audits            included consideration of internal control over financial reporting as a basis for            designing audit procedures that are appropriate in the circumstances, but not for the            purpose of expressing an opinion on the effectiveness of the Companies' internal            control over financial reporting. Accordingly, we express no such opinion. An audit            also 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, as well as evaluating the overall financial            statement presentation. We believe that our audits provide a reasonable basis for our            opinion.

 

In our            opinion, such consolidated financial statements present fairly, in all material            respects, the financial position of CPG International, Inc. and subsidiaries as of            December 31, 2007 and 2006, and the results of its operations and cash flows for the            years ended December 31, 2007 and 2006 and for the period May 11, 2005 to December 31,            2005, and of Compression Polymers Holdings LLC’s operations and cash flows for            the period January 1, 2005 to May 10, 2005, in conformity with accounting principles            generally accepted in the United States of America.

 

/s/DELOITTE & TOUCHE LLP

Philadelphia, PA

March            28, 2008

 

 

 

 

 

 

 

 

 

 

F-2

**CPG International Inc.**

**And Subsidiaries**

Consolidated Balance Sheets

December 31, 2007 and December 31, 2006

(dollars in thousands)

 

|                                                                                                                                                                                |   | **December 31,** |     | **December 31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|----------|------------------|--------|
|                                                                                                                                                                                |   |             | **2007** |             |   | **2006** |   |
| **ASSETS:**                                                                                                                                                                         |   |             |     |             |   |   |   |
| Current assets:                                                                                                                                                                     |   |             |     |             |   |   |   |
| Cash                                                                                                                                                                                |   | $                | 9,608    |             | $      | 2,173 |   |
| Receivables:                                                                                                                                                                        |   |             |     |             |   |   |   |
| Trade, less allowance for doubtful accounts of $1,470                            and $997 in 2007 and 2006, respectively                                                            |   |             | 30,712   |             |   | 29,325 |   |
| Inventories                                                                                                                                                                         |   |             | 52,391   |             |   | 45,493 |   |
| Deferred income taxes—current                                                                                                                                                 |   |             | 8,321    |             |   | 9,192 |   |
| Prepaid expenses and other                                                                                                                                                          |   |             | 9,314    |             |   | 6,441 |   |
| Total current assets                                                                                                                                                                |   |             | 110,346  |             |   | 92,624 |   |
| Property and equipment—net                                                                                                                                                    |   |             | 92,693   |             |   | 79,935 |   |
| Goodwill                                                                                                                                                                            |   |             | 288,084  |             |   | 232,749 |   |
| Intangible assets —net                                                                                                                                                        |   |             | 100,115  |             |   | 92,408 |   |
| Deferred financing costs—net                                                                                                                                                  |   |             | 8,605    |             |   | 10,080 |   |
| Other assets                                                                                                                                                                        |   |             | 653      |             |   | — |   |
| Total assets                                                                                                                                                                        |   | $                | 600,496  |             | $      | 507,796 |   |
|                                                                                                                                                                                |   |             |     |             |   |   |   |
| **LIABILITIES AND SHAREHOLDER’S                            EQUITY:**                                                                                                          |   |             |     |             |   |   |   |
| Current liabilities:                                                                                                                                                                |   |             |     |             |   |   |   |
| Accounts payable                                                                                                                                                                    |   | $                | 27,474   |             | $      | 25,680 |   |
| Current portion of capital lease                                                                                                                                                    |   |             | 1,415    |             |   | 647 |   |
| Current portion of long-term debt obligations                                                                                                                                       |   |             | —  |             |   | 9,508 |   |
| Accrued interest                                                                                                                                                                    |   |             | 15,696   |             |   | 13,887 |   |
| Accrued costs – Procell Acquisition                                                                                                                                           |   |             | 18,066   |             |   | — |   |
| Accrued expenses                                                                                                                                                                    |   |             | 8,637    |             |   | 7,391 |   |
| Total current liabilities                                                                                                                                                           |   |             | 71,288   |             |   | 57,113 |   |
| Deferred income taxes                                                                                                                                                               |   |             | 45,425   |             |   | 43,715 |   |
| Capital lease obligation—less current                            portion                                                                                                      |   |             | 5,411    |             |   | 3,010 |   |
| Long-term debt—less current portion                                                                                                                                           |   |             | 278,107  |             |   | 245,132 |   |
| Accrued warranty                                                                                                                                                                    |   |             | 3,107    |             |   | 1,854 |   |
| Other liabilities                                                                                                                                                                   |   |             | 664      |             |   | — |   |
| Commitments and contingencies                                                                                                                                                       |   |             |     |             |   |   |   |
| Shareholder’s equity:                                                                                                                                                         |   |             |     |             |   |   |   |
| Common shares, $0.01 par value: 1,000 shares authorized;                            10 issued and outstanding at December 31, 2007 and December 31,                            2006 |   |             | —  |             |   | — |   |
| Additional paid-in capital                                                                                                                                                          |   |             | 199,961  |             |   | 165,066 |   |
| Retained deficit                                                                                                                                                                    |   |             | (3,467   | )                |   | (8,094 | ) |
| Total shareholder’s equity                                                                                                                                                    |   |             | 196,494  |             |   | 156,972 |   |
| Total liabilities and shareholder’s                            equity                                                                                                         |   | $                | 600,496  |             | $      | 507,796 |   |

 

See            notes to consolidated financial statements.

 

 

F-3

 

**CPG International Inc.**

**and Subsidiaries**

Consolidated Statements of Operations

December 31, 2007, 2006 and

Periods May 11 to December 31, 2005 and January 1 to May 10,            2005

(dollars in thousands)

 

|                                         |   |   | **Successor**    |   | **Predecessor** |             |
|----------------------------------------------|--------|--------|------------------|--------|-----------------|------------------|
|                                         |   |   |             |   |            |             |   |   | **Period** |   |   | **Period** |   |
|                                         |   |   |             |   |            |             |   |   | **May 11,** |   |   | **January 1,** |   |
|                                         |   |   |             |   |            |             |   |   | **2005** |   |   | **2005** |   |
|                                         |   |   | **Year Ended**   |   |            | **Year Ended**   |   |   | **to** |   |   | **to** |   |
|                                         |   |   | **December 31,** |   |            | **December 31,** |   |   | **December 31,** |   |   | **May 10,** |   |
|                                         |   |   | **2007**         |   |            | **2006**         |   |   | **2005** |   |   | **2005** |   |
| Net sales                                    |   | $      | 313,703          |   | $               | 261,790          |   | $ | 140,672 |   | $ | 81,931 |   |
| Cost of sales                                |   |   | (225,436         | )      |            | (193,417         | ) |   | (113,076 | ) |   | (58,854 | ) |
| Gross margin                                 |   |   | 88,267           |   |            | 68,373           |   |   | 27,596 |   |   | 23,077 |   |
| Selling, general and administrative expenses |   |   | (46,844          | )      |            | (40,249          | ) |   | (18,870 | ) |   | (21,905 | ) |
| Gain on sale of property                     |   |   | 422              |   |            | —          |   |   | — |   |   | — |   |
| Operating income                             |   |   | 41,845           |   |            | 28,124           |   |   | 8,726 |   |   | 1,172 |   |
|                                         |   |   |             |   |            |             |   |   |   |   |   |   |   |
| Other income (expenses):                     |   |   |             |   |            |             |   |   |   |   |   |   |   |
| Interest expense                             |   |   | (34,445          | )      |            | (28,897          | ) |   | (21,293 | ) |   | (1,906 | ) |
| Interest income                              |   |   | 747              |   |            | 212              |   |   | 118 |   |   | 46 |   |
| Miscellaneous – net                    |   |   | 240              |   |            | 306              |   |   | 158 |   |   | (384 | ) |
| Total other expenses-net                     |   |   | (33,458          | )      |            | (28,379          | ) |   | (21,017 | ) |   | (2,244 | ) |
|                                         |   |   |             |   |            |             |   |   |   |   |   |   |   |
| Income (loss) before income taxes            |   |   | 8,387            |   |            | (255             | ) |   | (12,291 | ) |   | (1,072 | ) |
| Income tax (expense) benefit                 |   |   | (3,760           | )      |            | (230             | ) |   | 4,682 |   |   | (3,060 | ) |
| Net income (loss)                            |   | $      | 4,627            |   | $               | (485             | ) | $ | (7,609 | ) | $ | (4,132 | ) |

 

 

 

 

 

 

 

 

 

 

See            notes to consolidated financial statements.

 

F-4

 

**CPG International Inc.**

**and Subsidiaries**

Consolidated Statements of Shareholder’s Equity

Years            Ended December 31, 2007, 2006 and

Periods May 11 to December 31, 2005 and January 1 to May 10,            2005

(dollars in thousands)

 

|                                                                                |   |             |   |                |        |   |            |      |             |       |       |   |   |           |   |      |         |         |              | **Accumulated** |       |                    |    |   |   |           |   |
|-------------------------------------------------------------------------------------|--------|------------------|--------|---------------------|-------------|--------|-----------------|-----------|------------------|------------|------------|--------|--------|----------------|--------|-----------|--------------|--------------|-------------------|-----------------|------------|-------------------------|---------|--------|--------|----------------|--------|
|                                                                                |   |             |   |                |        |   |            |      |             |       |       |   |   |           |   |      |         |         |              | **Other**       |       |                    |    |   |   |           |   |
|                                                                                |   |             |   |                |        |   |            |      |             |       |       |   |   | **Additional** |   |      |         |         | **Comprehensive** |            |       |                    |    |   |   |
|                                                                                |   |             |   |                |        |   |            |      |             |       |       |   |   | **Paid - in**  |   |      | **Deferred** |         |              | **Income**      |       |                    |    |   |   |           |   |
|                                                                                |   | **Common Units** |   | **Preferred Units** |        |   | **Capital**     |      | **Compensation** | **(Loss)** |       |   |   |           |   | **Total** |         |
|                                                                                |   | **Units**        |   |                | **.01 Par** |   |            | **Units** |             |       | **No Par** |   |   |           |   |      |         |         |              | **Retained**    |       | **Shareholder’s** |
| **Predecessor**                                                                     |   | **Outstanding**  |   | **Value**           |        |   | **Outstanding** |      | **Value**        |       |       |   |   |           |   |      |         | **Earnings** |              |            | **Equity** |                    |
| Balance – January 1, 2005                                                     |   | 61               |   | $                   | —     |   |            | 968       |             | $          | —    |   | $      | 28,700         |   |      | (945         | )            | $                 | 757             |       | $                       | 2,045   |   | $      | 30,557         |   |
| Derivative income, net of deferred tax expense of                            $80    |   | —          |   |                | —     |   |            | —   |             |       | —    |   |   | —        |   |      | —      |         |              |  

129     |       |                    | — |   |   |  

129    |   |
| Realized derivative income                                                          |   | —          |   |                | —     |   |            | —   |             |       | —    |   |   | —        |   |      | —      |         |              | (886            | )          |                    | — |   |   | (886           | )      |
| Net loss                                                                            |   | —          |   |                | —     |   |            | —   |             |       | —    |   |   | —        |   |      | —      |         |              | —         |       |                    | (4,132  | )      |   | (4,132         | )      |
| Comprehensive loss                                                                  |   | —          |   |                | —     |   |            | —   |             |       | —    |   |   | —        |   |      | —      |         |              | —         |       |                    | — |   |   | (4.889         | )      |
| Compensation expense recorded on vested restricted                            units |   | —          |   |                | —     |   |            | —   |             |       | —    |   |   |  

12,800 |   |      | —      |         |              | —         |       |                    | — |   |   |  

12,800 |   |
| Market value adjustment to restricted common                            units       |   | —          |   |                | —     |   |            | —   |             |       | —    |   |   |  

176    |   |      |  

(143 |  

)    |              | —         |       |                    | — |   |   |  

33     |   |
| Balance – May 10, 2005                                                        |   | 61               |   | $                   | —     |   |            | 968       |             | $          | —    |   | $      | 41,676         |   | $         | (1,088       | )            | $                 | —         |       | $                       | (2,087  | )      | $      | 38,501         |   |

 

 

|                                     |   |             |   |      |           |   |        |              |   |      |       |              | **Accumulated** |           |   |       |                    |   |    |
|------------------------------------------|--------|------------------|--------|-----------|----------------|--------|-------------|-------------------|--------|-----------|------------|-------------------|-----------------|----------------|--------|------------|-------------------------|--------|---------|
|                                     |   | **Common Units** |   |      | **Additional** |   |        |              |   | **Other** |       |              | **Retained**    |           |   | **Total**  |                    |
|                                     |   | **Shares**       |   |      | **No Par**     |   |        | **Paid—in** |   |      |       | **Comprehensive** |            | **Earnings**   |   |       | **Shareholder’s** |
| **Successor**                            |   | **Outstanding**  |   | **Value** |           |   | **Capital** |              |   |      | **Income** |              |            | **/(Deficit)** |   | **Equity** |                    |   |
| Balance – May 11, 2005             |   | —          |   | $         | —        |   | $           | —           |   |      |       | $                 | —         |           | $      | —    |                    | $      | — |   |
| Initial capital contribution-Transaction |   | 10               |   |      | —        |   |        | 165,000           |   |      |       |              | —         |           |   | —    |                    |   | 165,000 |   |
| Additional paid-in capital               |   | —          |   |      | —        |   |        | 66                |   |      |       |              | —         |           |   | —    |                    |   | 66      |   |
| Net loss and comprehensive loss          |   | —          |   |      | —        |   |        | —           |   |      |       |              | —         |           |   | (7,609     | )                       |   | (7,609  | ) |
| Balance – December 31, 2005        |   | 10               |   | $         | —        |   | $           | 165,066           |   |      |       | $                 | —         |           | $      | (7,609     | )                       | $      | 157,457 |   |
| Additional paid-in capital               |   | —          |   |      | —        |   |        | —           |   |      |       |              | —         |           |   | —    |                    |   | — |   |
| Net loss and comprehensive loss          |   | —          |   |      | —        |   |        | —           |   |      |       |              | —         |           |   | (485       | )                       |   | (485    | ) |
| Balance – December 31, 2006        |   | 10               |   |      | —        |   |        | 165,066           |   |      |       |              | —         |           |   | (8,094     | )                       |   | 156,972 |   |
| Additional paid-in capital               |   | —          |   |      | —        |   |        | 34,895            |   |      |       |              | —         |           |   | —    |                    |   | 34,895  |   |
| Net income and comprehensive income      |   | —          |   |      | —        |   |        | —           |   |      |       |              | —         |           |   | 4,627      |                    |   | 4,627   |   |
| Balance – December 31, 2007        |   | 10               |   | $         | —        |   | $           | 199,961           |   |      |       | $                 | —         |           | $      | (3,467     | )                       | $      | 196,494 |   |
|                                          |        |                  |        |           |                |        |             |                   |        |           |            |                   |                 |                |        |            |                         |        |         |  |  |  |  |  |  |

 

 

 

 

 

See            notes to consolidated financial statements.

 

 

 

F-5

 

**CPG International Inc.**

**and Subsidiaries**

Consolidated Statements of Cash Flows

Year            Ended December 31, 2007, 2006 and

Periods May 11 to December 31, 2005 and January 1 to May 10,            2005

 

|                                                                                                               |   | **Successor** |             |   | **Predecessor** |             |
|--------------------------------------------------------------------------------------------------------------------|--------|---------------|------------------|--------|-----------------|------------------|
|                                                                                                               |   |          |             |   |            |             |   |   | **Period** |   |   | **Period** |   |
|                                                                                                               |   |          | **Year**         |   |            | **Year**         |   |   | **May 11, 2005** |   |   | **January 1,2005** |   |
|                                                                                                               |   |          | **Ended**        |   |            | **Ended**        |   |   | **To** |   |   | **to** |   |
|                                                                                                               |   |          | **December 31,** |   |            | **December 31,** |   |   | **December 31,** |   |   | **May 10,** |   |
| **(Dollars in thousands)**                                                                                         |   |          | **2007**         |   |            | **2006**         |   |   | **2005** |   |   | **2005** |   |
| Cash flows from operating activities:                                                                              |   |          |             |   |            |             |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                  |   | $             | 4,627            |   | $               | (485             | ) | $ | (7,609 | ) | $ | (4,132 | ) |
| Adjustments to reconcile net income to net cash flows                            provided by operating activities: |   |          |             |   |            |             |   |   |   |   |   |   |   |
| Interest accretion on capital lease                                                                                |   |          | 13               |   |            | —          |   |   | — |   |   | — |   |
| Write-off of deferred financing fees                                                                               |   |          | —          |   |            | —          |   |   | 5,252 |   |   | — |   |
| Depreciation and amortization                                                                                      |   |          | 18,157           |   |            | 13,813           |   |   | 7,389 |   |   | 2,171 |   |
| Amortization of deferred financing fees classified as                            interest                          |   |          | 1,921            |   |            | 1,679            |   |   | 989 |   |   | — |   |
| Amortization of debt premium                                                                                       |   |          | (24              | )      |            | (21              | ) |   | — |   |   | — |   |
| Deferred income tax provision                                                                                      |   |          | 3,570            |   |            | 1,283            |   |   | (4,868 | ) |   | (414 | ) |
| (Gain) loss on disposition of fixed asset                                                                          |   |          | (422             | )      |            | 2                |   |   | — |   |   | — |   |
| Stock-based compensation from vesting of restricted                            units                               |   |          | —          |   |            | —          |   |   | — |   |   | 12,800 |   |
| Changes in certain assets and liabilities:                                                                         |   |          |             |   |            |             |   |   |   |   |   |   |   |
| Trade receivables                                                                                                  |   |          | 1,212            |   |            | (9,505           | ) |   | 3,461 |   |   | (4,687 | ) |
| Inventories                                                                                                        |   |          | (4,512           | )      |            | 1,483            |   |   | (886 | ) |   | 2,398 |   |
| Prepaid expenses and other currents assets                                                                         |   |          | (2,853           | )      |            | 273              |   |   | (3,540 | ) |   | 1,006 |   |
| Accounts payable- primarily trade                                                                                  |   |          | (1,800           | )      |            | (11,300          | ) |   | 16,214 |   |   | (720 | ) |
| Accrued expenses and interest                                                                                      |   |          | 106              |   |            | 4,690            |   |   | 6,723 |   |   | 3,538 |   |
| Other assets and liabilities                                                                                       |   |          | 1,264            |   |            | —          |   |   | — |   |   | — |   |
| Net cash provided by operating activities                                                                          |   |          | 21,259           |   |            | 1,912            |   |   | 23,125 |   |   | 11,960 |   |
| Cash flows used in investing activities:                                                                           |   |          |             |   |            |             |   |   |   |   |   |   |   |
| Acquisition of equity interest in Predecessor                                                                      |   |          | —          |   |            | —          |   |   | (212,756 | ) |   | — |   |
| Acquisition of Santana, net of cash received                                                                       |   |          | —          |   |            | (34,980          | ) |   | — |   |   | — |   |
| Acquisition of Procell, net of cash received                                                                       |   |          | (58,183          | )      |            | —          |   |   | — |   |   | — |   |
| Purchases of property and equipment                                                                                |   |          | (14,386          | )      |            | (16,995          | ) |   | (17,295 | ) |   | (4,489 | ) |
| Proceeds from disposition of fixed asset                                                                           |   |          | 1,999            |   |            | 9                |   |   | — |   |   | — |   |
| Net cash used in investing activities                                                                              |   |          | (70,570          | )      |            | (51,966          | ) |   | (230,051 | ) |   | (4,489 | ) |
| Cash flows from financing activities:                                                                              |   |          |             |   |            |             |   |   |   |   |   |   |   |
| Capital contribution                                                                                               |   |          | 34,895           |   |            | —          |   |   | 165,066 |   |   | — |   |
| Proceeds from long-term obligation                                                                                 |   |          | 33,000           |   |            | 30,150           |   |   | 440,000 |   |   | — |   |
| (Repayments) borrowings under revolving credit                            facility                                 |   |          | (9,500           | )      |            | 9,500            |   |   | — |   |   | — |   |
| Payment of Predecessor long-term obligations                                                                       |   |          | —          |   |            | —          |   |   | (140,214 | ) |   | — |   |
| Payments on long-term obligations                                                                                  |   |          | (1,203           | )      |            | (298             | ) |   | (225,034 | ) |   | (3,820 | ) |
| Payments of financing fees                                                                                         |   |          | (446             | )      |            | (1,910           | ) |   | (24,964 | ) |   | — |   |
| Preferred unit contributions (distribution)                                                                        |   |          | —          |   |            | —          |   |   | — |   |   | 509 |   |
| Net cash provided by (used in) financing                            activities                                     |   |          | 56,746           |   |            | 37,442           |   |   | 214,854 |   |   | (3,311 | ) |
| Net increase (decrease) in cash and cash                            equivalents                                    |   |          | 7,435            |   |            | (12,612          | ) |   | 7,928 |   |   | 4,160 |   |
| Cash and cash equivalents – Beginning of                            period                                   |   |          | 2,173            |   |            | 14,785           |   |   | 6,857 |   |   | 2,697 |   |
| Cash and cash equivalents – End of                            period                                         |   | $             | 9,608            |   | $               | 2,173            |   | $ | 14,785 |   | $ | 6,857 |   |
| Supplemental disclosures:                                                                                          |   |          |             |   |            |             |   |   |   |   |   |   |   |
| Cash paid for interest                                                                                             |   | $             | 32,636           |   | $               | 25,253           |   | $ | 20,799 |   | $ | 1,756 |   |
| Capital expenditures in accounts payable at end of                            period                               |   | $             | 712              |   | $               | 287              |   | $ | — |   | $ | — |   |
| Federal, state and local taxes (refunded)                            paid                                          |   | $             | (5               | )      | $               | 158              |   | $ | 1,432 |   | $ | — |   |
| Increase in value of restricted common units                                                                       |   | $             | —          |   | $               | —          |   | $ | — |   | $ | 176 |   |
| Property/equipment acquired by execution of a capital                            lease obligation                  |   | $             | 4,350            |   | $               | 2,305            |   | $ | — |   | $ | — |   |
| Accrued costs-- Procell Acquisition                                                                                |   | $             | 18,066           |   | $               | —          |   | $ | — |   | $ | — |   |

 

See            notes to consolidated financial statements.

 

F-6

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

| **1.** | **SIGNIFICANT ACCOUNTING POLICIES** |
|--------|-------------------------------------|

 

***Basis of Presentation***

 

The consolidated financial statements and the accompanying notes are            prepared in accordance with accounting principles generally accepted in the United            States of America and the rules of the Securities and Exchange Commission (the            “SEC”). They include the accounts of CPG International Inc. (formerly known            as Compression Polymers Holding II Corporation) and Subsidiaries on a consolidated            basis (the “Successor”). All significant intercompany transactions have            been eliminated in consolidation.

 

On May 10, 2005, CPG International Inc., a Delaware corporation            consummated the acquisition (the “Transaction”) of all the equity interests            of the operating subsidiaries of Compression Polymers Holdings LLC, a Delaware limited            liability company (the “Predecessor”). CPG International I Inc., formerly            known as Compression Polymers Holding Corporation, a Delaware corporation            (“CPG”) and the Successor were each formed by AEA Investors LLC and its            affiliates (“AEA Investors”) for the purpose of the Transaction.            Compression Polymers Holdings LLC sold all of the equity interests of its operating            subsidiaries to the Successor in connection with the Transaction.

             

All references herein to the “Company” mean (1) the            Predecessor for the periods ending on or prior to May 10, 2005, and (2) the Successor            for the periods beginning after May 10, 2005.

             

As a result of the Transaction and resulting change in control and            change in historical cost basis of accounting, the Company is required to present            separately the operating results for Predecessor periods up to and including the            closing date of the Transaction (May 10, 2005) and the Successor periods following the            closing date of the Transaction (May 11, 2005 and thereafter). The financial statements            and operating results identified as belonging to the Predecessor are those of            Compression Polymers Holdings LLC, the parent entity existing for all periods shown            prior to the completion of the Transaction. For the periods beginning after the            Transaction, the financial statements and operating results presented herein are those            of the Successor. The Successor has fully and unconditionally guaranteed debt            securities of CPG, and, as a result, although CPG is the issuer of the debt securities,            the financial statements included herein for the periods beginning after the            Transaction are that of the Successor. The Successor has no independent assets or            operations other than through its ownership of 100% of CPG and, accordingly, the            financial statements of CPG would be substantially similar to those of the Successor            included herein. CPG is a 100% owned finance subsidiary of the Successor and, as of            December 31, 2007, all of the Successor’s subsidiaries, other than CPG, have            guaranteed the debt securities. All of the guarantees of the debt securities are full            and unconditional and joint and several. The indenture governing the debt securities            restricts the ability of CPG and its subsidiaries to pay dividends or make loans to the            Successor.

             

***Revenue Recognition***

             

Revenue is recognized in accordance with SEC Staff Bulletin            No. 101, “*Revenue Recognition in Financial            Statements*” (“SAB 101”), as amended by SAB            101A, SAB 101B and SAB 104. SAB 101 requires that four basic criteria must be met            before revenue can be recognized: (1) persuasive evidence of an arrangement            exists; (2) delivery has occurred; (3) the fee is fixed or determinable; and            (4) collectibility is reasonably assured. Revenues are recognized at the time            product is shipped to the customer and title transfers.

             

The Company accrues for sales returns, discounts and allowance for            doubtful accounts based on a current evaluation of experience based on the stated            collection terms. Should actual experience differ from estimates, revisions to the            liability recorded would be required.

 

F-7

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

***Advertising Costs***

 

Advertising costs primarily relate to trade publication advertisements,            cooperative advertising and product brochures. Such costs are expensed as incurred and            included in selling, general and administrative expenses. Total advertising expenses            were approximately $6,101,000 and $9,349,000 for the years ended December 31, 2007 and            2006, $3,190,000 for the period of January 1, 2005 through May 10, 2005 and $4,631,000            for the period of May 11, 2005 through December 31, 2005, respectively.

 

***Shipping and Handling Costs***

             

The Company includes all shipping and handling costs as cost of sales.            Shipping and handling costs billed to customers is recorded in net sales.

 

***Allowance for Doubtful Accounts***

 

Credit is extended to commercial, institutional, residential and            industrial construction customers based on an evaluation of their financial condition            and collateral is generally not required. The evaluation of the financial condition is            performed to reduce the risk of loss. The Company maintains allowances for doubtful            accounts for estimated losses resulting from the inability of its customers to make            required payments. Amounts are written-off when they are determined to be            uncollectible.

             

Changes in the Company’s allowance for doubtful accounts are as            follows:

             

|                              |   |   |                  |   |   |   |                  |   |
|-----------------------------------|--------|--------|-----------------------|--------|--------|--------|-----------------------|--------|
|                              |   |   | **Year**              |   |   |   | **Year**              |   |
|                              |   |   | **Ended**             |   |   |   | **Ended**             |   |
| **(Dollars in thousands)**        |   |   | **December 31, 2007** |   |   |   | **December 31, 2006** |   |
| Beginning balance                 |   | $      | 997                   |   | $      |   | 820                   |   |
| Increase for bad debt expense     |   |   | 537                   |   |   |   | 355                   |   |
| Decrease for accounts written off |   |   | (64                   | )      |   |   | (178                  | )      |
| Ending balance                    |   | $      | 1,470                 |   | $      |   | 997                   |   |

 

 

|                              |   | **Successor** |   |                  | **Predecessor** |   |
|-----------------------------------|--------|---------------|--------|-----------------------|-----------------|--------|
|                              |   |          |   | **Period**            |            |   | **Period** |   |
|                              |   |          |   | **May 11, 2005**      |            |   | **January 1, 2005** |   |
|                              |   |          |   | **to**                |            |   | **to** |   |
| **(Dollars in thousands)**        |   |          |   | **December 31, 2005** |            |   | **May 10, 2005** |   |
| Beginning balance                 |   | $             |   | 630                   |            | $      | 681 |   |
| Increase for bad debt expense     |   |          |   | 336                   |            |   | 183 |   |
| Decrease for accounts written off |   |          |   | (146                  | )               |   | (234 | ) |
| Ending balance                    |   | $             |   | 820                   |            | $      | 630 |   |

 

***Cash and Cash Equivalents***

 

All liquid investments with maturities of three months or less at the            date of purchase are considered cash equivalents.

 

 

F-8

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

***Inventories***

 

Inventories (mainly, petrochemical resin) are valued at the lower of            cost or market, determined on a first-in, first-out basis (“FIFO”), and            reduced for slow-moving and obsolete inventory.

Inventory obsolescence write-downs are recorded for damaged, obsolete,            excess and slow-moving inventory. At the end of each quarter, management within each            business segment, performs a detailed review of its inventory on an item by item basis            and identifies which products are believed to be obsolete or slow-moving. Management            assesses the need for, and the amount of, an obsolescence write-down based on customer            demand of the item, the quantity of the item on hand and the length of time the item            has been in inventory.

***Vendor Rebates***

Certain vendor rebates and incentives are earned by us only when a            specified level of annual purchases are achieved. We account for vendor rebates in            accordance with EITF 02-16,*Accounting by a Customer            (Including a Reseller) for Certain Consideration Received from a            Vendor*. EITF 02-16 states that a rebate or refund of a            specified amount of cash consideration that is payable pursuant to a binding            arrangement (only if a customer completes a specified cumulative level of purchases),            should be recognized on a systematic and rational allocation of the cash consideration            offered to each of the underlying transactions that results in progress by the customer            toward earning the rebate or refund, provided the amounts are probable and reasonably            estimable. We record the incentives as a reduction to the cost of inventory. Upon sale            of inventory, the incentive is recognized as a reduction to cost of sales. We record            such incentives during interim periods based on actual results achieved on a            year-to-date basis and our expectation that purchase levels will be obtained to earn            the rebate. The amounts are recorded as a reduction to cost of sales based on the            purchase volume and inventory turns during the period.

***Product Warranties***

             

The Company provides a 15-year limited warranty on Scranton Products            commercial building products, a 25-year limited warranty on AZEK products and a            lifetime limited warranty on AZEK Deck products sold for residential use. The warranty            period for all other uses of AZEK Deck, including commercial is 25 years. The Scranton            Products warranty guarantees against breakage, corrosion and delamination. AZEK            products are guaranteed against manufacturing defects that cause the products to rot,            corrode, delaminate, or excessively swell from moisture. The AZEK Deck warranty            guarantees against manufacturing defects in material and workmanship that result in            blistering, peeling, flaking, cracking, splitting, cupping, rotting or structural            defects from termites or fungal decay.

 

Warranty reserves require a high level of judgment as AZEK products have            only been on the market for eight years and AZEK Deck has only been on the market            for four years, therefore the Company must estimate warranty costs over a considerable            length of time without significant historical data on warranty costs for these            products. Management assesses warranty reserves based on sales by product as well as            historical warranty costs which have been immaterial thus far. Management believes that            the warranty reserves at December 31, 2007 are adequate. However, the impact resulting            from the aforementioned factors could cause actual results to vary. The Company will            continue to monitor this warranty reserve and the claim activity on a regular basis to            conclude on the classification of the liability. The Company currently classifies the            warranty as a long-term liability.

 

 

 

 

 

F-9

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

|   | Components of the reserve for warranty costs are as                            follows: |
|--------|-----------------------------------------------------------------------------------------|

 

|                       |   |   |                  |   |   |   |   |                  |   |
|----------------------------|--------|--------|-----------------------|--------|--------|--------|--------|-----------------------|--------|
|                       |   |   | **Year**              |   |   |   |   | **Year**              |   |
|                       |   |   | **Ended**             |   |   |   |   | **Ended**             |   |
| **(Dollars in thousands)** |   |   | **December 31, 2007** |   |   |   |   | **December 31, 2006** |   |
| Beginning balance          |   | $      | 1,854                 |   |   | $      |   | 1,786                 |   |
| Additions(1)               |   |   | 1,546                 |   |   |   |   | 103                   |   |
| Warranty cost incurred     |   |   | (293                  | )      |   |   |   | (35                   | )      |
| Ending balance             |   | $      | 3,107                 |   |   | $      |   | 1,854                 |   |

             

**______________**

**(1)**Includes approximately $1.5 million            added as an initial reserve at February 1, 2007 related to the Procell Acquisition            (Note 3).

             

***Property and Equipment***

 

Property and equipment are recorded at cost, net of accumulated            depreciation. Construction in progress is also recorded at cost and includes            capitalized interest and capitalized payroll costs and related costs such as taxes,            retirement costs and other fringe benefits. Major additions and betterments are            capitalized and depreciated over their estimated useful lives. Items considered repair            and/or maintenance are charged to operations in the year incurred. Depreciation for            financial reporting purposes is computed using the straight-line method over the            estimated useful lives of the assets, as follows:

             

| Land improvements              |   |   | 10 years    |
|--------------------------------|--------|--------|-------------|
| Building and improvements      |   |   | 20-40 years |
| Manufacturing equipment        |   |   | 2-7 years   |
| Office furniture and equipment |   |   | 3-5 years   |

 

The Company regularly assesses the recoverability of its long-lived            assets used in operations whenever events or changes in circumstances indicate that the            assets may be impaired and the undiscounted future cash flows estimated to be generated            by these assets are less than the assets’ net book value. If impairment occurs,            the loss is measured by comparing the fair value of the asset to its carrying amount.            In 2007, 2006 and 2005, the Company concluded that no impairment to the carrying value            of its long-lived assets exists.

 

***Deferred Financing Costs***

             

The Company had recorded deferred financing costs incurred in            conjunction with its debt obligations. These costs are capitalized and then amortized            over the lives of the associated debt to interest expense. Total deferred financing            costs, net of accumulated amortization at December 31, 2007 and 2006 were $8,605,000            and $10,080,000, respectively.

 

***Goodwill and Intangible Assets***

 

In accordance with Statement of Financial Accounting Standard (SFAS) No.            142,*Goodwill and Other Intangible            Assets*, goodwill and non-amortizable intangibles are            evaluated annually to determine the recoverability of carrying amounts. The evaluation,            performed at the reporting unit level, is based on various analyses including cash flow            and profitability projections, addresses the impact on the existing Company business.            The evaluation necessarily involves significant management judgment. The Company has            determined that no impairment of goodwill or other intangibles existed for the years            ended December 31, 2007 and 2006 or for the periods January 1, 2005 to May 10,            2005 and May 11, 2005 to December 31, 2005. Amortizable intangibles such as customer            relationships, non-compete agreement and proprietary knowledge, will be tested for            impairment whenever events or circumstances indicate that

 

F-10

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

the            carrying value may not be recoverable, in accordance with SFAS No. 144,*Accounting for the Impairment or Disposal of Long-Lived            Assets*. The Company amortizes the following intangible            assets: Customer relationships (over 10 years); non-compete agreements (over 5 years)            and proprietary knowledge (over 15 years). See Note 6 for more detail regarding            goodwill and intangible assets.

 

***Retirement Benefits***

 

The Company offers a 401(k) benefit to all employees after six months of            service. The Company does not offer a defined benefit plan (pension plan) nor does the            Company offer any other post-retirement benefit. Each participant may contribute up to            100% of his or her salary, within dollar limitations set forth by the ERISA guidelines.            Total company contributions to the 401(k) Plan were $455,000 and $150,000 for the year            ended December 31, 2007 and 2006, respectively.

 

***Estimated Fair Value of Financial Instruments***

 

The Company’s financial instruments consist primarily of cash,            accounts receivable, accounts payable, accrued liabilities and debt. The Company            estimates the fair value of its debt using current market quotes and the relative            maturities and the carrying values approximates fair value at the balance sheet            dates.

 

The carrying amount and fair value of the Company’s financial            instruments including current maturities at December 31, 2007            are:      

 

| **(dollars in thousands)** |   | **Carrying Value** |    | **Fair Value** |   |
|----------------------------|--------|--------------------|---------|----------------|--------|
| Long-term debt             |   | $                  | 278,107 |           | $      | 264,630 |   |
|                            |        |                    |         |                |        |  |  |

 

 

The carrying amount and fair value of the Company’s financial            instruments including current maturities at December 31, 2006            are:      

 

| **(dollars in thousands)** |   | **Carrying Value** |    | **Fair Value** |   |
|----------------------------|--------|--------------------|---------|----------------|--------|
| Long-term debt             |   | $                  | 245,140 |           | $      | 251,983 |   |
| Revolving credit facility  |   | $                  | 9,500   |           | $      | 9,500 |   |

 

All other financial instruments are accounted for on a historical cost            basis which, due to the nature of these instruments, approximates fair value at the            balance sheet dates.

 

***Income Taxes***

 

The Company accounts for income taxes using the liability method in            accordance with SFAS No. 109,*Accounting for Income            Taxes*. Under this method, deferred tax assets and liabilities            are determined based upon differences between the financial reporting and the tax basis            of assets and liabilities and are measured using the enacted tax rates expected to            apply to taxable income in the periods in which the deferred tax assets or liabilities            are expected to be realized or settled.

 

***Use of Estimates***

 

The preparation of financial statements in conformity with accounting            principals generally accepted in the United States of America 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 reported amounts of revenues and expenses during the reporting            period. Actual results could differ from those estimates.

 

| ***Recently Issued Financial Accounting                            Standards*** |
|---------------------------------------------------------------------------------|

 

F-11

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

 

In June 2006, the FASB issued Interpretation 48,*Accounting for Uncertainty in Income Taxes – an interpretation            of FASB Statement No.* *109*(“FIN 48”). This            interpretation prescribes a recognition threshold and measurement attribute for the            financial statement recognition and measurement of a tax position taken or expected to            be taken in a tax return. FIN 48 also provides guidance on de-recognition,            classification, interest and penalties, accounting in interim periods, disclosure and            transition. This interpretation became effective for fiscal years beginning after            December 15, 2006 (January 1, 2007 for the Company). The Company adopted the            provisions of FIN 48 as of January 1, 2007, and as a result of that adoption, recorded            $800,000 of unrecognized tax benefits on the balance sheet, which did not result in a            cumulative effect adjustment to retained earnings as the adjustment was recorded to            goodwill based on the nature of the tax position involved.  Of the total            unrecognized tax benefits, $664,000 is carried at December 31, 2007 as a non-current            liability, and $136,000 as an offset to non-current deferred tax assets.  If the            unrecognized tax benefits were recognized in the future, there would be no impact to            the Company’s effective tax rate.

 

In February 2006, the FASB issued SFAS 155,*Accounting for Certain Hybrid Financial Instruments – an            amendment of FASB Statement No. 133 and 140*(“SFAS No.            155”). SFAS 155 allows financial instruments that contain an embedded derivative            that otherwise would require bifurcation to be accounted for as a whole on a fair value            basis. This statement is effective for all financial instruments acquired or issued            after the beginning of the first fiscal year that begins after September 15, 2006. The            adoption of SFAS 155 did not have a material impact on the Company’s consolidated            financial statements.

 

In September 2006, the FASB issued SFAS 157,*Fair Value Measurement*. SFAS 157 defines            fair value, establishes a framework for measuring fair value in generally accepted            accounting principles and expands disclosures about fair value measurements. This            statement is effective for fiscal years beginning after November 15, 2007 for financial            instruments, and non-financial instruments beginning after November 15, 2008, and            interim periods within those fiscal years. The Company does not expect that the            adoption of SFAS 157 will have a material impact on its consolidated financial            statements.

 

In February 2007, the FASB issued SFAS 159,*The            Fair Value Option for Financial Assets and Financial            Liabilities*. SFAS 159 expands opportunities to use fair value            measurement in financial reporting and permits entities to choose to measure many            financial instruments and certain other items at fair value. SFAS 159 is effective for            fiscal years beginning after November 15, 2007. The Company does not expect that the            adoption of SFAS 159 will have a material impact on its consolidated financial            statements.

 

In December 2007, the FASB issued SFAS No. 141 (revised            2007),*Business Combinations*, which            establishes principles over the method entities use to recognize and measure assets            acquired and liabilities assumed in a business combination and enhances disclosures on            business combinations. SFAS No. 141(R) is effective for business combinations            for which the acquisition date is on or after the beginning of the first annual            reporting period beginning on or after December 15, 2008. The Company is currently            evaluating the impact of this standard on its consolidated financial            statements.

 

 

 

 

 

 

 

F-12

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

| **2.** | **SEGMENT INFORMATION** |
|--------|-------------------------|

 

The Company operates the following two reportable segments: AZEK            Building Products, Inc. (“AZEK Building Products”), which includes            residential building products such as AZEK Trimboards, Mouldings, and Deck (formerly            Procell Decking) and Celtec, as well as other branded highly engineered, metal and wood            replacement products; and Scranton Products Inc. (“Scranton Products”),            which includes highly engineered commercial building products such as synthetic            bathroom and locker systems.

 

The Company’s chief operating decision makers (which consists of            the Company’s Chief Executive Officer and Chief Financial Officer), regularly            review financial information about each of these business units in deciding how to            allocate resources and evaluate performance. The Company evaluates each segment’s            performance based on gross margin and operating income. The accounting policies for the            reportable segments are the same as those for the Company. Intersegment sales and            transfers are based on resin prices plus an appropriate margin and are reviewed            periodically by management. Corporate costs, which include corporate salary and            employee benefit costs, information technology and corporate related professional fees            (including accounting and legal fees), are not allocated to segments.

             

The following table sets forth summarized financial information for the            Company by business segment for the year ended December 31, 2007: 

             

|                                         |   | **AZEK** |         |   |   |         |   |   |          |   |   |
|----------------------------------------------|--------|----------|--------------|--------|--------|--------------|--------|--------|---------------|--------|--------|
|                                         |   |     | **Building** |   |   | **Scranton** |   |   |          |   |   |   |   |   |   |   |
|                                         |   |     | **Products** |   |   | **Products** |   |   | **Corporate** |   |   | **Eliminations** |   |   | **Consolidated** |   |
| Net sales to external customers              |   | $        | 213,991      |   | $      | 99,712       |   | $      | —       |   | $      | — |   | $ | 313,703 |   |
| Intersegment net sales                       |   |     | —      |   |   | —      |   |   | —       |   |   | — |   |   | — |   |
| Total net sales                              |   |     | 213,991      |   |   | 99,712       |   |   | —       |   |   | — |   |   | 313,703 |   |
| Cost of sales                                |   |     | (151,984     | )      |   | (73,452      | )      |   | —       |   |   | — |   |   | (225,436 | ) |
| Gross margin                                 |   |     | 62,007       |   |   | 26,260       |   |   | —       |   |   | — |   |   | 88,267 |   |
| Selling, general and administrative expenses |   |     | (24,097      | )      |   | (12,138      | )      |   | (10,609       | )      |   | — |   |   | (46,844 | ) |
| Gain on sale of property                     |   |     | (21          | )      |   | 443          |   |   | —       |   |   | — |   |   | 422 |   |
| Operating income (loss)                      |   | $        | 37,889       |   | $      | 14,565       |   | $      | (10,609       | )      | $      | — |   | $ | 41,845 |   |
|                                         |   |     |         |   |   |         |   |   |          |   |   |   |   |   |   |   |
| **Segmented financial data:**                |   |     |         |   |   |         |   |   |          |   |   |   |   |   |   |   |
| Interest expense                             |   | $        | (19,212      | )      | $      | (14,861      | )      | $      | (372          | )      | $      | — |   | $ | (34,445 | ) |
| Interest income                              |   | $        | 468          |   | $      | 243          |   | $      | 36            |   | $      | — |   | $ | 747 |   |
| Depreciation and amortization classified as: |   |     |         |   |   |         |   |   |          |   |   |   |   |   |   |   |
| Cost of sales                                |   | $        | 8,873        |   | $      | 3,865        |   | $      | —       |   | $      | — |   | $ | 12,738 |   |
| Selling, general and administrative expense  |   |     | 3,090        |   |   | 1,291        |   |   | 1,038         |   |   | — |   |   | 5,419 |   |
| Total depreciation and amortization          |   | $        | 11,963       |   | $      | 5,156        |   | $      | 1,038         |   | $      | — |   | $ | 18,157 |   |
| Total capital expenditures(1)                |   | $        | 13,844       |   | $      | 531          |   | $      | 723           |   | $      | — |   | $ | 15,098 |   |

             

______________

|   | **(1)** | Includes capital expenditures in accounts                            payable |
|--------|---------|------------------------------------------------------------------------------|

             

             

             

             

             

F-13

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

The following table sets forth summarized financial information for the            Company by business segment for the year ended December 31, 2006: 

 

|                                         |   | **AZEK** |         |   |   |         |   |   |          |   |   |
|----------------------------------------------|--------|----------|--------------|--------|--------|--------------|--------|--------|---------------|--------|--------|
|                                         |   |     | **Building** |   |   | **Scranton** |   |   |          |   |   |   |   |   |   |   |
|                                         |   |     | **Products** |   |   | **Products** |   |   | **Corporate** |   |   | **Eliminations** |   |   | **Consolidated** |   |
| Net sales to external customers              |   | $        | 162,198      |   | $      | 99,592       |   | $      | —       |   | $      | — |   | $ | 261,790 |   |
| Intersegment net sales                       |   |     | 1,190        |   |   | 136          |   |   | —       |   |   | (1,326 | ) |   | — |   |
| Total net sales                              |   |     | 163,388      |   |   | 99,728       |   |   | —       |   |   | (1,326 | ) |   | 261,790 |   |
| Cost of sales                                |   |     | (120,111     | )      |   | (74,632      | )      |   | —       |   |   | 1,326 |   |   | (193,417 | ) |
| Gross margin                                 |   |     | 43,277       |   |   | 25,096       |   |   | —       |   |   | — |   |   | 68,373 |   |
| Selling, general and administrative expenses |   |     | (21,001      | )      |   | (11,206      | )      |   | (8,042        | )      |   | — |   |   | (40,249 | ) |
| Operating income (loss)                      |   | $        | 22,276       |   | $      | 13,890       |   | $      | (8,042        | )      | $      | — |   | $ | 28,124 |   |
|                                         |   |     |         |   |   |         |   |   |          |   |   |   |   |   |   |   |
| **Segmented financial data:**                |   |     |         |   |   |         |   |   |          |   |   |   |   |   |   |   |
| Interest expense                             |   | $        | (15,836      | )      | $      | (11,072      | )      | $      | (1,989        | )      | $      | — |   | $ | (28,897 | ) |
| Interest income                              |   | $        | 75           |   | $      | 94           |   | $      | 43            |   | $      | — |   | $ | 212 |   |
| Depreciation and amortization classified as: |   |     |         |   |   |         |   |   |          |   |   |   |   |   |   |   |
| Cost of sales                                |   | $        | 5,905        |   | $      | 4,925        |   | $      | —       |   | $      | — |   | $ | 10,830 |   |
| Selling, general and administrative expense  |   |     | 1,327        |   |   | 1,287        |   |   | 369           |   |   | — |   |   | 2,983 |   |
| Total depreciation and amortization          |   | $        | 7,232        |   | $      | 6,212        |   | $      | 369           |   | $      | — |   | $ | 13,813 |   |
| Total capital expenditures(1)                |   | $        | 13,427       |   | $      | 423          |   | $      | 3,432         |   | $      | — |   | $ | 17,282 |   |

 

______________

|   | **(1)** | Includes capital expenditures in accounts                            payable. |
|--------|---------|-------------------------------------------------------------------------------|

The following table sets forth summarized financial information for the            Company by business segment from January 1, 2005 through May 10, 2005:

             

|                                         |   |   | **AZEK**     |   |   |         |   |   |             |   |   |             |   |   |             |   |
|----------------------------------------------|--------|--------|--------------|--------|--------|--------------|--------|--------|------------------|--------|--------|------------------|--------|--------|------------------|--------|
|                                         |   |   | **Building** |   |   | **Scranton** |   |   |             |   |   |             |   |   |             |   |
|                                         |   |   | **Products** |   |   | **Products** |   |   | **Corporate**    |   |   | **Eliminations** |   |   | **Consolidated** |   |
| Net sales to external customers              |   | $      | 58,385       |   | $      | 23,546       |   | $      | —

— |   | $      | —

— |   | $      | 81,931           |   |
| Intersegment net sales                       |   |   | 779          |   |   | —      |   |   | —          |   |   | (779             | )      |   | —          |   |
| Total net sales                              |   |   | 59,164       |   |   | 23,546       |   |   | —          |   |   | (779             | )      |   | 81,931           |   |
| Cost of sales                                |   |   | (41,920      | )      |   | (17,713      | )      |   | —          |   |   | 779              |   |   | (58,854          | )      |
| Gross margin                                 |   |   | 17,244       |   |   | 5,833        |   |   | —          |   |   | —          |   |   | 23,077           |   |
| Selling, general and administrative expenses |   |   | (6,314       | )      |   | (1,755       | )      |   | (13,836          | )      |   | —          |   |   | (21,905          | )      |
| Operating income (loss)                      |   | $      | 10,930       |   | $      | 4,078        |   | $      | (13,836          | )      | $      | —          |   | $      | 1,172            |   |
| **Segmented financial data:**                |   |   |         |   |   |         |   |   |             |   |   |             |   |   |             |   |
| Interest expense                             |   | $      | (2,029       | )      | $      | 123          |   | $      | —          |   | $      | —          |   | $      | (1,906           | )      |
| Interest income                              |   | $      | 29           |   | $      | 17           |   | $      | —          |   | $      | —          |   | $      | 46               |   |
| Depreciation and amortization classified as: |   |   |         |   |   |         |   |   |             |   |   |             |   |   |             |   |
| Cost of sales                                |   | $      | 1,133        |   | $      | 908          |   | $      | —          |   | $      | —          |   | $      | 2,041            |   |
| Selling, general and administrative expenses |   |   | 31           |   |   | 99           |   |   | —          |   |   | —          |   |   | 130              |   |
| Total depreciation and amortization          |   | $      | 1,164        |   | $      | 1,007        |   | $      | —          |   | $      | —          |   | $      | 2,171            |   |
| Total capital expenditures (1)               |   | $      | 4,264        |   | $      | 225          |   | $      | —          |   | $      | —          |   | $      | 4,489            |   |

 

_________________

|   | **(1)** | Includes capital expenditures in accounts                            payable. |
|--------|---------|-------------------------------------------------------------------------------|

 

F-14

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

The following table sets forth summarized financial information for the            Company by business segment from May 11, 2005 through December 31, 2005:

             

|                                         |   |   | **AZEK**     |   |   |         |   |   |              |   |   |             |   |   |             |   |
|----------------------------------------------|--------|--------|--------------|--------|--------|--------------|--------|--------|-------------------|--------|--------|------------------|--------|--------|------------------|--------|
|                                         |   |   | **Building** |   |   | **Scranton** |   |   |              |   |   |             |   |   |             |   |
|                                         |   |   | **Products** |   |   | **Products** |   |   | **Corporate (2)** |   |   | **Eliminations** |   |   | **Consolidated** |   |
| Net sales to external customers              |   | $      | 91,310       |   | $      | 49,362       |   | $      | —           |   | $      | —          |   | $      | 140,672          |   |
| Intersegment net sales                       |   |   | 1,293        |   |   | —      |   |   | —           |   |   | (1,293           | )      |   | —          |   |
| Total net sales                              |   |   | 92,603       |   |   | 49,362       |   |   | —           |   |   | (1,293           | )      |   | 140,672          |   |
| Cost of sales                                |   |   | (69,722      | )      |   | (44,647      | )      |   | —           |   |   | 1,293            |   |   | (113,076         | )      |
| Gross margin                                 |   |   | 22,881       |   |   | 4,715        |   |   | —           |   |   | —          |   |   | 27,596           |   |
| Selling, general and administrative expenses |   |   | (11,795      | )      |   | (4,654       | )      |   | (2,421            | )      |   | —          |   |   | (18,870          | )      |
| Operating income (loss)                      |   | $      | 11,086       |   | $      | 61           |   | $      | (2,421            | )      | $      | —          |   | $      | 8,726            |   |
|                                         |   |   |         |   |   |         |   |   |              |   |   |             |   |   |             |   |
| **Segmented financial data:**                |   |   |         |   |   |         |   |   |              |   |   | —          |   |   |             |   |
| Interest expense                             |   | $      | (9,073       | )      | $      | (12,220      | )      | $      | —           |   | $      | —          |   | $      | (21,293          | )      |
| Interest income                              |   | $      | 60           |   | $      | 58           |   | $      | —           |   | $      | —          |   | $      | 118              |   |
| Depreciation and amortization classified as: |   |   |         |   |   |         |   |   |              |   |   |             |   |   |             |   |
| Cost of sales                                |   | $      | 2,597        |   | $      | 2,914        |   | $      | —           |   | $      | —          |   | $      | 5,511            |   |
| Selling, general and administrative expenses |   |   | 823          |   |   | 1,055        |   |   | —           |   |   | —          |   |   | 1,878            |   |
| Total depreciation and amortization          |   | $      | 3,420        |   | $      | 3,969        |   | $      | —           |   | $      | —          |   | $      | 7,389            |   |
| Total capital expenditures**(1)**            |   | $      | 16,699       |   | $      | 596          |   | $      | —           |   | $      | —          |   | $      | 17,295           |   |

 

**___________________**

|   | **(1)** | Includes capital expenditures in accounts                            payable. |
|--------|---------|-------------------------------------------------------------------------------|

The following table sets forth summarized financial information            regarding assets for the Company by business segment:

             

| **(Dollars in thousands)** |   | **December 31,** |    | **December 31,** |   |
|----------------------------|--------|------------------|---------|------------------|--------|
|                       |   | **2007**         |    | **2006**         |   |
| Total assets:              |   |             |    |             |   |   |   |
| AZEK Building Products     |   | $                | 402,154 |             | $      | 292,389 |   |
| Scranton Products          |   |             | 190,583 |             |   | 208,681 |   |
| Corporate                  |   |             | 7,759   |             |   | 6,726 |   |
| Total consolidated assets  |   | $                | 600,496 |             | $      | 507,796 |   |

 

 

The following table sets forth the Company’s significant            distributor group sales as a percentage of total consolidated net sales, as well as a            percentage of AZEK Building Products net sales as each of these distributors are part            of the AZEK Building Products segment:

 

|          |   |   |   | **Year**              |   |   |   | **Year**              |   |   |   | **May 11, 2005**      |   |   |   | **January 1, 2005** |   |   |
|---------------|--------|--------|--------|-----------------------|--------|--------|--------|-----------------------|--------|--------|--------|-----------------------|--------|--------|--------|---------------------|--------|--------|
|          |   |   |   | **Ended**             |   |   |   | **Ended**             |   |   |   | **to**                |   |   |   | **To**              |   |   |
|          |   |   |   | **December 31, 2007** |   |   |   | **December 31, 2006** |   |   |   | **December 31, 2005** |   |   |   | **May 10, 2005**    |   |   |
|          |   |   |   |                  |   |   |   | **% of**              |   |   |   |                  |   |   |   | **% of**            |   |   |   |   |   | **% of** |   |   |   |   |   |   |   | **% of** |   |   |
|          |   |   |   |                  |   |   |   | **AZEK**              |   |   |   |                  |   |   |   | **AZEK**            |   |   |   |   |   | **AZEK** |   |   |   |   |   |   |   | **AZEK** |   |   |
|          |   |   |   | **% of**              |   |   |   | **Building**          |   |   |   | **% of**              |   |   |   | **Building**        |   |   |   | **% of** |   | **Building** |   |   |   | **% of** |   |   |   | **Building** |   |   |
|          |   |   |   | **Consolidated**      |   |   |   | **Products**          |   |   |   | **Consolidated**      |   |   |   | **Products**        |   |   |   | **Consolidated** |   | **Products** |   |   |   | **Consolidated** |   |   |   | **Products** |   |   |
|          |   |   |   | **Sales**             |   |   |   | **Sales**             |   |   |   | **Sales**             |   |   |   | **Sales**           |   |   |   | **Sales** |   | **Sales** |   |   |   | **Sales** |   |   |   | **Sales** |   |   |
| Distributor A |   |   |   | 28                    | %      |   |   | 35                    | %      |   |   | 22                    | %      |   |   | 35                  | %      |   |   | 26 | % | 42 | % |   |   | 28 | % |   |   | 40 | % |   |
| Distributor B |   |   |   | 7                     |   |   |   | 10                    |   |   |   | 11                    |   |   |   | 17                  |   |   |   | 11 |   | 18 |   |   |   | 10 |   |   |   | 14 |   |   |
| Distributor C |   |   |   | 8                     |   |   |   | 12                    |   |   |   | —               |   |   |   | —             |   |   |   | — |   | — |   |   |   | — |   |   |   | — |   |   |
| Total         |   |   |   | 43                    | %      |   |   | 57                    | %      |   |   | 33                    | %      |   |   | 52                  | %      |   |   | 37 | % | 60 | % |   |   | 38 | % |   |   | 54 | % |   |

             

 

F-15

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

             

| **3.** | **ACQUISITION** |
|--------|-----------------|

             

On December 13, 2006, CPG entered into a unit purchase agreement to            acquire all of the outstanding equity of Pro-Cell, LLC (“Procell”), which            owned and operated Procell Decking Systems for a purchase price of $77,324,000. The            acquisition of Procell (“Procell Acquisition”) closed on January 31, 2007.            The Procell Acquisition was accounted for as a purchase business combination in            accordance with SFAS 141,*Business            Combinations*.

             

The purchase price is allocated to the tangible and intangible assets            acquired and liabilities assumed based on fair values as of the date of the            transaction, including a portion of which was capitalized to the balance sheet as            goodwill. The purchase price was subject to final determination, including a cash            payment, as well as additional equity in CPG International Holdings, LP            (“Holdings”) to the former owners of Procell based upon achievement of            certain financial and operating targets for the year ended December 31, 2007. The            Company’s management recorded $12,333,000 as the cash payment under the terms of            the purchase agreement, and $5,733,000 representing the value of the additional equity            in Holdings, both of which are included in other current liabilities at December 31,            2007. A valuation study was performed by an independent third party, which resulted in            changes in property and equipment and the recording of intangible assets including            customer relationships and proprietary technology amortizable on an accelerated basis            over the next ten and fifteen years respectively, and non-compete agreements,            amortizable over the next five years. The amount allocated to goodwill is reflective of            the future benefit the Company is expecting to realize from the Procell Acquisition,            including strategic growth opportunities within AZEK Building Products. Procell’s            results of operations, subsequent to January 31, 2007, are reported as part of the AZEK            Building Products business unit. The amount allocated to goodwill is expected to be            deductible for tax purposes.

             

The following table summarizes the allocation of fair values of            Procell’s assets acquired and liabilities assumed at the date of acquisition, as            follows:  

             

|                                                                             |   |   |   |   |   | **At February** |   |
|----------------------------------------------------------------------------------|--------|--------|--------|--------|--------|-----------------|--------|
| **(Dollars in thousands)**                                                       |   |   |   |   |   | **1, 2007**     |   |
|                                                                             |   |   |   |   |   |            |   |
| Purchase price                                                                   |   |   |   |   | $      | 72,072          |   |
| Transaction costs                                                                |   |   |   |   |   | 5,252           |   |
|                                                                             |   |   |   |   |   | 77,324          |   |
| Less:                                                                            |   |   |   |   |   |            |   |
| Cash and cash equivalents                                                        |   | $      | 1,075  |   |   |            |   |
| Accounts Receivable                                                              |   |   | 2,593  |   |   |            |   |
| Inventory                                                                        |   |   | 2,248  |   |   |            |   |
| Other current assets                                                             |   |   | 6      |   |   |            |   |
| Deferred tax asset                                                               |   |   | 482    |   |   |            |   |
| Property, plant and equipment                                                    |   |   | 12,465 |   |   |            |   |
| Intangible assets:                                                               |   |   |   |   |   |            |   |
| Proprietary technology                                                           |   |   | 7,300  |   |   |            |   |
| Customer relationships                                                           |   |   | 2,200  |   |   |            |   |
| Non-compete agreement                                                            |   |   | 2,400  |   |   |            |   |
| Total assets acquired                                                            |   |   | 30,769 |   |   |            |   |
| Accounts payable assumed                                                         |   |   | 2,883  |   |   |            |   |
| Capital lease obligation assumed                                                 |   |   | 3,421  |   |   |            |   |
| Other liabilities assumed                                                        |   |   | 2,234  |   |   |            |   |
| Total liabilities assumed                                                        |   |   | 8,538  |   |   |            |   |
|                                                                             |   |   |   |   |   | (22,231         | )      |
| Goodwill (excess purchase price over net asset                            value) |   |   |   |   | $      | 55,093          |   |

 

 

F-16

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

The following pro forma consolidated financial information for the years            ended December 31, 2007 and 2006 are presented as though the Procell Acquisition            occurred on January 1, 2007 and 2006. The pro forma consolidated financial information            is not indicative of future results of operations or results of operations that would            have actually occurred had the Procell Acquisition been consummated as of January 1,            2007 and 2006, due to the fair values assigned to Procell’s assets and            liabilities, the changes made in related estimated useful lives of the assets at            February 1, 2007, as well as changes in interest and income tax expenses as a result of            the Procell Acquisition.

 

|                       | **Pro Forma**    |    | **Pro Forma**    |   |
|----------------------------|------------------|---------|------------------|--------|
|                       | **Year Ended**   |    | **Year Ended**   |   |
|                       | **December 31,** |    | **December 31,** |   |
| **(Dollars in thousands)** | **2007**         |    | **2006**         |   |
|                       |             |    |             |   |   |   |
| Net sales                  | $                | 317,115 |             | $      | 294,869 |   |
|                       |             |    |             |   |   |   |
| Net income (loss)          | $                | 3,733   |             | $      | (1,725 | ) |

 

On April 29, 2006, the Company completed the acquisition of Santana            Holdings Corporation, the direct parent of Santana Products, Inc. for a purchase price            of $36.0 million (the “Santana Acquisition”). Santana Products Inc. was            merged into the Scranton Products business            unit.          

 

The following pro forma consolidated financial information for the year            ended December 31, 2006 is presented as though the Santana Acquisition occurred on            January 1, 2006. The pro forma consolidated financial information is not indicative of            future results of operations or results of operations that would have actually occurred            had the Santana Acquisition been consummated as of January 1, 2006, due to the fair            values assigned to Santana’s assets and liabilities, the changes made in related            estimated useful lives of the assets at April 29, 2006, as well as changes in interest            and income tax expenses as a result of the Santana Acquisition.

 

|                       |   | **Pro Forma**    |    |
|----------------------------|--------|------------------|---------|
|                       |   | **Year Ended**   |    |
|                       |   | **December 31,** |    |
| **(Dollars in thousands)** |   | **2006**         |    |
|                       |   |             |    |   |
| Net sales                  |   | $                | 271,847 |   |
|                       |   |             |    |   |
| Net loss                   |   | $                | (4,478  | ) |

 

 

| **4.** | **INVENTORIES** |
|--------|-----------------|

 

|   | Inventories consisted of the following: |
|--------|-----------------------------------------|

 

|                       |   | **December 31,** |   | **December 31,** |   |
|----------------------------|--------|------------------|--------|------------------|--------|
| **(Dollars in thousands)** |   | **2007**         |   | **2006**         |   |
| Raw materials              |   | $                | 22,664 |             | $      | 21,640 |   |
| Work in process            |   |             | 145    |             |   | 133 |   |
| Finished goods             |   |             | 29,582 |             |   | 23,720 |   |
| Total inventories          |   | $                | 52,391 |             | $      | 45,493 |   |

 

|   | Inventories are valued at the lower of cost or market,                            determined on a first-in, first-out basis                            (“FIFO”). |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

 

F-17

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

 

| **5.** | **PROPERTY AND EQUIPMENT—NET** |
|--------|--------------------------------------|

 

|   | Property and equipment consisted of the                            following: |
|--------|-------------------------------------------------------------------------------|

 

|                                          |   | **December 31,** |    | **December 31,** |   |
|-----------------------------------------------|--------|------------------|---------|------------------|--------|
| **(Dollars in thousands)**                    |   | **2007**         |    | **2006**         |   |
| Land and improvements                         |   | $                | 1,701   |             | $      | 1,701 |   |
| Buildings and improvements                    |   |             | 20,766  |             |   | 22,414 |   |
| Capital lease – building                |   |             | 1,500   |             |   | 1,500 |   |
| Capital lease – manufacturing equipment |   |             | 6,655   |             |   | 2,305 |   |
| Manufacturing equipment                       |   |             | 84,446  |             |   | 62,684 |   |
| Office furniture and equipment                |   |             | 4,766   |             |   | 3,829 |   |
| Total property and equipment                  |   |             | 119,834 |             |   | 94,433 |   |
| Construction in progress                      |   |             | 3,805   |             |   | 2,833 |   |
|                                          |   |             | 123,639 |             |   | 97,266 |   |
| Accumulated depreciation                      |   |             | (30,946 | )                |   | (17,331 | ) |
| Total property and equipment – net      |   | $                | 92,693  |             | $      | 79,935 |   |

 

Depreciation expense for the years ended December 31, 2007 and 2006 was            approximately $13,964,000 and $11,410,000, respectively. Depreciation expense for the            period January 1 to May 10, 2005 and May 11 through December 31, 2005 was approximately            $2,156,000 and $5,900,000, respectively.

 

| **6.** | **GOODWILL AND INTANGIBLE ASSETS                            —NET** |
|--------|--------------------------------------------------------------------------|

 

|   | Goodwill and intangible assets consisted of the                            following: |
|--------|---------------------------------------------------------------------------------------|

 

|                                                                       | **Lives in** |   |   | **December 31,** |   |   | **December 31,** |   |
|----------------------------------------------------------------------------|--------------|--------|--------|------------------|--------|--------|------------------|--------|
| **(Dollars in thousands)**                                                 | **Years**    |   |   | **2007**         |   |   | **2006**         |   |
| Goodwill                                                                   | —      |   | $      | 288,084          |   | $      | 232,749          |   |
|                                                                       |         |   |   |             |   |   |             |   |
| Non-amortizable intangibles                                                |         |   |   |             |   |   |             |   |
| Trademarks                                                                 |         |   |   | 71,400           |   |   | 71,400           |   |
| Amortizable intangibles-                                                   |         |   |   |             |   |   |             |   |
| Non-compete agreement                                                      | 5            |   |   | 2,500            |   |   | 100              |   |
| Accumulated amortization non-compete                            agreement  |         |   |   | (473             | )      |   | (13              | )      |
| Non-compete agreement- net                                                 |         |   |   | 2,027            |   |   | 87               |   |
|                                                                       |         |   |   |             |   |   |             |   |
| Customer relationships                                                     | 10           |   |   | 25,200           |   |   | 23,000           |   |
| Accumulated amortization customer                            relationships |         |   |   | (6,382           | )      |   | (3,682           | )      |
| Customer relationships-net                                                 |         |   |   | 18,818           |   |   | 19,318           |   |
|                                                                       |         |   |   |             |   |   |             |   |
| Proprietary knowledge                                                      | 15           |   |   | 9,100            |   |   | 1,800            |   |
| Accumulated amortization proprietary                            knowledge  |         |   |   | (1,230           | )      |   | (197             | )      |
| Proprietary knowledge-net                                                  |         |   |   | 7,870            |   |   | 1,603            |   |
|                                                                       |         |   |   |             |   |   |             |   |
| Total amortizable intangibles-net                                          |         |   |   | 28,715           |   |   | 21,008           |   |
| Intangible assets – net                                              |         |   | $      | 100,115          |   | $      | 92,408           |   |

 

In accordance with SFAS 142,*Goodwill and Other            Intangible Assets*, goodwill and trademarks are tested for            impairment annually at the reporting unit level. The customer relationships,            non-compete agreement and proprietary

 

F-18

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

knowledge, which are amortizable, will be tested for impairment whenever            events or circumstances indicate that the carrying value may not be recoverable, in            accordance with SFAS No. 144,*Accounting for the Impairment or            Disposal of Long-Lived Assets.*

 

At December 31, 2007, approximately $195,764,000 represents goodwill            attributable to the AZEK Building Products segment and approximately $92,320,000            represents goodwill attributable to the Scranton Products segment.

 

Amortization expense for the years ended December 31, 2007 and 2006 was            approximately $4,193,000 and $2,403,000, respectively. Amortization expense for the            period of January 1 to May 10, 2005 and May 11 through December 31, 2005 was            approximately $15,000 and $1,489,000, respectively.

 

The following table presents the future intangible asset amortization            expense based on existing intangible assets at December 31, 2007:

 

|                       |   | **December 31,** |   |
|----------------------------|--------|------------------|--------|
| **(Dollars in thousands)** |   | **2007**         |   |
| 2008                       |   | $                | 4,132  |   |
| 2009                       |   |             | 4,031  |   |
| 2010                       |   |             | 3,930  |   |
| 2011                       |   |             | 3,816  |   |
| 2012                       |   |             | 3,268  |   |
| Thereafter                 |   |             | 9,538  |   |
| Total                      |   |             | 28,715 |   |

 

The following table summarizes the changes in the Company’s            goodwill for the period of May 11, 2005 to December 31, 2005 and for the years ended            December 31, 2006 and 2007:

 

|                                                                                                 |   |    |   |
|------------------------------------------------------------------------------------------------------|--------|---------|--------|
| **(Dollars in thousands)**                                                                           |   |    |   |
| Goodwill at May 11, 2005                                                                             | $      | — |   |
| Purchase goodwill related to the Transaction                                                         |   | 213,682 |   |
| Goodwill at December 31, 2005                                                                        | $      | 213,682 |   |
| Purchase adjustments related to the Transaction for                            deferred income taxes |   | (2,371  | )      |
| Purchase goodwill related to the Santana                            Acquisition                      |   | 21,438  |   |
| Goodwill at December 31, 2006                                                                        |   | 232,749 |   |
| Purchase goodwill related to the Procell                            Acquisition                      |   | 55,093  |   |
| FIN 48 liability adjustment related to                            Transaction                        |   | 800     |   |
| Purchase goodwill related to the Santana                            Acquisition                      |   | 39      |   |
| Purchase adjustments for deferred income                            taxes                            |   | (597    | )      |
| Goodwill at December 31, 2007                                                                        | $      | 288,084 |   |

 

| **7.** | **DEFERRED FINANCING COSTS** |
|--------|------------------------------|

 

|   | Deferred financing costs consisted of the                            following: |
|--------|---------------------------------------------------------------------------------|

 

|                                |   | **December 31,** |   |   | **December 31,** |   |
|-------------------------------------|--------|------------------|--------|--------|------------------|--------|
| **(Dollars in thousands)**          |   | **2007**         |   |   | **2006**         |   |
|                                |   |             |   |   |             |   |
| Deferred financing costs            | $      | 13,194           |   | $      | 12,748           |   |
| Accumulated amortization            |   | (4,589           | )      |   | (2,668           | )      |
| Total deferred financing costs, net | $      | 8,605            |   | $      | 10,080           |   |

 

 

F-19

 

 

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

 

Amortization of deferred financing costs for the years ended December            31, 2007 and 2006 were approximately $1,921,000 and $1,679,000, respectively.            Amortization of deferred financing costs for the period of January 1, 2005 to May 10,            2005 and May 11, 2005 to December 31, 2005 was approximately $47,000 and $989,000            respectively. Amortization of deferred financing costs is included in interest expense            on the consolidated statements of operations.

 

| **8.** | **LONG-TERM DEBT** |
|--------|--------------------|

 

|   | Long-term debt consisted of the following: |
|--------|--------------------------------------------|

 

|                                                                                                    |   | **December 31,** |    | **December 31,** |   |
|---------------------------------------------------------------------------------------------------------|--------|------------------|---------|------------------|--------|
| **(Dollars in thousands)**                                                                              |   | **2007**         |    | **2006**         |   |
| Senior Unsecured Fixed Rate Notes due                            2013—10.5%                       |   | $                | 150,000 |             | $      | 150,000 |   |
| Senior Unsecured Floating Rate Notes due                            2012—LIBOR + 6.75% (12.12% at |   |             |    |             |   |   |   |
| December 31, 2007 and 12.33% at December 31, 2006)                            (includes premium of      |   |             |    |             |   |   |   |
| $107 at December 31, 2007 and $132 at December 31,                            2006)                     |   |             | 128,107 |             |   | 95,132 |   |
| Credit Facility – (8.14% - 9.75% at December 31,                            2006)                 |   |             | — |             |   | 9,500 |   |
| Notes payable                                                                                           |   |             | — |             |   | 8 |   |
|                                                                                                    |   |             |    |             |   |   |   |
| Total                                                                                                   |   |             | 278,107 |             |   | 254,640 |   |
| Less current portion                                                                                    |   |             | — |             |   | (9,508 | ) |
| Long-term debt—less current portion                                                               |   | $                | 278,107 |             | $      | 245,132 |   |

 

In connection with the Transaction, CPG issued $215,000,000 of            indebtedness on May 10, 2005. On June 29, 2005, CPG priced a refinancing of the            Transaction debt with the issuance of $65,000,000 aggregate principal amount of Senior            Floating Rate Notes due 2012 (the “Floating Rate Notes”) and $150,000,000            aggregate principal amount of 101⁄2% Senior Notes due 2013 (the “Fixed Rate            Notes,” and collectively with the Floating Rate Notes, the “Notes”).            The Notes have been guaranteed by the Company and all of the subsidiaries of CPG. The            indenture governing the Notes, contains a number of covenants that, among other things,            restrict CPG’s ability, and the ability of any subsidiary guarantors, subject to            certain exceptions, to sell assets, incur additional debt, repay other debt, pay            dividends and distributions on CPG’s capital stock or repurchase CPG’s            capital stock, create liens on assets, make investments, loans or advances, make            certain acquisitions, engage in mergers or consolidations and engage in certain            transactions with affiliates.

 

On April 28, 2006, in connection with the Santana Acquisition, CPG            issued an additional $30,000,000 aggregate principal amount of Floating Rate Notes.            These additional notes are governed by the same indenture dated as of July 5, 2005,            governing the previously issued Floating Rate Notes.

 

On January 31, 2007, in connection with the Procell Acquisition, CPG            issued an additional $33,000,000 million aggregate principal amount of Senior Unsecured            Floating Rate Notes due 2012. These additional notes are governed by the same indenture            dated as of July 5, 2005, governing the previously issued Notes.

 

As of December 31, 2007, the Company has scheduled long term debt            payments (excluding interest) of $128,000,000 in 2012 and $150,000,000 in            2013.

 

Concurrently with the closing of the Transaction, CPG entered into a            senior secured revolving credit facility that provides availability of up to            $40,000,000. The amount of borrowing capacity available under the Company’s            senior secured revolving credit facility is limited to an amount equal to the sum of            (a) 85% of accounts receivable and (b) 60% of inventory. The borrowings under            the senior secured revolving credit facility are available until its maturity in 2011            to fund the ongoing working capital requirements, capital expenditures and other            general

 

F-20

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

corporate needs. As of December 31, 2007, there was nil outstanding            under, and a letter of credit of $1,430,000 held against, the senior secured revolving            credit facility, which had an additional $38,570,000 available for borrowing as of such            date.

 

The senior secured revolving credit facility imposes certain            restrictions on agreement governing the Company, CPG and the subsidiary guarantors,            including restrictions on their ability to incur additional indebtedness or issue            guarantees, grant liens, make fundamental changes in their business, corporate            structure or capital structure, including, among other things, entering into mergers,            acquisitions and other business combinations, make loans and investments, enter into            transactions with affiliates, modify or waive material agreements in a manner that is            adverse in any material respect to the lenders, or prepay or repurchase subordinated            indebtedness. In addition, the senior secured revolving credit facility includes a            material financial covenant that requires CPG to maintain at all times a maximum total            senior secured leverage ratio (total senior indebtedness on the last day of any fiscal            quarter over consolidated earnings before interest, taxes, depreciation and            amortization for the preceding twelve-month period) less than or equal to 1.5 to 1.0.            Indebtedness under the senior secured revolving credit facility is secured by            substantially all of CPG’s present and future assets. In addition, the senior            secured credit facility is guaranteed by the Company and all of the subsidiaries of            CPG, including Scranton Products Inc. and AZEK Building Products.

 

The Company was in compliance with the financial covenants imposed by            the senior secured revolving credit facility for the year ended December 31,            2007.

             

For detail regarding financing activities subsequent to year end, see            Note 14 below.

             

| **9.** | **LEASE COMMITMENTS** |
|--------|-----------------------|

 

On May 11, 2007, CPG sold one of its manufacturing facilities and            concurrently entered into an operating lease with the buyer to continue to use a            portion of the building through May 2009 at a rate of approximately $14,000 per month            for the first year and approximately $12,000 a month for the second year.

 

The Company leases machinery, computer equipment and a manufacturing            facility under various capital leases. The Company also leases office equipment,            vehicles, a manufacturing facility and an office under operating leases expiring during            the next six years.

 

Future minimum rental payments at December 31, 2007 for capital and            operating leases having non-cancelable lease terms in excess of one year are as            follows:

 

|                                                                                             |   | **Capital** |   | **Operating** |   |
|--------------------------------------------------------------------------------------------------|--------|-------------|--------|---------------|--------|
| 2008                                                                                             |   | $           | 2,285  |          | $      | 1,430 |   |
| 2009                                                                                             |   |        | 2,276  |          |   | 1,297 |   |
| 2010                                                                                             |   |        | 1,950  |          |   | 1,112 |   |
| 2011                                                                                             |   |        | 1,492  |          |   | 929 |   |
| 2012                                                                                             |   |        | 656    |          |   | 869 |   |
| Thereafter                                                                                       |   |        | 6,768  |          |   | 2,265 |   |
| Total                                                                                            |   |        | 15,427 |          | $      | 7,902 |   |
| Less amount representing interest                                                                |   |        | (8,601 | )             |   |   |   |
| Present value of minimum capital lease                            payments                       |   |        | 6,826  |          |   |   |   |
| Less current installments of obligations under capital                            leases         |   |        | (1,415 | )             |   |   |   |
| Obligations under capital leases—excluding current                            installments |   | $           | 5,411  |          |   |   |   |

 

Total rent expense for the year ended December 31, 2007 and was            approximately $1,602,000 and $480,000, respectively.

 

F-21

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

| **10.** | **INCOME TAXES** |
|---------|------------------|

             

Components of the income tax expense for the periods ended:

             

|                       |   |   | **Year**         |   |   | **Year**         |   |   | **May 11, 2005** |   |
|----------------------------|--------|--------|------------------|--------|--------|------------------|--------|--------|------------------|--------|
|                       |   |   | **Ended**        |   |   | **Ended**        |   |   | **to**           |   |
| **(Dollars in thousands)** |   |   | **December 31,** |   |   | **December 31,** |   |   | **December 31,** |   |
|                       |   |   | **2007**         |   |   | **2006**         |   |   | **2005**         |   |
| Current:                   |   |   |             |   |   |             |   |   |             |   |
| Federal                    |   | $      | 40               |   | $      | —          |   | $      | —          |   |
| State and local            |   |   | 246              |   |   | 13               |   |   | (185             | )      |
| Total current              |   |   | 286              |   |   | 13               |   |   | (185             | )      |
| Deferred:                  |   |   |             |   |   |             |   |   |             |   |
| Federal                    |   |   | 2,553            |   |   | 28               |   |   | 3,955            |   |
| State and local            |   |   | 921              |   |   | 189              |   |   | 912              |   |
| Total deferred             |   |   | 3,474            |   |   | 217              |   |   | 4,867            |   |
| Income tax expense         |   | $      | 3,760            |   | $      | 230              |   | $      | 4,682            |   |

 

Income tax provision differed from the amounts computed by applying the            US Federal income tax rate of 34% to income before income taxes as a result of the            following:

 

|                                                                                  |   |   |   |   |             |   |   |   |             |   |   | **May 11, 2005** |   |
|---------------------------------------------------------------------------------------|--------|--------|--------|--------|------------------|--------|--------|--------|------------------|--------|--------|------------------|--------|
|                                                                                  |   |   |   |   | **Year Ended**   |   |   |   | **Year Ended**   |   |   | **to**           |   |
|                                                                                  |   |   |   |   | **December 31,** |   |   |   | **December 31,** |   |   | **December 31,** |   |
|                                                                                  |   |   |   |   | **2007**         |   |   |   | **2006**         |   |   | **2005**         |   |
| Expense (benefit) at federal statutory rate                                           |   | $      |   |   | 2,852            |   |   | $      | (86              | )      | $      | 4,252            |   |
| State and local tax expense – net of federal                            benefit |   |   |   |   | 731              |   |   |   | 134              |   |   | 480              |   |
| Nondeductible expenses and other                                                      |   |   |   |   | 177              |   |   |   | 182              |   |   | (50              | )      |
| Income tax expense                                                                    |   | $      |   |   | 3,760            |   |   | $      | 230              |   | $      | 4,682            |   |

 

The Company accounts for income taxes in accordance with SFAS No.            109,*Accounting for Income Taxes*,            which requires an asset and liability approach to financial accounting and reporting            for income taxes. Accordingly, deferred income taxes have been provided for the            temporary differences between the financial reporting and the income tax basis of the            Company’s assets and liabilities by applying enacted statutory tax rates            applicable to future years to the basis differences. Deferred tax assets (liabilities)            consist of the following at December 31:

 

| **(Dollars in thousands)**                                                          |   |   | **2007** |   |   | **2006** |   |
|-------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|
| Deferred tax asset:                                                                 |   |   |     |   |   |     |   |
| Federal net operating loss carryforwards and AMT                            credits |   | $      | 6,628    |   | $      | 6,877    |   |
| State loss carryforwards and other benefits                                         |   |   | 1,469    |   |   | 1,654    |   |
| Inventory reserves                                                                  |   |   | 574      |   |   | 1,048    |   |
| Warranty reserves                                                                   |   |   | 1,167    |   |   | 678      |   |
| Accrued expenses                                                                    |   |   | 1,740    |   |   | 1,369    |   |
| Valuation allowance                                                                 |   |   | (1,555   | )      |   | (1,496   | )      |
| Total                                                                               |   |   | 10,023   |   |   | 10,130   |   |
| Deferred tax liabilities:                                                           |   |   |     |   |   |     |   |
| Intangibles- net                                                                    |   |   | (36,172  | )      |   | (33,903  | )      |
| Prepaid assets                                                                      |   |   | (353     | )      |   | (310     | )      |
| Property, plant and equipment                                                       |   |   | (10,602  | )      |   | (10,440  | )      |
| Total                                                                               |   |   | (47,127  | )      |   | (44,653  | )      |
| Net deferred tax liability                                                          |   | $      | (37,104  | )      | $      | (34,523  | )      |

 

 

F-22

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

 

At December 31, 2007, the Company has approximately $19,778,000 of net            operating loss carryfowards for federal income tax purposes which expire between the            years 2021 to 2027 and approximately $18,600,000 of net operating loss carryfowards for            state tax purposes which expire in varying amounts through 2027. The valuation            allowance for deferred tax assets of $1,555,000 and $1,496,000 at December 31, 2007 and            December 31, 2006, respectively, relates principally to the uncertainty of the            utilization of certain deferred tax assets, primarily the state tax loss carryforwards            of certain subsidiaries. The valuation allowance reflects management’s analysis            indicating it is “more likely than not” that such deferred tax assets will            not be realized. Management has determined that it is more likely than not that the            Company will generate sufficient taxable income in the future to realize the benefit            related to its federal net operating loss carryfowards.

 

On January 1, 2007, the Company adopted the provisions of FIN 48, and as            a result of that adoption, the Company recorded unrecognized tax benefits of $800,000            on the balance sheet, which did not result in a cumulative effect adjustment to            retained earnings as the adjustment was recorded to goodwill based on the nature of the            position involved. A reconciliation of the beginning and ending balances for            liabilities associated with unrecognized tax benefits is as follows:

             

| **(Dollars in thousands)**                                                                   |   |   |    |   |
|----------------------------------------------------------------------------------------------|--------|--------|---------|--------|
|                                                                                         |   |   |    |   |
| Balance at January 1, 2007                                                                   |   | $      | 800     |   |
| Unrecognized tax benefits related to prior                            years                  |   |   | – |   |
| Unrecognized tax benefits related to the current year                            settlements |   |   | – |   |
| Reductions in unrecognized tax benefits due to the lapse                            of       |   |   |    |   |
| applicable statute of limitations                                                            |   |   | – |   |
| Balance at December 31, 2007                                                                 |   | $      | 800     |   |

 

Of the total unrecognized tax benefits, $664,000 is carried at December            31, 2007 as a non-current liability, and $136,000 as an offset to non-current deferred            tax assets. None of the unrecognized tax benefits would have an impact on the            Company’s effective tax rate if realized (or remeasured) prior to the adoption of            SFAS 141(R), however realization (or remeasurement) would have an impact on the            Company’s effective tax rate if such occurred after the adoption of SFAS 141(R).            Prior to the adoption of SFAS 141(R), an increase to the FIN 48 reserve is recorded as            an increase to goodwill, and any decrease in the FIN 48 liability would decrease            goodwill. Subsequent to the adoption of SFAS 141(R) (effective for the Company with its            year beginning January 1, 2009) the above rule will no longer apply and any expense or            benefit associated with the realization (or remeasurement) of the unrecognized tax            benefit will be recorded as part of income tax expense.

 

When applicable, the Company’s practice is to recognize interest            and/or penalties related to income tax matters in income tax expense. No interest or            penalty was included in income tax expense for the year 2007. As of December 31, 2007            and January 1, 2007, there was no accrual for interest or penalties recorded on the            consolidated balance sheet.

 

The Company and its subsidiaries file income tax returns in the U.S.            federal jurisdiction. Generally, the Company and its subsidiaries’ federal income            tax returns for tax years 2004 and beyond are open tax years subject to examination by            the Internal Revenue Service (IRS). The IRS recently concluded the examination of a            subsidiary’s tax return for a short taxable year ending May 2005. The IRS            recently commenced an examination of another subsidiary’s tax return for the year            2004. It is not anticipated that the unrecognized tax benefits for tax positions taken            regarding previously filed returns will change significantly over the next twelve            months. The Company and its subsidiaries also file income tax returns in various state            jurisdictions, as appropriate, with varying statutes of limitation. There are no state            income tax examinations in process at this time.

 

 

F-23

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

| **11.** | **COMMITMENTS AND CONTINGENCIES** |
|---------|-----------------------------------|

 

From time to time, the Company is subject to litigation in the ordinary            course of business. Currently, there are no claims or proceedings against the Company            that it believes would be expected to have a material adverse effect on the            Company’s business or financial condition, results of operations or cash            flows.

             

| **12.** | **RELATED PARTY TRANSACTIONS** |
|---------|--------------------------------|

 

AEA Investors, the general partner of CPG International Holdings LP (CPG            Holdings), the Company’s direct parent company, is entitled to a management fee            at an annual rate of $1,500,000, payable on a monthly basis pursuant to a management            agreement with AEA Investors. Management fees of $1,500,000 and $1,021,000 are included            in selling, general and administrative expenses for the years ended December 31, 2007            and 2006, respectively.

             

The Company leases one of its manufacturing facilities from an affiliate            of an equity holder of CPG Holdings. Total lease payments for the year ended December            31, 2007 was $503,000 and $498,000, respectively. The Company also has an option,            expiring January 1, 2009, to purchase the land, building and fixtures for            $4,000,000.

             

Upon completion of the Procell Acquisition, the Company entered into an            amended lease agreement related to Procell’s office and manufacturing facilities            location, with North Alabama Property Leasing, Inc. The lessor of the property is an            entity whose sole shareholder is an equity holder in CPG Holdings. Total lease payments            for the year ended December 31, 2007 were approximately $464,000.

 

Tide Transport, Inc., a freight company owned by two equity holders of            CPG Holdings, provides certain freight services to our Foley, Alabama facility on a            regular basis. These services include shipping finished product and for the            transportation of resin purchases. Total freight costs for this arrangement were            approximately $802,000 for the year ended December 31, 2007.

             

The Company also has a long-term receivable in the amount of $653,000            due from CPG Holdings.

 

| **13.** | **EQUITY** |
|---------|------------|

 

*Common Shares*– All of the            Company’s issued and outstanding common shares are held by CPG Holdings, its            direct parent company. In connection with the Transaction, CPG International Inc. made            an initial capital contribution of $165,000,000, all of which was recorded as paid in            capital. In connection with the Procell Acquisition, the Company received an additional            capital contribution of $34,895,000. The Company had 1,000 shares authorized and 10            shares issued and outstanding at December 31, 2007.

 

| **14.** | **SUBSEQUENT EVENT** |
|---------|----------------------|

             

On February 11, 2008, the Company entered into a purchase and sale            agreement to acquire 100% of the outstanding stock of Compos-A-Tron Manufacturing Inc.            (“Composatron”) for CAD $30.0 million. If certain financial targets are met            in 2008, that purchase price may increase by approximately CAD $4.0 million in cash.            The acquisition closed on February 29, 2008. Composatron is a privately held            manufacturer of Premier and Trademark Railing Systems, leading composite railing            solutions for the residential housing market. The Premier and Trademark branded railing            systems are manufactured using a PVC / wood flour composite and a co-extruded PVC            capstock. The products have the subtle texture of painted wood and are ICC code listed.            The product lines offered by Composatron are highly complimentary to the            Company’s AZEK Deck products and already offer a successful rail system that            matches the AZEK Deck color palette.

             

On February 13, 2008, the Company and its subsidiaries entered into a            Loan and Security Agreement with Wachovia Bank, National Association (the “Loan            Agreement”), as administrative agent, and General Electric Capital

 

F-24

**CPG International Inc.**

**and Subsidiaries**

Notes            to Consolidated Financial Statements.

 

Corporation, as syndication agent.  The Loan Agreement            provides subsidiaries of the Company with up to $65.0 million in borrowing capacity,            with the actual borrowing base limited to a percentage of eligible receivables and            inventory, subject to reserves established by the administrative agent in its permitted            discretion.  The Loan Agreement requires subsidiaries of the Company to repay            the outstanding principal on any loans thereunder at the maturity date as defined            therein, but in any case no later than February 13, 2013. Borrowings under the Loan            Agreement bear interest, at the Company’s option, at the base rate (prime rate)            plus a spread of up to 0.5% or adjusted LIBOR plus a spread of 1.5% to 2.25%, or a            combination thereof. The Loan Agreement also provides for a fee ranging between 0.25%            and 0.5% of unused commitments. Substantially all of the Company’s and its            subsidiaries’ assets (excluding real property) are pledged as collateral for any            borrowings under the Loan Agreement.

 

The Loan Agreement contains various covenants, including a financial            covenant which requires the Company and its subsidiaries to maintain, in certain            circumstances and as defined, minimum ratios or levels of consolidated EBITDA to            consolidated fixed charges.  The Loan Agreement also imposes certain            restrictions on the Company, and its subsidiaries, including restrictions on the            ability to issue guarantees, grant liens, make fundamental changes in their business,            corporate structure or capital structure, make loans and investments, enter into            transactions with affiliates, modify or waive material agreements, or prepay or            repurchase indebtedness.

             

On February 13, 2008, concurrently with the execution of the Loan            Agreement, the Company and its subsidiaries terminated its senior secured revolving            credit facility.

             

On February 29, 2008, the Company and its subsidiaries, entered into a            Term Loan and Security Agreement (“Term Loan Agreement”). Subsidiaries of            the Company borrowed approximately $25.0 million under the term loan as part of the            financing for the Composatron Acquisition. The Term Loan Agreement requires the            borrowers thereunder to repay the outstanding principal of the Term Loan in quarterly            installments of $62,500 from March 31, 2008 through December 31, 2010, with the            remaining outstanding principal balance of the Term Loan due no later than February 28,            2011. The Term Loan Agreement contains various covenants, including a financial            covenant which requires the Company and its subsidiaries to maintain, as defined, a            maximum ratio of consolidated senior secured indebtedness to consolidated EBITDA. The            Term Loan Agreement also imposes certain restrictions on the Company and its            subsidiaries, including restrictions on the ability to issue guarantees, grant liens,            make fundamental changes in their business, corporate structure or capital structure,            make loans and investments, enter into transactions with affiliates, modify or waive            material agreements, or prepay or repurchase indebtedness.

 

| **15.** | **QUARTERLY INFORMATION                            (UNAUDITED)**  |
|---------|------------------------------------------------------------------------|

 

|                       |   |   |   |   | **Quarter Ended** |   |   |   |   |         |   |   |   |
|----------------------------|--------|--------|--------|--------|-------------------|--------|--------|--------|--------|--------------|--------|--------|--------|
|                       |   |   |   |   | **March 31,**     |   |   |   |   | **June 30,** |   |   |   |   | **September 30,** |   |   |   |   | **December 31,** |   |   |   |   |   |   |   |   |
| **(Dollars in thousands)** |   |   |   |   | **2007**          |   |   |   |   | **2007**     |   |   |   |   | **2007** |   |   |   |   | **2007 (1)** |   |   |   |   | **Total** |   |   |   |
| Net sales                  |   | $      |   |   | 94,447            |   | $      |   |   | 77,054       |   | $      |   |   | 82,552 |   | $ |   |   | 59,650 |   | $ |   |   | 313,703 |   |   |   |
| Gross margin               |   | $      |   |   | 27,553            |   | $      |   |   | 21,686       |   | $      |   |   | 23,520 |   | $ |   |   | 15,508 |   | $ |   |   | 88,267 |   |   |   |
| Operating income           |   | $      |   |   | 16,915            |   | $      |   |   | 10,116       |   | $      |   |   | 10,261 |   | $ |   |   | 4,553 |   | $ |   |   | 41,845 |   |   |   |
| Net income (loss)          |   | $      |   |   | 5,210             |   | $      |   |   | 1,033        |   | $      |   |   | 342 |   | $ |   |   | (1,958 | ) | $ |   |   | 4,627 |   |   |   |

 

 

_________

|   | (1) | In the fourth quarter of 2007 we incurred approximately                            $0.6 million in severance costs related to the resignation of our                            former chief executive officer. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|                       |   |   |   |   | **Quarter Ended** |   |   |   |   |         |   |   |   |
|----------------------------|--------|--------|--------|--------|-------------------|--------|--------|--------|--------|--------------|--------|--------|--------|
|                       |   |   |   |   | **March 31,**     |   |   |   |   | **June 30,** |   |   |   |   | **September 30,** |   |   |   |   | **December 31,** |   |   |   |   |   |   |   |   |
| **(Dollars in thousands)** |   |   |   |   | **2006**          |   |   |   |   | **2006**     |   |   |   |   | **2006** |   |   |   |   | **2006** |   |   |   |   | **Total** |   |   |   |
| Net sales                  |   | $      |   |   | 78,066            |   | $      |   |   | 66,695       |   | $      |   |   | 65,754 |   | $ |   |   | 51,275 |   | $ |   |   | 261,790 |   |   |   |
| Gross margin               |   | $      |   |   | 20,960            |   | $      |   |   | 16,515       |   | $      |   |   | 17,087 |   | $ |   |   | 13,811 |   | $ |   |   | 68,373 |   |   |   |
| Operating income           |   | $      |   |   | 12,190            |   | $      |   |   | 6,534        |   | $      |   |   | 6,400 |   | $ |   |   | 3,000 |   | $ |   |   | 28,124 |   |   |   |
| Net income (loss)          |   | $      |   |   | 3,637             |   | $      |   |   | (280         | )      | $      |   |   | (756 | ) | $ |   |   | (3,086 | ) | $ |   |   | (485 | ) |   |   |

 

F-25

 

Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities            Exchange Act of 1934, the registrant has duly caused this report to be signed on its            behalf by the undersigned, thereunto duly authorized.

 

             

|   | **CPG International Inc.** |
|--------|----------------------------|

             

             

 

 

 

| Date: March 28, 2008 |   | By:    | /s/ SCOTT HARRISON           |
|----------------------|--------|--------|------------------------------|
|                 |   |   | Scott Harrison               |
|                 |   |   | Executive Vice President and |
|                 |   |   | Chief Financial Officer      |

 

 

             

Pursuant to the requirements of the Securities Exchange Act of 1934,            this report has been signed below by the following persons on behalf of the registrant            and in the capacities and on the dates indicated.

 

| **Signature**                                           | **Title**                                  | **Date**       |
|---------------------------------------------------------|--------------------------------------------|----------------|
| /s/ GLENN M. FISCHER                                    | Interim Chief Executive Officer            |           |
| Glenn M. Fischer                                        | and Director (principal executive officer) | March 28, 2008 |
| /s/SCOTT HARRISON                                       | Executive Vice President and Chief         |           |
| Scott Harrison                                          | Financial Officer (principal financial     | March 28, 2008 |
|                                                    | officer and principal accounting officer)  |           |
| /s/ JAMES ANDERSEN                                      |                                       |           |
| James Andersen                                          | Director                                   | March 28, 2008 |
|                                                    |                                       |           |
| /s/ VINCENT A. CALARCO                                  |                                       |           |
| Vincent A. Calarco                                      | Director                                   | March 28, 2008 |
| /s/ SHIVANANDAN A. DALVIE                               |                                       |           |
| Shivanandan A. Dalvie                                   | Director                                   | March 28, 2008 |
|                                                    |                                       |           |
| /s/BRIAN R. HOESTEREY                                   |                                       |           |
| Brian R. Hoesterey                                      | Director                                   | March 28, 2008 |
|                                                    |                                       |           |
| /s/ JAMES KEISLING                                      |                                       |           |
| James Keisling                                          | Chairman of the Board                      | March 28, 2008 |
|                                                    |                                       |           |
| /s/ CHRISTOPHER P. MAHAN                                |                                       |           |
| Christopher P. Mahan                                    | Director                                   | March 28, 2008 |
|                                                    |                                       |           |
| /s/ SCOTT B. PERPER                                     |                                       |           |
| Scott B. Perper                                         | Director                                   | March 28, 2008 |
|                                                    |                                       |           |
| /s/ VINCENT A. SARNI                                    |                                       |           |
| Vincent A. Sarni                                        | Director                                   | March 28, 2008 |
| /s/ JULIAN M. STEINBERG                                 |                                       |           |
| Julian M. Steinberg

                              | Director                                   | March 28, 2008 |

 

**Exhibit Index**

 

| **Exhibit Number**

                              |   | **Description**

                                                                                                         |                                       |
|--------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------|
| 2.1                                                    |   | Stock Purchase Agreement, dated as of March 12, 2005, by                            and among Compression LLC                  |                                       |
|                                                   |   | Polymers Holdings LLC, Compression Polymers Holding II                            Corporation, Vycom Corp.,                    |                                       |
|                                                   |   | Compression Polymers Corp. and CPCapitol Acquisition                            Corp. and North Keyser Partners,               |                                       |
|                                                   |   | (filed as Exhibit 2.1 to the Registration Statement                            on Form S-4 filed on May 12, 2006 (the     |                                       |
|                                                   |   | “Form S-4”) and incorporated herein by                            reference).                                      |                                       |
| 2.2                                                    |   | First Amendment to the Stock Purchase Agreement, dated                            as of May 5, 2005, by and among              |                                       |
|                                                   |   | Compression Polymers Holdings LLC, Compression Polymers                            Holding II Corporation,                     |                                       |
|                                                   |   | Compression Polymers Corp., Vycom Corp. and CPCapitol                            Acquisition Corp. (filed as                   |                                       |
|                                                   |   | Exhibit 2.2 to the Form S-4 and incorporated                            herein by reference).                        |                                       |
| 2.3                                                    |   | Stock Purchase Agreement, dated as of April 20,                            2006, between Santana Holdings, LLC and        |                                       |
|                                                   |   | Compression Polymers Holding Corporation (filed as                            Exhibit 2.3 to the Form S-4 and        |                                       |
|                                                   |   | incorporated herein by reference).                                                                                             |                                       |
|  

2.4                                            |   |  

Unit Purchase Agreement, dated as of December 13, 2006,                            by and among CPG International      |                                       |
|                                                   |   | I Inc., as Buyer, and Christopher Bardasian, Kevin                            Sloan, and Larry Sloan, as Sellers (filed        |                                       |
|                                                   |   | as Exhibit 2.1 to the Current Report on Form 8-K                            filed on December 13, 2006 (the               |                                       |
|                                                   |   | “December 13, 2006 Form 8-K”) and                            incorporated herein by reference).                    |                                       |
|  

2.5                                            |   |  

Contribution Agreement, dated as of December 13, 2006,                            by and among CPG International       |                                       |
|                                                   |   | Holdings LP and Christopher Bardasian, Kevin Sloan, and                            Larry Sloan, as Subscribers (filed          |                                       |
|                                                   |   | as Exhibit 2.2 to the December 13, 2006 Form 8-K                            and incorporated herein by reference).        |                                       |
| 2.6*                                                   |   | Share Purchase Agreement, dated as of February 11, 2008,                            by and among AZEK Canada,                  |  

                              |
|                                                   |   | as Buyer, and John Scrymgeour, Cheryl Scrymgeour, Paolo                            Baldassarra, Mary Baldassarra, Kurt         |                                       |
|                                                   |   | Gowman, Donna Gowman, Janet Pratt, Knox & Company                            International, Inc. and Creative              |                                       |
|                                                   |   | Composite Products Inc. as Sellers                                                                                             |                                       |
| 3.1                                                    |   | Certificate of Incorporation of CPG International Inc.                            (formerly known as Compression               |                                       |
|                                                   |   | Polymers Holding II Corporation) (filed as                            Exhibit 3.3 to the Form S-4 and           |                                       |
|                                                   |   | incorporated herein by reference).                                                                                             |                                       |
| 3.2                                                    |        | Certificate of Amendment of Certificate of Incorporation                            of CPG International Inc. to the           |                                       |
|                                                   |   | (formerly known as Compression Polymers Holding II                            Corporation) (filed as Exhibit 3.3(a)  |                                       |
|                                                   |   | Form S-4 and incorporated herein by                            reference).                                                |                                       |
| 3.3                                                    |   | By-laws of CPG International Inc. (formerly known as                            Compression Polymers Holding II           |                                       |
|                                                   |   | Corporation) (filed as Exhibit 3.4 to the                            Form S-4 and incorporated herein by reference). |                                       |
| 4.1                                                    |   | Indenture, dated July 5, 2005, among Compression                            Polymers Holding Corporation, page            |                                       |
|                                                   |   | Compression Polymers Holding II Corporation, the                            other guarantors listed on the signature      |                                       |
|                                                   |   | thereof, and Wells Fargo Bank, N.A., as trustee (filed                            as Exhibit 4.1 to the Form S-4 and |                                       |
|                                                   |   | incorporated herein by reference).                                                                                             |                                       |
| 4.2                                                    |   | First Supplemental Indenture, dated as of April 27,                            2006, among CPH Sub I Corporation, as      |                                       |
|                                                   |   | CPH Sub II Corporation, CPC Sub I Corporation, VC Sub I                            Corporation, Compression                    |                                       |
|                                                   |   | Polymers Holding Corporation, Compression Polymers                            Holding II Corporation, the other                |                                       |
|                                                        |        |                                                                                                                                |                                            |  |

 

 

|        |   | guarantors listed on the signature page thereof, and                            Wells Fargo Bank, N.A., as trustee (filed          |   |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------|--------|
|        |   | Exhibit 4.2 to the Form S-4 and incorporated                            herein by reference).                            |   |
| 4.3         |   | Second Supplemental Indenture, dated as of                            April 28, 2006, among Santana Holdings Corp.,           |   |
|        |   | Santana Products, Inc., Compression Polymers                            Holding Corporation, Compression Polymers             |   |
|        |   | Holding II Corporation, the other guarantors listed on                            the signature page thereof, and Wells            |   |
|        |   | Fargo Bank, N.A., as trustee (filed as Exhibit 4.3                            to the Form S-4 and incorporated herein by |   |
|        |   | reference).                                                                                                                        |   |
|  

4.4 |   |  

Third Supplemental Indenture dated as of January 31,                            2007, among CPG International I Inc.,      |   |
|        |   | a Delaware corporation, CPG International Inc., the                            other guarantors listed on the signature            |   |
|        |   | page thereof, and Wells Fargo Bank, N.A., a national                            banking association, as Trustee (filed             |   |
|        |   | as Exhibit 4.2 to the Current Report on Form 8-K                            filed on February 2, 2007 (the “February    |   |
|        |   | 2, 2007 Form 8-K”) and incorporated herein by                            reference).                                         |   |
| 4.5         |   | Form of Initial Note and Form of Exchange Note (included                            within the Indenture filed as                  |   |
|        |   | Exhibit 4.1 to the Form S-4 and incorporated herein                            by reference).                                 |   |
| 4.6         |   | The Registration Rights Agreement, dated July 5, 2005,                            among Compression Polymers listed                |   |
|        |   | Holding Corporation, Compression Polymers Holding II                            Corporation, the other guarantors                  |   |
|        |   | on the signature page thereof, and Wachovia Capital                            Markets, LLC (filed as Exhibit 4.5 to          |   |
|        |   | the Form S-4 and incorporated herein by                            reference).                                                |   |
| 4.7         |   | The Registration Rights Agreement, dated as of                            April 28, 2006, by and among Compression            |   |
|        |   | Polymers Holding Corporation, Compression Polymers                            Holding II Corporation, the other                    |   |
|        |   | guarantors listed on the signature page thereof, and                            Wachovia Capital Markets, LLC (filed as            |   |
|        |   | Exhibit 4.6 to the Form S-4 and incorporated                            herein by reference).                            |   |
|  

4.8 |   |  

The Registration Rights Agreement, dated as of January                            31, 2007, among CPG International        |   |
|        |   | I Inc., CPG International Inc., the other guarantors                            listed on the signature page thereof, and          |   |
|        |   | AEA Mezzanine Funding LLC and AEA Mezzanine                            (Unleveraged) Fund LP (filed as                             |   |
|        |   | Exhibit 4.3 to the February 2, 2007 Form 8-K and                            incorporated herein by reference).                |   |
|  

4.9 |   |  

The Registration Rights Agreement, dated as of January                            31, 2007, among CPG International        |   |
|        |   | I Inc., CPG International Inc., the other guarantors                            listed on the signature page thereof, and          |   |
|        |   | Orpheus Funding LLC, Midland National Life Insurance                            Company, North American                            |   |
|        |   | Company for Life and Health Insurance, Sands Point                            Funding Ltd., Kennecott Funding Ltd.,                |   |
|        |   | 1888 Fund, Ltd. and Copper River CLO Ltd. (filed as                            Exhibit 4.4 to the February 2, 2007            |   |
|        |   | Form 8-K and incorporated herein by                            reference).                                                         |   |
| 10.1        |   | Second Amended and Restated Credit Agreement, dated as                            of May 10, 2005, by and among                    |   |
|        |   | Compression Polymers Holding Corporation, Compression                            Polymers Holding II                               |   |
|        |   | Corporation, the subsidiary guarantors named therein,                            the several banks, other financial                |   |
|        |   | institutions and related funds as may from time to time                            become parties thereto, and                     |   |
|        |   | Wachovia Bank, National Association, as administrative                            agent (filed as Exhibit 10.1 to the         |   |
|        |   | Form S-4 and incorporated herein by                            reference).                                                    |   |
| 10.2        |   | First Amendment to Credit Agreement, dated as of                            April 24, 2006, by and among signature            |   |
|        |   | Compression Polymers Holding Corporation, Compression                            Polymers Holdings II                         |   |
|        |   | Corporation, the subsidiary guarantors named therein,                            the lenders identified on the                     |   |
|        |   | pages thereto and Wachovia Bank, National Association,                            as administrative agent (filed as                |   |
|        |   | Exhibit 10.2 to the Form S-4 and incorporated                            herein by reference).                           |   |

 

 

 

|  

10.3  |   |  

Second Amendment and Waiver to Credit Agreement, dated                            as of January 17, 2007, by and              |   |
|---------------|--------|---------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |   | among CPG International I Inc., CPG International Inc.,                            the subsidiary guarantors named                    |   |
|          |   | therein, the lenders identified on the signature pages                            thereto and Wachovia Bank, National                 |   |
|          |   | Association, as administrative agent (filed as                            Exhibit 10.1 to the February 2, 2007 Form 8-K          |   |
|          |   | and incorporated herein by reference).                                                                                                |   |
| 10.4          |   | Amended and Restated Industrial Lease between North                            Keyser Partners, LLC and Vycom                         |   |
|          |   | Corp., dated May 10, 2005, re: 888 North Keyser Avenue,                            Scranton, PA 18504 Lackawanna                      |   |
|          |   | County (filed as Exhibit 10.3 to the Form S-4                            and incorporated herein by reference).             |   |
| 10.5          |   | Amended and Restated Employment Agreement, as of January                            1, 2006, among Compression                        |   |
|          |   | Polymers Holding Corporation, Compression Polymers                            Corp., Vycom Corp. and James                            |   |
|          |   | Keisling (filed as Exhibit 10.4 to the                            Form S-4 and incorporated herein by reference).           |   |
| 10.6          |   | Amended and Restated Employment Agreement, as of January                            1, 2006, among Compression                        |   |
|          |   | Polymers Holding Corporation, Compression Polymers                            Corp., Vycom Corp. and John                             |   |
|          |   | Loyack (filed as Exhibit 10.5 to the Form S-4                            and incorporated herein by reference).             |   |
| 10.7          |   | Employment Agreement, as of May 10, 2005, among                            Compression Polymers Holding                               |   |
|          |   | Corporation, Vycom Corp. and Ralph Bruno (filed as                            Exhibit 10.6 to the Form S-4 and              |   |
|          |   | incorporated herein by reference).                                                                                                    |   |
| 10.8          |   | Employment Agreement, as of May 10, 2005, among                            Compression Polymers Holding the                           |   |
|          |   | Corporation, Compression Polymers Corp. and Mike                            Kapuscinski (filed as Exhibit 10.7 to                |   |
|          |   | Form S-4 and incorporated herein by                            reference).                                                       |   |
| 10.9          |   | Employment Agreement, as of October 4, 2005, among                            Compression Polymers Holding                            |   |
|          |   | Corporation, Compression Polymers Corp., Vycom Corp. and                            Scott Harrison (filed as                          |   |
|          |   | Exhibit 10.8 to the Form S-4 and incorporated                            herein by reference).                              |   |
| 10.10         |   | Management Agreement, dated as of May 10, 2005, by                            and between Compression Polymers                   |   |
|          |   | Holding Corporation and AEA Investors LLC (filed as                            Exhibit 10.10 to the Form S-4 and            |   |
|          |   | incorporated herein by reference).                                                                                                    |   |
| 10.11         |   | Amendment No. 1 to Management Agreement, dated as                            of May 1, 2006, by and between to              |   |
|          |   | Compression Polymers Holding Corporation and AEA                            Investors LLC (filed as Exhibit 10.11                |   |
|          |   | the Form S-4 and incorporated herein by                            reference).                                                   |   |
|  

10.12 |   |  

Management Rights Letter Agreement, dated as of January                            31, 2007, between CPG Fund LP              |   |
|          |   | International I Inc. and AEA Mezzanine Funding LLC and                            AEA Mezzanine (Unleveraged)                         |   |
|          |   | (filed as Exhibit 10.2 to the February 2, 2007 Form                            8-K and incorporated herein by reference).        |   |
|          |   |                                                                                                                                  |   |
| 10.13*        |   | Loan and Security Agreement, dated as of February 13,                            2008, by and among Scranton Products Inc.,           |   |
|          |   | AZEK Building Products Inc. and Procell Decking Inc., as                            borrowers, CPG International Inc.,                |   |
|          |   | CPG International I Inc., Santana Products Inc., CPG Sub                            I Corporation, Vycom Corp. and Sanatec            |   |
|          |   | Sub I Corporation, as guarantors the lenders identified                            on thepages thereto and                            |   |
|          |   | Wachovia Bank, National Association, as administrative                            agent, and General Electric Capital Corporation, as |   |
|          |   | syndication agent.                                                                                                                    |   |
| 10.14*        |   | Amendment No. 1 to Loan and Security Agreement dated as                            of February 29, 2008, by and among CPG             |   |
|          |   | International I Inc., Scranton Products Inc., AZEK                            Building Products Inc. and Procell Decking Inc.,        |   |
|          |   | the guarantors named therein, the lenders identified on                            the pages thereto and Wachovia Bank,               |   |
|          |   | as administrative agent.                                                                                                              |   |

 

 

 

| 10.15* |   | Term Loan and Security Agreement, dated as of February                            29, 2008 by and among CPG International I Inc.,   |   |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   | Scranton Products Inc., AZEK Building Products Inc. and                            Procell Decking Inc.,                            |   |
|   |   | the guarantors named therein, the lenders identified on                            the                                              |   |
|   |   | pages thereto, Wachovia Bank, National Association, as                            administrative agent and Wachovia Capital         |   |
|   |   | Markets, LLC, as lead arranger and lead                            bookrunner.                                                      |   |
| 10.16* |   | Separation Agreement and Release, dated as of November                            5, 2007, by and among CPG International I Inc.,   |   |
|   |   | Scranton Products Inc. and AZEK Building Products Inc.,                            and John R. Loyack.                              |   |
|   |   |                                                                                                                                |   |
| 10.17* |   | Employment agreement, dated as of March 3, 2008, by and                            among CPG International Inc., CPG                |   |
|   |   | International I Inc., Scranton Products Inc., and AZEK                            Building Products Inc. and Eric Jungbluth.        |   |
| 10.18* |   | Non-Compete Agreement, dated as of March 3, 2008, by and                            among CPG International Inc., CPG               |   |
|   |   | International I Inc., Scranton Products Inc., and AZEK                            Building Products Inc. and Eric Jungbluth.        |   |
| 10.19* |   | Employment Agreement, dated as of January 31,2007, by                            and among CPG International Inc., CPG              |   |
|   |   | International I Inc., Scranton Products Inc., and AZEK                            Building Products Inc. and Christopher Bardasian. |   |
| 10.20* |   | Employment Agreement, dated as of January 31,2007, by                            and among CPG International Inc., CPG              |   |
|   |   | International I Inc., Scranton Products Inc., and AZEK                            Building Products Inc. and Kevin Sloan.           |   |
| 21.1*  |   | List of Subsidiaries.                                                                                                               |   |
| 31.1*  |   | Rule 13a-14(a)/15d-14(a) Certification of Interim Chief                            Executive Officer                                |   |
| 31.2*  |   | Rule 13a-14(a)/15d-14(a) Certification of Chief                            Financial Officer                                        |   |
| 32.1*  |   | Section 1350 Certification of the Interim Chief                            Executive Officer                                        |   |
| 32.2 * |   | Section 1350 Certification of Chief Financial                            Officer                                                    |   |